{"id":"F2009L04086","name":"ASA 502 - Audit Evidence - Specific Considerations for Litigation and Claims - October 2009","slug":"asa-502-audit-evidence-specific-considerations-for-litigation-and-claims-october-2009","collection":"legislative_instrument","jurisdiction":"commonwealth","status":"in_force","isInForce":true,"actNumber":null,"makingDate":null,"administeringDepartment":null,"currentVersion":{"id":81654,"registerId":"commonwealth-F2009L04086-current","compilationNumber":null,"startDate":"2026-04-02","status":"InForce","reasons":null,"registeredAt":null},"sections":[{"sectionNumber":"Obtaining a Copy of this Auditing Standa","sectionType":"section","heading":"Obtaining a Copy of this Auditing Standard","content":"##### Obtaining a Copy of this Auditing Standard\n\nThe most recently compiled versions of Auditing Standards, original Standards and amending Standards (see Compilation Details) are available on the AUASB website: www.auasb.gov.au","sortOrder":0},{"sectionNumber":"Contact Details","sectionType":"section","heading":"Contact Details","content":"##### Contact Details\n\n| Auditing and Assurance Standards BoardPodium LevelLevel 14, 530 Collins StreetMelbourne Victoria 3000AUSTRALIA | Phone: (03) 8080 7400E‑mail: enquiries@auasb.gov.auPostal Address:PO Box 204Collins Street WestMelbourne Victoria 8007AUSTRALIA |\n| -------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- |","sortOrder":1},{"sectionNumber":"COPYRIGHT","sectionType":"section","heading":"COPYRIGHT","content":"##### COPYRIGHT\n\n© 2021 Commonwealth of Australia. The text, graphics and layout of this Auditing Standard are protected by Australian copyright law and the comparable law of other countries. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non‑commercial use subject to the inclusion of an acknowledgment of the source as being the Australian Auditing and Assurance Standards Board (AUASB).\n\nRequests and enquiries concerning reproduction and rights for commercial purposes should be addressed to the Technical Director, Auditing and Assurance Standards Board, PO Box 204, Collins Street West, Melbourne, Victoria 8007 or sent to [enquiries@auasb.gov.au](mailto:enquiries@auasb.gov.au). Otherwise, no part of this Auditing Standard may be reproduced, stored or transmitted in any form or by any means without the prior written permission of the AUASB except as permitted by law.\n\nISSN 1833‑4393","sortOrder":2},{"sectionNumber":"CONTENTS","sectionType":"part","heading":"CONTENTS","content":"# CONTENTS\n\nCOMPILATION DETAILS\n\nAUTHORITY STATEMENT\n\nCONFORMITY WITH INTERNATIONAL STANDARDS ON AUDITING\n\nParagraphs\n\nApplication......................................................Aus 0.1-Aus 0.2\n\nOperative Date.........................................................Aus 0.3\n\nIntroduction\n\nScope of this Auditing Standard..................................................1\n\nEffective Date\n\nObjective..................................................................2\n\nRequirements\n\nCompleteness of Litigation and Claims.............................................3\n\nCommunication with the Entity’s Legal Counsel.....................................4-5\n\nWritten Representations........................................................6\n\nRelated Procedures.................................................Aus 6.1-Aus 6.2\n\nApplication and Other Explanatory Material\n\nCompleteness of Litigation and Claims....................................A1-Aus A4.1\n\nCommunication with the Entity’s Legal Counsel.............................A5-Aus A8.11\n\nWritten Representations.........................................Aus A8.12-Aus A8.13\n\nRelated Procedures...................................................A9-Aus A9.3\n\n\\[Aus\\] Appendix 1: Example of a Letter of Specific Enquiry to External Legal Counsel","sortOrder":3},{"sectionNumber":"COMPILATION DETAILS","sectionType":"part","heading":"COMPILATION DETAILS","content":"##### Obtaining a Copy of this Auditing Standard\n\nThe most recently compiled versions of Auditing Standards, original Standards and amending Standards (see Compilation Details) are available on the AUASB website: www.auasb.gov.au\n\n##### Contact Details\n\n| Auditing and Assurance Standards BoardPodium LevelLevel 14, 530 Collins StreetMelbourne Victoria 3000AUSTRALIA | Phone: (03) 8080 7400E‑mail: enquiries@auasb.gov.auPostal Address:PO Box 204Collins Street WestMelbourne Victoria 8007AUSTRALIA |\n| -------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- |\n\n##### COPYRIGHT\n\n© 2021 Commonwealth of Australia. The text, graphics and layout of this Auditing Standard are protected by Australian copyright law and the comparable law of other countries. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non‑commercial use subject to the inclusion of an acknowledgment of the source as being the Australian Auditing and Assurance Standards Board (AUASB).\n\nRequests and enquiries concerning reproduction and rights for commercial purposes should be addressed to the Technical Director, Auditing and Assurance Standards Board, PO Box 204, Collins Street West, Melbourne, Victoria 8007 or sent to [enquiries@auasb.gov.au](mailto:enquiries@auasb.gov.au). Otherwise, no part of this Auditing Standard may be reproduced, stored or transmitted in any form or by any means without the prior written permission of the AUASB except as permitted by law.