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NPO-CL-3.1: Management Representation Letter abcdefg
[Letterhead of Nonprofit Organization]
[Date]
h
[CPA Firm’s Name and Address]
We are providing this letter in connection with your audit(s) of the statement(s) of financial position of
[Name of Nonprofit Organization] as of [Date(s)] and the related statements of [
] i for the [Period(s)] j then
ended for the purpose of expressing an opinion as to whether the financial statements present fairly, in all
material respects,
the
financial position,
changes
in
net
assets,
and
cash
flows
of
[Name of Nonprofit Organization] in conformity with U.S. generally accepted accounting principles. We confirm
that we are responsible for the fair presentation in the financial statements of financial position, changes in net
assets, and cash flows in conformity with generally accepted accounting principles. We are also responsible for
adopting sound accounting policies, establishing and maintaining effective internal control, and preventing and
detecting fraud. kl
We confirm, to the best of our knowledge and belief, (as of [Date of Auditor’s Report] ),
representations made to you during your audit(s). n
m
the following
1) The financial statements referred to above are fairly presented in conformity with U.S. generally accepted
accounting principles and include all assets and liabilities under the Organization’s control.
2) We have made available to you all—
a) Financial records and related data. o
b) Minutes of the meetings of [Name of Governing Body, such as Board of Directors or Trustees]
summaries of actions of recent meetings for which minutes have not yet been prepared. p
or
3) There have been no communications from regulatory agencies concerning noncompliance with, or
deficiencies in, financial reporting practices. q
4) There are no material transactions that have not been properly recorded in the accounting records underlying
the financial statements. rst
5) We believe the effects of the uncorrected financial statement misstatements summarized in the attached
schedule are immaterial, both individually and in the aggregate, to the financial statements taken as a whole.
uv
6) We acknowledge our responsibility for the design and implementation of programs and controls to prevent
and detect fraud.
7) We have no knowledge of any fraud or suspected fraud affecting the Organization involving— w
a) Management,
b) Employees who have significant roles in internal control, or
c) Others where the fraud could have a material effect on the financial statements.
8) We have no knowledge of any allegations of fraud or suspected fraud affecting the Organization received in
communications from employees, former employees, grantors, regulators, or others. x
9) The Organization has no plans or intentions that may materially affect the carrying value or classification of
assets, liabilities, or net asset balances.
10) The following, if any, have been properly recorded or disclosed in the financial statements:
a) Related party transactions, including revenues, expenses, loans, transfers, leasing arrangements, and
guarantees, and amounts receivable from or payable to related parties.
b) Guarantees, whether written or oral, under which the Organization is contingently liable.
c) All accounting estimates that could be material to the financial statements, including the key factors and
significant assumptions underlying those estimates, and we believe the estimates are reasonable in the
circumstances.
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11) There are no estimates that may be subject to a material change in the near term that have not been properly
disclosed in the financial statements. We understand that near term means the period within one year of the
date of the financial statements. In addition, we have no knowledge of concentrations existing at the date of
the financial statements that make the organization vulnerable to the risk of severe impact that have not been
properly disclosed in the financial statements. yz
12) We are responsible for compliance with the laws, regulations, and provisions of contracts and grant
agreements applicable to us; and we have identified and disclosed to you all laws, regulations and provisions
of contracts and grant agreements that we believe have a direct and material effect on the determination of
financial statement amounts or other financial data significant to the audit objectives.
13) [Name of Nonprofit Organization] is an exempt organization under Section [
] of the Internal Revenue
Code. Any activities of which we are aware that would jeopardize the Organization’s tax-exempt status, and
all activities subject to tax on unrelated business income or excise or other tax, have been disclosed to you.
All required filings with tax authorities are up-to-date.
14) There are no— aa
a) Violations or possible violations of laws and regulations and provisions of contracts and grant agreements
whose effects should be considered for disclosure in the financial statements, as a basis for recording a
loss contingency, or for reporting on noncompliance.
b) Unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be
disclosed in accordance with Statement of Financial Accounting Standards No. 5, Accounting for
Contingencies. bb
c) Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by Statement of
Financial Accounting Standards No. 5.
d) Designations of net assets disclosed to you that were not properly authorized and approved, or
reclassifications of net assets that have not been properly reflected in the financial statements.
15) The Organization has satisfactory title to all owned assets, and there are no liens or encumbrances on such
assets nor has any asset been pledged. [ ]
16) We have complied with all restrictions on resources (including donor restrictions) and all aspects of
contractual and grant agreements that would have a material effect on the financial statements in the event of
noncompliance. This includes complying with donor requirements to maintain a specific asset composition
necessary to satisfy their restrictions.
No events have occurred subsequent to the statement of financial position date and through the date of this letter
that would require adjustment to, or disclosure in, the financial statements. ccdd
Signed: [ ]
Title: [ ]
ee
Signed: [ ]
Title: [ ]
ff
Practical Considerations
a
If the client does not understand certain paragraphs in this letter, it may be advisable to use alternative wording
as discussed in Exhibit 11-5 . Management’s refusal to furnish this letter constitutes a scope limitation sufficient to
preclude an unqualified opinion. The “Confirmation and Correspondence Control” at NPO-CX-17.4 can be used
to monitor the status of confirmation requests.
b
The representations should be revised for financial statements presented in conformity with a comprehensive
basis of accounting other than generally accepted accounting principles. The specific representations should be
based on the nature and basis of presentation of the financial statements being audited and are a matter of
professional judgment. In addition, the first paragraph of the letter should be revised to reflect the basis of
accounting. For example, if the financial statements are prepared on the modified cash basis of accounting, the
first paragraph could be replaced with the following:
We are providing this letter in connection with your audit(s) of the statement of assets, liabilities,
and net assets—cash basis of [Name of Nonprofit Organization] as of [Date(s)] and the related
statement of revenues, expenses, and other changes in net assets—cash basis for the
NPO-CL-3.1
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[Period(s)] then ended for the purpose of expressing an opinion as to whether the financial
statements present fairly, in all material respects, the assets, liabilities, and net assets, and
revenues, expenses, and other changes in net assets of [Name of Nonprofit Organization] on the
modified cash basis of accounting. We confirm that we are responsible for the fair presentation in
the financial statements of assets, liabilities, and net assets, and revenues, expenses, and other
changes in net assets on the modified cash basis of accounting. We are also responsible for
adopting sound accounting policies, establishing and maintaining internal control, and preventing
and detecting fraud.
c
As discussed in SAS No. 85 (AU 333 ), paragraph 7, representation letters ordinarily should be tailored to
include additional appropriate representations obtained from clients that are unusual, or for which the auditor
believes additional evidence should be obtained. The following is a list of additional representations that may be
appropriate in certain situations. The list is not intended to be all-inclusive. Auditors also should consider the
effects of pronouncements issued subsequent to the issuance of this Guide.

