management representation letter for due diligence report

What is a Management Representation Letter?

Getting through financial audits can be frustrating for companies, especially when asked to provide management representation letters.

This article will clarify exactly what a management representation letter is, why auditors request them, what should be included, and provide examples to make the process smooth and compliant.

You'll learn the purpose of these letters, see template examples, understand international audit standards, and gain key takeaways to improve financial reporting at your organization.

Introduction to Management Representation Letters

A management representation letter is a formal document signed by a company's senior management that is provided to external auditors. It contains certain written representations that auditors require in order to complete an audit and form an opinion on the company's financial statements.

Defining the Management Representation Letter in Audit Context

The management representation letter serves an important role within the financial statement audit process. Auditors use it as audit evidence to support their assessment of whether the financial statements are free of material misstatement. Specifically, auditors request written confirmation from management regarding the accuracy and completeness of information provided during the audit. This includes representations related to:

• The financial statements and adequacy of disclosures
• Proper recording of transactions and account balances
• Internal controls over financial reporting
• Compliance with laws and regulations

By obtaining these written representations from management, auditors gain additional audit evidence to complete their testing and analysis. The management representation letter also outlines management's responsibilities under the audit engagement.

Essential Components of a Management Representation Letter

A standard management representation letter contains certain key statements that auditors rely upon. These include:

• Financial statement disclosures : Confirmation that management has provided the auditors with all relevant information and access needed to perform the audit.
• Recognition, measurement and disclosure : Assertion that the financial statements comply with the applicable financial reporting framework and standards.
• Non-compliance : Disclosure of any non-compliance with laws and regulations.
• Litigation and claims : Details of any actual, pending or threatened litigation and claims that could impact the financial statements.

The letter will also typically list areas of significant estimates and judgments made by management in preparing the financial statements. For example, allowances for doubtful accounts, asset impairment assessments, and assumptions used in valuation models.

By obtaining written representation on these matters, auditors gain evidence to issue their audit opinion. The management representation letter should be signed by the CEO and CFO or equivalent members of senior management.

Legal and Ethical Implications of Management Representations

Signing a management representation letter has legal and ethical implications. Management must ensure representations made to the auditors are accurate and made in good faith. Intentionally misrepresenting information or omitting relevant details could constitute fraud and result in legal liability.

Auditors also have a duty to assess the reasonableness of management representations and corroborate them with other audit evidence. Relying solely on management representations without further verification could call into question the quality of the audit.

Overall, the management representation letter facilitates open and transparent communication between management and auditors. It serves as a legally binding confirmation of management's fulfillment of its financial reporting responsibilities.

What is the main purpose of a management representation letter?

The main purpose of a management representation letter is to obtain written confirmation from management that they have fulfilled their responsibility for the fair presentation of the financial statements. This letter documents that management has provided the auditors with all relevant information and access needed to conduct the audit.

Some key purposes of the management representation letter include:

Confirming management's responsibility for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework (e.g. GAAP or IFRS).

Affirming that management has provided the auditors with all relevant information and access to records, documentation and personnel that is necessary for the audit.

Disclosing any instances of fraud involving management, employees with significant internal control roles, or those that cause a material misstatement of the financial statements.

Presenting details on matters that impact the financial statements - such as plans or intentions that may affect asset/liability carrying values, information about related parties, contingencies, subsequent events, etc.

Stating that all transactions have been recorded and are reflected in the financial statements. This helps confirm completeness and cut-off assertions.

So in summary, the management representation letter serves as important audit evidence that validates information provided by management to the auditors. It also formally documents management's responsibilities and representations concerning the financial statements.

What is the meaning of management representation?

Management representation refers to written confirmation provided by management of an entity to the auditors regarding the accuracy and completeness of financial statements and adequacy of internal controls.

The management representation letter is a key audit evidence prepared at the completion of the audit process. It contains management's assertions regarding:

• Fair presentation of financial statements
• Completeness of information provided to auditors
• Proper accounting policies used
• Reasonableness of significant estimates made

Essentially, through this letter, management takes responsibility for the fair presentation of the financial statements. They confirm to the auditors that they have fulfilled their financial reporting responsibilities.

The management representation letter covers all periods encompassed by the audit report and is dated the same date as the completion of audit fieldwork. It is addressed to the engagement partner and signed by those with appropriate responsibilities for the financial statements, usually the Chief Executive Officer and Chief Financial Officer.

By obtaining written representations from management, the auditors demonstrate they have obtained sufficient appropriate audit evidence to support their audit opinion. The representations serve as necessary supplementary corroboration of management's oral assertions made during the audit.

In summary, the management representation letter is a written statement from management provided to the auditors as part of the audit evidence. It confirms management's compliance with financial reporting responsibilities to enable auditors to form their audit opinion.

What is an example of a management representation letter?

We are providing this letter in connection with your audit of the cost representation statement of USAID resources managed by (Client Name) under Contract No. XXX “Project Name” for the period MM/DD/YY to MM/DD/YY.

We confirm, to the best of our knowledge and belief, the following representations made to you during your audit:

• We have made available to you all financial records and related data, including service auditor reports.
• There have been no communications from regulatory agencies concerning noncompliance with or deficiencies on financial reporting practices.
• We have no knowledge of any known or suspected fraudulent financial reporting or misappropriation of assets involving management or employees with significant roles in internal control.
• We have disclosed to you the results of our assessment of risk that the cost representation statement may be materially misstated as a result of fraud.
• There are no material transactions that have not been properly recorded in the accounting records.
• We believe the effects of any uncorrected financial statement misstatements aggregated by you are immaterial.
• We have disclosed all liabilities, both actual and contingent.
• There are no violations or possible violations of laws or regulations whose effects should be considered.

We confirm that the representations we have made to you during your audit are complete, truthful, and accurate.

Sincerely, [Signature] [Client Representative Name and Title]

What is the difference between management letter and management representation letter?

The key differences between a management letter and a management representation letter in an audit are:

Focus : The management letter focuses on identifying weaknesses and areas of improvement in the company's financial reporting process and internal controls. Management representation, on the other hand, focuses on providing evidence of management's understanding and support of the audit process.

Purpose : The purpose of a management letter is to communicate deficiencies in internal control and make suggestions for improvements. The purpose of a management representation letter is to confirm certain information that the auditors have requested from management.

Content : A management letter contains comments and recommendations from the auditor about issues encountered during the audit. A management representation letter contains specific statements by management regarding matters such as the fairness of financial statements.

Timing : A management letter is typically issued after the audit report while a management representation letter is obtained during the audit.

In summary, while both letters relate to the audit process, the management letter aims to provide suggestions for improvement while the management representation letter serves as audit evidence regarding management's assertions. The management representation letter supports the audit by confirming the accuracy of the financial statements.

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The purpose and importance of management representation letters.

Management representation letters serve several key purposes in the audit process. Most importantly, they provide additional audit evidence to support the auditor's opinion on the financial statements.

Reinforcing the Auditor's Collection of Audit Evidences

Management representation letters reinforce the audit evidence the auditor has already obtained throughout the audit. As outlined in ISA 500 Audit Evidence, auditors must obtain sufficient appropriate evidence to support their opinion. The letter serves as written representation from management on important assertions related to the financial statements. This includes the completeness and accuracy of information provided to the auditor.

Management's Accountability for Financial Reporting

Additionally, the letter highlights management's responsibilities over financial reporting. Management, not the auditor, is responsible for the preparation and fair presentation of the financial statements. The representation letter formally documents that management has fulfilled these duties, a key assertion needed to issue an audit opinion.

Assurance on Contingent and Off-Balance-Sheet Liabilities

Auditors also rely on management's representations on significant estimates and disclosures. This includes assurance from management that the financial statements appropriately reflect contingent liabilities and off-balance-sheet liabilities in accordance with the applicable financial reporting framework.

In summary, representation letters serve as a final confirmation from management that they have fulfilled their financial reporting responsibilities. The letters provide key audit evidence and accountability to support the auditor's work in accordance with auditing standards.

Drafting a Management Representation Letter: Best Practices

A management representation letter is an important part of the audit process. It documents certain written representations made by management to the auditors regarding the company's financial statements.

Drafting an effective management representation letter requires following several best practices:

Management Representation Letter Template: A Starting Point

When creating a management representation letter, it's best to start with a template. This ensures all relevant topics are covered such as:

• Management's responsibility for the preparation and fair presentation of the financial statements
• Availability of all financial records and related data
• Completeness of information provided regarding transactions and events
• Disclosure of all liabilities, both actual and contingent
• Non-existence of any fraud or illegal acts

Tailor the template to the specific circumstances and transactions of the business. But the template establishes a solid foundation.

Who Should Sign the Management Representation Letter

Typically the management representation letter should be signed by:

• The CEO or Managing Director
• The CFO or Financial Controller

This demonstrates the company's overall governance has reviewed the representations and attests to their validity and completeness.

In some cases, representation from heads of divisions or departments may also be necessary regarding transactions or activities under their specific purview.

Customizing Representations to Reflect Unique Organizational Circumstances

While a template is useful, each management representation letter must be customized to reflect the distinct transactions and activities of the organization. Specifically call out areas the auditors have highlighted as potential risks or requiring further representations.

For example, if the company underwent a major acquisition, restructuring, or system implementation, representations would be needed to address the associated impacts and risks regarding financial reporting.

The management representation letter is not a mere formality. It serves as an indispensable record of the critical dialogue between management and auditors. Following these best practices helps craft letters that clearly communicate important representations.

Management Representation Letter Samples and Examples

Management representation letters are important documents in the financial audit process. They contain written confirmation from management about the accuracy and completeness of financial statements and disclosures. Reviewing examples can help companies understand what to include in their own letters.

Analyzing a Management Representation Letter Sample

Here is an excerpt from a sample management representation letter:

We acknowledge our responsibility for the fair presentation in the financial statements of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (GAAP). We have provided you with unrestricted access to persons within the Company...

This excerpt demonstrates several key elements:

• Acknowledgment of management's responsibility for financial statements conforming to GAAP
• Confirmation that auditors had full access to people and information

Other standard inclusions are statements around contingent liabilities, litigation matters, plans or intentions that may affect assets or liabilities, and confirmation that appropriate disclosures have been made.

Analyzing examples helps identify customary terms to include.

Management Representation Letter PDF: Accessibility and Format

Management representation letters are often provided to auditors as PDF files. This locked, uneditable format:

• Facilitates easy sharing of the definitive final version
• Allows clear version control with digital signatures
• Enables reliable long-term archival storage

PDF format removes ambiguity around which representation letter version was relied upon.

Real-World Examples: Complex Issues

Consider these excerpts from real-world representation letters:

"The restructuring provision of $20 million represents our best estimate of costs to complete the plant closure based on current plans..."

"We confirm that we have properly recorded and disclosed the acquisition of Company XYZ in the financial statements..."

These excerpts demonstrate how companies transparently address complex real situations like restructurings or major transactions in the representation letter.

Real examples provide assurance that the company has appropriately considered complex accounting matters.

