Auditor Liability and Litigation: The Management Representation Letter
An auditor’s responsibility is to provide reasonable assurance that a reporting entity’s financial statements are free of material misstatements, whether due to error or fraud. An auditor (or audit firm) that fails to detect a material misstatement in a client’s financial statements will oftentimes find him or her self in the position of having to defend against accountant’s liability for negligence, or worse. Claiming reliance upon fraudulent or misleading information provided by the management of a company in a management representation letter is not a viable defense against auditor liability, even when that assertion (i.e., having been deceived by the client) is actually true.