Receivables recorded in the financial statements represent valid claims against debtors for sales or other
charges arising on or before the statement of financial position date and have been reduced to their
estimated net realizable value.

Arrangements with financial institutions involving compensating balances or other arrangements involving
restrictions on cash balances, lines of credit, or similar arrangements have been properly disclosed.

Agreements to repurchase assets previously sold have been properly disclosed.

Note [X] to the financial statements discloses all of the matters of which we are aware that are relevant to
the organization’s ability to continue as a going concern, including significant conditions and events, and
management’s plans.

We have reviewed long-lived assets and certain identifiable intangibles to be held and used for
impairment whenever events or changes in circumstances have indicated that the carrying amount of
assets might not be recoverable and have appropriately recorded the adjustment.

Provision has been made to reduce excess or obsolete inventories to their estimated net realizable value.

Provisions have been made for losses to be sustained in the fulfillment of, or from inability to fulfill, any
sales commitments.

Provisions have been made for losses to be sustained as a result of purchase commitments for inventory
quantities in excess of the normal requirements or at prices in excess of the prevailing market prices.

We have fully disclosed to you all sales terms, including all rights of return or price adjustments and all
warranty provisions.

Federal information returns through [Year] have been examined by the Internal Revenue Service.
Returns for the years since [Year] are still open. The provision for unrelated business income taxes in the
statement of financial position is adequate to cover any uncertain tax positions.
d
Although a representation letter by itself is not sufficient evidence, representations made by the client that are
unusual or for which the auditor believes additional evidence is necessary ordinarily should be added. For
example, additional representations might relate to items such as the following: (Appendix B of SAS No. 85
includes examples of wording for some of the listed representations.)
Contributions

Contributed services that are or are not required to be recorded as contributions under SFAS No. 116.

The adequacy of the organization’s internal controls over contributions.

