In accordance with OMB Circular No. A-136, Section IV.5., the written representations from the federal entities’ management and accompanying SUM are required for the audits of federal entity financial statements used to compile the Financial Report. Significant entities with a year-end other than September 30 need to provide an MRL to Fiscal Service (see the FY 2025 TFM Year-end Closing Bulletin for due dates). Significant entities that are FASAB and FASB reporters that report on the fiscal or calendar year-end are required to provide the representations shown in the current OMB Audit Bulletin, Section 8 and Appendix E. Federal entities should attach a SUM that includes the effect of any uncorrected misstatements from the financial statement audit in the standardized Excel format shown in the latest version of the Financial Audit Manual (FAM), Volume 1, Section 595C. Please refer to 4740.20 (SUM Process), guidance in OMB Circular No. A-136, Section IV.5, the current OMB Audit Bulletin, Section 8 (Written Representations from Management), Appendix E (Illustrative Written Representations from Management for the Financial Statements), and the current version of the FAM, Volume 2, Section 1001.

4740.10—Subsequent Events and MRL Representations

Subsequent events, for the purposes of this section, are events occurring after the significant entity’s management representations have been signed and the financial statements have been issued and before the date specified by the Department of the Treasury. These events may include, for example, the enactment of significant legislation, the occurrence of events affecting the realization of assets (such as receivables), or the settlement of estimated liabilities or contingencies (under SFFAS No. 39) that would have materially affected the significant entity’s financial statements

The significant entity head, CFO, or others deemed responsible for management representations must email a subsequent events update to OMB, Fiscal Service, Department of the Treasury (Main), and GAO (see Contacts and FY 2025 TFM Year-end Closing Bulletin). The notification should indicate (1) the purpose of the update; (2) the subsequent events update (statement must specify even if there are “no” subsequent events to report); (3) the management representation update and (4) a representation regarding the use of the update. Regardless of whether a significant entity reports a subsequent event, the subsequent events notification must state that the entity understands that the subsequent events update will be used by Department of the Treasury and OMB to prepare the Financial Report and the Financial Report MRL. Please see the OMB Circular No. A-136, IV.6, Subsequent Events and Written Representations Update, for illustrative statements and additional information. 

4740.20—SUM Process

Significant entities must include a SUM as a part of their financial statement MRL (as stated in Section 4740). Significant entities with a year-end other than September 30 do not have to provide a SUM. The SUM is for federal entities’ current-year Balance Sheet, SNC, SCNP, Statement of Budgetary Resources, Statement of Social Insurance, and SCSIA (if applicable). If there are no uncorrected misstatements, a representation to this effect is required in the MRL.

Federal entities are required to provide the adjusting entries needed to correct the misstatements management declined to record in the financial statements. A SUM and adjusting entries must be obtained from entity auditors and submitted in the standardized Excel format as shown in the current year version of the FAM, Volume 1, Section 595C. The SUM should include both the balance sheet and net cost approaches, formerly referred to as the iron curtain and rollover methods, respectively. For details surrounding how to transition entries from the balance sheet approach to the net cost approach, refer to FAM, Volume 1, Section 595C. Further, the list of adjusting entries should contain the following:

Please refer to the example below for reporting the adjusting entries for the SUM to Fiscal Service.
 

For additional guidance, see the current OMB Audit Bulletin, Section 8 (Written Representations from Management) and Appendix E (Illustrative Written Representations from Management for the Financial Statements), and OMB Circular No. A-136, revised, on the OMB website and GAO’s current version of the FAM, Volume 1, Section 595C, on the GAO website.

4745.10—Legal Letter Reporting Requirements (Legal Counsel Response and Management Schedule)

Significant entities' General Counsel must prepare interim and final legal counsel responses that describe and evaluate pending or threatened litigation, claims, and assessments in which legal counsel has been engaged and has devoted substantial attention, in the form of legal consultation or representation, on behalf of the entity. When preparing the legal counsel response, a significant entity's General Counsel must also consider unasserted claims and assessments that management considers to be probable of assertion and that, if asserted, would have at least a reasonable possibility of an unfavorable outcome.