Comparing Management Letters and Management Representation Letters

Management letters and management representation letters serve important but distinct purposes in the audit process.

Management Letter vs Management Representation Letter: Clarifying the Distinction

A management letter communicates deficiencies or recommendations for improvement identified by the auditor during the audit. These may relate to internal controls, processes, or compliance issues that could be made more effective.

In contrast, a management representation letter obtained near the end of an audit contains specific written representations from management about the accuracy and completeness of the financial statements and disclosures. Common representations confirm that:

• Financial statements are fairly presented
• Significant assumptions used by management are reasonable
• All relevant information has been provided to the auditor
• There are no undisclosed side agreements or contingencies

While management letters offer suggestions, representation letters confirm critical facts underlying the audit.

The Role of the Auditor in Relation to Management Representations

Auditors use both tools to fulfill their responsibilities:

Management letters reflect the auditor's duty to communicate control deficiencies to those charged with governance. This allows the entity to take timely remedial action.

Representation letters provide audit evidence as part of the auditor's risk assessment procedures under auditing standards. They represent a form of documentary evidence about management's intents, knowledge and accuracy of the financial statements.

If management were unwilling to sign the representation letter, the auditor would need to reconsider their audit opinion.

Impact on Audit Opinions and Auditor's Reports

The management letter has no direct bearing on the auditor's opinion, unless the issues it raises cast doubt on the fairness of the financial statements.

However, matters raised in the representation letter directly relate to the audit evidence obtained. If management refuses to sign the letter, the auditor would likely issue a qualified opinion or disclaimer of opinion on the financial statements due to the limitation on audit scope and evidence.

In summary, while management letters offer helpful recommendations, representation letters provide the auditor written confirmation of critical information pertinent to the audit itself. Both play key roles in the audit process.

International Standards on Auditing: ISA 580 Management Representations

The International Standards on Auditing (ISA) provide a framework for conducting high quality external audits. ISA 580 specifically focuses on obtaining appropriate written representations from management to support the audit evidence gathered.

Understanding ISA 580 and Its Relevance to Management Representation Letters

ISA 580 outlines the auditor's responsibilities for obtaining written representations from management to confirm certain matters or to support other audit evidence. Some key points:

• Requires auditors to obtain written representations from management that they have fulfilled their financial reporting responsibilities
• Covers areas like recognition, measurement, presentation, and disclosure of information as per the financial reporting framework
• Helps auditors obtain confirmation on matters material to the financial statements, like the completeness of information provided
• Allows for detection of material misstatements due to fraud

By adhering to ISA 580, auditors can ensure management representation letters align with the necessary audit evidence requirements.

Compliance with International Standards on Auditing

It is critical that management representation letters comply with ISA guidelines, including:

• Obtaining representations from appropriate individuals : Those with overall responsibility for financial reporting, such as the CEO and CFO
• Written format : Printed on the organization's letterhead and signed by hand
• Date : No earlier than the date of the audit report
• Wording : Clear acknowledgement of responsibilities, accuracy of information provided, etc.

Strict compliance ensures the representations constitute valid and appropriate audit evidence as per ISA 500.

Case Studies: Adherence to ISA 580 in Practice

Company A - Drafted a management representation letter that was vague, unsigned, and outdated. By not adhering to ISA 580, they had to invest additional time and resources to obtain proper representations.

Company B - Carefully followed ISA 580 requirements. The CFO and CEO signed off on a letter confirming completeness of information and awareness of responsibilities. This aligned smoothly with the audit process.

As exemplified, non-compliance ultimately wastes time and resources. Whereas alignment with ISA 580 standards helps streamline external audits.

Conclusion and Key Takeaways

Management representation letters are important, standard audit evidence that reduce risk. They signify management's representations concerning the financial statements and accountability for internal controls, fraud, and information provided to auditors.

Summarizing the Role of Management Representation Letters in Audits

Management representation letters summarize key information and representations from management to auditors. They serve several key functions:

• Confirm management's responsibility for the preparation and fair presentation of the financial statements
• Disclose any issues or deficiencies in internal controls
• Affirm that all relevant information has been provided to auditors
• Highlight any fraud, illegal acts, or noncompliance with laws and regulations

By obtaining these written representations, auditors reduce engagement risk and confirm their understanding of management's views and positions.

Final Thoughts on Best Practices and Compliance

It is critical that management representation letters adhere to regulations and professional standards. Key best practices include:

• Ensuring the letter is dated as of the date of the auditor's report
• Having the letter signed by those with appropriate responsibilities and authority
• Disclosing all relevant issues completely and accurately
• Following the guidelines and requirements outlined in ISA 580 and other applicable standards

Diligent compliance promotes accuracy, transparency, and accountability.

Encouraging Diligence and Transparency in Financial Reporting

At their core, management representation letters aim to foster diligent, truthful, and transparent financial reporting. By eliciting key written representations from management, auditors promote an environment of responsibility, compliance, and ethical practice. This ultimately supports the accuracy and reliability of financial statements for all stakeholders.

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Detailed Format of a Management Representation Letter

Format of a management representation letter (mrl).

Chartered Accountants Dear Sirs, This representation letter is provided in connection with your audit of the financial statement of M/s. …….for the year ended 31st March 2020 for the purpose of expressing an opinion as to whether the financial statements give a true and fair view of the financial position of M/s. …….as of 31st March 2020 and of the results of operations for the year then ended. We acknowledge our responsibility for the preparation of financial statements in accordance with the requirements of the other relevant statute and recognized accounting policies and practices, including the accounting standards issued by The Companies Act 2013/ The Institute of Chartered Accountants of India.

We confirm, to the best of our knowledge and belief, the following representations; General ___________________________ 1. Ours ‘…….is a limited company incorporated under the Companies Act, 1956/2013 bearing Regn. No CIN: ……………..dated …….. as Private Limited Company and converted into Public Limited Company on ………….. A copy of the Memorandum & Articles of Association is already with you. 2. Following persons are the members of the Board of Directors of the Company as on date:- Name of Director:- Designation;- Director Date of appointment Name of Director:- Designation; – Director Date of appointment Name of Director:- Designation; – Director Date of appointment Name of Director:- Designation;- Director Date of appointment Name of Director:- Designation;- Director Date of appointment 3. The Company has obtained all registrations/licenses required to run the business. 4. So far the Company had filed I.T. Return for the FY ending March …… No income tax return has been filed by the Company after the AY . PAN of the Company is ……. There are no demands/ appeals pending or details of appeals/demands pending are as under:- All the Statutory Compliance like VAT, Service Tax, GST, PF, ESIC, etc, has been paid timely and there is no default there, except the following:

5. We have maintained the following books of account:-

(a)Cash book (b) Bank Book (c) Ledger (d) Journal All the books have been kept on the computer and printouts are taken on a monthly/yearly basis as per needs. All the aforesaid books have been kept and maintained at the corporate office of the Company. 6. We enclose herewith a copy of final accounts for the year-ended ……… duly approved by the Board of Directors of the Company, for your perusal and doing the needful.

Related Topic: Private Company – Specimen Audit Report March 2020

7. Significant Accounting Policies

a) Basis of preparation The financial statements are prepared on an accrual basis under the historical cost convention, in accordance with the generally accepted accounting principles (Indian GAAP) to comply with the Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act. The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the previous year. b) Use of estimates The preparation of financial statements in conformity with the Indian GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognized in the periods in which the results are known/materialize. c) Revenue recognition Revenue is recognized on an “accrual” basis at the fair value of the consideration received or receivable net of applicable taxes, trade discounts, and customer returns. d) Secured Loans 1) The term loan from Financial Institutions i.e. ……….. are secured by the first charge ranking parri-passu in each case with the others by way of Equitable Mortgage by the deposit of the deeds in respect of the land situated ………………………. & by hypothecation of all the movable (save and except book debts) including immovable machinery, spares & accessories, Both present and future, subject to prior charge created in favour of the company’s banker on stock of raw material, semi-finished goods, finished goods & consumable stores and book debts for securing the cash credit for the working capital requirement. 2) All loans are guaranteed by all the promoters/shareholders of the company. e) Fixed assets Fixed assets are carried at cost less accumulated depreciation and impairment losses if any. The cost of fixed assets includes interest on borrowings attributable to the acquisition of qualifying fixed assets up to the date the asset is ready for its intended use and other incidental expenses incurred up to that date. f) Depreciation / amortization All the Company’s fixed assets including Intangible assets are depreciated on the basis of the Written Down method over the estimated useful life of the asset as per the provisions of the Companies Act, 2013. Leasehold improvements, Office Equipments, Furniture & Fixtures & Software are amortized over the useful life of the assets as specified under Company’s Act 2013. g) Foreign exchange transactions Transactions in foreign currency are recorded in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency prevailing on the date of the transaction. Monetary items denominated in foreign currency are restated at the rates prevailing on the balance sheet date. Non-monetary items denominated in foreign currency which are carried at historical cost are reported using the exchange rate at the date of the transaction. Exchange differences arising on the settlement of monetary items or on reporting company’s monetary items at rates different from those at which they were initially recorded during the year or reported in the previous financial statements are recognized as income or expense in the year in which they arise. h) Earnings per share Basic earnings/loss per share is calculated by dividing net profit/loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. i) Taxation Tax expense comprises current tax and deferred tax. Current tax is determined as the amount of tax payable in respect of taxable income for the year. The provision for current income-tax is recorded based on assessable income and the tax rate applicable to the relevant assessment year. Minimum Alternate Tax (MAT) credit is recognized as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. In the year in which MAT credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in the guidance note issued by the Institute of Chartered Accountants of India, the said asset is created by way of a credit to the profit and loss account and shown as MAT credit entitlement. The Company is carrying/carrying any business since …….. Income Tax Returns have been/not been filed from AY ……. There is no reasonable certainty of the realization of future profits based on the Profits & Loss Account of the earlier years. Therefore, no provision for Deferred Tax has been made under the prevailing circumstances. j) Investments: Long term investments are carried at cost after providing for any diminution in value if such diminution is of a permanent nature. Current investments are carried at lower of cost or market value. k) Loans & Advances Security deposits with of Rs. – will be adjusted by the …………… against the outstanding bill ………………………..hence not recoverable. l) Inventories: There are no inventories in the Balance Sheet. m) Borrowing Cost: Interest and other financing costs relating to borrowed funds attributable to the construction or acquisition of fixed assets have been capitalized to the extent if they relate to the period up to which the asset was ready to use (As per AS-16). All other borrowing costs are charged to revenue. n) Employee Benefits:

LEAVE ENCASHMENT

There are ………/s no employee. Accordingly, provisions have been made as per AS-15../hence this clause is not applicable. PROVIDENT FUND REgular in payment of dues/There is no employee hence this clause is not applicable. GRATUITY There are …… employees/is no employee hence this clause is not applicable. Provision made on the basis of actuarial valuation o) CONTINGENT LIABILITIES: A) Corporate Guarantees B)Capital Commitments .. The company has become a sick company within the meaning of clause (o) of sub-section 1 of section 3 of the sick industrial companies (special provision) act, 1985. The matter under consideration at BIFR/AIIFR for the revival process has been rejected by the Hon’ble BIFR. The interest of Rs…………. has not been provided on the term loans of …………..because OTS (ONE TIME SETTLEMENT) has been revoked due to nonpayment as per the OTS scheme. However, interest has been provided on the term loan of ……………… as per OTS Settlement and statement of account provided by the ……………….. B) The sales tax authorities have raised a demand of Rs ………………………The above demand is not acceptable and it has been challenged by the Company in Appeal. The appeal is pending before the authorities. Although the company has provided a liability of Rs. …………- in the books of accounts but from the prevailing circumstances the amount of Rs. ……………… appears to be a contingent liability.

