In most audits and limited reviews, the Management Representation Letter (MRL) is signed at the concluding stage, typically after the financial statements have been finalised and the audit work is substantially completed. Due to this timing, it is often perceived as a routine document required merely to formally close the audit.
In reality, the MRL is a formal written confirmation from management acknowledging its responsibility for the preparation and fair presentation of the financial statements, the completeness and accuracy of the information provided to the auditor, and compliance with applicable laws, accounting standards, and regulatory requirements. It reflects management’s ownership of the financial statements, not the auditor’s.
Why Auditors Rely on the Management Representation Letter
Auditors perform verification, testing, and analytical procedures; however, they do not manage the company’s affairs. Certain matters are inherently dependent on management’s knowledge, intent, and judgment and cannot always be independently verified through documentation alone.
For such matters, auditors rely on management representations, which are formally documented through the MRL. These typically include:
• Confirmation that all liabilities, provisions, and expenses have been fully recorded
• Identification and proper disclosure of related party transactions
• Disclosure of contingent liabilities, guarantees, and ongoing litigations
• Confirmation regarding instances of fraud, non-compliance, and whistle-blower complaints
• Management’s assessment of the company’s ability to continue as a going concern
The MRL therefore converts management’s explanations and verbal confirmations into formal, documented audit evidence, supporting the auditor’s conclusions.
Why the MRL Cannot Be Treated as a Standard Template
A common misconception is that the MRL is a standard template that can be reused each year with minimal changes. In reality, it should be entity-specific and period-specific, reflecting the company’s business model, risk profile, and transactions for the relevant financial year.
Changes such as new funding arrangements, restructuring, related party transactions, pending litigations, regulatory notices, or significant estimates must be properly reflected in the MRL. A generic or mechanically signed MRL may not accurately represent the company’s actual position and can weaken the overall quality and reliability of audit documentation.
Management Accountability and the Lasting Significance of the MRL
From a governance perspective, the MRL establishes management’s accountability for the representations made during the audit or limited review. It is not merely an internal document, but an integral part of the auditor’s working papers and professional records.
In the event of income-tax proceedings, regulatory inspections, lender reviews, or legal disputes, the MRL may be referred to even years after the audit is completed. Any incorrect, incomplete, or misleading representations can expose management to significant reputational, regulatory, and legal consequences.
Key Representations That Require Careful Review Before Signing
Management should exercise particular care when signing representations relating to:
• Completeness of liabilities and off-balance-sheet items
• Estimates, provisions, and significant judgments
• Related party disclosures
• Compliance with statutory dues and regulatory requirements
Blindly signing such representations without adequate internal review can expose the organisation and its management to avoidable financial, regulatory, and reputational risks.
The Management Representation Letter is not a procedural formality to conclude an audit or limited review. It is a formal declaration of responsibility by management and a cornerstone of credible and transparent financial reporting. When prepared thoughtfully and signed with due diligence, the MRL strengthens governance, enhances audit quality, and protects both management and stakeholders in the long run. Given its significance and potential implications, it is essential to prepare and review the MRL with appropriate care and professional guidance. Seeking expert advice helps ensure that the representations are accurate, complete, and aligned with the company’s actual financial and regulatory position, thereby reducing future risks.