The organization’s reasons for not confirming with a particular donor.
Expenses for Program and Supporting Services
NPO-CL-3.1
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
The organization’s reasons for conducting activities that have elements both of program services and
fund-raising.

Matters related to joint activities such as the completeness of joint activities tested, the rationale for
selecting the audience for the joint activities, and the appropriateness of the cost allocation methods.

Reasonableness of bases for allocation of functional expenses.
Property and Equipment

The historic or cultural value of individual works of art or historical treasures and the organization’s
technical and financial ability to preserve the items as a condition for not depreciating them.
Prepaids, Deferred Charges, Intangibles, and Other Assets

Material deferred charges.
Investments and Derivatives

Existence and completeness of derivatives and appropriate characteristics of hedges.

Unusual considerations involved in determining the application of the equity method of accounting.

The organization’s interpretation of applicable laws over unrealized gains on endowments; that is,
whether donor restrictions extend to the net appreciation on the endowment investments.
Taxes

Aggressive tax elections or uncertain tax positions.

IRS examinations or other matters.

Provision for unpaid unrelated business income taxes.
Accounts Payable and Other Liabilities

Contributions to employee benefit plans or bonuses not documented in the organization minutes.

The organization’s reasons for not confirming with a particular supplier.

Pension payments made after client’s year-end.

Actuarial assumptions used to measure pension liabilities and costs are appropriate.

Expected employer contributions to defined benefit pension and postretirement benefit plans for the next
fiscal year, if material to the financial statements.
Notes Payable and Long-term Debt

Management has the intent and ability to refinance short-term debt on a long-term basis.
General

A national organization’s recording (or disclosing to the auditor) of all transactions with its controlled
affiliate organizations.

Actions allowed by funding sources or regulatory agencies that are not documented in writing or by legal
references.

Acknowledgement of oral communications made by the auditor.

Transactions for which there is no written supporting documentation.

Representations required for a specialized industry.

Actions allowed by regulatory agencies that are not documented in writing or by legal references.

GAAP changes/adoption.

Use of a specialist.
NPO-CL-3.1
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
Fair value of significant financial instruments.

Financial instruments with concentration of credit risk.

Future plans or commitments.

Lawsuits, regulatory actions, etc.

Environmental remediation liabilities and related loss contingencies.

