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ALG-CL-2.1: Request for Legal Representation—

Lawyer Is Requested to Provide Information a , b

[Letterhead of Governmental Unit]

[Date]
[Lawyer’s Name and Address] c
Our auditors, [CPA Firm’s Name and Address] , are conducting an audit of our financial statements at [Date] and
for the [period OR year] then ended. This letter will serve as our consent for you to furnish to our auditors all the
information requested herein. Accordingly, please provide to them the information requested below involving
matters with respect to which you have been engaged and to which you have devoted substantive attention on
behalf of [Name of Governmental Unit] in the form of legal consultation or representation.d
Pending or Threatened Litigation, Claims, and Assessments (excluding unasserted claims and assessments)
Please prepare a description of all material pending or threatened litigation, claims, and assessments (excluding
unasserted claims and assessments). Materiality for purposes of this letter includes items involving amounts
exceeding $[ ] e individually or in the aggregate. The description of each matter should include:
1) the nature of the litigation;f
2) the progress of the matter to date;
3) how management of [Name of Governmental Unit] is responding or intends to respond to the litigation; e.g., to
contest the case vigorously or to seek an out-of-court settlement; and
4) an evaluation of the likelihood of an unfavorable outcome and an estimate, if one can be made, of the amount
or range of potential loss.
Also, please identify any pending or threatened litigation, claims, and assessments with respect to which you have
been engaged but as to which you have not devoted substantive attention. g
Unasserted Claims and Assessments
We have represented to our auditors that there are no unasserted possible claims or assessments that you have
advised us are probable of assertion and must be disclosed in accordance with FASB Accounting Standards
Codification 450, Contingencies (link) .h , i
We understand that, whenever, in the course of performing legal services for us with respect to a matter recognized
to involve an unasserted possible claim or assessment that may call for financial statement disclosure, if you have
formed a professional conclusion that we should disclose or consider disclosure concerning such possible claim or
assessment, as a matter of professional responsibility to us, you will so advise us and will consult with us concerning
the question of such disclosure and the applicable requirements of FASB Accounting Standards Codification 450,
Contingencies (link) (excerpts of which can be found in the ABA’s Auditor’s Letter Handbook).j Please specifically
confirm to our auditors that our understanding is correct.
Response
Your response should include matters that existed as of [Date] , and during the period from that date to the effective
date of your response. Please specify the date of your response if it is other than the date of reply.
Please specifically identify the nature of, and reasons for, any limitations on your response.k
Our auditors expect to have the audit completed about [Date] . They would appreciate receiving your reply by that
date with a specified effective date no earlier than [Date] l . You may also be requested to provide updates to your
written response at a later date. We appreciate your timely response to such requests.
Other Mattersm , n
Please also indicate the amount we were indebted to you for services and expenses (billed and unbilled) on [Date] .
Very truly yours,

[Name and Title of Governmental Unit Official]

[Name of Governmental Unit]
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Practical Considerations

a This letter is generally used only if the governmental unit represents that there are no unasserted claims or
assessments that are probable of assertion and should be disclosed in accordance with generally accepted
accounting principles. Otherwise, use the letter at ALG-CL-2.2 . This letter may be used to obtain legal
representation related to litigation, claims, or assessments from both external and in-house legal counsel. Section
1002 discusses lawyers’ letters.

bIf the auditor obtains an oral response concerning matters covered by the audit inquiry letter, the auditor should
document conclusions reached concerning the need to account for or disclose litigation, claims, and assessments.

c The auditor should analyze legal and professional fees and determine with the client the attorneys who provide
legal services to the entity. (Some larger law firms may use a centralized location or contact name to process
attorney requests. The auditor may want to ascertain this in order to shorten response times.)

d Some clients prefer to add a statement such as the following to emphasize the retention of attorney-client and
attorney work product privileges:
We do not intend either this request or your response to our auditor to constitute a waiver of the
attorney-client privilege or the attorney work product privilege.

e The amount should be based on the auditor’s preliminary judgment about materiality determined during the general
planning phase of the audit. Usually, the amount is a fraction of performance materiality. Some auditors (and/or
clients) may prefer specifying materiality amounts for individual matters and an aggregate amount for other lesser
items. If so, this sentence should be modified accordingly.

