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What Is a Management Letter?

A management letter is normally included by a certified public accountant as part of the auditor's report.
The management letter is addressed to a corporation's board of directors.
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  • Written By: Terry Masters
  • Edited By: Allegra J. Lingo
  • Last Modified Date: 01 August 2014
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    Conjecture Corporation
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In the corporate context, a management letter is an analysis of findings prepared by a certified public accountant as part of an auditor’s report to a company’s board of directors. An auditor’s report is a thorough, third party review of a company’s bookkeeping practices and financial position along with the preparation of financial statements, including a balance sheet, income statement, and statement of cash flows. Other sorts of reports in different contexts can include a summary address to readers with this name, but its most common use is as part of a formal audit report.

A public corporation must file and publish a set of financial statements every year that includes a management letter to meet regulatory requirements and to inform investors of the corporation’s activities. Other types of companies also produce financial statements in the ordinary course of business but are not required to file this information with the government or to make this information available to the public. Although financial statements can be produced in-house at any time, they are periodically generated as part of the audit process by a certified public accountant. Legally requiring a corporation to subject its books to an audit at certain intervals is a particularly important part of the regulatory control of public corporations and requires an independent third party to review the corporation’s records and make an official statement on the legitimacy of the financial information that the public is relying upon.

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The final product of an audit by a certified public accountant or an accounting firm is a written report titled, “Consolidated Financial Statements and Independent Auditor’s Report.” This report is a review of the corporation’s financial practices and position for the fiscal year at issue. A management letter is typically the first substantive page of the report. It details the accountant’s findings or opinion regarding what’s going on financially with the company, if its fiscal controls are adequate, and whether there seems to be any mitigating circumstances that currently affect or will soon affect the financial position of the company.

The letter is addressed to a corporation’s board of directors and typically contains three categories of information. First, it details general information about the company’s financial practices and position. Second, it lists boilerplate information that is basically the same every year. Third, the report presents the auditor’s specific recommendations to improve internal fiscal controls and raises any concerns about current or future activities that will likely affect the corporation’s financial position.

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Discuss this Article

Juan12
Post 1

Before hiring a bookkeeper, the efficiency and capability of the bookkeeper should be checked because the company's financial assets are totally dependent on the balance sheet prepared by the bookkeeper.

When the bookkeeper prepares the balance sheet and it is presented to the auditor, the auditor checks the financial assets of the company. If the company is in loss and the balance sheet shows a profit, the company faces a huge loss and is even penalized. So the best bookkeeper should be hired.

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