AICPA Exam CPA-Auditing Topic 3 Question 39 Discussion

Choice 'c' is correct. A purpose of a management representation letter is to reduce the possibility of a misunderstanding concerning management's responsibility for the financial statements. The first representation made in the letter states 'we are responsible for the fair presentation in the financial statements of financial position, results of operations and cash flows in conformity with GAAP.'

Choice 'a' is incorrect. The management representation letter confirms oral representations made by management but does not have an effect on audit risk.

Choice 'b' is incorrect. The management letter is important audit evidence but it does not reduce the auditor's responsibility to detect material misstatements.

Choice 'd' is incorrect. The management letter is important audit evidence but it does not reduce the scope of an auditor's procedures concerning related party transactions and subsequent events (or any other generally accepted audit procedure).