The management letter can provide innovative ideas, based on industry best practices, about ways to improve internal control systems, streamline operations, and cut back on expenses. Auditors want to help their clients succeed, and the management letter should be viewed as a value-added "bonus" to the audited financial statement.
Throughout the audit process, auditors typically compile a list of internal control weaknesses and operating inefficiencies that may warrant management's attention. AICPA standards specifically require auditors to communicate two types of deficiencies to management in writing:
Operating inefficiencies and other deficiencies in internal control systems aren't necessarily required to be communicated in writing. However, most auditors include these less significant items in their management letters to inform their clients about risks and opportunities to improve operations.
A management letter may cover a broad range of topics, including segregation of duties, account reconciliations, physical asset security, credit policies, employee performance, safety, Internet use, and expense reduction. In general, the write-up for each deficiency includes three elements:
Some letters present deficiencies in order of significance or potential for cost reduction. Others organize comments based on functional area or location.
When your CPA delivers your audited financial statements, pay close attention to the management letter - and compare it to the previous year's letter. Too often, the same items recur year after year, indicating that there are improvements to be made within your organization. Commit to making some targeted improvements and use the write-ups in the management letter to help track the results
Questions? Contact your Berdon advisor or Matthew Jahrsdoerfer, CPA. Berdon LLP, New York Accountants