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SAS 85 requires that auditors obtain a Management Representation letter on matters of audit importance. Discuss the make-up of this letter and the information contained within. Does the letter provide comfort to the auditor? If this is simply a letter stating certain information from the client and is not audited in any way, why is it important?
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SAS-85 (AU 333) (Management Representations) requires the auditor to obtain a written letter of representations from the management. Management representation letters primarily communicate, document, and confirm management’s oral representations made to the auditor. While the direction of the communication is from management to the auditor, it also establishes management’s responsibility for the financial statements. SAS 85 adds consistency to this representation letter, and encourages tailoring such communication to the client’s business. Representation letters document communications between management and the auditor during the audit. SAS 85 recognizes that auditors should investigate representations that contradict evidence that they amass during the audit.
Contents of the management representations letter, specific representations ordinarily relate to –
- Management’s acknowledgement of its responsibility for the fair presentation in the financial statements of financial position, results of operations, and cash flow in conformity with GAAP.
- Management’s belief that the financial statements are fairly presented in accordance in conformity with GAAP.
- …