\n\nISSN 1833‑4393\n\n# CONTENTS\n\nCOMPILATION DETAILS\n\nAUTHORITY STATEMENT\n\nCONFORMITY WITH INTERNATIONAL STANDARDS ON AUDITING\n\nParagraphs\n\nApplication......................................................Aus 0.1-Aus 0.2\n\nOperative Date.........................................................Aus 0.3\n\nIntroduction\n\nScope of this Auditing Standard..................................................1\n\nEffective Date\n\nObjective..................................................................2\n\nRequirements\n\nCompleteness of Litigation and Claims.............................................3\n\nCommunication with the Entity’s Legal Counsel.....................................4-5\n\nWritten Representations........................................................6\n\nRelated Procedures.................................................Aus 6.1-Aus 6.2\n\nApplication and Other Explanatory Material\n\nCompleteness of Litigation and Claims....................................A1-Aus A4.1\n\nCommunication with the Entity’s Legal Counsel.............................A5-Aus A8.11\n\nWritten Representations.........................................Aus A8.12-Aus A8.13\n\nRelated Procedures...................................................A9-Aus A9.3\n\n\\[Aus\\] Appendix 1: Example of a Letter of Specific Enquiry to External Legal Counsel\n\n \n\n# COMPILATION DETAILS\n\n### Auditing Standard ASA 502 Audit Evidence ─ Specific Considerations for Litigation and Claims (as Amended)\n\nThis compilation takes into account amendments made up to and including 5 November 2021 and was prepared on 10 November 2021 by the Auditing and Assurance Standards Board (AUASB).\n\nThis compilation is not a separate Auditing Standard made by the AUASB. Instead, it is a representation of ASA 502 (October 2009) as amended by other Auditing Standards which are listed in the Table below.\n\n#### Table of Standards\n\n| Standard | Date made | Operative Date |\n| -------------- | --------------- | ------------------------------------------------------------------- |\n| ASA 502 [A] | 27 October 2009 | Financial reporting periods commencing on or after 1 January 2010 |\n| ASA 2011‑1 [B] | 27 June 2011 | Financial reporting periods commencing on or after 1 July 2011 |\n| ASA 2013‑3 [C] | 1 July 2013 | Financial reporting periods commencing on or after 1 July 2013 |\n| ASA 2021‑5 [D] | 5 November 2021 | Financial reporting periods commencing on or after 15 December 2021 |\n\n\\[A\\] Federal Register of Legislation – registration number F2009L04086, 27 October 2009\n\n\\[B\\] Federal Register of Legislation – registration number F2011L01379, 27 June 2011\n\n\\[C\\] Federal Register of Legislation – registration number F2013L01326, 1 July 2013\n\n\\[D\\] Federal Register of Legislation – registration number F2021L01525, 8 November 2021\n\n##### Table of Amendments\n\n| Paragraph affected | How affected | By … [paragraph] |\n| ------------------------------------------------------------------- | ------------ | ---------------- |\n| Sub‑heading above Para. A4 | Amended | ASA 2011‑1 [36] |\n| Para.1 under sub‑heading “Effective Date” | Deleted | ASA 2013‑3 [9] |\n| Renumbering of the paragraph following sub-heading “Effective Date” | Amended | ASA 2021‑5 [20] |\n| 5 | Amended | ASA 2021‑5 [21] |\n\n## AUTHORITY STATEMENT\n\nAuditing Standard ASA 502 Audit Evidence – Specific Considerations for Litigation and Claims as Amended (as amended to 5 November 2021) is set out in paragraphs Aus 0.1 to Aus A9.3 and \\[Aus\\] Appendix 1.\n\nThis Auditing Standard is to be read in conjunction with ASA 101 Preamble to AUASB Standards, which sets out how AUASB Standards are to be understood, interpreted and applied. This Auditing Standard is to be read also in conjunction with ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards.\n\n##### Conformity with International Standards on Auditing\n\nThis Auditing Standard conforms with the Litigation and Claims sections (paragraphs 1‑3, 9‑12 and A17‑A25) of International Standard on Auditing ISA 501 Audit Evidence – Specific Considerations for Selected Items, issued by the International Auditing and Assurance Standards Board (IAASB), an independent standard‑setting board of the International Federation of Accountants (IFAC).\n\nThe other paragraphs of ISA 501 relating to Inventory and Segment Information (paragraphs 4‑8, 13, A1‑A16 and A26‑A27) are incorporated into ASA 501 Audit Evidence—Specific Considerations for Inventory and Segment Information.\n\nThe AUASB has decided to continue to issue ASA 502 as a separate Auditing Standard, in the same way that the previous standard, ASA 508 Enquiry Regarding Litigation and Claims, is a separate standard. ASA 508 contains requirements and guidance that the AUASB considers important to carry forward in the Australian Auditing Standards, and as a result, the revised standard is better suited to presentation as a separate standard.\n\nThis Auditing Standard contains all the requirements and guidance contained in ISA 501 relating to Litigation and Claims, as well as additional requirements and guidance that are contained in ASA 508.\n\nParagraphs that have been added to this Auditing Standard (and do not appear in the text of the equivalent ISA) are identified with the prefix “Aus”.\n\nCompliance with this Auditing Standard, in conjunction with ASA 501, enables compliance with ISA 501.\n\n\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\n\nTable 1, following, shows how paragraphs in this Auditing Standard have been re‑numbered, compared to the equivalent paragraphs in ISA 501:\n\nTable 1: Paragraph Re‑numbering in ASA 502\n\n```html\n

