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Are management representation letters and other documentations like protection from negligence claim for auditors ? Specially in a situation where for example auditors were not able to detect a fraud but relied on management representation ? Is there any action on auditor in this situation
The letter of representation does not substitute for other types of audit evidence except where no other type of evidence is available eg the intentions of management might be firmly locked in their brains.
The main purpose of letters of rep is to focus management’s attention eg that all liabilities have been included etc. I suppose there might be some protection form negligence claims but this would be a weak defence. The audit conclusions should not rest on management representations otherwise you could cut the audit down to just asking the directors if the FS show a T&F view!
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