What it is
AU-C 501 requires the auditor to seek direct communication with the entity’s external legal counsel when litigation, claims or assessments may give rise to a risk of material misstatement. The letter is written by management on its letterhead, asks counsel to reply directly to the auditor, and lists matters for comment.
Responses are interpreted against the ASC 450-20 categories (probable, reasonably possible, remote). Most US lawyers respond under the American Bar Association’s statement of policy on audit inquiries, so this template follows that structure in plain wording. Have counsel review it before use.
When to use it
- Near the end of fieldwork on every audit where the entity uses outside counsel.
- For each law firm that handled matters during the year or since year end, including general counsel and specialist firms.
- Again (as an update) if the report date slips well past the response date.
What’s inside
- Request to reply directly to the auditor, with the effective date of the response
- Pending or threatened litigation, claims and assessments, listed by management
- Unasserted claims and assessments management considers probable of assertion
- Request for counsel to confirm the description of its responsibility on unasserted claims
- Materiality threshold, unpaid fees request and signature
Standard cited
This template follows AU-C 501 / ASC 450. 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. See AU-C 501 explained.
Questions
Who signs and sends the legal letter?
Management signs it on the entity’s letterhead because it authorizes counsel to share information about the entity with the auditor. The auditor mails it (or controls the electronic send) and counsel replies directly to the auditor.
What if the lawyer refuses to respond or the reply is limited?
A refusal to respond is a scope limitation. AU-C 501 requires the auditor to modify the opinion if they cannot get sufficient evidence by other means, for example through a meeting with counsel. A reply limited to matters to which counsel has devoted substantive attention is normal.
How close to the report date should the response be dated?
Ask counsel to state the date through which the response speaks and time the request so that date is as close as practicable to the report date. If the response is dated well before the report date, ask counsel for an updated response.
Related templates
- Subsequent Events Checklist and Memo (AU-C 560 / ASC 855)
- Management Representation Letter (AU-C 580)
- Bank Confirmation Letter (AU-C 505)
Last updated 11/04/2026. All free templates.