What it is
Each litigation, claim, assessment or guarantee gets its own accrual or disclosure decision. The decision depends on how likely the loss is, whether it can be estimated, and what happened between the balance sheet date and issuance. This memo records that reasoning for one matter so a reviewer or auditor can follow it.
The memo moves from facts to a likelihood assessment, then to the range and best estimate, counsel input, and a table that maps likelihood and estimability to accrual or disclosure. It closes with the gain contingency check, the subsequent events link and a draft note.
When to use it
- At each period end for every pending or threatened matter above your documentation threshold.
- When counsel updates an evaluation, a settlement is offered or a ruling issues.
- Before sending the legal inquiry letter response to the auditor.
What’s inside
- Matter facts table with sources
- Likelihood assessment with the evidence behind each factor
- Estimability section: low end, high end, best estimate, amount accrued and insurance recovery
- Accrual versus disclosure decision table and gain contingency check
- Subsequent events section and draft disclosure text
Standard cited
This template follows ASC 450 / ASC 855. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use.
Questions
What amount is accrued when only a range exists?
The best estimate within the range. When no amount in the range is better than another, the low end of the range is accrued and the range is disclosed.
What is disclosed for a reasonably possible loss?
The nature of the matter and an estimate of the possible loss or range, or a statement that an estimate cannot be made.
Are gain contingencies recognized?
No. A gain contingency is not recognized before it is realized or realizable. The memo has a section to record related recoveries and the care taken in disclosure.
How does counsel’s letter fit in?
It is evidence for the likelihood and estimate, not the conclusion. Management owns the judgment, and the memo records any difference between management and counsel.
Related templates
- Attorney Legal Letter Inquiry (AU-C 501 / ASC 450)
- Subsequent Events Memo (AU-C 560 and ASC 855)
- Summary of Uncorrected Misstatements (AU-C 450)
- Management Representation Letter (AU-C 580)
Last updated 11/05/2026. All free templates.