fOn occasion, an attorney will provide a response that is inadequate because it is incomplete, uses vague terms to
evaluate the outcome of the matter, or does not provide an estimate of the range of potential loss. Auditors
experiencing these problems may choose to modify the letter to provide more guidance to the attorney as to exactly
what type of information is needed. For example, the letter might specifically request the following information:
1) The nature of the litigation, including identification of—
a) The proceedings.
b) The claim(s) asserted.
c) The amount of monetary or other damages sought. If no amounts are stated in preliminary case filings,
please so state.
d) Whether or not the potential damages are covered by insurance and, if so, to what extent (policy limits,
deductible, etc.).
e) The objectives sought by the plaintiff (if any) other than monetary or other damages (such as performance
or discontinued performance of certain actions).
2) The progress of the matter to date (in the process of discovery, trial, appeal, etc.).
3) How management is responding or intends to respond to the litigation, e.g., to contest the matter vigorously or
to seek out-of-court settlement.
4) An evaluation of the likelihood of an unfavorable outcome. To avoid potential misunderstandings of your opinion,
please avoid vague phrases such as or similar to “meritorious defense,” “without substantial merit,” or
“reasonable chance of dismissal.” If no opinion can be expressed, please so state and explain the reasons.
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5) An estimate as to the amount or range of potential loss. It is important that you express an upper limit on
possible and probable losses. If no range or upper limits can be expressed, please so state and explain the
reasons.

gSome auditors prefer to inquire about matters for which the attorney has been engaged but has not devoted
substantive attention. The authors believe that this information is valuable if the attorney will respond. Attorneys’
willingness to respond depends on the system they use to identify services provided to clients. The American Bar
Association’s (ABA’s) Statement of Policy Regarding Lawyers’ Responses to Auditors’ Requests for Information,
AU-C 501 , Exhibit A, states that attorneys’ responses can be properly limited to matters to which they have given
substantive attention. Therefore, it is not a scope limitation when attorneys limit their response in this fashion.

h The inquiry letter may state the client’s representation about unasserted claims and assessments; however, it is
inappropriate under the ABA’s Statement of Policy Regarding Lawyers’ Responses to Auditors’ Requests for
Information for lawyers to furnish an auditor with information on unasserted claims (other than those specified by
the client in the letter) because of concern about preserving the attorney-client privilege. In addition, lawyers will not
confirm the completeness of information furnished by management. However, the lawyer is requested, in the
subsequent paragraph of the letter, to confirm his or her professional responsibility to advise and consult with the
client on the required disclosure of unasserted possible claims and assessments. Presumably, the lawyer would
recognize a professional responsibility to resign if management fails to disclose to the auditor a matter the lawyer
believes will give rise to a material claim if asserted.

iThe Auditor’s Letter Handbook, published by the ABA, addresses only FASB accounting standards. Accordingly,
the authors believe that even in the audit of a governmental unit, the lawyer’s letter request should reference FASB
Accounting Standards Codification 450, Contingencies (link) .

jThe ABA’s Auditor’s Letter Handbook is available for purchase in hardcopy or as an e-book from the ABA’s website
at http://shop.americanbar.org/eBus/default.aspx.

k If a more detailed request is desired, auditors may choose to add clarification such as the following:
Please identify the nature and reasons for any limitations on your response, including but not limited
to the following situations:
1) Where you have limited the basis of your opinion(s) to facts obtained from an incomplete review.
2) Where you have limited your response to information obtained while serving as legal counsel and have
excluded other information obtained in the course of performing other services for the entity (such as a
council or board member).
3) Where you have limited your response to maintain a client confidence or secret.

lIt is preferable for the effective date of the lawyer’s response to be as close as feasible to the date of the auditor’s
report, ordinarily no earlier than two weeks prior to that date. In cases where the lawyer’s letter is dated substantially
in advance of the audit report date, the auditor needs to obtain an updated response. Exhibit C–Statement on
Updates to Audit Response Letters to AU-C 501 (link) , which is from the Audit Responses Committee of the
American Bar Association and is directed to lawyers who receive update requests, indicates that updates should
ordinarily be provided in writing and not done orally. (However, if an oral update response is received by the auditor
from the lawyer, the response should be documented in the workpapers.) The letter at ALG-CL-2.3 may be used
to request a written update from the attorney.
Exhibit C to AU-C 501 restates the requirement in the ABA’s Statement of Policy that lawyers may only provide
information to auditors at the request of the client. When the auditor needs to obtain an updated response, the
Exhibit notes that lawyers may provide such an update to the auditor pursuant to a standing request made by the
client in the initial request letter. (In some cases, a lawyer may require a separate authorization from the client to
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provide an update, regardless of a standing request.) In situations where a standing request is permitted, the
following sentence can be added at the end of this paragraph:
We authorize you to respond to a request for updates made directly from our auditors in connection
with the audit of our financial statements as of [Date] and for the [Period] then ended.
The letter at ALG-CL-2.4 can be used to request a written update from the attorney when the client provides a
standing request in the initial request letter.

m This item is optional.

n The lawyer’s response concerning amounts due for billed and unbilled services may be reconciled with accounts
payable analyses. Some lawyers may bill clients for the service of responding to this inquiry. It is a good idea to
include a paragraph in the engagement letter stating that lawyers will be requested to provide certain written
representations to avoid negative reactions from your client when the bill arrives. See the engagement letters at
ALG-CL-1.1 , ALG-CL-1.2 , and ALG-CL-1.3 .