All pending and threatened litigation and unasserted claims above the materiality level agreed upon by significant entity management and its auditor, must be reported using the applicable form found on DOJ’s website. When determining the materiality level for the legal counsel response, significant entities and their auditors should set the level sufficiently low so that the cases not included in the legal letter would not be material to the financial statements taken as a whole when aggregated with other items as described in GAO’s FAM, Volume 2, Section 1002.20. Entities should also take the government-wide materiality level in consideration, as to not omit any cases that would be material at the government-wide level. In aggregating cases, the significant entity and the auditor may use two levels of aggregation as discussed in FAM, Volume 2, Section 1002.21. First, similar cases are aggregated, treated as a group, and compared with the individual materiality level. Second, cases not included in the legal letter individually or as part of a group of similar cases are aggregated.

The legal counsel response must categorize cases, including cases to be paid from the Judgment Fund, as having a probable, reasonably possible, remote, or unable to determine chance of a negative outcome for the significant entity, consistent with the American Bar Association’s Statement of Policy Regarding Lawyer’s Responses to Auditor’s Requests for Information (December 1975). When preparing the legal counsel responses, General Counsel should also reference guidance found in OMB Audit Bulletin.

For circumstances where litigation, claims, and assessments are handled by outside counsel, e.g., DOJ, significant entity management, in conjunction with its General Counsel, must consult the lead counsel when assessing the likelihood of loss and estimated amount or range of potential loss for cases included in the significant entities’ legal counsel responses. DOJ prepares an interim and final government-wide legal counsel response based on its review of the litigation, claims, and assessments reported by significant entities that have cases that are material to the Financial Report. Fiscal Service performs a comparison of the “Pending or Threatened Litigation” and “Unasserted Claims and Assessments” forms included in DOJ’s government-wide legal counsel responses to the corresponding forms and the “Management’s Schedule of Information Contained in Legal Counsel Responses for Financial Reporting Purposes” (Management Schedule) included in the legal counsel response packages submitted by significant entities. If Fiscal Service identifies inconsistencies between DOJ’s and a significant entity's assessments of the likelihoods of loss or estimated amounts or ranges of potential loss for these cases, Fiscal Service will collaborate with the significant entity that reported the case to coordinate efforts between the entity and DOJ to resolve the inconsistencies.

In cases that have more than one entity impacted, entities must collaborate with each other on shared cases to ensure appropriate reporting. Responsibility for the case must be allocated among impacted entities to ensure that 100% of the contingency is accounted for.

Using the Management Schedule template found on the GTAS website, significant entity management must prepare an interim and final Management Schedule that summarizes the contingencies included in the legal counsel responses prepared by General Counsel and documents how the information was used in preparing the entity’s financial statements. The following elements on the Management Schedule must agree with General Counsel’s assessments from each supporting legal counsel response form, or in unusual circumstances where they do not agree, an explanation must be provided on the “FS Gwide Mgmt Schd” worksheet in the Management Schedule template:

In addition, significant entity management must indicate the accrual or disclosure of each contingency on the Management Schedule as it relates to the preparation of the entity’s financial statements. Contingent liabilities related to pending or threatened litigation and unasserted claims must be recognized and disclosed in accordance with guidance defined in SFFAS No. 5, Accounting for Liabilities of the Federal Government, as amended, which is summarized in the below table.

*The financial reporting treatment for cases where the likelihood of future outflow or other sacrifice of resources is assessed as “unable to determine” should be consistent with the disclosure requirements for reasonably possible cases.

When evaluating the likelihood of loss for contingent liabilities, significant entities should avoid excessive and misuse of the “unable to determine” assessment. The “unable to determine” likelihood of loss should only be used to categorize cases for which the General Counsel is unable to express an opinion due to inherent uncertainties that may result from the lack of adequate information. The financial reporting treatment for cases assessed as “unable to determine” should be consistent with the disclosure requirements for reasonably possible cases. Fiscal Service will require significant entities with five or more “unable to determine” case assessments to provide written documentation of their internal processes for using this assessment when evaluating legal cases.

When evaluating the estimated amounts or ranges of potential loss for litigation, claims, and assessments, significant entities that use the claim amount as an estimated loss should ensure that an analysis has been performed that supports the determination that the claim amount is the best estimate of loss. Significant entities are encouraged to review guidance defined in SFFAS No. 5, paragraphs 38-41, as well as the American Bar Association’s Statement of Policy Regarding Lawyer’s Responses to Auditor’s Requests for Information (December 1975).

