Management letter

Hi ! @dragon76

It is standard practice during the course of an audit of a company’s financial statements for a letter on internal control (also referred to as a management letter or a letter of weakness) to be issued by the auditors.

A letter on internal control is a letter usually forwarded by an auditor to the senior management of a company. The letter should normally be forwarded immediately following the completion of the tests of control and before the commencement of substantive procedures.

The letter contains weaknesses identified in the entity’s system of internal control as identified by the auditor or members of his audit team, when performing tests of control and the purpose of the letter is to bring these weaknesses to the attention of management. The weaknesses identified in the main body of the letter should be those which could lead to fraud or material error in or omission from the company’s financial statements, and will be classified as those relating to:
(i) the design of the systems of accounting and internal control.
(ii) the operation of the systems of accounting and internal control.

For both categories the implication(s) of the weakness(es) should be identified, however minor control issues which the auditor would wish to bring to the attention of the company’s senior management should be included in an appendix to the letter of weakness or in a supplementary report.