Lesson: Considerations of the Management Representation Letter

Instructor: Nick Palazzolo

In this lesson, Nick Palazzolo discusses various considerations related to the management representation letter in the auditing process. He emphasizes that the letter should be tailored to the specific business or industry and may require additional representations depending on the context. Also, materiality may differ between different representations, and the discussion of materiality can be included in the letter. Further, the lesson delves into addressing the auditor, dual dating, obtaining signatures from appropriate members of management, and handling situations where current management was not present during all periods covered by the auditor's report. Nick covers various scenarios which may be encountered in addressing these issues, ensuring that the management representation letter is tailored and appropriate for the specific engagement.

Updated: June 22, 2023 Create an account

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Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Alright, well that was a fun time running through all of those official AICPA points. Let's keep moving along here. These are some considerations of the management representation letter. It should be tailored to include additional appropriate representations for management relating to the specifics of the business or industry. If let's say it's a cryptocurrency company, just as of recording this and hopefully the industry gets better, but there's just a lot of fraud, a lot of misrepresentations, a lot of issues with that. So maybe within that particular industry, it would be appropriate to include more representations with that, right? So that we are taking responsibility, making sure that there's no third parties or investors or weird business structures, that we are actually conducting the type of business that we're advertising, something like that. These representations may be limited to matters that are considered either individually or collectively material to the financial statements, provided management and the auditor have reached an understanding on materiality for this purpose. And materiality may be different for different representations. A discussion of materiality may be included explicitly in the representation letter, either in qualitative or quantitative terms. What this means, materiality for related parties could be radically different from materiality for growing concern or materiality for subsequent events. Why would that be? It just depends, right? It depends on the materiality calculations determined by the auditor, which is going to be proprietary information, not really getting out there too much. That would be something to watch out for. Take a stretch, take a walk if you need to. We are powering through having a good time here. We want to make sure we are quite knowledgeable here. I'm having a good time. I hope you are as well. Let's keep moving along. The

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Engagement Planning, Understanding an Entity, & Understanding its Internal Control

Module: 2 Concepts, 36 Lessons

Management's Responsibility for Disclosing Related Parties, Going Concern, Litigation, Estimates, & More Overview

1:09

Management's Responsibility for Disclosing Related Parties, Going Concern, Litigation, Estimates, & More Objectives

4:41

Introduction to Management's Representation and Responsibility

2:56

Reliance on Management Representations