8 NOTES ON ACCOUNTS

Micro and Medium Scale Business Entities: There are no Micro, Small, and Medium Enterprises, to whom the company owes dues which are outstanding for more than 45 days as at 31st March 2020. This information as required to be disclosed under the Micro, Small and Medium Development Act, 2006 has been determined to the extent such parties have been identified on the basis of information available with the Company. B The Company is a Small and Medium-Sized Company (SMC) as defined in the General Instructions in respect of Accounting Standard notified under the Companies Act, 2013, accordingly, the company has complied with the accounting standard as applicable to a Small and Medium-Sized Company. C In the absence of confirmation from the parties the debit & credit balances in respect of Security Deposits and have been taken as reflected in the books. Balance appearing under the heads Current Assets, Loans and Advances, and Current Liabilities are subject to confirmation. D In the opinion of the Board of Directors of the company, the current assets, loans, and advances have the value at least equal to the figures stated in the Balance Sheet on realization in the ordinary course of business and provision for all determinable/known liabilities have been made in the accounts when reliable estimates can be made of the amount of obligation. F Previous year Figures have been reworked, regrouped, re-arranged, and reclassified wherever considered necessary to make them comparable with current year’s figures. G There has been no default except Default of Principal repayment and interest repayment on Long Term Borrowings from ……………….. The figures have been quantified in the balance sheet.

i. There have been no irregularities involving management or employees who have a significant role in the system of internal control that could have a material effect on the financial statements. ii. The financial statements are free of material misstatements, including omissions. iii. We have complied with all the relevant provisions of the statute as applicable to us and our records and minutes in this respect are up to date and are open for inspection in the course of your audit. iv. The company has complied with all aspects of contractual agreements that could have a material effect on the financial statements in the event of noncompliance. There has been no non-compliance with requirements of regulatory authorities that could have a material effect on the financial statements in the event of non-compliance. v. We have no plans or intentions that may materially affect the carrying value or classification of assets and liabilities reflected in the financial statements. vi. All the loans or depositor repayment thereof was made by account payee Cheques or demand draft only. vii. In term of section 22 of the micro, Small & Medium Enterprises Development Act, 2006: Sundry Creditors of the Company: Rs.NIL Interest Paid to them: Rs. NIL viii. We have complied with tax provisions in respect of the deduction of TDS. ix. All the payments in the respect of any revenue item has been made in compliance with the provisions of section 40(A)(3) of the Income Tax Act 1961. x. Details of all immovable Properties Purchased/Sold during the years are as below: Details Purchase/Sale Amount Value as per stamp duty act NIL NA NA NA

10. General Affirmations

· The Cash balance as on 31/03/2020 has been physically verified by the management at Rs. · The company has not given any guarantee for loans taken by others from banks or financial institutions. · We confirm that no short-term funds have been employed for long-term purposes. · We confirm that during the year company has not issued any shares. · We confirm that during the year company has not issued any debentures to any person. · We confirm that during the year company has not raised funds from the public issue of shares. · None of the employees of the Company were in receipt of remuneration in excess of the limits specified under various provisions of the Companies Act, 2013. · We confirm that Company has duly complied all the provisions of Section 40(A)3 of the I.T. Act, 1961, read with Rule 6DD, and has not made any payment of expenditure in excess of Rs……./- in Cash. · We confirm that Company has duly complied all the provisions of Section 269SS and 269T of the I.T. Act, 1961 and has not taken/accepted and or repaid any loans or deposits in excess of limits prescribed under these sections otherwise them through account payee Cheques and or draft as the case may be. · No personal expenses have been charged to revenue accounts. · No fraud has been committed during the year.

11. Other Information of the company:

Email id: :- Principal Contact No :- No. Of Employees: :- persons No. of Branches:- NIL 12. Others: (a) Our Books of Accounts and Other Records are kept at the corporate address of the company. (b) A bonus amounting Rs. NIL /- was paid to employees which is of customary nature. For and on behalf of the Board ……. Place: New Delhi

A chartered Accountant and a Law Graduate having more than 30 years of experience. Founder of Tri Nagar Keshav Puram CPE Study Circle of NIRC of ICAI. Have organized learning sessions covering the Syllabus for Limited Insolvency Examination in different cities and forums in Northern India.

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Draft format of Management representation for FY 2020-21

Management representation is a letter issued by a client to the auditor in writing as part of audit evidences. It serves to document management’s representations during the audit, reducing misunderstandings of management’s responsibilities for the financial statements. The main purpose of Management Representation Letter on various matters is to focus the management’s attention on those matters so that the management can specifically address those matters in more detail than would otherwise be the case. However the Auditor needs to understand the limitations of management representations as audit evidence. Getting a Management Representation Letter does not absolve the auditor of its responsibilities. He has to exercise professional care in conducting the audit.

In essence, the letter states that all of the information submitted is accurate, and that all material information has been disclosed to the auditors. The auditors use this letter as part of their audit evidence. The letter also shifts some blame to management, if it turns out that some elements of the audited financial statements do not fairly represent the financial results, financial position, or cash flows of the business. For this reason, the statements that the auditor includes in the letter are quite broad ranging, encompassing every possible area in which management’s failings could lead to the issuance of inaccurate or misleading financial statements.

Format of Management representation for FY 2020-21

Date: DD/MM/2021

____________________ CO

Chartered Accountants

Address of Firm

Sub: Representation for the purpose of audit for the financial year 20 20-21

This representation letter is provided in connection with your audit of the financial statements of  _______________________ Pvt Ltd   for the year ended 31.03 . 2021 for the purpose of expressing an opinion as to whether the financial statements give a true and fair view of the financial position of  _______________________ Pvt Ltd   , as on 31.03 . 2021 and of the results of operations for the year then ended. We acknowledge our responsibility for preparation of financial statements in accordance with the requirements of the Companies Act, 2013 and recognized accounting policies and practices, including the Accounting Standards issued by the Institute of Chartered Accountants of India.

We confirm, to the best of our knowledge and belief, the following representations;

Accounting Policies

• The accounting policies which are material or critical in determining the results of operations for the year or financial position is set out in the financial statements are consistent with those adopted in the financial statements for the previous year. The financial statements are prepared on accrual basis except discounts claims and rebates, which cannot be determined with certainty in the respective accounting year.
• Significant assumptions used by us in making accounting estimates, including those measured at fair value, are reasonable.
• All events subsequent to the date of the financial statements and for which applicable accounting standards in India require adjustment or disclosure have been adjusted or disclosed.
• The effects of uncorrected misstatements are immaterial, both individually and in the aggregate, to the financial statements as a whole.
• We have fulfilled our responsibilities, as set out in the terms of the audit engagement, for the preparation of the financial statements in accordance with Financial Reporting Standards; in particular, the financial statements give a true and fair view in accordance with the applicable accounting standards in India.
• The company has satisfactory title to all assets.

Fixed Assets

• After taking into account all capital expenditure on additions thereto, but no expenditure being chargeable to revenue.
• After eliminating the cost and accumulated depreciation relating to items sold, discarded, demolished or destroyed.
• After providing adequate depreciation on fixed assets during the period.

Capital Commitments

• At the balance sheet date, there were no outstanding commitments for capital expenditure.

Investments

• All the investments shown in the balance sheet are “Long Term Investment’.
• Long-term quoted investments are valued cost less provision for permanent diminution in their value.
• Long term unquoted investments are valued at cost.
• All the investments belong to the entity and they do not include any investments held on behalf of any other persons.
• The entity has clear title to all of its investments. There are no charges against the investments of the entity except those appearing in the records of the entity.

Inventories

• Inventories at the year-end consisted of the following:
• All quantities were determined by actual physical count or weight that was taken under our supervision and in accordance with written instructions, on 31.3.2021.
• All goods included in the inventory are the property of the entity, and none of the goods are held as consignee for others or as bailee.
• All inventories owned by the entity, wherever located, have been recorded.
• Inventories do not include goods sold to customers for which delivery is yet to be made.
• Inventories have been valued at cost or net-realizable value, whichever is less.
• In our opinion, there is no excess, slow moving, damaged or obsolete inventories, hence no provision is required to be made.
• No item of inventories has a net realizable value in the ordinary course of business, which is less than the amount at which it is included in inventories.

Debtors, Loans and Advances

• The following items appearing in the books as at 31.3.2021 are considered good and fully recoverable.

Liabilities

• We have recorded all known liabilities in the financial statements except retirement benefits, discounts claims and rebates.
• We have disclosed in Notes on Accounts all guarantees that, if any we have given to third parties.
• There are no Contingent Liabilities as on 31.3.2021.

Provisions for Claims and Losses

• There are no known losses and claims of material amounts for which provision is required to be made.
• There have been no events subsequent to the balance sheet date which require adjustment of or disclosure in, the financial statements or notes thereto.

Statement of Profit and Loss

• Transactions of a nature not usually undertaken by the company.
• Circumstances of an exceptional or non-recurring nature.
• Charges or credits relating to prior years
• Changes in accounting policies
• Loss arising from sale and purchase commitments.
• Agreements and options to buy back assets previously sold.
• Assets pledged as collateral.
• All transactions have been recorded in the accounting records and are reflected in the financial statements.
• There have been no irregularities involving management or employees who have a significant role in the system of internal control that could have a material effect on the financial statements.
• The financial statements are free of material misstatements, including omissions.
• The Company has complied with all aspects of contractual agreements that could have a material effect on the financial statements in the event of non-compliance. There has been no non-compliance with requirements of regulatory authorities that could have a material effect on the financial statements in the event of non-compliance.
• We have no plans or intentions that may materially affect the carrying value or classification of assets and liabilities reflected in the financial statements.
• The allocation between capital and revenue has been correctly done and that no items of capital nature have been debited to Statement of Profit & Loss and vice versa.
• The Cash balance as on 31.3.2021 has been physically verified by the management at Rs. ____________
• The details of disputed dues in case of GST/VAT/sales tax/ income tax/ customer tax/ excise duty/ cess/PF/ESI which have not been deposited on account of dispute is as under:
• The company has not defaulted in repayment of dues to financial institution or bank.
• The company has not given any guarantee for loans taken by others from bank or financial institutions.
• No personal expenses have been charged to revenue accounts
• Access to all information of which we are aware that is relevant to the preparation of the financial statements such as records, documentation and other matters;
• Additional information that you have requested from us for the purpose of the audit; and
• Unrestricted access to persons within the entity from whom you determined it necessary to obtain audit evidence.
• We have disclosed to you the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud.
• Management;
• Employees who have significant roles in internal control; or
• Others where the fraud could have a material effect on the financial statements.
• Related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of applicable accounting standards in India. We have disclosed to you the identity of the entity’s related parties and all the related party relationships and transactions of which we are aware.
• The payments covered under section 40A (3) were made by account payee cheques drawn on a bank or account payee bank draft.
• All the loans, deposits or specified sum exceeding the limit specified in section 269SS/T are accepted or repaid through an account payee cheque or an account payee bank draft.
• The information regarding applicability of MSMED Act 2006 to the various supplier/parties has not been received from the suppliers. Hence information as required vide clause 22 of chapter V of MSMED Act 2006 is not being given.
• The loans taken from directors of the company or their relatives are out of their own funds and not any borrowed funds in pursuance of relevant provisions of Companies Act, 2013. Necessary declarations in this behalf have been obtained by the company from them.

