Final answer:
If management refuses to sign the representation letter, auditors face a scope limitation which can result in a disclaimer or qualification of the audit report, indicating serious concerns about the accuracy of financial statements.
Step-by-step explanation:
When management refuses to sign the representation letter, it raises significant concerns for auditors and may result in a limitation of the scope of the audit. This letter is a formal statement from management to the auditors, confirming the accuracy and completeness of information provided during the audit. Without it, the auditor may be unable to obtain sufficient appropriate audit evidence, which can lead to a disclaimer of opinion or a qualification of the audit report. It signals potential issues like fraud or misstatements, and auditors must consider the implications on the financial statements and their audit opinion. Furthermore, auditors would need to communicate the situation with those charged with governance, possibly leading to broader implications for the organization.