Your auditor’s report may say that the financial statements are fairly stated in accordance with relevant standards. So why are you given a letter which highlights deficiencies and weaknesses?
The management letter can provide ideas about ways to improve operations and highlight any risks and opportunities. The management letter should be viewed as a value-added “bonus” to the audited financial statement.
This may cover a broad range of topics, including segregation of duties, account reconciliations, physical asset security, credit policies, employee performance, and expense reduction.
The core element is to provide recommendations for improvement. Pay close attention to the management letter as too often, the same items recur year after year, indicating that there are improvements to be made.
Used properly, the Management Letter can be a beneficial tool for assisting management or those charged with governance in fulfilling their responsibilities.