Which of the following management roles would typically be acknowledged in a management representation letter?
A. Management's knowledge of fraud is communicated to the audit committee.
B. Management communicates its views on ethical behavior to its employees.
C. Management has the responsibility for the design of controls to detect fraud.
D. Management's compensation is contingent upon operating results.
Answer:C
Choice "C" is correct. Management acknowledges its responsibility for the design of controls to detect and prevent fraud in its management representation letter.
Choice "B" is incorrect. The auditor should inquire of management how it communicates its views on ethical behavior to employees as part of obtaining an understanding of the design of the entity's internal control. This matter is not typically included in the management representation letter.
Choice "A" is incorrect. The management representation letter is concerned with representations made by management to the auditors, not representations made by management to the audit committee.
Choice "D" is incorrect. This would not be communicated in a management letter. This is a risk factor associated with fraudulent financial reporting.