Description

ISA 501

ASA 502

Para. #

Para. #

“Aus” Para. #

Requirements

Litigation and Claims

9

4

10

5

Aus 5.1‑Aus 5.2

11

6

12

7

Aus 7.1‑Aus 7.2

Application and Other Explanatory Material

Litigation and Claims

A17

A1

Aus A1.1

A18

A2

Aus A2.1‑Aus A2.2

A19

A3

A20

A4

Aus A 4.1

A21

A5

A22

A6

A23

A7

Aus A7.1‑Aus A7.2

A24

A8

Aus A8.1‑Aus A8.13

A25

A9

Aus A9.1‑Aus A9.3

Footnote 10

*

Footnote 11

*

\n```","sortOrder":4},{"sectionNumber":"Auditing Standard ASA 502 Audit Evidence","sectionType":"division","heading":"Auditing Standard ASA 502 Audit Evidence ─ Specific Considerations for Litigation and Claims (as Amended)","content":"### Auditing Standard ASA 502 Audit Evidence ─ Specific Considerations for Litigation and Claims (as Amended)\n\nThis compilation takes into account amendments made up to and including 5 November 2021 and was prepared on 10 November 2021 by the Auditing and Assurance Standards Board (AUASB).\n\nThis compilation is not a separate Auditing Standard made by the AUASB. Instead, it is a representation of ASA 502 (October 2009) as amended by other Auditing Standards which are listed in the Table below.","sortOrder":5},{"sectionNumber":"Table of Standards","sectionType":"subdivision","heading":"Table of Standards","content":"#### Table of Standards\n\n| Standard | Date made | Operative Date |\n| -------------- | --------------- | ------------------------------------------------------------------- |\n| ASA 502 [A] | 27 October 2009 | Financial reporting periods commencing on or after 1 January 2010 |\n| ASA 2011‑1 [B] | 27 June 2011 | Financial reporting periods commencing on or after 1 July 2011 |\n| ASA 2013‑3 [C] | 1 July 2013 | Financial reporting periods commencing on or after 1 July 2013 |\n| ASA 2021‑5 [D] | 5 November 2021 | Financial reporting periods commencing on or after 15 December 2021 |\n\n\\[A\\] Federal Register of Legislation – registration number F2009L04086, 27 October 2009\n\n\\[B\\] Federal Register of Legislation – registration number F2011L01379, 27 June 2011\n\n\\[C\\] Federal Register of Legislation – registration number F2013L01326, 1 July 2013\n\n\\[D\\] Federal Register of Legislation – registration number F2021L01525, 8 November 2021","sortOrder":6},{"sectionNumber":"Table of Amendments","sectionType":"section","heading":"Table of Amendments","content":"##### Table of Amendments\n\n| Paragraph affected | How affected | By … [paragraph] |\n| ------------------------------------------------------------------- | ------------ | ---------------- |\n| Sub‑heading above Para. A4 | Amended | ASA 2011‑1 [36] |\n| Para.1 under sub‑heading “Effective Date” | Deleted | ASA 2013‑3 [9] |\n| Renumbering of the paragraph following sub-heading “Effective Date” | Amended | ASA 2021‑5 [20] |\n| 5 | Amended | ASA 2021‑5 [21] |\n\n## AUTHORITY STATEMENT\n\nAuditing Standard ASA 502 Audit Evidence – Specific Considerations for Litigation and Claims as Amended (as amended to 5 November 2021) is set out in paragraphs Aus 0.1 to Aus A9.3 and \\[Aus\\] Appendix 1.\n\nThis Auditing Standard is to be read in conjunction with ASA 101 Preamble to AUASB Standards, which sets out how AUASB Standards are to be understood, interpreted and applied. This Auditing Standard is to be read also in conjunction with ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards.\n\n##### Conformity with International Standards on Auditing\n\nThis Auditing Standard conforms with the Litigation and Claims sections (paragraphs 1‑3, 9‑12 and A17‑A25) of International Standard on Auditing ISA 501 Audit Evidence – Specific Considerations for Selected Items, issued by the International Auditing and Assurance Standards Board (IAASB), an independent standard‑setting board of the International Federation of Accountants (IFAC).\n\nThe other paragraphs of ISA 501 relating to Inventory and Segment Information (paragraphs 4‑8, 13, A1‑A16 and A26‑A27) are incorporated into ASA 501 Audit Evidence—Specific Considerations for Inventory and Segment Information.\n\nThe AUASB has decided to continue to issue ASA 502 as a separate Auditing Standard, in the same way that the previous standard, ASA 508 Enquiry Regarding Litigation and Claims, is a separate standard. ASA 508 contains requirements and guidance that the AUASB considers important to carry forward in the Australian Auditing Standards, and as a result, the revised standard is better suited to presentation as a separate standard.\n\nThis Auditing Standard contains all the requirements and guidance contained in ISA 501 relating to Litigation and Claims, as well as additional requirements and guidance that are contained in ASA 508.\n\nParagraphs that have been added to this Auditing Standard (and do not appear in the text of the equivalent ISA) are identified with the prefix “Aus”.\n\nCompliance with this Auditing Standard, in conjunction with ASA 501, enables compliance with ISA 501.\n\n\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\n\nTable 1, following, shows how paragraphs in this Auditing Standard have been re‑numbered, compared to the equivalent paragraphs in ISA 501:\n\nTable 1: Paragraph Re‑numbering in ASA 502\n\n```html\n

