Question

connie, a staff accountant with the firm paul and such, cpas, is auditing the financial statements of cool corporation, inc. the firm's audit program calls for the preparation of a written management representation letter. in an audit of financial statements, in what circumstances is the auditor required to obtain a management representation letter? what are the purposes of obtaining the letter? to whom should the representation letter be addressed, and when should it be dated? who should sign the letter, and what would be the effect of his or her refusal to sign the letter? in what respects may an auditor's other responsibilities be relieved by obtaining a management representation letter?

Answer 1

The auditor is required to obtain a management representation letter in certain circumstances during an audit of financial statements. The letter helps gather evidence and reduces the auditor's risk. If management refuses to sign the letter, it can have significant consequences for the auditor.

Step-by-step explanation:

In an audit of financial statements, auditors are required to obtain a management representation letter under certain circumstances. The letter is a written statement from the management of the audited company confirming their responsibilities and representations regarding the financial statements. It is obtained to gather evidence and reduce the auditor's level of risk in the audit process.

The management representation letter should be addressed to the auditors and should be dated as of the date of the auditor's report. It should be signed by the appropriate members of management who have the authority to make the assertions contained in the letter.

If management refuses to sign the management representation letter, it can be a significant issue for the auditor. It may indicate a lack of cooperation or potential misrepresentation of facts. It could result in the auditor considering the need for additional audit procedures or even a qualified opinion on the financial statements.

The management representation letter helps the auditor in relieving some of their other responsibilities. By obtaining the letter, the auditor can obtain representations from management on matters such as the completeness of information provided, disclosure of relevant information, and compliance with laws and regulations. This helps the auditor rely on management's assertions and reduces the need for extensive testing by the auditor.