| Abstract: | This paper reports the results of research on the value of management letters to unlisted companies. The aims of the research were: (1) to identify the issues raised in management letters; (2) to assess the value of management letters to unlisted companies; and (3) to assess the value of management letters to auditors. Within these aims we investigated whether the size of the audit firm (Big 5, Top 20, or other) or the length of audit tenure had any effect on the contents of management letters or their value to unlisted companies. We conclude that the issues most frequently raised in management letters related to internal control and accounting systems but that other issues, such as taxation and general business advice, are often included. There was little difference in the contents of management letters issued by Big 5 audit firms and other firms. Unlisted companies generally considered that the advice given in management letters was valuable. Again, there was little difference between clients of Big 5 audit firms and other firms. Similarly, the length of audit tenure had no statistically significant effect. Finally, auditors considered that the most important benefit of the management letter to themselves was its potential for enhancing clients’ perceptions of the auditor. The potential for reducing costs was relatively unimportant. These results were similar both for Top 20 and non-Top 20 audit firms. |
