A management representation letter is a letter addressed to the auditor that has been drafted by the auditor and given to the client's senior management to sign. The prmary purpose of such a letter includes:
* the minimization of misunderstandings between the client's management and the auditor. * the commitment to writing of representations previously made verbally by management to the auditor. * the provision of corroborative evidence.
Note that where other evidence is available, the auditor does not rely solely on evidence obtained through management representations [fn]. (However, see Journal of Accountancy article Top 10 Audit Deficiencies.) Where other evidence is not available, evidence gathered solely by way of a management representation letter is not normally considered to be particularly reliable.
Auditors request management to confirm that they are responsible for the preparation and presentation of the financial statements, that they have provided the auditor with all relevant information and that all transactions have been recorded and are reflected in the financial statements. See an example of a management representation letter.
Evidence obtained through a management representation letter may be particularly applicable to the corroboration of evidence relating to both subsequent events and the appropriateness of the going concern assumption.
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