Significant entity Inspector Generals (IGs) must submit an interim and final legal counsel response prepared and signed by General Counsel, as well as an interim and final Management Schedule prepared by management via email to Fiscal Service, DOJ, and GAO (see the FY 2025 TFM Year-end Closing Bulletin for due dates). Legal counsel responses and the related Management Schedules are considered "Sensitive but Unclassified" and should not be uploaded on MAX.gov. The interim Management Schedule should represent information as of June 30 and the final legal counsel response must include all existing, pending, or threatened litigation and unasserted claims as of September 30. Only Management Schedules as of these dates should be submitted in order to remain consistent with the reporting period. To limit the number of emails required to complete the legal counsel response package submission, legal counsel response files must be combined into a single file PDF, (i.e., avoid including a separate PDF file for each case), and submitted via email. Management Schedules must be submitted in Excel format using the template provided by Fiscal Service. If the significant entity IG does not use the template provided by Fiscal Service, then the significant entity management must provide the additional details required to support the compilation of the consolidated Financial Report by preparing the template provided by Fiscal Service for each legal case in Excel format. Fiscal Service will accept this in Excel format as a separate submission, with the same due date as the previously mentioned legal counsel response package. Significant entities must provide contact information for entity representatives who are available to assist Fiscal Service with inquiries related to legal counsel response package submissions. Since significant entity's management, General Counsel, and IGs are involved in the preparation of the legal counsel response package, please provide contact information for each, or indicate that the contact(s) provided serves as sufficient representation for all areas. Federal entity participation in this collaboration process will be measured on the entity’s year-end Financial Report and IGT Scorecard for the current FY.

The Export-Import Bank of the U.S., Smithsonian Institution, National Railroad Retirement Investment Trust, and calendar year-end federal entities (Farm Credit System Insurance Corporation, Federal Deposit Insurance Corporation, and National Credit Union Administration) are not required to submit an interim legal counsel response and Management Schedule. These significant entities' IGs, or management where applicable, are only required to submit a final legal counsel response and Management Schedule.

To ensure accurate and complete financial reporting and disclosures of contingent liabilities in the Financial Report, Fiscal Service will review significant entities’ legal counsel response and Management Schedule submissions to confirm contingencies detailed in the legal counsel response have been appropriately summarized on the Management Schedule and reported and disclosed in the entity’s financial statements in accordance with requirements in SFFAS No. 5, as amended. Significant entities must provide explanations for inconsistencies between the legal counsel response, Management Schedule, and the reporting of contingent liabilities in the financial statements on the “FS Gwide Mgmt Schd” worksheet in the Management Schedule template. Significant entities are required to reconcile the Management Schedule totals to the amounts reported in the entities’ financial statement on the “Recon-MS to Fin Stmts” worksheet in the Management Schedule template. An explanation for variances identified must be provided. Fiscal Service will follow up on any discrepancies identified in its analysis that have not been explained or justified by the significant entity.

4745.20—Other Required Information for Legal Counsel Responses

Significant entity IGs, or significant entity management for some federal entities, must provide GAO, DOJ, and Fiscal Service information relating to subsequent events that resulted in a change in the likelihood of loss or the estimated amount or range of potential loss, or both, from the effective date of the final legal counsel response through a date to be determined. All significant entity IGs, or significant entity management for some federal entities, must submit details of the subsequent events via email to GAO, DOJ, and Fiscal Service (Please see the FY 2025 TFM Year-end Closing Bulletin for all legal counsel response due dates).

Subsequent event information is based on the significant entity’s materiality threshold. For additional guidance, see the current OMB Audit Bulletin, and OMB Circular No. A-136, revised, on the OMB website.

Direct inquiries and deliver documents required by this chapter to:

Department of the Treasury 
Bureau of the Fiscal Service 
Financial Reports Division 
financial.reports@fiscal.treasury.gov

Also, deliver documents required by this chapter to:

Carolyn Voltz, CPA 
Government Accountability Office 
USCFS@gao.gov

Carol S. Johnson, Policy Analyst 
Office of Management and Budget 
Office of Federal Financial Management 
csjohnson@omb.eop.gov 
MAX.gov

Scott Bell, Senior Staff Accountant 
Department of the Treasury 
Office of the Fiscal Assistant Secretary 
robert.bell@treasury.gov

Legal Counsel Responses:

Department of Justice 
Legal.Letters@usdoj.gov