Updated November 2026 · 5 min read
Every year, once the audit fieldwork is done, many UAE companies receive an auditor management letter listing weaknesses the audit team found along the way. Some owners file it and forget it. That is a mistake, because the same points tend to come back, often in a stronger form. Treated properly, the letter is free advice on how to run a tighter finance function, and it is one of the most useful outputs of internal and external audit services in UAE.
What a Management Letter Is and Why You Receive One
A management letter, sometimes called a letter of recommendations or a report on internal control, sets out control weaknesses and other matters the auditor noticed during the audit. Under International Standards on Auditing, auditors must communicate significant control deficiencies to those charged with governance. Many also report smaller issues as good practice.
It is not the audit opinion. A company can receive a clean, unmodified opinion and still have a long management letter. The opinion says the accounts give a fair picture. The letter says how the process behind them could be stronger.
How to Read an Auditor Management Letter
Most letters follow a simple format for each point. There is an observation, the risk or implication, a recommendation and a space for management’s response.
Read the observation carefully. Is it factually correct? Auditors work from samples and conversations, so occasionally a point is based on a misunderstanding. If so, say so politely and back it up with evidence.
Then look at the rating. Many firms classify points as high, medium or low priority. High points usually relate to things that could lead to a material misstatement or a loss of assets, such as unreconciled bank accounts or no approval over payments.
Rank the Points Before You Respond
Do not try to fix everything at once. Group the points into three buckets.
- Fix now. High-risk items and anything that affects cash, tax filings or regulatory compliance.
- Fix this year. Medium items that need a process change, a policy or some training.
- Accept or monitor. Low items where the cost of fixing is higher than the risk, which you document and revisit.
A small Sharjah distributor, for example, might receive points on stock count procedures, missing supplier contracts and shared system passwords. Shared passwords go to the top of the list, because they undermine every other control in the accounting system.
Writing Responses That Hold Up
A good management response does three things. It accepts or disputes the finding, describes the specific action, and names an owner and a target date.
Compare these two answers to a point about late bank reconciliations. A weak response says, “Noted, will be improved.” A strong one says, “Agreed. From January 2027 the accountant will reconcile all bank accounts by the 10th of each month, and the finance manager will review and sign each reconciliation. Owner is the finance manager, target date 31 January 2027.”
The second answer gives the auditor something to test next year. It also gives your own team a clear instruction.
If you disagree with a point, explain why in factual terms. Perhaps a compensating control exists that the auditor did not see. Provide the evidence and ask the auditor to reword or remove the point. Auditors are generally open to this when you make a good case.
Fixing System and Software Weaknesses
A large share of management letter points relate to the accounting system rather than the people. Common examples include users with unrestricted access, no audit trail for edited vouchers, manual journals posted without approval, and backups that nobody tests.
You can fix many of these with settings you already pay for. If your business runs on Tally, for instance, you can configure user roles, edit logs and approval rights to address most of these findings. Specialist support for Tally Prime Dubai can help set up security levels, voucher controls and reports so the system enforces the rule rather than relying on staff memory.
Where the issue is a policy gap, write the policy. A one-page document covering who may approve payments, up to what amount, and how you record approvals will close several common points in one go.
Track Progress Through the Year
The biggest failure is not a weak response. It is a good response that nobody follows up.
Keep a simple tracker with each point, its rating, the agreed action, the owner, the deadline and the current status. Review it monthly in the finance team meeting and quarterly with the owners or the audit committee, if you have one.
Collect evidence as you go. When the auditor returns, being able to show three months of signed reconciliations or a screenshot of the new user rights is far more persuasive than a verbal assurance. Professional bodies such as the International Federation of Accountants stress that strong internal controls depend on ongoing monitoring, not one-off fixes.
When you plan next year’s engagement with internal and external audit services in UAE, share the tracker at the planning meeting. It shows the auditor where controls have improved and can help focus their testing.
Points That Should Never Repeat
Some findings matter more than others because of the UAE regulatory environment. A repeated point on VAT reconciliations, for example, suggests a risk of errors in returns filed with the Federal Tax Authority. Repeated points on related party transactions can matter for corporate tax, where transfer pricing rules apply to dealings with related parties and connected persons.
Repeat findings also send a message to banks and investors who read your audited accounts and ask questions. A letter that shrinks each year tells a much better story than one that grows.
Turning the Letter Into a Better Finance Function
The auditor management letter is one of the few times an outsider looks closely at how your finance function really works. Read it carefully, rank the points, write responses with owners and dates, and track them to closure. If you would like help reviewing a letter, drafting responses or fixing the underlying controls, our team offers internal and external audit services in UAE along with practical follow-up support.
Contact us on +971 56 227 3735 or email info@liveauditing.com to talk through your latest management letter and an action plan to close the points.
Frequently Asked Questions
1. Is a management letter the same as the audit report?
No, the management letter is separate from the audit report. The audit report contains the auditor’s opinion on whether the financial statements are fairly presented. The management letter is addressed to management or those charged with governance and lists control weaknesses and recommendations found during the audit. A clean opinion can still come with a management letter.
2. Do I have to respond to every management letter point?
Yes, you should respond to every point, even if only to disagree or accept the risk. A written response shows the auditor and the board that management has considered each issue. Unanswered points usually reappear next year. The auditor may also escalate them if the weakness has caused errors in the meantime.
3. How long do I have to respond to a management letter?
There is no fixed legal deadline, but most auditors ask for responses within two to four weeks of issuing the draft letter. Responding quickly lets the final letter include your comments. Agreed actions should then carry realistic target dates, usually well before the next year-end audit begins.
4. Can I ask the auditor to remove a management letter point?
Yes, if you have evidence that the observation is incorrect or that a compensating control exists. Explain the facts in writing and provide supporting documents. Auditors will reword or remove a point when the evidence supports it, but they will not remove a valid finding simply because management finds it uncomfortable.
5. Will management letter points affect my audit opinion?
Usually not directly, because most points relate to control weaknesses rather than misstatements in the accounts. However, serious or unresolved weaknesses can lead to errors, limit the evidence available to the auditor, and in severe cases contribute to a qualified opinion. Fixing points promptly reduces that risk significantly.
