Audit of XYZ for the Year Ended DAY MONTH YEAR

Appendix 21

Dear ABC

Audit of XYZ for the year ended DAY MONTH YEAR

Thepurposeofthisreportistosetoutcertainmattersthatcametoourattentionduringthecourseof theinterimauditofthefinancialstatementsofXYZfortheyearended31December.

Ourobjectiveistouseourknowledgeofthebusinessgainedduringourroutineauditworktomake usefulcommentsandsuggestionsforyoutoconsider.However,youwillappreciatethatourroutine auditworkisdesignedtoenableustoformanopiniononthefinancialstatementsofthebusinessand itshouldnotbereliedupontodiscloseallirregularitiesthatmayexistortodiscloseerrorsthatarenot materialinrelationtothefinancialstatements.

Our report is designed to include useful recommendations that may help improve performance andavoidweaknessesthatcouldleadtomateriallossormisstatement.Itisyourobligationtotake theactionsneededtoremedythoseweaknessesandshouldyoufailtodosoweshallnotbeheld responsibleiflossormisstatementoccursasaresult.

Thereportisprovidedonthebasisthatitisfortheinformationofdirectorsandmanagementofthe business;thatitwillnotbequotedorreferredto,inwholeorinpart,withoutourpriorwrittenconsent; andthatwewillacceptnoresponsibilitytoanythirdpartyinrelationtoit.

Thisreportissetoutinthreesections.Thefirstsectionaddressesourobservationsfromthisyear’s auditandourrecommendationsineacharea.Thesemattershavebeendiscussedwithmanagement and their response is included as appropriate.The second section is a summary of the matters previously raised in management reports that have not yet been implemented/resolved and their currentstatus.Thethirdsectionisasummaryofmatterspreviouslyraisedinmanagementreportsthat havebeenaddressedduringthecurrentfinancialyear.

We have graded our management report observations:

—Grade1observationsarethosewherethereisariskofasignificantfinancialimpactonthe businessthatmustbeaddressedimmediately.

—Grade 2 observations are those where there is a risk of moderate financial impact on the business,forexampleacontrolfailureortheabsenceofacontrolinanareaofmoderaterisk.

—Grade3observationsarethosethatrelatetominorcontroldeficiencies orenhancementsincontrolefficiency.

Pleasedonothesitatetocontactmeifyouhaveanyquestionsaboutthisreport. Yoursfaithfully,

Mr. Brown

Partner

Grade1points Title ofpoint

Recommendation
This section should give a brief description of our recommendations, which should be clearly stated and which must be viable in a business context. It should also state the benefits of implementing the recommendations.
Management response
This must be agreed with management.
Action
Thissectionshouldgiveanactionplanfortheimplementationoftheagreedrecommendations, namingthememberofoperatingunitstaffresponsibleforimplementingtherecommendation andthedatebywhichhe/sheintendstodoso.
Grade 2 points
[Included in the same format as for grade 1 points]
Grade 3 points
[Included in the same format as for grade 1 points]