Description

ISA 501

ASA 502

Para. #

Para. #

“Aus” Para. #

Requirements

Litigation and Claims

9

4

10

5

Aus 5.1‑Aus 5.2

11

6

12

7

Aus 7.1‑Aus 7.2

Application and Other Explanatory Material

Litigation and Claims

A17

A1

Aus A1.1

A18

A2

Aus A2.1‑Aus A2.2

A19

A3

A20

A4

Aus A 4.1

A21

A5

A22

A6

A23

A7

Aus A7.1‑Aus A7.2

A24

A8

Aus A8.1‑Aus A8.13

A25

A9

Aus A9.1‑Aus A9.3

Footnote 10

*

Footnote 11

*

\n```","sortOrder":7},{"sectionNumber":"AUTHORITY STATEMENT","sectionType":"part","heading":"AUTHORITY STATEMENT","content":"## AUTHORITY STATEMENT\n\nAuditing Standard ASA 502 Audit Evidence – Specific Considerations for Litigation and Claims as Amended (as amended to 5 November 2021) is set out in paragraphs Aus 0.1 to Aus A9.3 and \\[Aus\\] Appendix 1.\n\nThis Auditing Standard is to be read in conjunction with ASA 101 Preamble to AUASB Standards, which sets out how AUASB Standards are to be understood, interpreted and applied. This Auditing Standard is to be read also in conjunction with ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards.","sortOrder":8},{"sectionNumber":"Conformity with International Standards ","sectionType":"section","heading":"Conformity with International Standards on Auditing","content":"##### Conformity with International Standards on Auditing\n\nThis Auditing Standard conforms with the Litigation and Claims sections (paragraphs 1‑3, 9‑12 and A17‑A25) of International Standard on Auditing ISA 501 Audit Evidence – Specific Considerations for Selected Items, issued by the International Auditing and Assurance Standards Board (IAASB), an independent standard‑setting board of the International Federation of Accountants (IFAC).\n\nThe other paragraphs of ISA 501 relating to Inventory and Segment Information (paragraphs 4‑8, 13, A1‑A16 and A26‑A27) are incorporated into ASA 501 Audit Evidence—Specific Considerations for Inventory and Segment Information.\n\nThe AUASB has decided to continue to issue ASA 502 as a separate Auditing Standard, in the same way that the previous standard, ASA 508 Enquiry Regarding Litigation and Claims, is a separate standard. ASA 508 contains requirements and guidance that the AUASB considers important to carry forward in the Australian Auditing Standards, and as a result, the revised standard is better suited to presentation as a separate standard.\n\nThis Auditing Standard contains all the requirements and guidance contained in ISA 501 relating to Litigation and Claims, as well as additional requirements and guidance that are contained in ASA 508.\n\nParagraphs that have been added to this Auditing Standard (and do not appear in the text of the equivalent ISA) are identified with the prefix “Aus”.\n\nCompliance with this Auditing Standard, in conjunction with ASA 501, enables compliance with ISA 501.\n\n\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\\_\n\nTable 1, following, shows how paragraphs in this Auditing Standard have been re‑numbered, compared to the equivalent paragraphs in ISA 501:\n\nTable 1: Paragraph Re‑numbering in ASA 502\n\n```html\n

