Do Not Fear the Auditor’s Management Letter

If your company has a annual financial audit, you may receive an Auditor’s Management Letter as part of the final procedures. This often isn’t and shouldn’t be a bad experience–it can be an opportunity, if the recommendations aren’t seen as criticism.

Management Letters are used to give businesses a comprehensive list of areas that need improvement from a financial accounting and internal control perspective. You shouldn’t be troubled by the recommendations, but you should heed the advice, since it is meant to assist you in increasing efficiency and control.

There are certain comments that are required by auditing standards. Any issues relating to internal control deficiencies– those that could lead to inappropriate collection of data–must be identified and reported to management. These types of issues should be corrected as soon as possible. Your auditor will discuss the compliance risks and ask for corrections. This required comment section of a management letter reinforces a proper system, one designed to detect and mitigate risk associated with errors and even fraud.

The management comment section is an opportunity for the auditor to offer advice and insight to clients.   As an independent third party, their perspective and suggestions may provide valuable information that allows you to increase profitability and control of company assets.

Do not fear the Auditor’s Management Letter; everything in it is designed to help strengthen your business and business relationships. It’s your auditor’s way of providing insight into your company and its needs, while keeping you compliant and efficient.