The Management Representation Letter Is Used

question 11

Multiple Choice

The management representation letter is used:

• A) by the auditor in lieu of audit testing in cases of scope limitation.
• B) by the auditor as evidence that management understands its responsibility for the financial statements and internal control environment.
• C) by the auditor as its sole defense in case of lawsuits arising from an audit failure.
• D) All of the above.

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Definitions:

Representativeness Heuristic

A mental shortcut that involves making a decision based on how closely a new situation or object resembles a prototype or typical case.

Fixation

The inability to see a problem from a new perspective, by employing a different mental set.

Heuristics

Mental shortcuts or rules of thumb that allow people to make decisions and solve problems quickly and efficiently, though not always perfectly accurate.

Overconfidence

The phenomenon where an individual's subjective confidence in their judgments is reliably greater than their objective accuracy.