Year-end is fast approaching. Calendar-year entities that issue audited financial statements may be gearing up for the start of audit fieldwork—closing their books, preparing schedules, and coordinating with external auditors. But there’s one valuable audit deliverable that often gets overlooked: the management letter (sometimes called the “internal control letter” or “letter of recommendations”).

For many privately held companies, the management letter becomes an “I’ll get to it later” document. But in today’s volatile business climate, treating the management letter as a strategic resource can help finance and accounting teams strengthen controls, improve operations, and reduce risk heading into the new year. Here’s how to get more value from this often-underutilized tool.

What to expect

Under Generally Accepted Auditing Standards, external auditors must communicate in writing any material weaknesses or significant deficiencies in internal controls identified during the audit. A material weakness means there’s a reasonable possibility a material misstatement won’t be prevented or detected in time. A significant deficiency is less severe but still important enough to warrant management’s attention.

Auditors may also identify other control gaps, process inefficiencies, or improvement opportunities that don’t rise to the level of required communication—and these frequently appear in the management letter. The write-up for each item typically includes an observation (including a cause, if known), financial and qualitative impacts, and recommended corrective actions. For many companies, this is where the real value lies.

How audit insights can drive business improvements

A detailed management letter is essentially a consulting report drawn from weeks of independent observation. Auditors work with many businesses each year, giving them a unique perspective on what’s working (and what isn’t) across industries. These insights can spark new ideas or validate improvements already underway.

For example, a management letter might report a significant increase in the average accounts receivable collection period from the prior year. It may also provide cost-effective suggestions to expedite collections, such as implementing early-payment discounts or using electronic payment systems that support real-time invoicing. Finally, the letter might explain how improved collections could boost cash flow and reduce bad debt write-offs.

A collaborative tool, not a performance review

Some finance and accounting teams view management letter comments as criticism. They’re not. Management letters are designed to:

• Identify risks before they become bigger problems
• Help your team adopt best practices
• Strengthen the effectiveness of your control environment
• Improve audit efficiency over time

Once your audit is complete, it’s important to follow up on your auditor’s recommendations. When the same issues repeat year after year, it may signal resource constraints, training gaps, or outdated systems. Now may be a good time to pull out last year’s management letter and review your progress. Improvements made during the year may simplify audit procedures and reduce risk in future years.

Elevate your audit

An external audit is about more than compliance—it provides an opportunity to strengthen your business. The management letter is one of the most actionable and strategic outputs of the audit process. Contact us to learn more. We can help you prioritize management letter recommendations, identify root causes of deficiencies, and implement practical, sustainable solutions.

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