By order of the Board

For  ________________________ Pvt Ltd

Director 1 (Name) Director 2 (Name)

DIN : DIN :

Place:- Mumbai

Dated: –

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M&A Due Diligence Checklist

May 7, 2024

This sample request letter and initial legal due diligence document checklist are directed to the domestic seller or target company in a merger and acquisition (M&A) transaction. The form below includes a general list of documents and information requested in many M&A transactions.

Keep in mind that some requests may not be necessary for every contract management workflow . For example, certain requests may apply only to a public or private company, and certain equity and property documents may not be relevant in an asset purchase. If a request is broader than needed for the purposes of due diligence , it may be useful to limit the scope of the request. In some cases, the five-year limitation may be sufficient. In other cases, limitations such as the materiality standard may be appropriate.

[ Download the sample request letter and checklist as a pdf .]

Sample due diligence request letter

Dear [Contact Person]:

We have been retained by our client, [Client Name] (“Client”) to conduct a legal due diligence review of [Seller/Target Name], a [State] [Entity Type] (the “Company,” and, together with Client, the “Parties”) in connection with the proposed [Transaction Type] transaction contemplated by the Parties. This Due Diligence Checklist identifies the information necessary to complete our review. Should you wish to provide the information to us via access to a virtual data room, please contact us in advance to arrange the terms of such arrangements.

Despite the comprehensive nature of this list, we may need to request additional information or seek further explanation as we proceed with our review. It is also possible that some of the information requests listed below are not applicable to the Company’s business. Please indicate this by checking the “N/A” box next to the specific request. Unless otherwise specified below, where applicable, please provide all relevant documentation for the past [five (5)] years.

If you have any questions about this Due Diligence Checklist, please contact [Law Firm Contact Person] at [Phone] or [E-Mail].

[ Download this sample request letter and checklist as a pdf .]

Due diligence document checklist

For each requested item, the respondent should indicate whether they will provide the documentation, identify the public filing, or if the information isn’t applicable to the company’s business.

Note: The documents listed below are a sample of the materials generally requested when conducting a due diligence review. Download the full due diligence checklist for a comprehensive list of the 174 types of documents to consider including in your request.

Organizational and corporate documents

• Copies of the articles or certificates of incorporation (or other organizational documents) and by-laws or operating agreements of the company and its subsidiaries, and all amendments thereto.
• Copies of meeting minutes , and consents to actions without a meeting, of the shareholders, boards of directors, board committees, and similar governing bodies of the company and its subsidiaries, and all materials and documents presented at any such meeting or to any such individual.
• An organizational chart of the company and its subsidiaries, including a list of all current officers and directors of the company and each subsidiary.
• Biographical information pertaining to all current officers and directors of the company and its subsidiaries.
• A list of all names under which the company and its subsidiaries have conducted business (including fictitious names) since their inception.

Financial statements and accounting records

• Copies of all audited and unaudited financial statements of the company and its subsidiaries, including all independent auditor reports relating to such statements.
• Copies of all correspondence and documents concerning any audits of the company and its subsidiaries, including any management letters or special reports by auditors and any responses thereto, and any letters of counsel to the company or its subsidiaries delivered to auditors.
• A list and description of all liabilities not appearing in the most recent financial statements of the company and its subsidiaries.
• Copies of the most recent financial or operating budgets and projected financial and cash flow statements of the company and its subsidiaries.
• A summary of the accounting policies of the company and its subsidiaries and a description of any changes in their accounting methods, policies, or principles.

Tax matters

• A schedule identifying in which states and local jurisdictions the company and its subsidiaries currently file any tax returns and pay any taxes, and the tax returns and taxes paid in each jurisdiction. Taxes include income, personal property, real property, payroll, unemployment, social security, VAT, and sales and use taxes.
• Copies of all federal, state, and local income or other tax filings of the company and its subsidiaries for the three (3) most recent closed tax years and all open tax years.
• Copies of all other documents providing evidence that the company and its subsidiaries are current on all taxes , including income, personal property, real property, payroll, unemployment, social security, VAT, and sales and use taxes.
• A description of all tax audits involving the company and its subsidiaries for the three (3) most recent closed tax years and all open tax years, and copies of all relevant correspondence and documents.
• Copies of all written tax sharing or tax benefit agreements , including, in connection with state unitary tax filings, involving the company and its subsidiaries, since inception and all amendments thereto.

Loans and obligations

• A schedule of all banks, creditors, guarantors, or other lenders with which the company and its subsidiaries have a relationship, including a description of the nature of the relationship.
• Copies of all instruments evidencing any indebtedness and lines of credit under which the company or its subsidiaries is the borrower, or to which any of their respective assets may be subject, and all amendments, consents, and waivers relating thereto.
• Copies of all security agreements, trust indentures, mortgages, deeds of trust, guaranties, installment purchase agreements, finances, leases, letters of credit, contingent obligations, and indemnities as to which the company or its subsidiaries may be liable in whole or in part, or to which any of their respective assets may be subject, and all amendments, consents, and waivers relating thereto.
• Copies of all documents relating to any outstanding debt, guaranty, indemnification, or similar arrangement between the company or its subsidiaries and any officer , director, manager, key employee, consultant, or shareholder of the company or its subsidiaries, and all amendments, consents, and waivers relating thereto.
• Copies of all outstanding letters of credit and performance and other bonds issued by or for the account of the company or its subsidiaries and all amendments, consents, and waivers relating thereto.

Property and equipment

• A schedule of all physical assets and equipment owned, held, or used by the company and its subsidiaries, including a description of the ownership and nature of such equipment and the material terms of any finance lease or security agreement related to such equipment.
• A schedule of all inventories of the company and its subsidiaries, including descriptions, locations, and the quantity of inventory.
• A schedule of all real property owned or leased by the company and its subsidiaries.
• Copies of all existing title insurance policies or abstracts of title (including all binders, certificates, deeds, and other related instruments) to real property owned by the company and its subsidiaries, and all amendments thereto.
• Copies of all leases, subleases, financing agreements, and security agreements relating to all real and personal property leased by or to the company and its subsidiaries, all correspondence with lessors or lessees regarding alleged defaults under such leases, subleases, or other agreements, and all amendments thereto.

Intellectual property

• A list of all registered and unregistered copyrights, trademarks, service marks, patents, and other intellectual property (including all prior or pending applications relating thereto) owned by or licensed by or to the company and its subsidiaries since inception and copies of all agreements, instruments, certificates of registration, and correspondence relating to the acquisition, assignment, licensing, ownership, and registration thereof.
• A list and description of all software owned, licensed to or by, or used by the company and its subsidiaries.
• Copies of all active royalty, fee, and license agreements involving the company or its subsidiaries and any other documents concerning the grant to or by the company or its subsidiaries of any concessions or other special rights, privileges, or franchises concerning intellectual property, and all amendments thereto.
• A list of all internet domain names held, assigned to, or used by the company and its subsidiaries.
• A list and description of all pending or threatened claims for infringement or other violations of proprietary rights relating to intellectual property owned, licensed to or by, or used by the company and its subsidiaries.

Material contracts

• Copies of all joint venture, partnership, teaming, subcontract, and alliance agreements to which the company or any subsidiary is a party, and all amendments thereto.
• Copies of all agreements with customers making up the top [10%] of the revenues of the company or any subsidiary in its most recent fiscal year, together with all other agreements among the company and its subsidiaries, and all amendments thereto.
• Copies of all brokers, finders, and financial advisory or similar agreements to which the company or any of its subsidiaries is a party, and all amendments thereto.
• A list of all affiliates and associates , each as defined in Rule 12b-2 enacted under the Securities and Exchange Act of 1934, as amended, of each of the company and its subsidiaries.
• Copies of all written agreements , and summaries of all unwritten arrangements or understandings, presently in effect between the company or its subsidiaries and any affiliate or associate or any of their affiliates or associates [since the formation of such entity], including any (a) agreements with respect to apportionment or sharing of tax liability; (b) indemnification agreements; (c) leases; (d) guaranties; (e) consulting, management, or other service agreements; (f) agreements with respect to shared facilities or functions; (g) purchase and supply contracts; and (h) licenses, and all amendments thereto.

Operational matters

• A schedule of all customers or clients of the company and its subsidiaries.
• A list of all suppliers and other third-party service providers of the company and its subsidiaries.
• Copies of all form purchase and supply contracts of the company and its subsidiaries and description of their terms, including price determination, conditions, rebate arrangements, special concessions, etc.
• Copies of all marketing, sales, franchise, distribution, commission, agency, promotion, influencer, and representative agreements , and a list of all independent salespersons or distributors for each of the company and its subsidiaries.
• Copies of all business plans, marketing plans, sales forecasts, consultant studies or reports, and similar documents prepared in connection with the development or implementation of any marketing plan or strategy of the company and its subsidiaries, including documents discussing pricing, price trends, off-list pricing, and industry trends, whether historical or forecasted.
• A list and description of all pending or threatened litigation or governmental investigations (domestic or foreign) involving the company or its subsidiaries (including antitrust violations).
• A list and description of all pending or threatened litigation or governmental investigations (domestic or foreign) involving any officer, director, manager, or holder of more than [five percent (5%)] of the outstanding capital stock, partnership interests, or membership interests of the company or its subsidiaries.
• A list and description of all orders, writs, decrees, injunctions, judgments, or rulings by any court or agency that may bind the company or its subsidiaries.
• A list and description of all settlements of litigation and/or any waiver agreement canceling any claim or right [of substantial value] involving the company or its subsidiaries.
• Copies of all settlement documents relating to the company or its subsidiaries, including agreements waiving statutes of limitations or extending time.

Regulatory matters

• A list and description of all regulatory filings, reports, licenses, permits, consents, registrations, and regulatory approvals required for the company and its subsidiaries to conduct business.
• Copies of all regulatory filings, reports, licenses, permits, certificates of authority, consents, and regulatory approvals made or obtained by the company and its subsidiaries.
• A list and description of all violations and alleged violations of governmental laws or regulations by the company or its subsidiaries.
• Copies of all correspondence with federal, state, local, or foreign regulatory bodies that currently regulate or regulated any portion of the business of the company or its subsidiaries, including any notices of violations from such regulatory bodies.
• Copies of minutes or other transcripts of meetings held with – and copies of any correspondence with – any federal, state, local, or foreign regulatory agency.