Other representations relied on during the audit. (As noted in Step 14 of NPO-AP-2 or NPO-AP-2-S , it
may be helpful to maintain in the workpapers a list of client representations relied on during the audit.)
e
This letter complies with the 2003 revision of Government Auditing Standards. GAO expects to issue the 2007
revision in final form in late spring 2007. The 2007 revision is effective for financial statement audits of periods
beginning on or after January 1, 2008 (calendar 2008 or fiscal 2009 year ends). Future editions of this Guide will
be updated for the provisions of the 2007 revision. See the discussion at Chapter 14 .
f
If this letter is obtained for a Single Audit of a nonprofit organization performed in accordance with the Single
Audit Act Amendments of 1996 and OMB Circular A-133 or for an audit in accordance with Government Auditing
Standards (Yellow Book), the auditor must consider the additional independence requirements contained in the
Yellow Book. Footnote 28 to Paragraph 3.18a of the Yellow Book and Question 46 in the GAO Q&A indicate that
the audit firm may prepare the general ledger trial balance and/or draft the financial statements and related notes
without impairing its independence if certain requirements are met. One requirement is that management’s
representation letter acknowledge the auditor’s role in preparing the trial balance and/or the draft financial
statements and related notes and management’s review, approval, and responsibility for the financial statements
and related notes. The following representation addresses the common situation in which the auditor drafts the
financial statements, notes, and the schedule of expenditures of federal awards. The paragraph should be
modified to delete items that the auditor does not draft (e.g., the schedule of expenditures of federals awards.)
As part of your audit, you prepared the draft financial statements and related notes and schedule
of expenditures of federal awards. We have designated a competent management-level individual
to oversee your services and have made all management decisions and performed all
management functions. We have reviewed, approved, and accepted responsibility for those
financial statements and related notes and schedule of expenditures of federal awards.
If the auditor prepares the trial balance, similar language should be added, such as the following:
We understand that you prepared the trial balance for use during the audit and that your
preparation of the trial balance was limited to formatting information in the
[Name of Nonprofit Organization] ’s general ledger into a working trial balance.
As discussed in section 1409 , footnote 28 at Paragraph 3.18a of the Yellow Book and Questions 46 and 53 in the
GAO Q&A provide guidance on when the audit firm can convert cash basis records (financial statements) to the
accrual basis records (financial statements) and retain its independence. One requirement is that management’s
representation letter acknowledge the audit firm’s role in reflecting accruals and management’s review, approval,
and responsibility for the accrual adjustments. In those instances, the following paragraph may be used to meet
this requirement:
We understand that as part of your audit, you prepared the adjusting journal entries necessary to
convert our cash basis records to the accrual basis of accounting and acknowledge that we have
reviewed and approved those entries.
g
If the auditor is providing nonattest services as part of the audit (for example, consulting services, information
return preparation, or bookkeeping), the provisions of Ethics Interpretation 101-3, Performance of Nonattest
Services, and the Yellow Book independence standards, if applicable, must be followed for the auditor to maintain
his or her independence. The Interpretation and the Yellow Book require the client to perform certain functions in
connection with the nonattest services. Although not required by ET Interpretation 101-3, the auditor might
consider adding the following additional representations to the management representation letter:
NPO-CL-3.1
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In regards to the [State the nonattest services provided.] services performed by you, we have:
a. Made all management decisions and performed all management functions.
b. Designated a management-level individual with suitable skill, knowledge, or experience to oversee
the services.
c.
Evaluated the adequacy and results of the services performed.
d. Accepted responsibility for the results of the services.
e. Established and maintained internal controls, including monitoring ongoing activities.
This letter should be dated as of the date of the auditor’s report. If the auditor’s report is dual dated due to the
disclosure of a subsequent event, auditors should consider obtaining additional representations relating to the
subsequent event.
h
For a voluntary health and welfare organization, use the wording “activities, functional expenses, and cash
flows.” For an organization other than a voluntary health and welfare organization, use the wording “activities and
cash flows.”
i
j
According to SAS No. 85 (AU 333 ), Management Representatives, representation letters should include all
periods covered in the auditor’s report.
k
The representations should be revised for financial statements presented in conformity with a comprehensive
basis of accounting other than generally accepted accounting principles. The specific representations should be
based on the nature and basis of presentation of the financial statements being audited and are a matter of
professional judgment. In addition, the first paragraph of the letter should be revised to reflect the basis of
accounting. For example, if the financial statements are prepared on the modified cash basis of accounting, the
first paragraph could be replaced with the following:
We are providing this letter in connection with your audit(s) of the statement of assets, liabilities,
and net assets—cash basis of [Name of Nonprofit Organization] as of [Date(s)] and the related
statement of revenues, expenses, and other changes in net assets—cash basis for the
[Period(s)] then ended for the purpose of expressing an opinion as to whether the financial
statements present fairly, in all material respects, the assets, liabilities, and net assets, and