Description

ISA 501

ASA 502

Para. #

Para. #

“Aus” Para. #

Requirements

Litigation and Claims

9

4

10

5

Aus 5.1‑Aus 5.2

11

6

12

7

Aus 7.1‑Aus 7.2

Application and Other Explanatory Material

Litigation and Claims

A17

A1

Aus A1.1

A18

A2

Aus A2.1‑Aus A2.2

A19

A3

A20

A4

Aus A 4.1

A21

A5

A22

A6

A23

A7

Aus A7.1‑Aus A7.2

A24

A8

Aus A8.1‑Aus A8.13

A25

A9

Aus A9.1‑Aus A9.3

Footnote 10

*

Footnote 11

*

\n```","sortOrder":9},{"sectionNumber":"Auditing Standard ASA 502","sectionType":"part","heading":"Auditing Standard ASA 502","content":"## Auditing Standard ASA 502\n\nAudit Evidence ─ Specific Considerations for Litigation and Claims","sortOrder":10},{"sectionNumber":"Application","sectionType":"section","heading":"Application","content":"##### Application\n\nAus 0.1 This Auditing Standard applies to:\n\n(a) an audit of a financial report for a financial year, or an audit of a financial report for a half‑year, in accordance with the Corporations Act 2001; and\n\n(b) an audit of a financial report, or a complete set of financial statements, for any other purpose.\n\nAus 0.2 This Auditing Standard also applies, as appropriate, to an audit of other historical financial information.","sortOrder":11},{"sectionNumber":"Operative Date","sectionType":"section","heading":"Operative Date","content":"##### Operative Date\n\nAus 0.3 This Auditing Standard is operative for financial reporting periods commencing on or after 1 January 2010. \\[Note: For operative dates of paragraphs changed or added by an Amending Standard, see Compilation Details.\\]","sortOrder":12},{"sectionNumber":"Introduction","sectionType":"section","heading":"Introduction","content":"Auditing Standard ASA 502\n\nThe Auditing and Assurance Standards Board (AUASB) made Auditing Standard ASA 502 Audit Evidence ─ Specific Considerations for Litigation and Claims, pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001, on 27 October 2009.\n\nThis compiled version of ASA 502 incorporates subsequent amendments contained in other Auditing Standards made by the AUASB up to and including 5 November 2021 (see Compilation Details).\n\n## Auditing Standard ASA 502\n\nAudit Evidence ─ Specific Considerations for Litigation and Claims\n\n##### Application\n\nAus 0.1 This Auditing Standard applies to:\n\n(a) an audit of a financial report for a financial year, or an audit of a financial report for a half‑year, in accordance with the Corporations Act 2001; and\n\n(b) an audit of a financial report, or a complete set of financial statements, for any other purpose.\n\nAus 0.2 This Auditing Standard also applies, as appropriate, to an audit of other historical financial information.\n\n##### Operative Date\n\nAus 0.3 This Auditing Standard is operative for financial reporting periods commencing on or after 1 January 2010. \\[Note: For operative dates of paragraphs changed or added by an Amending Standard, see Compilation Details.\\]\n\n##### Introduction\n\n###### Scope of this Auditing Standard\n\n1. This Auditing Standard deals with specific considerations by the auditor in obtaining sufficient appropriate audit evidence in accordance with ASA 330,[\\[1\\]](#_ftn1) ASA 500[\\[2\\]](#_ftn2) and other relevant Australian Auditing Standards, with respect to litigation and claims involving the entity in an audit of a financial report.\n\n###### Effective Date\n\n1. \\[Deleted by the AUASB. Refer Aus 0.3\\]\n\n##### Objective\n\n1. The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the completeness of litigation and claims involving the entity.\n\n##### Requirements\n\n###### Completeness of Litigation and Claims\n\n1. The auditor shall design and perform audit procedures in order to identify litigation and claims involving the entity which may give rise to a risk of material misstatement, including: (Ref: Para. A1‑Aus A4.1)\n 1. Enquiry of management and, where applicable, others within the entity, including in‑house legal counsel;\n 2. Reviewing minutes of meetings of those charged with governance and correspondence between the entity and its external legal counsel; and\n 3. Reviewing legal expense accounts. (Ref: Para. A4)\n\n###### Communication with the Entity’s Legal Counsel\n\nExternal Legal Counsel\n\n1. If the auditor assesses a risk of material misstatement regarding litigation or claims that have been identified, or when audit procedures performed indicate that other material litigation or claims may exist, the auditor shall endeavour to, in addition to the procedures required by other Australian Auditing Standards, seek direct communication with the entity’s external legal counsel. The auditor shall do so through a letter of enquiry, prepared by management and sent by the auditor, requesting the entity’s external legal counsel to communicate directly with the auditor. If law, regulation or the respective legal professional body prohibits the entity’s external legal counsel from communicating directly with the auditor, the auditor shall perform alternative audit procedures. (Ref: Para. A5‑A8)\n\nIn‑house and/or External Legal Counsel\n\nAus 5.1 Where in‑house legal counsel has the primary responsibility for litigation and claims and is in the best position to corroborate management’s representations, the auditor shall endeavour to obtain a representation letter from the in‑house legal counsel, seeking information similar to that sought from the entity’s external legal counsel. (Ref: Para. Aus A8.1‑Aus A8.2)\n\nLegal Counsel’s Response\n\nAus 5.2 If a response from the entity’s external or internal legal counsel contains a material disagreement with management’s original evaluation of a particular matter, the auditor shall seek discussions with management and the entity’s legal counsel, unless management subsequently agrees with the legal counsel’s evaluation. \n(Ref. Para. Aus A8.3-Aus A8.6)\n\n1. If:\n 1. management refuses to give the auditor permission to communicate or meet with the entity’s external legal counsel, or the entity’s external legal counsel refuses to respond appropriately to the letter of enquiry, or is prohibited from responding; and (Ref: Para. Aus A8.7‑Aus A8.8)\n 2. the auditor is unable to obtain sufficient appropriate audit evidence by performing alternative audit procedures, (Ref: Para. Aus A8.9‑Aus A8.10)\n\nthe auditor shall modify the opinion in the auditor’s report in accordance with ASA 705 Modifications to the Opinion in the Independent Auditor’s Report. (Ref: Para. Aus A8.11)\n\n###### Written Representations\n\n1. The auditor shall request management and, where appropriate, those charged with governance, to provide written representations that all known actual or possible litigation and claims whose effects should be considered when preparing the financial report have been disclosed to the auditor and accounted for and disclosed in accordance with the applicable financial reporting framework. (Ref: Para. Aus A8.12‑Aus A8.13)\n\n###### Related Procedures\n\nAus 7.1 The auditor shall enquire of management about new litigation and claims referred to the entity’s legal counsel subsequent to the date of the request for a letter of enquiry to the entity’s legal counsel and prior to signing the auditor’s report. \n(Ref. Para A9-Aus A9.1)\n\nAus 7.2 If audit procedures lead to the discovery of matters of a legal nature not previously identified by management, the auditor shall consider the impact of each of the matters on the financial report. (Ref: Para. Aus A9.2‑Aus A9.3)\n\n\\* \\* \\*\n\n##### Application and Other Explanatory Material\n\n###### Completeness of Litigation and Claims (Ref: Para.4)\n\n1. Litigation and claims involving the entity may have a material effect on the financial report and thus may be required to be disclosed or accounted for in the financial report.