Employment and compensation matters

• A schedule of each officer, director, manager, [key] employee, consultant, and independent contractor of the company and its subsidiaries, including his or her title, length of service, and salary, hourly rate, or other compensation (including any noncash compensation) for the last three (3) years.
• A copy of each employment, consultant, independent contractor, noncompetition, confidentiality, nondisclosure, or similar agreement between the company or its subsidiaries and each officer, director, manager, [key] employee, consultant, or independent contractor, and all amendments thereto.
• A copy of each agreement or other document relating to any loan or other transaction between the company or any subsidiary and each officer, director, manager, employee, consultant, or independent contractor, and all amendments thereto.
• A copy of each employee benefit, executive compensation, or similar plan or agreement maintained by the company and its subsidiaries, including each pension, retirement, profit-sharing, incentive, bonus, commission, severance, salary continuation, change of control, stock option, stock purchase, restricted stock, deferred compensation, welfare, medical, disability, and fringe benefit plan, including all individual agreements or schedules, trust agreements, funding agreements, insurance contracts, and summary plan descriptions related thereto, and all amendments thereto.
• Copies of the most recent IRS determination letter (or application therefor), the three most recent IRS Form 5500s (including all schedules and attachments thereto) and the three most recent actuarial reports for each such plan, as applicable.

Data and privacy security

• Copies of all company policies related to the protection of privacy of employees, customers, and consumers, including privacy disclosures on websites, mobile apps, and other written notices of privacy practices required under applicable law.
• Copies of all company policies directed to information security at the company and at its external service providers, including physical, administrative, and logical/computer security policies.
• To the extent not addressed in documents responsive to item (2) above, copies of all company policies related to preparation and response to breaches of data security and/or unauthorized access to personal data of employees, customers, and consumers.
• Copies of the last three (3) years of reports for any audits conducted on the company’s internal systems and controls , including but not limited to audits specifically directed at compliance with data privacy laws (e.g., Statement on Standards for Attestation Engagements (SSAE) or other audit protocols).
• The name(s) and title(s) of the person(s) who function as the company’s chief privacy officer and chief security officer or who have comparable job responsibilities at the company.

Environmental, social, and governance (ESG) matters

• Copies of all environmental investigations, reviews, or assessments , including Phase I and Phase II environmental investigations or assessments, regardless of timeframe, relating to the real property and buildings owned or leased by the company and its subsidiaries.
• A list and description of all hazardous substances used by the company or its subsidiaries.
• Copies of all books and records of the company and its subsidiaries relating to the use, handling, storage, transportation, and disposal of hazardous substances.
• A list and description of any off-site hazardous material storage or disposal locations .
• Copies of any studies, analyses, or reports on: (a) pollution and contamination resulting from the company’s business operations; (b) the impacts on biodiversity and relevant ecosystems resulting from the company’s business operations; (c) the company’s exposure to climate change risks and impacts of exposure to extreme weather; (d) the company’s energy and water usage; and e) the usage of any other scarce resources.

[This list is just a sample of the types of documents to request. Download the full due diligence checklist for a comprehensive list of materials you may want to include.]

Bloomberg Law Contract Solutions helps you comply with confidence

Due diligence is a cornerstone of the contract management process because it allows corporations to independently and objectively assess the myriad risks associated with doing business with third parties and protects them from unknowingly entering business relationships that could cause reputational harm or compliance concerns. But conducting meaningful and effective due diligence can be complex, time consuming, and labor intensive.

Download our GC Guide to Navigating 2024: Transactions and Contracts for insightful analysis and practical guidance to help you prepare for key transaction and contract developments impacting in-house legal teams in the year ahead, including a new approach to M&A due diligence.

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Due Diligence Report Format [SAMPLE Report Download]

In the world of business, due diligence is like being a detective. It’s all about investigating and gathering information to make important decisions. Whether you’re looking to invest in a company, buy a property, or partner with another business, due diligence helps you avoid unpleasant surprises. 

In the battlefield of due diligence, a due diligence report plays the role of a sword for you to defend your business from the threats posed by your opposite party(like you target business). 

Before you even create a due diligence report in the first place you need to decide on a format. This due diligence report format will decide how much you want to know about the target entity you are going to establish a relationship with. 

As a risk intelligence expert in the market, we are currently helping our clients with the most comprehensive due diligence reports in the market. Today in this article, we are going to tell you what elements go in a due diligence report format, who prepares a due diligence report and what are the best practices to create one.  

What is a Due Diligence Report?

A due diligence report, also known as a pre-investment review , is an essential document in the investment evaluation process. It offers a detailed examination of a company’s financial and operational status, providing investors with crucial insights into the potential investment.

Typically, this report is prepared by expert third-party assessors who collect vital information and records from the company in question. The primary aim of the report is to confirm the accuracy of the company’s claims regarding its financial health and overall credibility .

Investors often rely on public disclosures and statements, such as those found on a company’s website or in investment proposals. However, to ensure the validity of these claims and to avoid any significant non-compliances that might impact the company’s future operations and the investor’s return on investment, a due diligence report is indispensable. It serves as a verification tool to substantiate public statements and disclosures, safeguarding the investor’s interests.

What is a Due Diligence Report Format?

A due diligence report format is a structured framework or template that outlines the sections and content to be included in the report. It provides a clear and organized way to present information collected during the process and analysis findings. 

A structured due diligence report format ensures that the report is consistent, easy to navigate, and covers all essential aspects of the due diligence process. 

Who is Responsible for Creating a Due Diligence Report?

Generally large enterprises have their own internal teams of CAs, Financial Analysts, Risk Advisory teams to perform data collection and analysis. But companies nowadays, prefer to outsource the activity of due diligence report formatting to some third party vendors, as they try to focus more on the findings and analytics of the reports. 

With the technological advancement and the introduction of AI, preparing due diligence reports is more efficient than ever before . For example, we have a state of the art report delivery timeline of 48 hours and we are renowned in the market for having the most comprehensive due diligence report format. We will discuss in the later section the checks we do in our due diligence reports. 

Download your free copy of Sample Due Diligence Report

Benefits of defining a due diligence report format.

Creating a due diligence report format before composing a report gives you a structural understanding of what you want to find out, what are the data points you want to evaluate that will help you understand the landscape of the target business.

Let’s look some of the benefits;

Consistency:

A due diligence report format ensures that all essential aspects(facts that you are looking for) are covered consistently in every report. A standardized report format ensures uniformity in the presentation of information. This consistency helps the decision makers easily navigate and compare different reports, fostering a standardized approach across various assessments.

Using a structured format in a due diligence report aids in reader comprehension and navigation. By presenting data in a clear, logical, and organized way, the format improves the clarity of the information. This approach helps readers easily grasp the content, pinpoint crucial information, and derive pertinent insights from the report.

Time Efficiency :

Time is of crucial essence when it comes to executing a due diligence process . Having a due diligence report format beforehand will give you an edge to become more time efficient in the process. A report format gives clarity on what data points you want to collect, how much you want to go in depth, how the analysis of the data should be made and how you want it to get presented. 

A due diligence report format is crucial to define all these attributes hence giving more clarity in the process and also help the decision makers navigate better through the reports and focus on the elements they want to see in the report.

Professionalism:

A well-organized report format enhances the professional appearance of the report. Standardized formats contribute to a professional image. They demonstrate a commitment to thoroughness and organization, instilling confidence in stakeholders, whether they are internal team members, investors, or external partners. 

Compliance:

Adopting a standardized due diligence report format aids in meeting legal and industry standards when required. By following a set format, the due diligence process aligns with regulatory norms and industry benchmarks. This is vital for legal and compliance reasons, as it minimizes the risk of missing important details and guarantees that all essential information is accurately recorded.

How to Compose a Presentable Due Diligence Report Format

Composing a due diligence report format should not be your headache in the age of technology and AI as there are multiple solution providers like us who can help you compose and deliver due diligence reports in the most comprehensive format. 

In case you already have a team of professionals who are looking into the activity of composing a due diligence report format for you then this section is for you. Here are some points to remember while crafting your report format. 

Consistent Format: Start by establishing a uniform format throughout the report. This consistency aids in readability and enables easier comparison of data. A standardized structure ensures that the reader can navigate through the report seamlessly, focusing on the content rather than being distracted by varying layouts.

Clear and Concise Language: The essence of a good report lies in its language. Use straightforward, jargon-free language to make the content accessible to all readers, regardless of their expertise. Clarity in writing helps in breaking down complex concepts and enhances the overall understanding of the report.

Visual Aids (Graphs, Charts, Tables): Integrating visual aids like graphs, charts, and tables is a powerful way to present complex data. These tools not only break the monotony of text but also make it easier to digest large amounts of data at a glance. They serve as a quick reference point and can significantly boost the comprehensibility of your report.

Explain Technical Terms: Due diligence often involves industry-specific jargon that may not be familiar to all readers. Make it a point to explain these terms in simple language. This practice ensures that your report is inclusive and comprehensible to a broader audience, including those who may not have a technical background.

Focus on Relevance: It’s essential to sift through the data and emphasize the information that is most pertinent to your due diligence objectives. Avoid the trap of overloading the report with unnecessary details. Stick to what’s relevant to keep the report concise and focused.

Well-Structured Executive Summary: Often, the first part of your report that readers will engage with is the executive summary. Make sure it is well-structured, summarizing the key findings and recommendations. The summary could be in a risk scorecard format as well providing an overall risk rating on the target entity. This summary should provide a clear overview of the report, allowing readers to grasp the main points quickly.

Elements to Include in Creating an Effective Due Diligence Report Format

There are many elements that go into the due diligence report format. These included elements majorly depend on how much information you would need to evaluate a target entity properly. 

As the most comprehensive due diligence report provider of India, we evaluate 26 parameters in our due diligence reports. These risk factors are further analyzed and converted into a risk scorecard that helps our users to get a better understanding of the target business posture.

Explore our Due Diligence solutions and get a runthrough of our Report Format.

Book a demo with us, here are the elements that are included in a due diligence report format – .

Corporate Structure and Operational Capability: Understanding the company’s size, management stability, and workforce strength is essential. It helps assess the company’s ability to execute its business plan and adapt to changes.

Financial Health: Evaluating liquidity, leverage, profitability, and growth is critical for assessing a company’s financial stability and long-term viability. It indicates the company’s ability to meet its financial obligations, invest in growth, and deliver returns.

Credit History: Reviewing economic defaults and insolvency risks is vital for assessing the company’s creditworthiness and financial integrity. It can influence the company’s ability to secure financing and its reputation in the market.

Compliance Rigor: Checking compliance with tax laws, labor laws, and corporate regulations is crucial. Non-compliance can lead to legal issues, financial penalties, and reputational damage.

