 Hello and welcome to this session. This is Professor Farhad in which we will discuss a representation letter. What is a representation letter? It's part of the audit process. It is a letter, it's in writing, corroborating. The purpose of it is to corroborate many claims and responses to inquiries that management made. Now throughout the audit, we ask a lot of questions when we are testing internal control, when we are collecting evidence, sufficient appropriate evidence, part of it is inquiries. Now what we want to do, we want to have those responses, those claims, and company makes claims, makes assertions. Well, we want them to be in writing. This is what the letter is all about. Why? Think about this, let me ask you this question. Do you know what you had for dinner last night on this day? Most likely you don't remember. So think about sitting in a courtroom two years down the road, talking to unfriendly either a prosecutor or an attorney, asking you questions about why did you book this journal entry? Well, you can say because they told me that's the answer for it. Well, they might say, no, we did not tell you. Well, here what you are doing, you are getting evidence supporting what they're telling you. Be simply put, it's to protect yourself. And if there is no representation letter, well, I would not issue an opinion. There should be a scope limitation. You should not be comfortable. The auditor should not be comfortable issuing an opinion if no representation letter is exist. Now, the representation letter is written on the company letterhead. It's their letter. It's addressed to the auditor. It says to the auditor from management and saying it in their own words, they're telling us exactly what they told us. And we're gonna see what they put in that letter. It's dated as of the auditor's report. Simply put, it's the last piece of evidence. Why? Because you want them to address, to make representation up to the audit report because that's the last piece. And you want to have everything covered, all the period covered up to the audit report. Also, it should be signed by top management. And what we mean by top management, chief executive officer and the chief financial officer. They might have different titles, but usually those are the titles, people who are in charge. What should be included in that letter? Can you guess? I hope you can guess. Well, let's see what's included. Before we proceed any further, I have a public announcement about my company, foreheadlectures.com. Forehead Accounting Lectures is a supplemental educational tool that's gonna help you with your CPA exam preparation, as well as your accounting courses. My CPA material is aligned with your CPA review course, such as Becker, Roger, Wiley, Gleam, Myles. My accounting courses are aligned with your accounting courses, broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead, start your free trial today. No obligation, no credit card required. What's included is management is responsible for the preparation of financial statements. I hope you're not surprised here. I hope you are comfortable or familiar with this statement. Management is responsible for the design, implementation of the maintenance of internal control related to financial statements and detection of fraud. Are you surprised here? I hope not, because we saw those two claims in the engagement letter, as well as the audit report. And now we are looking at them again here in the representation letter. All assumptions, estimates, are made in good faith and are reasonable. So simply put, all the assumptions that are made, that we based our journal entry on, we, the management, are made in good faith and are reasonable. Any subsequent event, if we identified any subsequent event, it's properly treated. And how do we treat subsequent event? Either we disclose it or we make an adjustment, depending on the subsequent event and there's a separate recording for subsequent event. Management gave access to all information. Nothing is hidden. They did not hide any information from us. They also recorded all transaction. This is remember the completeness. They recorded all transaction. And here they're telling us, yes, we reported all transaction. Nothing is hidden. They gave us access to all minutes for the board of directors. And here all because really you cannot give us half or three fourth or something material, something not material for the board of directors, everything is material. Now for certain accounts, for certain transaction might have materiality, but not for the minutes for the board of directors. Also management state that they're not aware of any fraud involving management or people in internal control rules. They're telling us this. They want to tell us this. And we want to hear that from them because they know more than most likely a little bit more than what we do. If any misstatement remain incorrect, so if we identify misstatement and we assume that misstatement is not material, whether it's individually or an aggregate, we must attach that misstatement to the report. Management made all personnel available. We were able to talk to anyone that we wanted to talk to. So again, no one was hitting from us. Also management is not aware of any suspected fraud of or allegation of fraud. Tell us that because down the road, if something appears, well, you told us you were not aware of it, right? You want to protect ourselves. And management informed us about all instances of non-compliances if there's any non-compliances or litigations and claims has been disclosed. And there's a separate recording for litigation and claims when we cover the attorney letter. We'll look at that later. And related party and related party transaction have been disclosed. And we have a separate recording for related party and related party transaction. We discussed those. Also they told us that every and all the related party transaction has been disclosed. We informed you about any related parties. Now also we add one more thing that any other matter that the auditor might consider necessary, we informed them about. We just want to protect ourselves. Now the best way to really understand what a rep letter looks like is to review one. Now there is no standard one, but the AI CPA issue a sample one. But what should you do now? Go to far hat lectures and look at multiple choice through false. But let me show you a sample from the AI CPA about a rep letter. If you Google AI CPA representation letter, you might find this PDF. It's AU section 333. It talks about management representation, basically what I summarized for you. At the end of it, you will see a sample of illustrative management representation letter. You can take a look at it. Notice it could be very long, but you could just read it depending on what the company needs. So on and so forth. It's addressed to the auditor. And we confirm to the best of our knowledge and believe blah, blah, blah in the list or everything. Now, again, I did not include everything because there could be a lot, especially if your industry or if your company is unique or you are in a special industry. But this is a good review, whether you are a student or a CPA candidate farhatlectures.com. Use my material to supplement your CPA review course. Good luck, study hard and stay safe.