Question

As part of an audit, a CPA often requests a management representation letter from the entity. Which one of the following is not a valid purpose of such a letter?

1) To provide audit evidence.
2) To emphasize to the entity their responsibility for the fairness of the financial statements.
3) To satisfy himself or herself that a certain account balance is fairly stated when certain customary auditing procedures are not performed.
4) To provide possible protection to the CPA against a charge of knowledge in cases where fraud is subsequently discovered to have existed in the accounts.

Answer 1

A management representation letter is used as audit evidence, stresses management's responsibility for financial statements, and can protect against fraud claims, but it's not a substitute for performing audit procedures.

Step-by-step explanation:

A management representation letter is a letter written by a company's top management to the auditors as part of the audit process. Its purposes include providing audit evidence, emphasizing management's responsibility for the financial statements, and offering possible protection against a charge of knowledge in cases of fraud. However, one purpose that is not valid for such a letter is to serve as a substitute for audit procedures where they cannot be performed. If customary auditing procedures are not performed, it is the auditor's responsibility to seek alternative procedures to gather sufficient appropriate audit evidence, not to rely on a representation letter for that.