revenues, expenses, and other changes in net assets of [Name of Nonprofit Organization] on the
modified cash basis of accounting. We confirm that we are responsible for the fair presentation in
the financial statements of assets, liabilities, and net assets, and revenues, expenses, and other
changes in net assets on the modified cash basis of accounting. We are also responsible for
adopting sound accounting policies, establishing and maintaining internal control, and preventing
and detecting fraud.
l
SAS No. 85 (AU 333 ), Management Representatives, gives auditors the option of including an explicit
discussion of materiality in the management representation letter. Such a discussion may address materiality in
either qualitative or quantitative terms. The following optional paragraph, which may be included after the first
paragraph of the representation letter, provides a discussion of materiality in qualitative terms:
Certain representations in this letter are described as being limited to matters that are material.
Items are considered material if they involve an omission or misstatement of accounting
information that, in light of surrounding circumstances, makes it probable that the judgment of a
reasonable person relying on the information would be changed or influenced by the omission or
misstatement. An omission or misstatement that is monetarily small in amount could be
considered material as a result of qualitative factors.
NPO-CL-3.1
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Some auditors prefer to supplement the qualitative discussion of materiality with a quantitative amount. As
discussed in section 1112 , the quantitative amount should be set so that any misstatements below that amount
are immaterial to the financial statements, both individually and in the aggregate, after considering the risk of
further misstatement and the potential influence of qualitative factors. However, the authors discourage using a
purely quantitative discussion of materiality because it is inappropriate to rely solely on quantitative considerations
when determining materiality (i.e., qualitative factors also must be considered). Note that materiality
considerations do not apply to representations that are not directly related to amounts included in the financial
statements, such as the representations in items 2., 3., 6., 7.(a), 7.(b), and 8. However, the representations under
Item 17 in practical consideration n, if applicable, are considered material based on the materiality criteria
specified in OMB Circular A-133.
This letter should be dated as of the date of the auditor’s report. If the auditor’s report is dual dated due to the
disclosure of a subsequent event, auditors should consider obtaining additional representations relating to the
subsequent event.
m
n
If this letter is obtained for a Single Audit of a nonprofit organization performed in accordance with the Single
Audit Act Amendments of 1996 and OMB Circular A-133, Audits of State, Local Governments, and Non-Profit
Organizations, the following should be added to the letter, to the extent applicable.
17. With respect to federal award programs:
a. We are responsible for complying and have complied with the requirements of OMB Circular
A-133, Audits of States, Local Governments, and Non-Profit Organizations.
b. We have, in accordance with OMB Circular A-133, identified in the schedule of expenditures
of federal awards, expenditures made during the audit period for all awards provided by
federal agencies in the form of grants, federal cost-reimbursement contracts, loans, loan
guarantees, property (including donated surplus property), cooperative agreements, interest
subsidies, insurance, food commodities, direct appropriations, and other assistance.
c.
We are responsible for complying with the requirements of laws, regulations, and the
provisions of contracts and grant agreements related to each of our federal programs and
have identified and disclosed to you the requirements of laws, regulations and the provisions
of contracts and grant agreements that are considered to have a direct and material effect on
each major federal program.
d. We are responsible for establishing and maintaining, and have established and maintained,
effective internal control over compliance requirements applicable to federal programs that
provides reasonable assurance that we are managing our federal awards in compliance with
laws, regulations, and the provisions of contracts and grant agreements that could have a
material effect on our federal programs. We believe the internal control system is adequate
and is functioning as intended. Also, no changes have been made in internal control over
compliance and other factors to the date of this letter that might significantly affect internal
control, including any corrective action taken with regard to reportable conditions (including
material weaknesses) reported in the schedule of findings and questioned costs.
e. We have made available to you all contracts and grant agreements (including amendments, if
any) and any other correspondence with federal agencies or pass-through entities relating to
federal programs.
f.
We have received no requests from a federal agency to audit one or more specific programs
as a major program.
g. We have complied, in all material respects, with the compliance requirements, including when
applicable, those set forth in the OMB Circular A-133 Compliance Supplement, relating to
federal awards and have identified and disclosed to you all amounts questioned and any
known noncompliance with the requirements of federal awards resulting from other audits or
program reviews.
NPO-CL-3.1
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h. Amounts claimed or used for matching were determined in accordance with relevant
guidelines in OMB Circular A-122, Cost Principles for Nonprofit Organizations, and Subpart C,
Cost Sharing and Matching, of OMB Circular A-110, Grants and Agreements with Institutions
of Higher Education, Hospitals, and Other Nonprofit Organizations.
i.
We have disclosed to you our interpretation of compliance requirements that may have
varying interpretations.
j.
We have charged costs to federal awards in accordance with applicable cost principles.
k.
