The Management Letter Report

The management letter report

If the auditors find that the internal control system is inadequate, or is not operating efficiently, then they will send what is known as management report/letter of control weakness to the board of company .In large companies the letter would probably be sent to audit committee. The almost universal layout forsuch a letter is three parts.

1. Say what the problem is,
2. Say what the implication or consequence of those problems might be
3. Recommend how the problem can be fixed

So the problem might be that supplier invoices are not cancelled when paid, the consequences of that could be that suppliers invoice are paid more than once, the way to prevent that is that you mark or stamp invoices “paid”.

Auditors will normally also say that they may not have found all control weakness and that others may exist and that is duty of the board of directors, now enshrined in the combined code of corporate governance, to ensure that there is an adequate system of internal control operating within the company.

• Significant deficiencies should be communicated to those charged with governance defined as

When a control is designed, implemented or operated is unable to prevent or detect misstatements on a timer basis; or such a control is missing

1. A management Representation letter is a letter sent to internal auditors by management informing them of the matters requiring the exercise of judgement or the formulation of opinion. Through this letter auditors obtain evidence that management acknowledges as its responsibility for the fair presentation of the financial information in the financial statements. Where sufficient appropriate audit evidence can’t be responsibly expected to exist, the auditor sends a request to management requesting a management letter to inform them on matters material to the financial statements which can only be obtained through management.

UNESA PVT LTD

P O Box 34

Gweru

To : The Auditors

15 September 2012

Confirmations

As minuted by the Board of Directors at its meeting held on the 10th of September 2012.

Signature

USES OF A MANAGEMENT LETTER

They remind both auditors and directors of their rights and duties. They give auditors information and explanation necessary for the purposes of the audit which is not misleading to the auditors because giving misleading evidence to auditors is a serious offence. Auditors also obtain evidence that management acknowledges its responsibility for the fair representation of the financial information in the financialstatements. They reduce misunderstandings between the auditors and management.

They disclose to the auditor all facts relating to any possible frauds known to management that may have affected the entity. Allow for the evaluation by auditors of whether or not the representations by management appear reasonable and consistent with other audit evidence obtained. If not reasonable, the auditors may then have to seek other sources inside or outside the entity for evidence.

LIMITATIONS

Matters that are considered either individually or collectively to be material in the financial statements may be misrepresented by management , for example if management is also involved in fraudulent activities .

It is important to note that

Arrangements should be made to get the letter of representation at an early stage such as close to the date of the audit report and after the review of post balance sheet events. However if management refuse to cooperate in providing the necessary representations , the auditor may consider that he has not obtained all the necessary information and may qualify his report on the grounds of inherent uncertainty.

The most appropriate individual in management should be chosen by auditors to represent sufficiently on the matter of concern.

Management letters cannot fully substitute for the audit evidence that the auditor could reasonably expect to be available.

REFERENCES