Which one of the following is not a purpose of the management representation let
ID: 2493824 • Letter: W
Question
Which one of the following is not a purpose of the management representation letter?
a.
It clearly documents the audit procedures that were performed by the auditors.
b.
It further acknowledges management's responsibility for the financial statements.
c.
It confirms oral responses obtained by the auditor earlier in the audit and the continuing appropriateness of those responses.
d.
It reduces the possibility of misunderstanding concerning the matters that are the subject of the representations.
a.
It clearly documents the audit procedures that were performed by the auditors.
b.
It further acknowledges management's responsibility for the financial statements.
c.
It confirms oral responses obtained by the auditor earlier in the audit and the continuing appropriateness of those responses.
d.
It reduces the possibility of misunderstanding concerning the matters that are the subject of the representations.
Explanation / Answer
Management representation letter is usually obtained by the Auditors to clarify the adjustmemts or provisions made in the Books of Accounts and to confirm the assumptions made during preparation of Books of accounts.
So, Auditors used to document in written form, the assumptions made during preparation of Financial Statements.
So, from my point of view answer is (b), as management representation is not for taking whole responsibility for Financial Statements.
For Clarity of Student who asked the question and who post remark
For example, during Audit of Inventory or Manpower Analysis, Auditor has to comply with the responses like installed Capacity of Plant for Overhead Allocation, Machining Capacity etc. For documenting the same, he takes written compliance from management to support the same.
I think the basic purpose of management representation is now clear from above example.
Supporting the accuracy of financial statements is secondary objective of management representation.
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