What is a management representation letter?
A “rep” letter is the audit teams’ formal evidence that management understands their responsibilities and that management has performed all of their responsibilities.
Management should provide the auditor with a representation letter in writing that outlines the following characteristics:
A) Managements acceptance for its responsibility in the establishment and maintenance of an effective internal control systems.
B) Managements performance of its assessment of the effectiveness of its internal control systems.
C) A statement of management’s assessment and the criteria that has been used and implemented as of a specified period in time.
D) A statement that management has disclosed all deficiencies both in design and operation of its system of internal controls.
E) A statement that management confirms that all significant deficiencies and material weaknesses have been disclosed to the independent external auditor.
F) A statement the management confirms whether or not previously identified deficiencies have been resolved or remain unresolved.
G) Illustrates all fraudulent activities that result in material misstatements specifically involving senior management or other employees that have a significant role in ICFR.
H) Illustrates whether or not there are any significant changes to internal controls after the “as of” date of the report as well as any corrective action that has been taken by management in regard to significant deficiencies and material weaknesses that have been identified.
I) Any failure to obtain written representations for management will result in scope limitations which might include the auditor’s withdrawal from the engagement altogether.
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