We have made available to you all documentation related to the compliance requirements,
including information related to federal program financial reports and claims for advances and
reimbursements.
l.
Federal program financial reports and claims for advances and reimbursements are
supported by the books and records from which the basic financial statements have been
prepared.
m. The copies of federal program financial reports provided you are true copies of the reports
submitted, or electronically transmitted, to the respective federal agency or pass-through
entity, as applicable.
n. We have monitored subrecipients to determine that they have expended pass-through
assistance in accordance with applicable laws and regulations and have met the
requirements of OMB Circular A-133. [Omit this item if there are no subrecipients.]
o. We have taken appropriate action, including issuing management decisions, on a timely basis
after receipt of subrecipients’ auditor’s reports that identified noncompliance with laws,
regulations, or the provisions of contracts or grant agreements to ensure that subrecipients
have taken the appropriate and timely corrective action on findings. [Omit this item if there are
no subrecipients.]
p. We have considered the results of subrecipient audits and have made any necessary
adjustments to our books and records. [Omit this item if there are no subrecipients.]
q. We are responsible for and have accurately prepared the summary schedule of prior audit
findings to include all findings required to be included by OMB Circular A-133, and we have
provided you with all information on the status of the follow-up on prior audit findings by
federal awarding agencies and pass-through entities, including all management decisions.
r.
We are responsible for and have accurately prepared the auditee section of the Data
Collection Form as required by OMB Circular A-133, and we are responsible for preparing
and implementing a corrective action plan for each audit finding.
s.
We have disclosed to you all contracts or other agreements with service organizations, and
we have disclosed to you all communications from the service organizations relating to
noncompliance at the service organizations. [Omit this item if there are no service
organizations.]
18. We have taken timely and appropriate steps to remedy fraud, illegal acts, violations of provisions
of contracts or grant agreements, or abuse that you have reported to us. [Omit or modify this item
if these findings are not reported.]
19. We have a process to track the status of audit findings and recommendations. [Omit or modify
this item if there are no audit findings.]
20. We have identified to you any previous financial audits, attestation engagements, performance
audits, or other studies related to the objectives of the audit being undertaken and the corrective
actions taken to address significant findings and recommendations.
21. We have provided our views on reported findings, conclusions, and recommendations, as well as
our planned corrective actions, for the report. [Omit or modify this item if there are no audit
findings.]
The last paragraph of the letter should also be replaced with the following:
NPO-CL-3.1
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No events, including instances of noncompliance, have occurred subsequent to the statement of
financial position date and through the date of this letter that would require adjustment to or
disclosure in the aforementioned financial statements or in the schedule of findings and
questioned costs.
o
If this letter is obtained for a Single Audit of a nonprofit organization performed in accordance with the Single
Audit Act Amendments of 1996 and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit
Organizations, add the phrase: “. . . and all audit or relevant monitoring reports, if any, received from funding
sources.”
p
A list of the minutes made available (including type of meeting and dates) could be provided here, or a separate
minutes representation letter may be prepared and signed by management of the organization. See NPO-CL-3.4
for an illustration of a separate minutes representation letter.
The wording of this representation should be changed, when necessary, to say “Except as made known to you,
there are no . . . ” or “Except as made known to you, we have no knowledge of . . . ”
q
The wording of this representation should be changed, when necessary, to say “Except as made known to you,
there are no . . . ” or “Except as made known to you, we have no knowledge of . . . ”
r
As discussed in section 1102 , auditors may ask certain questions to obtain an understanding of an entity’s
environmental remediation liabilities or potential liabilities. After the auditor obtains this understanding, the
representation letter may be modified. For example, if the entity has accrued a liability for losses at a site, the
following might be added:
s
Provision has been made for any material loss that is probable from environmental remediation
liabilities associated with the [Name of Site] . We believe that this estimate is reasonable based
on available information and that it has been adequately described in the organization’s financial
statements.
t
If this letter is obtained for a Single Audit of a nonprofit organization performed in accordance with the Single
Audit Act Amendments of 1996 and OMB Circular A-133, Audits of States, Local Governments and Non-Profit
Organizations, add the phrase: “. . . or the schedule of expenditures of federal awards.”
u
SAS No. 85 (AU 333 ) requires an acknowledgment in the representation letter that management has
considered the financial statement misstatements aggregated by the auditor and has concluded that any
uncorrected misstatements are not material to the financial statements. The SAS also requires that a summary of
the uncorrected misstatements be included in or attached to the representation letter. The “Summary of Audit
Differences” at NPO-CL-3.2 is a schedule auditors can attach to the management representation letter. Section
1104 discusses the communication of audit adjustments in more detail and provides an illustration of the
“Summary of Audit Differences.” Instead of using the “Summary of Audit Differences” at NPO-CL-3.2 , auditors
might attach a copy of NPO-CX-12.2 , “Audit Difference Evaluation Form,” to the representation letter. SAS No.
