Management Representation Letter (MRL)
In accordance with OMB Circular No. A-136, Section IV.5., the written representations from the federal entities’ management and accompanying Summary of Uncorrected Misstatements (SUM) are required for the audits of federal entity financial statements used to compile the FR. Significant entities with a year-end other than September 30 need to provide a MRL to Fiscal Service (see Figure 2 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 in Excel format a comprehensive SUM that includes uncorrected misstatements from the financial statement audit. Please refer to 4740.20 (Summary of Uncorrected Misstatements 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 Financial Audit Manual Volume 2, Section 1001.
- Subsequent Events and MRL Representations
Subsequent events, for the purposes of this section, are events occurring after the written representations from entity management have been signed and the financial statements have been issued and before the date specified by Treasury [Financial Report of the United States Government audit report]. These events may include, for example, the enactment of significant legislation or the occurrence of events affecting the realization of assets (such as receivables) or the settlement of estimated liabilities or contingencies (See SFFAS No. 39) where the events would have been reported in the financial statements as subsequent events if they had occurred before the date of the entity’s audit report.
The entity head, CFO, or others deemed responsible for significant entity management must email a subsequent events update to OMB, Fiscal Service, Treasury (Main), and GAO (see Contacts and Figure 2, Reporting and Submission Dates). The notification must indicate which information reported as basic or RSI would be affected by the events and how the information would be affected. If the event requires a new or revised representation, the new or updated representation must be provided. If there are no significant events to report, then the notification must specify that there are “no changes” to the written representations from management. 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 Treasury and OMB to prepare the FR and the FR MRL. (See OMB Circular No. A-136, Section IV.6, Written Representation from Management for wording requirements).
- Summary of Uncorrected Misstatements (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 Statement of Changes in Social Insurance Amounts (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 to correct the misstatements. A summary of uncorrected misstatements and adjusting entries must be submitted in the standardized Excel format as shown in the Financial Audit Manual, Section 595C, and should contain the following:
The effect of the current-year’s uncorrected misstatements and the carry-forward effect of the prior-year’s uncorrected misstatements.
USSGL account number and account description.
Federal (F), General Fund (G), Non-reciprocating (Z), or Non-Federal (N) attribute for each USSGL account affected.
A reference to an adjustment number or documentation reference.
An indication as to whether management has agreed to record the adjustment in its financial statements.
A statement as to whether the uncorrected misstatement is factual, judgmental, or projected.
A description of the adjustment.
The amount of the debit or credit.
The line items affected in the consolidated financial statements.
Uncorrected misstatements identified in the audit of the federal entity’s financial statements.
Please refer to the example below for reporting the adjusting entries for the summary of uncorrected misstatements 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 Financial Audit Manual, Section 595C, on the GAO website.
Legal Representation Letter Process:
- Reporting Requirements
Significant entities' General Counsel must prepare interim and final legal representation letters 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 representation letter, 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, as well as 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 representation letter, 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 Financial Audit Manual (FAM), Section 1002.18. In aggregating cases, the significant entity and the auditor may use two levels of aggregation as discussed in FAM, Section 1002.19. 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 representation letter 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 representation letters, General Counsel should also reference guidance found in OMB Audit Bulletin.
For circumstances where litigation, claims, and assessments involve lead representation 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 representation letters. DOJ prepares an interim and final government-wide legal representation letter based on its review of the litigation, claims, and assessments reported by significant entities that have cases that are material to the FR. Fiscal Service performs a comparison of the “Pending or Threatened Litigation” and “Unasserted Claims and Assessments” forms included in DOJ’s government-wide legal representation letter to the corresponding forms and the “Management’s Schedule of Information Contained in Legal Letter Responses for Financial Reporting Purposes” (Management Schedule) included in the legal letter 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 representation letter 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 representation letter 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:
Management Schedule Element Litigation Unasserted Claims and Assessments Likelihood of loss (probable, reasonably possible, remote, unable to determine) DOJ's "Pending or Threatened Litigation" Form, Field 5 - An Evaluation of the Likelihood of an Unfavorable Outcome. DOJ's "Unasserted Claims and Assessments" Form, Field 4 - An Evaluation of the Likelihood of an Unfavorable Outcome. Estimated amount or range of potential loss or indication that estimated amount or range is unknown. DOJ's "Pending or Threatened Litigation" Form, Field 6 - An Estimate of the Amount or Range of Potential Loss. DOJ's "Unasserted Claims and Assessments" Form, Field 5 - An Estimate of the Amount or Range of Potential Loss.
