Barrett Jennings, CPA, Has Prepared a Letter of Representation for the President

question 96

Essay

Barrett Jennings, CPA, has prepared a letter of representation for the president and controller to sign. The
following items are contained in it:
(a) Inventory is fairly stated at the lower of cost or market and includes no obsolete items.
(b) All actual and contingent liabilities are properly included in the financial statements.
(c) All subsequent events, relevant to the financial statements, have been disclosed.
Required:
(1) Why is it desirable to have a letter of management representation letter from the client concerning these
matters when the evidence accumulated during the course of the audit is meant to verify the same information?
(2) How is the letter of management representation useful as audit evidence?
(3) What are several other types of information commonly included in the management representation letter?

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Definitions:

Unit Fixed Costs

Costs that remain constant for a product regardless of how many units are produced or sold.

Decision Making

The process of making choices by identifying a decision, gathering information, and assessing alternative resolutions.

Incremental Revenue

Additional income generated from selling more units of a product or from launching a new product or service.

Relevant Information

Information that is applicable and crucial to the decision-making process, having the ability to affect the outcome of a decision.