Audit of xyz for the year ended day month year



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Appendix 21

Specimen audit management letter


Dear ABC
Audit of XYZ for the year ended DAY MONTH YEAR
The purpose of this report is to set out certain matters that came to our attention during the course of the interim audit of the financial statements of XYZ for the year ended 31 December.

Our objective is to use our knowledge of the business gained during our routine audit work to make useful comments and suggestions for you to consider. However, you will appreciate that our routine audit work is designed to enable us to form an opinion on the financial statements of the business and it should not be relied upon to disclose all irregularities that may exist or to disclose errors that are not material in relation to the financial statements.

Our report is designed to include useful recommendations that may help improve performance and avoid weaknesses that could lead to material loss or misstatement. It is your obligation to take the actions needed to remedy those weaknesses and should you fail to do so we shall not be held responsible if loss or misstatement occurs as a result.

The report is provided on the basis that it is for the information of directors and management of the business; that it will not be quoted or referred to, in whole or in part, without our prior written consent; and that we will accept no responsibility to any third party in relation to it.

This report is set out in three sections. The first section addresses our observations from this year’s audit and our recommendations in each area. These matters have been discussed with management and their response is included as appropriate. The second section is a summary of the matters previously raised in management reports that have not yet been implemented/resolved and their current status. The third section is a summary of matters previously raised in management reports that have been addressed during the current financial year.

We have graded our management report observations:




  • Grade 1 observations are those where there is a risk of a significant financial impact on the business that must be addressed immediately.

  • Grade 2 observations are those where there is a risk of moderate financial impact on the business, for example a control failure or the absence of a control in an area of moderate risk.

  • Grade 3 observations are those that relate to minor control deficiencies or enhancements in control efficiency.

Please do not hesitate to contact me if you have any questions about this report. Yours faithfully,

Mr. Brown

Partner





Observation

This section should give a brief description of the point, with any necessary background information, and should highlight the specific risks associated with the observation. It is important that such risks are given, and that they are relevant and realistic.



Grade 1 points Title of point



Recommendation

This section should give a brief description of our recommendations, which should be clearly stated and which must be viable in a business context. It should also state the benefits of implementing the recommendations.



Management response

This must be agreed with management.



Action

This section should give an action plan for the implementation of the agreed recommendations, naming the member of operating unit staff responsible for implementing the recommendation and the date by which he/she intends to do so.



Grade 2 points

[Included in the same format as for grade 1 points]



Grade 3 points

[Included in the same format as for grade 1 points]




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