85 does not provide specific guidance for the auditor when there are no uncorrected misstatements. In that
situation (that is, when either no misstatements are noted in the audit or all noted misstatements are corrected),
the authors believe no representation about uncorrected misstatements is required in the management
representation letter. Accordingly, this sentence can be omitted.
In addition to the representations related to uncorrected audit adjustments, some auditors believe that it is
desirable to obtain management’s acknowledgment of responsibility for audit adjustments booked by the client. If
there are no uncorrected audit adjustments (that is, if all misstatements noted in the audit are booked),
management might state: “We are in agreement with the adjusting journal entries you have proposed, and they
NPO-CL-3.1
(Continued)
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have been posted to the organization’s accounts.” In this case, no representation about uncorrected
misstatements is required. If there are uncorrected audit adjustments, management might state: “We believe the
effects of the uncorrected financial statement misstatements summarized in the attached schedule are immaterial,
both individually and in the aggregate, to the financial statements taken as a whole. In addition, you have
proposed adjusting journal entries that have been posted to the organization’s accounts. We are in agreement
with those adjustments.”
v
Management might disagree with certain items presented in the summary of audit differences included in or
attached to the representation letter. If management believes that certain items presented are not misstatements,
the following sentence can be added to the representation about uncorrected misstatements to acknowledge that
belief:
We do not agree that [Describe items.] constitute misstatements because [Describe reasons.] .
The wording of this representation should be changed, when necessary, to say “Except as made known to you,
there are no . . . ” or “Except as made known to you, we have no knowledge of . . . ”
w
The wording of this representation should be changed, when necessary, to say “Except as made known to you,
there are no . . . ” or “Except as made known to you, we have no knowledge of . . . ”
x
y
Some auditors may add the following language to clarify what is meant by “concentrations” and “severe impact”:
We understand that concentrations include individual or group concentrations of contributors,
grantors, clients, customers, suppliers, lenders, products, services, fund-raising events, sources
of labor or materials, licenses or other rights, or operating areas or markets. We further
understand that severe impact means a significant financially disruptive effect on the normal
functioning of the organization.
z
According to SAS No. 57 (AU 342 ), footnote 4, auditors may wish to obtain representations from management
concerning key factors and assumptions related to significant estimates. In addition, SAS No. 101 (AU 328 )
requires auditors to ordinarily obtain management representations about the reasonableness of significant
assumptions used to determine fair value measurements and disclosures. The following wording might be added
preceding this sentence:
We have identified all accounting estimates that could be material to the financial statements,
including the key factors and significant assumptions underlying those estimates, and we believe
the estimates are reasonable in the circumstances.
If fair value measurements and disclosures are significant, auditors might also obtain representations about the
appropriateness and consistency of the valuation method used, the completeness and adequacy of the
disclosures, and whether subsequent events require adjustment to the fair value measurements or disclosures.
The wording of this representation should be changed, when necessary, to say “Except as made known to you,
there are no . . . ” or “Except as made known to you, we have no knowledge of . . . ”
aa
bb
If management of the nonprofit organization has not consulted a lawyer related to any litigation, claims, or
assessments, see section 1103 and revise this representation as follows:
We are not aware of any pending or threatened litigation, claims, or assessments or unasserted
claims or assessments that are required to be accrued or disclosed in the financial statements in
accordance with Statement of Financial Accounting Standards No. 5 [or which would affect
federal award programs], and we have not consulted a lawyer concerning litigation, claims, or
assessments.
NPO-CL-3.1
(Continued)
NPO (2/07)
11
cc
If this letter is obtained for a Single Audit of a nonprofit organization performed in accordance with the Single
Audit Act Amendments of 1996 and OMB Circular A-133, Audits of State, Local Governments, and Non-Profit
Organizations, the following should be added to the letter, to the extent applicable.
17. With respect to federal award programs:
a. We are responsible for complying and have complied with the requirements of OMB Circular A133, Audits of States, Local Governments, and Non-Profit Organizations.
b. We have, in accordance with OMB Circular A-133, identified in the schedule of expenditures of
federal awards, expenditures made during the audit period for all awards provided by federal
agencies in the form of grants, federal cost-reimbursement contracts, loans, loan guarantees,
property (including donated surplus property), cooperative agreements, interest subsidies,
insurance, food commodities, direct appropriations, and other assistance.
c.
We are responsible for complying with the requirements of laws, regulations, and the provisions of
contracts and grant agreements related to each of our federal programs and have identified and
disclosed to you the requirements of laws, regulations and the provisions of contracts and grant
agreements that are considered to have a direct and material effect on each major federal
program.
d. We are responsible for establishing and maintaining, and have established and maintained,
effective internal control over compliance requirements applicable to federal programs that
provides reasonable assurance that we are managing our federal awards in compliance with laws,
