AICPA CPA-Auditing Exam - Topic 3 Question 41 Discussion

Choice 'd' is correct. Materiality limits do not apply to client representations involving management fraud.

The management representation letter generally indicates that 'there has been no fraud involving management' (without reference to materiality). The only mention of material fraud relates to situations involving parties other than management.

Choice 'a' is incorrect. Materiality limits do apply to violations of state labor regulations. The management representation letter generally indicates that there are no violations of regulations 'whose effects should be considered for financial statement disclosure'--and only material effects would typically be considered for disclosure.

Choice 'b' is incorrect. Since GAAP requires disclosure of material line-of-credit arrangements, materiality limits do apply to representations about such matters.

Choice 'c' is incorrect. Since GAAP requires disclosure of material related party transactions, materiality limits do apply to representations about such matters.

Supplemental Questions