Litigation History: Understanding any legal challenges, including criminal backgrounds and tax litigations, helps assess potential legal liabilities and reputational risks.

Defaulter and Blacklist Mentions: Identifying if the company is on any defaulter or blacklist by regulatory bodies is important for evaluating its regulatory compliance and operational integrity.

Sanctions and PEP Mentions: Reviewing trade restrictions, sanctions, and political exposures helps in assessing potential legal and reputational risks associated with the company’s connections and operations.

Market Sentiment: Assessing media coverage and customer complaints is essential for understanding the company’s public image and customer satisfaction levels. This can impact customer loyalty, brand reputation, and business growth.

Operational Parameters: Evaluating registrations, employee numbers, and core business activities provides insights into the company’s operational scale and business focus. This is crucial for understanding the company’s market position and operational efficiency. 

In summary, the careful crafting of a due diligence report format is not just a procedural step, but a strategic approach to gain deep insights and make informed decisions. With the right structure and elements, such a report becomes a pivotal tool in your business intelligence arsenal. 

Remember, in the dynamic world of business, knowledge is not just power – it’s protection, foresight, and the key to successful ventures. Let your due diligence report be the compass that guides you through the complex terrain of business decisions and investments.

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What is the management representation letter?

Introduction.

External auditors have the responsibility of writing a form letter which is more formally known as the management representation letter. This management representation letter is supposed to be signed by the senior management of the organization.

The accuracy of the financial statements is crucial when it comes to management representation letter because these are the statements that the audit firm submitted to the auditors for analysis.

The senior management team of the company – most likely the CEO or the CFO- has the responsibility of signing this letter and moving ahead with the process.

As soon as the audit work is completed, the process is then followed by the official signing of the management representation letter. The signing of the letter takes place before the issuance of financial statements along with the auditor’s final opinion on the whole audit process.

So what does a management representation letter comprises? To start with, the letter is supposed to state that all the information submitted is completely accurate and there have been no errors in its collection.

It also states the disclosure of all material information to the auditors involved in the project. Audit evidence is the sole purpose in the organization of such a letter so the auditors have a written record of it.

In some cases, the financial statements of the audit do not represent the financial results, so the letter has the chance to take off some blame from the auditors and shift it to lacking on the part of management. Financial position or the cash flows might also not be represented fairly – in which case, the management representation letter comes to rescue.

For these reasons, the letter is crucial as some broad-ranging statements are included by the auditor. The letter is supposed to highlight all the failings or mishaps on the part of the management that can lead to any inaccuracy or small errors in the financial statements.

Following we will discuss all the possible features that can be included in the management representation letter and how to make a successful letter that accomplishes all the purposes.

First of all, the management letter – by following the applicable accounting framework is supposed to list the financial statements in a professional and properly presented manner.

The letter is also supposed to highlight and give a written record of the fact that the financial records are accessible to the auditors working on a project. Furthermore, the letter is supposed to mention that all the minutes associated with the board of directors are finished and finalized.

It is supposed to mention that the management has taken responsibility for making all letters accessible from the regulatory agencies. The management representation letter is supposed to ensure that there are no unrecorded transactions and that every transaction is completely and accurately recorded.

The letter is also supposed to highlight that any net effect of misstatements that were not corrected would be considered immaterial by the authorities.

The system of all financial controls is entirely taken care of by the management team and it’s the responsibility of the management to ensure it runs smoothly without any errors. Disclosure of all party related transactions is also mentioned in the management representation letter and these transactions must be accurately disclosed.

Disclosure of contingent liabilities is also mandatory and it’s mentioned in the management representation letter. Along with the above-mentioned requirements, the disclosure of any claims or assessments that were not asserted is also mentioned in the letter.

The management representation letter also mentions any contingent liabilities and its disclosure is also necessary to be mentioned in the letter.

The recording of any material transactions is also mentioned in the management representation letter and it’s necessary to mention that all these transactions were properly recorded.

Encumbrances and liens on the assets and its proper disclosure should also be mentioned. The systems which are designed to prevent and detect even the slightest trace of any fraud or mishap are the responsibility of the management and all of this should be mentioned in the management representation letter.

The letter should also mention that in case there is any fraud in the audit – the management would not be entirely responsible for it and its outcome. The financial statements and how they conform to the accounting framework can also be a part of the management representation letter.

In typical situations, auditors do not allow the management to make any suggestions or any possible changes to the content of the management representation letter.

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Master Due Diligence Playbook

Ensure you’re asking the right questions during the diligence process of a target company. Our master due diligence template’s inclusive list of initial due diligence requests will help streamline any type of transaction. Book a playbook demo to explore — schedule a call with us and we will reach out to help you get started.

What are the benefits of using this template?

Excel Export/Import

Export this template to Excel with just one click. Also, Import your Excel spreadsheet easily - turn it into a nice dealroom.net board.

Integrated with Data Room

The tasks tracker is integrated with the virtual data room, so you can start collecting documents right away.

Easy Tracking

Track your projects progress from start to finish, know if a task is stuck or behind schedule.

Eliminate Excel trackers, emails and disconnected tools with DealRoom

What Tasks does the 

• Organizational chart showing the corporate structure of the Target and all subsidiaries and affiliates.
• Copies of all joint venture agreements, partnership agreements or agreements involving the sharing of profits or technology
• Applicable governing documents for the Target and all subsidiaries and affiliates
• List of all jurisdictions in which the Target and its subsidiaries and affiliates are licensed to do business.
• Minutes and/or resolutions for all meetings of the board and shareholders/members, as applicable.
• Ccopies of any contracts relating to any material acquisitions and/or divestitures of equity and/or assets
• Summary of all related party transactions entered into in the past 3 years, including the key terms thereof and review/approval procedures applicable thereto.
• Professional biography for each member of the management team and any other key employees identified by Buyer.
• Professional biography for each member of the board.
• Documentation evidencing each issuance of equity for the Target and each subisidiary and/or affiliate.
• Summary of all oustanding options, warrants, covertible notes, and any other right entitling the holder to obtain equity in the Target or any subisidiary or affiliate.
• Copy of all outstanding debt instruments.
• Summary of all material litigation.
• Summary of all permits, licenses, and other authorizations that are required for the Target to conduct its business.
• Copies of all agreements or instruments that place restrictions or encumbrances on assets.
• Copies of all material contracts that are terminable upon a change of control or other corporate transaction.
• Copies of all contracts that restrict the right to conduct its business.
• Copies of all contracts under which the Target has any continuing obligations.
• Copies of all indemnification agreements between the Target and any officers, directors or agents thereof.
• Summary of the Target's compliance program and copies of all policies, procedures.
• Summary of all material regulations applicable to the Target and/or its business.
• Please provide copies of any material correspondence with any regulatory agencies or authorities.
• Summary of all product recalls conducted by the Target in the last 5 years.
• Summary of all material warranty claims brought within the last 5 years.
• List of the top 25 customers for each of the past 3 years, including revenue.
• List of all material customers that have ceased doing business with the Target in the past 12 months.
• List of all material sales channel partners for each of the past 3 years.
• Breakdown of sales and gross profits by: Product Type; Geography; Sales Channel.
• Copies of all material customer contracts.
• Copies of all contracts with material sales channel partners
• Copies of all contracts with government customers.
• Copies of all material contracts that have remaining terms longer than one year.
• Copies of policies and procedures related to credits, returns, warranty claims, etc.
• Copies of policies and procedures related to pricing.
• Copies of any strategic plans.
• Copies of any marketing/advertising plans.
• Summary of anticipated new products and/or product improvements.
• Copies of all brochures, presentations, sales sheet, and other advertising and/or marketing materials.
• Product descriptions for all material products and product lines.
• Summary of all ongoing R&D projects, including an estimated timeline for completion thereof.
• Summary of all marketing risks and opportunities.
• List of the top 15 suppliers for each of the past 3 years, including spend.
• Copies of all material supplier contracts.
• Copies of all material subcontractor contracts.
• Summary of the policies and procedures utilized when evaluating and onboarding any new supplier or subcontractor.
• Copies of audited financial statements and each subsidiary and affiliates.
• Copies of unaudited financial statements.
• Detailed description of any off-balance sheet/statement of financial position items, liabilities or obligations of any nature.
• Schedule and description of any contingent liabilities not disclosed or referred to in the financial statements. 
• Detailed schedule of the components of all prepaid expenses and deposits.
• Copies of any letters issued by the Target’s auditors during the last 5 years regarding the Target’s accounting controls, method of accounting and other procedures, including all Management Representation Letters.
• Summary of all material changes to accounting policies adopted.
• Copies of all budgets and operating plans.
• Copies of all financial projections.
• Summary of any cash management controls and practices.
• Summary of the Target's investment policies.
• Summary of the Target's hedging policies.
• Report reflecting all aged accounts receivable trial balances.
• Summary of the Target’s inventory costing system and other procedures and policies related to inventory.
• Schedule and detailed description of any reserves/contingency funds established for specific risk situations. 
• Copies of recent bank reconciliations and bank statements for all material bank accounts. 
• Summary of all capital expenditures planned in the next 12 months.
• Current fixed asset register and/or copy of latest physical inventory of all equipment and other assets. 
• Summary of all current insurance coverages and copies of all policy documents related thereto.
• Summary of all claims made against any insurance policy within the last 5 years.

Human Resources

• Copies of all employment agreements and indicate those affected by the transaction.
• Copies of all consulting agreements.
• To the extent not already provided, copies of all agreements relating to any compensation arrangements between the Target and any third party.
• Copies of all collective bargaining agreements.
• Copies of all confidentiality, non-competition, nondisclosure, non-solicitation, intellectual property, or similar agreements. 
• Copies of any severance agreements under which the Target has or may have outstanding liabilities whether as a result of the proposed transaction or otherwise.
• Summary of any current recruitment initiatives.
• Summary of all benefits.
• Copies of plan documents for all benefit plans.
• Copy of the Target's compensation policy.
• Details of bonus or other profit-related schemes and details of beneficiaries/participants. 
• Summary of all incentive stock option plans.
• Summary of all outstanding stock option awards and copies of any award documents related thereto.
• List and detailed summary of all pension pension plans.
• Summary of all litigation against the Target brought by any current or former employee.
• Description of any court judgement or current employment tribunal award in respect of any employee dispute.
• Headcount by function and location.
• Schedule of any employees suspended – including reasons for suspension and salary implications. 
• Schedule of employees dismissed in the last 12 months.
• Schedule of all employees absent from work due to disability, long-term illness, or otherwise.
• Schedule of employees covered by any disability legislation applicable in the jurisdiction in which the Target operates. 
• Copies of all employee handbooks and other employee policies.
• Detailed summary of the Target's hiring practices and policies.
• Summary of any changes that have been agreed within the past 12 months.
• Detailed schedule of any loans granted to employees.

