REP LETTERS, P2

 

Finally, the opening paragraph usually provides that "we confirm, to the best of our knowledge and belief, the following representations made to you during your audit," so the letter seeks only what the manager knows. In reviewing the co-op or condo's books, the accountant is seeking information relating to:

• the extent to which the board of directors monitors and controls the managing agent's activities related to the co-op or condo

• the use of funds; the manner in which the managing agent is compensated

• the extent, if any, to which the managing agent commingles operating funds, deferred maintenance funds, and replacement funds with other associations under management

• whether the co-op/condo maintains separate records for transactions initiated by the managing agent

• whether the co-op/condo controls funds separately from funds controlled by the managing agent; the policy or board review of managing agent reports

• the frequency of managing agent reports; the control program used by the agent with respect to the co-op / condo

• existence of a conflict of interest or ethics policies, or both, for the managing agent

• professional designations of the managing agent; and

• training and continuing education of the managing agent and agent's staff.

The rep letter does not reduce the accountant's responsibilities; it simply affirms a responsibility that already exists.

The rep letter has several benefits for management. It avoids misunderstandings and provides a checklist for important matters that affect the financial statements. It puts in writing the continued appropriateness of the information obtained in discussions with management.

A rep letter does not reduce the

accountant's responsibilities; it

affirms his or her responsibility.

A review of financial statements consists principally of inquiries of company personnel and analytical procedures applied to financial data. As part of a review of financial statements, the accountant is required to obtain a written representation from his or her client to confirm the oral representations made to the accountant.

It is important that questions regarding representations be thoroughly explored and answered to the full satisfaction of all concerned, which is why the accountant cannot issue a report without the rep letter. Without it, the accountant is left to wonder if management has withheld information, which might raise doubts in the accountant's mind about the reliability and completeness of management's responses.

The purpose of the rep letter is to provide the accountant with comfort that the audit is complete and accurate. In that regard, the rep letter is as important to the board and to residents as it is to the accountant, because both the audit and the rep letter upon which the audit is based provide board and owners with the comfort they need to make certain that appropriate controls are in place.

So, I become concerned when I see a form rep letter without such required language as "We are not aware of any fraud or suspected fraud affecting the condominium," or "We have no knowledge of any allegations of fraud or suspected fraud affecting the condominium received in communications from employees, former employees, regulators, or others," or "We acknowledge our responsibility for reviewing the entries and understanding the nature of any proposed entries and the impact they have on financial statements," or "We acknowledge our responsibility for having qualified management-level individuals responsible and accountable for overseeing these services."

And I become even more concerned when, upon asking the manager about it, he replies, "Well, if the accountant isn't concerned about it, why should you worry?"

Now you know why.

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