Reference no: EM132567704

As audit senior in charge of the audit of Q Limited, you have asked your audit staff to review the audit files and make a list of items for inclusion in the management representation letter. The staff have provided the following draft list of points:

Liabilities

• All contingent liabilities have been discussed and appropriate disclosures made in respect of all known contingencies.
• All known subsequent events have been discussed and appropriately treated in the financial report.

Property, Plant and Equipment

• All non-current assets are stated at a value below their recoverable amount.
• All assets are being depreciated over their estimated useful lives.

Trade Receivables

• Adequate allowance has been made for all known doubtful trade debtors.
• Current assets include other receivables of $650,000 in respect of amounts receivable on settlement of a contract for the sale of commercial property. The directors confirm that it is their intention to settle the contract during the 2019/2020 financial year.

Required:

Question (i) Outline the main purpose of a management letter. From the information gathered above, outline the items which should be included in the management representation letter, giving reasons.

Question (ii) The directors of Q Limited have refused to provide a management representation letter. What action should the auditor take as a result of this refusal?