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Entity management is responsible for implementing policies and procedures to identify, evaluate, account for, and disclose litigation, claims, and assessments as a basis for the preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP). Statement of Federal Financial Accounting Standards (SFFAS) No. 5, “Accounting for Liabilities of the Federal Government,” as amended by SFFAS No. 12, “Recognition of Contingent Liabilities Arising from Litigation: An Amendment of SFFAS No. 5, Accounting for Liabilities of the Federal Government,” contains accounting and reporting standards for loss contingencies, including those arising from litigation, claims, and assessments. The Federal Accounting Standards Advisory Board (FASAB) Interpretation No. 2, “Accounting for Treasury Judgment Fund Transactions,” clarifies GAAP-related claims to be paid through the Treasury Judgment Fund.

A contingency is an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an entity. The uncertainty will ultimately be resolved when one or more future events occur or fail to occur. When a loss contingency exists, the likelihood that the future event or events will confirm the loss or impairment of an asset or the incurrence of a liability can range from probable to remote. SFFAS Nos. 5 and 12 use the terms probable, reasonably possible, and remote to identify three areas within the range of potential loss, as follows:

  • Probable – For pending or threatened litigation and unasserted claims, the future confirming event or events are likely to occur. (For other contingencies, the future event or events are more likely than not to occur.)
  • Reasonably possible – The chance of the future event or events occurring is more than remote but less than probable.
  • Remote – The chance of the future event or events occurring is slight.

The Government Accountability Office and the President’s Council on Integrity and Efficiency jointly issued the GAO/PCIE Financial Audit Manual. Part II Section 1002 provides guidance on the format for the Legal Representation Request Memorandum, the Legal Representation Letter, and Management’s Schedule of Information Contained in Legal Responses. The documents should be submitted electronically in PDF format using the following forms according to the type of case or group of cases reported:

The forms are in a new format this year (Adobe PDF). Send any questions regarding the use of the forms to Instructions for downloading and completing the required PDF forms:

1. Select the desired form and save the file.

2. Navigate to the file and double-click to open.

3. Enter the required information directly onto the form and save.

4. Use a separate form for each case or group of similar case.

5. Attach the completed forms to the legal representation letter.



Updated June 24, 2021