Letter of Weaknesses (LOW)

Definition

A Letter of Weaknesses (LOW) is a formal written communication from the auditor to management, issued at the end of the audit, highlighting weaknesses identified in the design or operation of the Internal Control System (ICS). It explains their implications and provides recommendations for improvement.

Purpose of LOW

The LOW is prepared to:

1. Inform management of control weaknesses identified during the audit
2. Explain the significance and possible effects on current and future financial statements
3. Suggest practical recommendations to reduce or eliminate the weaknesses
4. Assist management in improving the effectiveness of the ICS

Contents of LOW

A typical LOW includes:

1. Purpose of the letter
2. Purpose of the ICS review
3. Disclaimer clause - The weaknesses reported are not necessarily all weaknesses that may exist
4. Description of weaknesses identified
5. Recommendations for improvement
6. Request for management’s response or remedial action

Procedures in Preparing LOW

1. Discuss weaknesses verbally with management
2. Follow up with a formal written letter including recommendations
3. Follow up in the next audit visit to review corrective actions taken

Is LOW a Contract Between Auditor and Management?

Answer: NO (Disagree)

• LOW is not a contract
• It does not impose legal obligations on management
• It is an advisory communication, not part of the audit engagement agreement

Importance of LOW

• Helps improve the client’s internal control system
• Enhances governance and risk management
• Reduces future audit risk
• Demonstrates auditor’s professional responsibility

Summary

A Letter of Weaknesses (LOW) is a formal letter issued by the auditor to management at the end of an audit, highlighting weaknesses in the design or operation of the internal control system. The letter explains the significance of the weaknesses, their possible effects on financial statements, and provides recommendations for improvement. The LOW is advisory in nature and does not constitute a contract between the auditor and management.