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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Reports to those charged with governance and management

Orrin Foods' audit team issued a management letter listing control weaknesses. Which content is most consistent with good practice for the letter's wording and structure?

A good management letter explains each deficiency, its possible consequences and a recommendation, and states that it covers only matters noticed during the audit and is intended for management or those charged with governance. It must not imply that all weaknesses were found or give assurance on controls.

  1. AA statement that the letter lists every control weakness in the company and that the audit has therefore been sufficient to give assurance on the control system
  2. BA description of each deficiency, its potential consequences, and a recommendation, together with a statement that the letter covers only matters identified during the audit and is for management's useCorrect
  3. COnly recommendations, without describing the deficiency, to avoid offending management
  4. DA list of all fraud suspects named individually, to be distributed to all employees

Explanation

Good practice, consistent with ISA 265, is to describe each deficiency, explain its potential effect and give a recommendation, and to state that the matters are limited to those identified during the audit, not a comprehensive review of controls. The letter is restricted to the intended recipients. Claiming comprehensiveness would wrongly imply assurance over controls.

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