\n\nAus A1.1 It is the responsibility of those charged with governance of an entity to adopt policies and procedures to identify, evaluate, record and report on the outcome of any material litigation and claims. However, since the factors that would be considered in the accounting for and reporting of litigation and claims are within the direct knowledge and control of the management of an entity, management is the primary source of information. Ordinarily, the auditor would seek audit evidence from different sources to corroborate management’s assertions.\n\n1. In addition to the procedures identified in paragraph 4, other relevant procedures include, for example, using information obtained through risk assessment procedures carried out as part of obtaining an understanding of the entity and its environment to assist the auditor to become aware of litigation and claims involving the entity.\n\nAus A2.1 The procedures identified in paragraphs 4 and A2 would ordinarily include the following:\n\n- reviewing and discussing with management the procedures within the entity’s internal control structure for identifying and recording litigation and claims and bringing them to the attention of management;\n- reviewing and discussing with management the procedures within the entity’s internal control structure for the identification, control and recording of litigation and claims and associated revenues and expenses in appropriate accounts; and\n- obtaining and discussing with management:\n 1. a list of litigation and claims, including a description of the matters and an estimate of their likely financial consequences; and\n 2. an analysis identifying litigation and claims.\n\nAus A2.2 Audit procedures that are undertaken for different purposes might also identify litigation and claims. Such procedures include:\n\n- examining contracts, loan agreements, leases, insurance policies and claims, and other correspondence;\n- reading minutes of meetings of the audit committee, shareholders and appropriate committees;\n- obtaining information concerning guarantees from bank confirmations; and\n- enquiries of management and other employees of the entity.\n\n1. Audit evidence obtained for purposes of identifying litigation and claims that may give rise to a risk of material misstatement also may provide audit evidence regarding other relevant considerations, such as valuation or measurement, regarding litigation and claims. ASA 540[](#_ftn3) establishes requirements and provides guidance relevant to the auditor’s consideration of litigation and claims requiring accounting estimates or related disclosures in the financial report.\n\nReviewing Legal Expense Accounts (Ref: Para. 4(c))\n\n1. Depending on the circumstances, the auditor may judge it appropriate to examine related source documents, such as invoices for legal expenses, as part of the auditor’s review of legal expense accounts.\n\nOutcome of Litigation and Claims (Ref: Para. 4)\n\nAus A4.1 The procedures outlined in paragraphs A1‑A4 are methods whereby the auditor can identify both material litigation and claims and legal counsel who have been consulted by the entity. However, these procedures may not necessarily provide the auditor with sufficient appropriate audit evidence concerning the likely outcome of litigation and claims. Furthermore, the auditor ordinarily does not possess the skills necessary and is not in a position to make legal judgements concerning the likely outcome of litigation and claims.\n\n###### Communication with the Entity’s Legal Counsel (Ref: Para.5-6)\n\nExternal Legal Counsel (Ref: Para. 5)\n\n1. Direct communication with the entity’s external legal counsel assists the auditor in obtaining sufficient appropriate audit evidence as to whether potentially material litigation and claims are known and management’s estimates of the financial implications, including costs, are reasonable.\n2. In some cases, the auditor may seek direct communication with the entity’s external legal counsel through a letter of general enquiry. For this purpose, a letter of general enquiry requests the entity’s external legal counsel to inform the auditor of any litigation and claims that the counsel is aware of, together with an assessment of the outcome of the litigation and claims, and an estimate of the financial implications, including costs involved.\n3. If it is considered unlikely that the entity’s external legal counsel will respond appropriately to a letter of general enquiry, for example if the professional body to which the external legal counsel belongs prohibits response to such a letter, the auditor may seek direct communication through a letter of specific enquiry. For this purpose, a letter of specific enquiry includes:\n 1. A list of litigation and claims;\n 2. Where available, management’s assessment of the outcome of each of the identified litigation and claims and its estimate of the financial implications, including costs involved; and\n 3. A request that the entity’s external legal counsel confirm the reasonableness of management’s assessments and provide the auditor with further information if the list is considered by the entity’s external legal counsel to be incomplete or incorrect.\n\nAus A7.1 An example of a letter of specific enquiry is included in \\[Aus\\] Appendix 1.\n\nAus A7.2 An auditor may in some cases request that management send a letter of enquiry to the entity’s legal counsel who are not identified as currently handling the entity’s litigation and claims. For example when the entity has changed legal counsel on a particular matter, or when legal counsel engaged by the entity has resigned, the auditor would consider the need for enquiries concerning the reasons for the change or resignation.\n\n1. In certain circumstances, the auditor also may judge it necessary to meet with the entity’s external legal counsel to discuss the likely outcome of the litigation or claims. This may be the case, for example, where:\n\n- The auditor determines that the matter is a significant risk.\n- The matter is complex.\n- There is disagreement between management and the entity’s external legal counsel.