Intellectual Property

• Summary of all patents and registered trademarks held by the Target. 
• schedule of all websites and domains owned or run by the Target and any terms and conditions related thereto.
• Copies of all agreements under which the Target is granted the right to use IP owned by a third party.
• Copies of all agreements under which a third party is granted the right to use IP owned by the Target.
• Summary of any IP that is not solely owned by the Target (e.g., joint ownership, non-exclusive license, etc.), including any contracts or other documentation related thereto.    
• Summary of any past or current instances where any third party actually or allegedly infringed on the Target's IP or where the Target actually or allegedly infringed on a third party's IP.
• Detailed summary of any restrictions to which IP assets of the Target are subject.
• Summary of all IP litigation in which the Target is or has been involved, including the current status or outcome thereof (e.g., court orders, settlements, etc.).
• Summary of the Target's process for generating/developing, recognizing, capturing, and protecting (for instance, via patents) IP assets.

Information Technology

• Details of any current and planned IT initiatives/key projects.
• Summary of all key IT resources. 
• Summary of the Target's policies and practices regarding the purchase and maintenance of software.
• Summary of all material software utilized by the Target.
• Summary of the Target's policies and practices regarding the purchase and maintenance of IT hardware.
• Summary of all material hardware utilized by the Target, including the physical location thereof.
• Diagram of the Target's technical architecture including servers, storage devices, operating systems and databases.  
• Description of the networking systems utilized by the Target.
• Summary of any specific hardware configurations utilized.
• Summary of any vendor support or other support services to which the Target is entitled.
• Summary of annual costs associated with maintenance of IT hardware for the past 3 years.
• Copies of all material contracts related to software and/or IT services obtained by the Company.
• Summary of services provided by all external IT contractors/consultants. 
• Describe the capacity for growth in the Target's current IT environment.
• Summary of how technology acquired by the Target.
• Summary of the Target's support/help desk effectiveness and approach.
• Summary of the role of  technology/IT in the Target's strategic plan.
• Describe the level of automation made possible via the Target's IT systems.
• Description of any web-based or internet facing applications hosted.
• Description of the key security protocols adopted by the Target. 
• Description of the Target's policies and procedures related to backups and/or disaster recovery.  
• Description of the Target's data privacy policies and procedures.
• Summary of all personal and/or sensitive information held and/or processed by the Target.
• Results of any stress test analysis undertaken by the Target.
• Summary of all monitoring measures/tests conducted.

Environmental, Health and Safety (EH&S)

• Summary of all environmental investigations, citations, or notices of violation received from any environmental regulatory agency.
• Summary of all litigation in which the Target has been involved in the last ten 10 years.
• Description of any past or on-going remediation efforts relating to environmental matters.
• Copies of any documents concerning past or present enforcement actions against any premises owned.
• Summary of all dedicated reserves for management of environmental liabilities and policies and procedures.
• All information and correspondence regarding generation, treatment, storage and disposition of hazardous substances.
• Copies of any material correspondence with any environmental regulatory agencies.
• Summary of any material financial losses suffered as a result of environmental matters and/or acts of God. 
• Summary of the results of all environmental audits, including the resolution of any findings.
• Copies of all environmental studies, assessments and surveys relating to the Target in respect of land and premises owned. 
• Please describe any off-site liability risks arising from arrangements for the treatment or disposal of materials, liquids, or gases used by the Target. 
• Copies of all permits and other governmental approvals and related applications relating to environmental matters. 
• Description of any currently existing aboveground or underground storage tanks or tanks previously located at any premises. 
• Description of all wastes generated or handled at the Target’s premises, the quantities of each, and how they are handled, stored, and disposed.  
• Summary of all investigations, citations, or notices of violation related to employee health and/or safety.
• Summary of all current or past litigation brought against the Target by any current or former employee.
• Summary of the results of all health and safety audits.
• Summary of any accidents within the last 5 years.
• Summary of all workers' compensation claims, including any liabilities associated therewith and the outcome thereof.
• Copies of all material safety data sheets for materials produced or used at any premises owned or operated by the Target.  
• Summary of all emergency response policies and procedures, including copies of all SOPs and other documentation related thereto.
• Summary of the results of all tax audits conducted in the past 5 years, including the resolution of any findings.
• Summary of all property taxes paid by the Target in the past 5 years.
• Copies of all federal, state and local tax returns of the Target for the past 5 years.
• Copies of all material communications and agreements between the Target and any taxing authority for the preceding 5 years. 
• Copies of any tax sharing, tax allocation or related inter-company agreements. 
• Summary of all deferred tax assets, valuation allowances and deferred tax liabilities.
• Summary of all policies regarding taxes, including transfer pricing policies and any present or past transfer pricing audits.
• Summary of any loss surrenders made in return for R&D tax credits paid by the relevant tax authority. 
• Summary of any tax assets (e.g. carried forward trading or capital losses, excess management expenses), including details of how they are reflected in the statutory accounts. 
• Summary of any sale and leaseback transactions.
• Summary of any overseas activities and the tax filing position in respect thereto, including a Summary of any matters under investigation by a relevant taxing authority. 
• Please details regarding the tax base cost of major assets where their base cost is other than original cost. 
• Summary of any tax planning or re-organization involving the Target in the past 5 years and any proposed pre-sale re-organizations, including any disclosures or clearance applications from any relevant taxing authority in relation thereto.
• Summary of any previous audits or investigations related to employment taxes by the relevant taxing authority, including the disposition thereof.

What Is Due Diligence?

Due diligence is a critical aspect of any deal that begins very early in the process and can continue right up until closing. During due diligence, the potential buyer asks questions and requests documentation from the seller that helps the buyer understand the target company and its business. These requests are usually general to start and become more specific as the buyer develops a greater understanding of the target. Buyers use the information provided by the seller to evaluate the opportunities and risks associated with the potential transaction. It is important for sellers to stay organized throughout the process. Buyers often submit thorough, detailed request lists that require input from numerous members of the seller’s deal team.

What is a due diligence checklist?

As the name implies, a due diligence request list is a list of questions and requests for information and documentation that a buyer submits to a seller in order to learn about the target company, its business and its operations. The initial diligence request list tends to be broad and typically includes an extensive list of questions covering a wide range of subjects. This allows the buyer to gain a broad understanding of the target company and identify key issues that can be investigated and considered more closely. Because every deal is different, due diligence request lists have to be tailored to meet the needs of the buyer and address the unique circumstances of your transaction. However, there is a variety of fundamental requests that are relevant in most deals. These are the types of requests that our templates are designed to address.

What Questions Does the Master Due Diligence Questionnaire Include?

Key considerations when using our m&a due diligence template.

Our templates are drafted to provide an inclusive and wide-ranging list of initial due diligence requests. However, the templates, as well as the information contained therein, are not legal advice. They are not complete, and they are not specific to your transaction. The templates are designed to elicit general information from the seller that will provide the buyer with a broad overview of the target and it’s business and operations. You should review any template before using it, and it may need to be modified to ensure that it is suitable and relevant to your circumstances. Information provided by the seller will likely trigger additional questions that focus on specific aspects of the target’s business and issues identified during the due diligence process.

Are the requests in the template comprehensive?

No. Our Due Diligence Checklist is drafted to include typical requests that are relevant in most transactions. However, every deal and every target company is unique. Before utilizing any template, it is important that you review it with the help of your legal and other professional advisors to ensure that the requests are complete and tailored to the specific circumstances of your deal.

How to use the template with Dealroom

• Start 14-day Free Trial of DealRoom and sign-up
• Select a Master Due Diligence Template while creating a new room
• Start assigning, adding to, and completing due diligence requests with needed documents by uploading them into the built-in virtual data room. The Requests tab is automatically populated with the requests from the due diligence template.

Can I change requests in this checklist or add new?

Every M&A process is different. Downloaders are urged to make these checklists their own by changing the providing information to better fit their needs.

Does this questionnaire provide all the necessary integration information?

This checklist was created by and for M&A professionals. It includes a comprehensive starting point for the integration process. However, every deal is different and may require additional requirements and tasks.

How to use this template with DealRoom?

• Select an Integration Template while creating a new workspace
• Start planning, assigning, adding to, and completing integration tasks. The Requests tab is automatically populated with the tasks from the integration template.

Download your free template by simply filling out the form below

Utilizing a checklist is just step one. In order to have a seamless process, M&A checklists need to be utilized with the proper deal workflow tool.

‍ Request a demo to learn how you can turn a checklist into an automated process and workflow with the DealRoom platform. With DealRoom, you can tackle any type of due diligence.

Prepare for your due diligence

DealRoom’s master due diligence template is designed to help teams have an efficient due diligence process from the beginning. By providing your team with a premade professional diligence checklist, you can get a jump start on fulfilling diligence requests.

The template can act as a guide for common diligence requests categories such as legal, financial, HR, IT, commercial and more. And when you use a diligence tracker inside DealRoom, everything will be in one centralized space.

How DealRoom can help you execute due diligence

By using our master due diligence template, alongside DealRoom’s M&A lifecycle management software, you can create a smooth diligence process.

How DealRoom can help you execute integration

By using our integration template, alongside DealRoom's M&A lifecycle management software, you can create a smooth integration process

With this solution you’ll receive:

Professional template, a built-in data room, project management capabilities, collaboration tools.

Interested in utilizing this template with DealRoom's project management capabilities?

More templates, buy-side due diligence playbook, m&a press release template, synergy tracking template.

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Format of Management Representation Letter (MRL) for Audit

In this article author has shared the format of the Management Representation Letter or Written Representation (MRL/WR)  to be obtained from the management during various professional engagements:

M/s XYZ & Co.

Gurgaon, Haryana

Sub: Management Representation in course of Statutory Audit for F.Y. 2021-22 .

This representation letter is provided in connection with your audit of the financial statements of M/s Private Limited, Delhi for the year ended March 31, 20XX  for the purpose of expressing an opinion as to whether the financial statements are presented fairly, in all material respects, (or give a true and fair view) in accordance with the applicable accounting standards in India.

We confirm that (to the best of our knowledge and belief, having made such inquiries as we considered necessary for the purpose of appropriately informing ourselves):

Financial Statements

• We have fulfilled our responsibilities, as set out in the terms of the audit engagement, for the preparation of the financial statements in accordance with Financial Reporting Standards; in particular the financial statements are fairly presented (or give a true and fair view) in accordance with the applicable accounting standards in India.
• Significant assumptions used by us in making accounting estimates, including those measured at fair value, are reasonable.
• Related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of applicable accounting standards in India.
• All events subsequent to the date of the financial statements and for which applicable accounting standards in India require adjustment or disclosure have been adjusted or disclosed.
• The effects of uncorrected misstatements are immaterial, both individually and in the aggregate, to the financial statements as a whole.

Information Provided

• We have provided you with:

Access to all information of which we are aware that is relevant to the preparation of the financial statements such as records, documentation and other matters;

Additional information that you have requested from us for the purpose of the audit; and

Unrestricted access to persons within the entity from whom you determined it necessary to obtain audit evidence.

• All transactions have been recorded in the accounting records and are reflected in the financial statements.
• We have disclosed to you the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud.
• We have disclosed to you all information in relation to fraud or suspected fraud that we are aware of and that affects the entity and involves:

Management;

Employees who have significant roles in internal control; or

Others where the fraud could have a material effect on the financial statements.