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.
Likelihood of future outflow or other sacrifice of resources Loss amount can be reasonably measured Loss range can be reasonably measured Loss amount or range cannot be reasonably measured Probable: Future confirming event(s) are likely to occur. Accrue the liability. Accrue liability of best estimate or minimum amount in loss range if there is no best estimate, and disclose nature of contingency and range of estimated liability. Disclose nature of contingency and include a statement that an estimate cannot be made. *Reasonably Possible: Possibility of future confirming event(s) occurring is more than remote but less than probable. Disclose nature of contingency and estimated amount. Disclose nature of contingency and estimated loss range. Disclose nature of contingency and include a statement that an estimate cannot be made. Remote: Possibility of future event(s) occurring is slight. No action is required. No action is required. No action is required.
*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. 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 a high percentage use of the “unable to determine” assessment 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 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 representation letter prepared and signed by General Counsel, as well as an interim and final Management Schedule prepared by management to Fiscal Service, DOJ, and GAO (see Figure 2 for due dates). The interim Management Schedule should represent information as of June 30 and the final legal representation letter 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 representation letter package submission, legal letter 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 representation letter package. Significant entities must provide contact information for entity representatives who are available to assist Fiscal Service with inquiries related to legal representation letter package submissions. Since significant entity's management, General Counsel, and IGs are involved in the preparation of the legal representation letter 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 (FR) and Intra-governmental Transaction (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 representation letter and Management Schedule. These significant entities' IGs, or management where applicable, are only required to submit a final legal representation letter and Management Schedule.
To ensure accurate and complete financial reporting and disclosures of contingent liabilities in the FR, Fiscal Service will review significant entities’ legal representation letter and Management Schedule submissions to confirm contingencies detailed in the legal representation letter 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 representation letter, 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.
- Other Required Information for Legal Representation Letters
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 Representation Letter (September 30) through January 21, 2022. 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 Figure 2 for all Legal Representation Letter 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.
Federal Financial Management Standards
- Functions and Activities
Financial Statement Preparation (FFM.110.020)
Prepare financial statements and footnotes required by OMB Circular A-136; Verify financial statements and other required financial reports can be traced to general ledger account balances and are compiled in accordance with the USSGL Crosswalks; Determine and record eliminations required to generate consolidated financial statements; Includes generating variance analyses for timely submissions, balance sheet, statement of net cost, statement of changes in net position, statement of budgetary resources, reconciling SF-133 to the statement of budgetary resources, statement of custodial activity, statement of social insurance, statement of changes in social insurance amounts, required supplementary information, and required supplementary stewardship information, as applicable.
- Federal Financial Management System Requirements (FFMSR)
Providing GL Information (FFMSR 1.3.1)
Provide GL information for consolidated government-wide reporting as specified in the TFM and consistent with guidelines in the FASAB Handbook as well as OMB Circular No. A-136.
Provide GL information for agency-specific financial reports consistent with OMB Circular No. A-136 and FASAB Handbook.
Verifying Traceability (FFMSR 2.3.2)
Verify that GL account balances can be traced to aggregated or discrete transactions in agency programmatic systems and that the aggregated or discrete transactions can be traced to the point of entry and source documents consistent with the TFM.
Verify that financial statements and other required financial and budget reports can be traced to GL account balances as required by OMB Circular No. A-123 and as specified in the TFM.
- Use Cases
- Treasury Financial Manual (TFM)
TFM Volume I Part 2 Chapter 4700; Federal Entity Reporting Requirements for the Financial Report of the United States Government
- Contact Details
Direct inquiries and deliver documents required by this section to:
Department of the TreasuryPO Box 1328
Bureau of the Fiscal Service
Financial Reporting Division
Parkersburg, WV 26106-1328
Also, deliver documents required by this section to:
Carolyn Voltz, CPA441 G Street, NW, Room 5X23
Government Accountability Office
Washington, DC 20548
Carol S. Johnson, Policy Analyst725 17th Street, NW
Office of Management and Budget
Office of Federal Financial Management
Washington, DC 20503
Scott Bell, Senior Staff Accountant1500 Pennsylvania Ave, NW
Office of the Fiscal Assistant Secretary
Washington, DC 20220
Department of Justice
This page was last updated on August 27, 2021.