\n\nOrdinarily, such meetings require management’s permission and are held with a representative of management in attendance.\n\nIn‑house and/or External Legal Counsel (Ref: Para. Aus 5.1)\n\nAus A8.1 If both in‑house and external legal counsel are involved in advising the entity on the same litigation and claims, the auditor would ordinarily seek a letter of enquiry from the legal counsel with the primary responsibility for that matter. However, there may be circumstances where the in‑house legal counsel has primary responsibility, but the matter has involved substantial participation by an external legal counsel, and is of such significance that the auditor would consider obtaining a letter of enquiry from the external legal counsel to determine that their opinion does not differ materially from that of the in‑house legal counsel.\n\nAus A8.2 In circumstances where both in‑house and external legal counsel have devoted substantial attention to litigation and claims involving the entity and primary responsibility rests with the external legal counsel, evidence obtained from an in‑house legal counsel is not an adequate substitute for any information that the external legal counsel may refuse to furnish.\n\nLegal Counsel’s Response\n\nAus A8.3 Before relying on the opinion of either in‑house legal counsel or external legal counsel, care should be exercised to ensure that conditions prevail which would make such reliance reasonable.[](#_ftn4)\n\nAus A8.4 If a disagreement between management and legal counsel is resolved after discussions, the auditor would ordinarily request the entity’s legal counsel to confirm the details in writing to the auditor. (Ref: Para. Aus 5.2)\n\nAus A8.5 If the disagreement is not resolved, the auditor would ordinarily prepare a memorandum of the discussion and seek written confirmation from management and the entity’s legal counsel that it is an accurate record of the discussion. In conjunction with evidence from other audit procedures, the auditor, under ASA 705, needs to consider the effect of such disagreement on the auditor’s report.\n\nAus A8.6 If the response from the entity’s legal counsel contains information that requires clarification, the auditor would ordinarily make further enquiries of management and the entity’s legal counsel, as appropriate, and request clarification in writing.\n\nLegal Counsel’s Inability to Respond Comprehensively or Limitations in a Response (Ref: Para. 6(a))\n\nAus A8.7 If a response is not received from the entity’s legal counsel, or the response received is incomplete, the auditor would ordinarily consider:\n\n(a) requesting management to contact the entity’s legal counsel to either seek a complete answer to the original request, or an explanation for the lack of, or limitation in, a response, which ought to be sent directly to the auditor; or\n\n(b) making arrangements to discuss with management or the entity’s legal counsel the reasons for the lack of, or limitation in, a response.\n\nAus A8.8 Due to the following circumstances it may be difficult to either obtain a response to a letter of enquiry or be provided with information about litigation and claims from the entity’s legal counsel:\n\n(a) If the entity is involved in litigation, or litigation is anticipated or contemplated, relevant information about legal matters may be subject to legal professional privilege. Disclosure of this information in the letter of enquiry, directly to the auditor for the purposes of the audit of the entity’s financial report, is not privileged. This may cause legal professional privilege attaching to the entity’s communications with its legal counsel to be compromised, as information in the letter of enquiry might become discoverable in litigation proceedings.\n\n(b) Factors influencing the outcome of a legal matter may sometimes not be within the legal counsel’s competence to judge, for example where there is no relevant or historical experience of the entity or other entities in similar matters, or where the litigation is at an early stage.\n\n(c) Due to material uncertainties, the entity’s legal counsel may be unable to form a conclusion to corroborate management’s representations regarding outstanding litigation and claims.\n\nAlternative Audit Procedures (Ref: Para. 6(b))\n\nAus A8.9 Where the auditor has not obtained sufficient appropriate audit evidence as to a material financial report assertion regarding litigation and claims, under ASA 330, the auditor needs to consider whether alternative audit procedures can provide further audit evidence. Alternative audit procedures may include:\n\n(a) further enquiries of management or those charged with governance, about for instance the processes, procedures and assumptions they implement, adopt or make to ensure litigation and claims are recognised and disclosed in accordance with the applicable financial reporting framework;\n\n(b) where possible, making arrangements to discuss litigation and claims with management and the entity’s legal counsel;\n\n(c) further review of documents in management’s possession concerning litigation and claims, including the entity’s board minutes; and\n\n(d) further examination of accounts rendered by the entity’s external legal counsel.\n\nAus A8.10 The auditor may also consider any relevant legislation to assist in obtaining information about litigation and claims, including, for example:\n\n- Section 310 of the Corporations Act 2001 which entitles the auditor to a right of access at all reasonable times to the books of a company, registered scheme or disclosing entity, and to require from any officer information, explanations or other assistance for the purposes of the audit or review.\n- When the entity is a disclosing entity, whether disclosure of any litigation and claims has been made in accordance with the continuous disclosure requirements under sections 674 or 675 of the Corporations Act 2001.\n\nOther Audit Reporting Considerations (Ref: Para. 6)\n\nAus A8.11 In those circumstances where, due to uncertainties, the entity’s legal counsel is unable to form a conclusion to corroborate management’s representation, the auditor needs to consider the effect on the auditor’s report arising from the extent of disclosure of the uncertainty in the financial report:\n\n(a) where the auditor considers that the disclosure of the uncertainty in the financial report is adequate, the auditor needs to consider including an Emphasis of Matter paragraph; in accordance with ASA 706,[](#_ftn5) or\n\n(b) if in the auditor’s opinion the disclosure of the uncertainty is inadequate or unreliable, a modified opinion needs to be expressed in accordance with ASA 705.\n\n###### Written Representations (Ref: Para.7)\n\nAus A8.12 ASA 580[](#_ftn6) deals with the auditor’s responsibility to obtain written representations from management and, where appropriate, those charged with governance, in an audit of a financial report. Appendix 2 of that Standard provides an illustrative example of a representation letter.