regulations, and the provisions of contracts and grant agreements that could have a material
effect on our federal programs. We believe the internal control system is adequate and is
functioning as intended. Also, no changes have been made in internal control over compliance
and other factors to the date of this letter that might significantly affect internal control, including
any corrective action taken with regard to reportable conditions (including material weaknesses)
reported in the schedule of findings and questioned costs.
e. We have made available to you all contracts and grant agreements (including amendments, if any)
and any other correspondence with federal agencies or pass-through entities relating to federal
programs.
f.
We have received no requests from a federal agency to audit one or more specific programs as a
major program.
g. We have complied, in all material respects, with the compliance requirements, including when
applicable, those set forth in the OMB Circular A-133 Compliance Supplement, relating to federal
awards and have identified and disclosed to you all amounts questioned and any known
noncompliance with the requirements of federal awards resulting from other audits or program
reviews.
h. Amounts claimed or used for matching were determined in accordance with relevant guidelines in
OMB Circular A-122, Cost Principles for Nonprofit Organizations, and Subpart C, Cost Sharing
and Matching, of OMB Circular A-110, Grants and Agreements with Institutions of Higher
Education, Hospitals, and Other Nonprofit Organizations.
i.
We have disclosed to you our interpretation of compliance requirements that may have varying
interpretations.
j.
We have charged costs to federal awards in accordance with applicable cost principles.
k.
We have made available to you all documentation related to the compliance requirements,
including information related to federal program financial reports and claims for advances and
reimbursements.
l.
Federal program financial reports and claims for advances and reimbursements are supported by
the books and records from which the basic financial statements have been prepared.
NPO-CL-3.1
(Continued)
NPO (2/07)
12
m. The copies of federal program financial reports provided you are true copies of the reports
submitted, or electronically transmitted, to the respective federal agency or pass-through entity,
as applicable.
n. We have monitored subrecipients to determine that they have expended pass-through assistance
in accordance with applicable laws and regulations and have met the requirements of OMB
Circular A-133. [Omit this item if there are no subrecipients.]
o. We have taken appropriate action, including issuing management decisions, on a timely basis
after receipt of subrecipients’ auditor’s reports that identified noncompliance with laws, regulations,
or the provisions of contracts or grant agreements to ensure that subrecipients have taken the
appropriate and timely corrective action on findings. [Omit this item if there are no subrecipients.]
p. We have considered the results of subrecipient audits and have made any necessary
adjustments to our books and records. [Omit this item if there are no subrecipients.]
q. We are responsible for and have accurately prepared the summary schedule of prior audit
findings to include all findings required to be included by OMB Circular A-133, and we have
provided you with all information on the status of the follow-up on prior audit findings by federal
awarding agencies and pass-through entities, including all management decisions.
r.
We are responsible for and have accurately prepared the auditee section of the Data Collection
Form as required by OMB Circular A-133, and we are responsible for preparing and implementing
a corrective action plan for each audit finding.
s.
We have disclosed to you all contracts or other agreements with service organizations, and we
have disclosed to you all communications from the service organizations relating to
noncompliance at the service organizations. [Omit this item if there are no service organizations.]
18. We have taken timely and appropriate steps to remedy fraud, illegal acts, violations of provisions
of contracts or grant agreements, or abuse that you have reported to us. [Omit or modify this item
if these findings are not reported.]
19. We have a process to track the status of audit findings and recommendations. [Omit or modify
this item if there are no audit findings.]
20. We have identified to you any previous financial audits, attestation engagements, performance
audits, or other studies related to the objectives of the audit being undertaken and the corrective
actions taken to address significant findings and recommendations.
21. We have provided our views on reported findings, conclusions, and recommendations, as well as
our planned corrective actions, for the report. [Omit or modify this item if there are no audit
findings.]
The last paragraph of the letter should also be replaced with the following:
No events, including instances of noncompliance, have occurred subsequent to the statement of
financial position date and through the date of this letter that would require adjustment to or
disclosure in the aforementioned financial statements or in the schedule of findings and
questioned costs.
If a subsequent event has been disclosed in the financial statements, this item may begin, “Except as
discussed in Note [X] to the financial statements, no events. . . .”
dd
ee
The representation letter should be signed by the current chief executive and chief financial officers; that is, the
executive director, president or the chairman of the governing board, and the controller or equivalent. Also, it is
not unusual to obtain separate representations from board members on certain matters such as related party
transactions. (See the “Related Party Questionnaire” at NPO-CL-12.4 .)
NPO-CL-3.1
(Continued)
NPO (2/07)
13
ff
The representation letter should be signed by the current chief executive and chief financial officers; that is, the
executive director, president or the chairman of the governing board, and the controller or equivalent. Also, it is
not unusual to obtain separate representations from board members on certain matters such as related party
transactions. (See the “Related Party Questionnaire” at NPO-CL-12.4 .)
NPO-CL-3.1
(Continued)