• We have disclosed to you all information in relation to allegations of fraud, or suspected fraud, affecting the entity’s financial statements communicated by employees, former employees, analysts, regulators or others.
• We have disclosed to you all known instances of non-compliance or suspected non-compliance with laws and regulations whose effects should be considered when preparing financial statements.
• We have disclosed to you the identity of the entity’s related parties and all the related party relationships and transactions of which we are aware.

For and on Behalf Board of Directors

For any inquiry you may write us on:  [email protected]

Disclaimer:  The information provided by the author in the article is for general informational purposes only. All information provided is in the good faith, however we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability or completeness of any information in the article.

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Name: CA. Ramanujan Sharma

Qualification: ca in practice, company: n k r s & co (chartered accountants), location: gurugram, haryana, india, member since: 25 apr 2022 | total posts: 16, my published posts, join taxguru’s network for latest updates on income tax, gst, company law, corporate laws and other related subjects..

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Home » Blog » Illustrative Management Representation Letter (MRL) for Tax Audit

Illustrative Management Representation Letter (MRL) for Tax Audit

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• Last Updated on 20 September, 2023

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_____________________

Chartered Accountants

Address: ____________

(Date: ______________)

Sub: Representation from Management for the purpose of Tax Audit under section 44AB of the Income Tax Act, 1961 (The “Act”) for the year ended on 31st March, 20XX.

Respected Sir/ Madam,

This representation letter is provided in connection with the tax audit u/s 44AB of the Income Tax Act of _______________ for the year ended 31st March, 20XX for the purpose of expressing an opinion as to whether the Form 3CD along with the annexure thereto gives a true and correct view of the facts mentioned therein. We acknowledge our responsibility to keep and maintain such books of account and other documents as may enable tax auditor to complete tax audit u/s 44AB, in accordance with the provisions of the Income Tax Act, 1961

We confirm the following representations to the best of our knowledge and belief:

1. The name of the assessee as per PAN card is __________. A copy of PAN Card has been attached herewith.

2. The assessee has no other business address than communicated to the Income-tax Department for assessment purposes.

3. The Assessee has employed the cash/mercantile system of accounting during the year.

4. There has been a change in the method of accounting employed in the previous year as compared to that employed in the immediately preceding financial year i.e. F.Y. 20XX-XX. The effect of the same on profit is as follows:

The assessee is liable/not liable to pay indirect taxes & if yes, for that registration number is as follows:

(a) Service Tax: _________________

(b) VAT: _________________

(c) Excise: _________________

(d) Import Export Code: _________________

(e) GST: _________________

Copy of the Registration Certificates (RCs) has been attached herewith.

5. The Assessee has not opted to be assessed under any of the 115BA/115BAA/115BAB/115BAC/115BAD.

6. We confirm that the profit and loss account does not include any profits and gains assessable on a presumptive basis under relevant sections 44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB or any other relevant section

7. The Assessee is engaged in the business as reported in clause 10(a) of Form 3CD.

8. The Assessee has disclosed the nature of every business carried on by it and there is no change in the nature of business carried in the previous year from the earlier years.

9. The Assessee has maintained books of accounts in the “ERP” based computer system in accordance with the generally accepted accounting principle and the following books are generated by the computer systems:-

(a) Cash Book

(b) Bank Book

(d) Journal

10. The above books and accounts have been maintained and kept as per the addresses mentioned in clause 11(b) of Form 3CD.

11. The following are the members/partners of the firm & their profit-sharing ratio is as follow:

12. There are no items of the following nature which are not credited to the profit and loss account where applicable:

(a) items falling under the scope of Section 28 of the Act;

(b) the performa credits, drawbacks, refund of duty or customs or excise or service-tax or refund due by the authorities concerned;

(c) escalation claims accepted during the previous year;

(d) any other item of income; and

(e) capital receipts.

13. During the Previous Year, the assessee has not transferred any land or building for a consideration less than the value adopted or assessed or assessable by any authority of a State Government referred to in section 43CA or 50C.

14. The Assessee has disclosed ICDS as required by the disclosure norms mentioned as per section 145(2) of the Income Tax Act, along with any adjustment in clause 13(e) of Form 3CD.

15. Adjustments is required to be made to the profits or loss to comply with the provisions of ICDS. The effects of such adjustments are as follow:

16. The Closing stock in respect of Raw Material, Work In Progress, and Finished Goods are valued at cost or Net Realizable Value (NRV) whichever is less. The assessee has changed/not changed its accounting policy regarding the valuation of inventories during the previous year. The change of accounting policy has resulted in an increase/decrease in profit by Rs. ____________ in the previous year 20XX-XX.

17. The particulars disclosed in respect of depreciation allowable as per the Income Tax Act, 1961 in respect of each asset or block of assets, as the case may be as required under clause 18 of Form No. 3CD are correct.

18. There are no amounts admissible under sections 32AC, 32AD, 33AB, 33ABA, 33AC (wherever applicable), 35(1), 35(2AB), 35ABB, 35AC, 35CCA, 35CCB, 35CCC, 35CCD, 35D, 35DD and 35E which are debited/not debited to the profit and loss account.

19. The Assessee has not paid any sum to an employee as bonus or commission for services rendered, where such sum was otherwise payable to him as profits or dividend.

20. The sums received from employees towards contributions to any provident fund or superannuation fund or any other fund mentioned u/s 2(24) (x) and the due date of payments and the actual date of payments to the concerned authorities u/s 36(1) (va) as disclosed against clause 20(b) of form 3CD are correct.

21. The assessee has not debited any expense being in the nature of Capital Expenditure to Profit and Loss Account.

22. We certify that there are no capital assets which are converted into stock in trade

23. The assessee has not debited any expense being in the nature of Personal Expenditure to Profit and Loss Account.

24. The Assessee had not released any advertisement in any souvenir, brochure, tract, pamphlet or the like, published by any political party.

25. The Assessee had not made any payments to club as entrance fees, subscriptions and for club services and facilities used.

26. The Assessee had not incurred any expenditure by way of penalty or fine for violation of any law and no expenditure was incurred for any purpose which is an offence or which is prohibited by law except a sum of Rs. ________ as interest on late deposit of TDS under section 201(1A) and Interest on Income Tax under section 206C(7) which is duly reported in clause 34(c) of Form 3CD.

27. The Assessee had not incurred any expenditure by way of any other penalty or fine.

28. There are no amounts inadmissible u/s 40(a) of the Act except Rs. __________ being the amount paid to a resident on which tax is not deducted. Refer clause 21(b)(ii)(A) of Form 3CD.

29. As certified, in relation to any expenditure covered u/s 40A (3), all payments were made by an account payee Cheque drawn on a bank or account payee bank draft. That all payments exceeding Rs. 10,000 have been made either by an account payee Cheque drawn on a bank or account payee bank draft or by electronic clearing system.

30. The Assessee has paid no sums, which are disallowed u/s 40A (9).

31. The Assessee has not debited any item of a contingent nature to the profit and loss account.

32. The deduction u/s 14A amounting to Rs. ___________ in respect of expenditure incurred in relation to income which does not form part of the total income is correct.

33. The Assessee does not have any amount of interest paid that is inadmissible under the provision to section 36 (1) (iii) of the Act.

34. Particulars of payments made to persons specified under section 40A(2)(b) as mentioned in clause 23 of Form 3CD are correct.

35. There is no amount of profit chargeable to tax u/s 41 of the Act.

36. That during the previous year the assessee has not received any property, being share of a company not being a company in which the public are substantially interested, without consideration or for inadequate consideration as referred to in section 56(2)(viia) except reported under clause 28 of Form 3CD.

37. There are no other income during the previous year that the assessee received by way of consideration for issue of shares which exceeds the fair market value of the shares as referred to in section 56(2)(viib)/(ix)/(x) except for clause 29 of Form 3CD.

38. There are no sums referred to under clauses (a), (b), (c), (d), or (e) of section 43B, the liability for which pre-existed on the first day of the previous year but was not allowed in the assessment of any preceding previous year except those disclosed against clause 26(A) of form 3CD. The amount of expenditure incurred during the previous year, paid on or before filing of return u/s 139(1) is duly reported in clause 26(B)(a) and not paid on or before the aforesaid date under clause 26(B)(b) of Form 3 CD.

39. The amount of Central Value Added Tax Credits/Input Tax Credit (ITC) availed of or utilised during the previous year and its treatment in profit and loss account and treatment of outstanding Central Value Added Tax Credits/Input Tax Credit(ITC) in accounts as per relevant law is duly reported in Form 3CD vide clause No. 27 (a).

40. There is no income or expenditure or prior period credited to the profit and loss account except those shown against clause 27 (b) of 3CD.

41. As certified, it is the practice of the Assessee to accept any loan or deposit or any sum and to make any repayment of loan or deposit or any sum in excess of Rs. 20,000 by account payee cheque or account payee bank draft or by electronic clearing system only.

42. There are no amounts/deductions admissible under Chapter VI-A or Chapter III (section 10A, section 10AA) under Clause 33 of Form No. 3CD except disclosed in Form 3CD.

43. That the assessee has complied with all the provisions of Chapter XVII-B or Chapter XVII-BB of the Act and deduction or collection of tax at source has been made at the applicable rates under the relevant provisions of the Act. There have been no cases of tax-deductible where tax has not been deducted at all, or shortfalls on account of lesser deduction than required to be deducted or tax deducted or tax deducted late or tax deducted but not paid to the credit of the Central Government in accordance with the provisions of Chapter XVII-B or Chapter XVII-BB of the Act, except as disclosed in clause 34(a) of Form 3CD.

44. The Assessee has furnished the statement of tax deducted and collected within the prescribed time except as disclosed in clause 34(b) of Form 3CD.

45. The interest under section 201(1A) or section 206C (7) disclosed under clause 34(c) of Form 3CD is correct.

46. There are no other quantitative details of any other item that an entity principally traded or manufactured other than disclosed under clause 35.

47. That assessee has not received any amount in the nature of dividend as referred to in sub-clause (e) of clause (22) of section 2 except as disclosed under clause 36A of Form 3CD.

48. During the previous year there was no audit conducted under the Central Excise Act 1944 and under section 72A of the Finance Act, 1994.

49. There was no adverse comment raised and reported by the cost auditor of the assessee during the previous year.

50. There is no demand raised or refund issued during the previous year under any tax laws other than the Income Tax Act,1961 and Wealth Tax Act, 1957 except as disclosed in clause 41 of Form 3CD.

51. The detail regarding turnover, gross profit etc. for the previous year and preceding previous year are correctly calculated and disclosed in clause 40 of Form 3CD.

52. The Assessee has complied the requirement of furnishing the statements in Form 61 or Form No. 61A or Form No. 61B

53. The Assessee has complied the requirement to furnish statement as prescribed under sub-section (2) of section 286.

54. There is no other expenditure of entities registered or not registered under the GST as disclosed in clause 44 of Form 3CD.

For and on behalf of

(Director Finance)

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