\n\nAus A8.13 As management is the primary source of information regarding litigation and claims, the auditor is required to request management to provide written representations about such matters. Written representations from management provide audit evidence regarding litigation and claims that may have a material effect on the financial report.\n\n###### Related Procedures (Ref: Para. Aus 7.1-Aus 7.2)\n\n1. In accordance with ASA 700,[\\[†\\]](#_ftn7) the auditor is required to date the auditor’s report no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial report. Audit evidence about the status of litigation and claims up to the date of the auditor’s report may be obtained by enquiry of management, including in‑house legal counsel, responsible for dealing with the relevant matters. In some instances, the auditor may need to obtain updated information from the entity’s external legal counsel.\n\nAus A9.1 When new litigation or claims, which may have a material effect on the financial report, have been referred to the entity’s legal counsel subsequent to sending the letter of enquiry to the entity’s legal counsel and prior to signing the auditor’s report, the auditor would ordinarily request management to prepare an additional letter of enquiry to the legal counsel regarding the new litigation or claims.\n\nAus A9.2 When litigation and claims matters, which may have a material effect on the financial report, are discovered, which were not previously identified by management, the auditor would ordinarily inform management and request management to address further enquiries to, or arrange a meeting with, the entity’s legal counsel or other relevant experts, at which the auditor would be present. In addition, the auditor needs to extend the auditor’s audit procedures to ensure that sufficient appropriate audit evidence on which to form an opinion has been obtained. If, however, having regard to all the circumstances, the auditor is unable to obtain satisfaction that all the information required for the purposes of the audit has been received, the auditor considers the effect on the auditor’s report.[](#_ftn8)\n\nAus A9.3 If information comes to the auditor’s attention that may indicate the existence of material liabilities resulting from litigation and claims on which management has not sought advice, the auditor ordinarily discusses the matter with those charged with governance. Depending on the circumstances, refusal by management to seek advice may be considered to be a limitation in the scope of the auditor’s work.\n\n\\[Aus\\] Appendix 1\n\n(Ref: Para. 5 and A7)\n\n| This example letter relates to specific enquiry directed to the entity’s external legal counsel, but may be adapted, as appropriate, to specific enquiry directed to the entity’s internal legal counsel. |\n| --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |\n\n##### Example of a Letter of Specific Enquiry to External Legal Counsel (For an Audit Client)\n\n(Client Letterhead)\n\n(Date)\n\n(Name and Address of External Legal Counsel)\n\nDear ...\n\nIn connection with the preparation and audit of the financial report of (name of company) (and the following subsidiaries and/or divisions) for the reporting period ended (date) we request that you provide to this company, at our cost, the following information:\n\n1. Confirmation that you are acting for the company (and the above‑named subsidiaries and/or divisions) in relation to the matters mentioned below and that the directors’ description and estimates of the amounts of the financial settlement (including costs and disbursements) which might arise in relation to those matters are in your opinion reasonable.\n\n| Name of Company (subsidiary or division) | Directors’ Description of Matter(including current status) | Directors’ Estimate of the Financial Settlement (inclusive of costs and disbursements) |\n| ---------------------------------------- | ---------------------------------------------------------- | -------------------------------------------------------------------------------------- |\n\n1. Should you disagree with any of the information included in 1 above, please comment on the nature of your disagreement.\n2. In addition to the above, a list of open files that you maintain in relation to the company (and the above mentioned subsidiaries and/or divisions).\n3. In relation to the matters identified under 2 and 3 above, we authorise you to discuss these matters with our auditor (name and address), if requested, and at our cost.\n\nIt is understood that:\n\n(a) the company (and the above-named subsidiaries and/or divisions) may have used other legal counsel in certain matters;\n\n(b) the information sought relates only to information relating to litigation and claims referred to your firm (including branches or subsidiaries) which were current at any time during the \nabove-mentioned reporting period, or have arisen since the end of the reporting period and up to the date of your response;\n\n(c) unless separately requested in writing, you are not responsible for keeping the auditors advised of any changes after the date of your reply;\n\n(d) you are only required to respond on matters referred to you as legal counsel for the company (and the above-mentioned subsidiaries and/or divisions), not on those within your knowledge solely because of the holding of any office as director, secretary or otherwise of the company (and the above-mentioned subsidiaries and/or divisions) by a consultant, partner or employee of your firm; and\n\n(e) your reply is sought solely for the information of, and assistance to, this company in connection with the audit of, and report with respect to, the financial report of the company (and the above-mentioned subsidiaries and/or divisions) and will not be quoted or otherwise referred to in any financial report or related documents of the company (and the above-mentioned subsidiaries and/or divisions) nor will it be furnished to any governmental agency or other person, subject to specific legislative requirements, without the prior written consent of your firm.\n\nYour prompt assistance in this matter will be appreciated. If you are unable to confirm or provide the information requested above, please advise us and our auditor the reasons for any limitation or impediment to fulfilling this request.\n\nPlease forward a signed copy of your reply directly to our auditors, (name) at (address), by (date).\n\nYours faithfully,\n\n(Signature and Title of client)","sortOrder":13},{"sectionNumber":"Scope of this Auditing Standard","sectionType":"section","heading":"Scope of this Auditing Standard","content":"###### Scope of this Auditing Standard\n\n1. This Auditing Standard deals with specific considerations by the auditor in obtaining sufficient appropriate audit evidence in accordance with ASA 330,[\\[1\\]](#_ftn1) ASA 500[\\[2\\]](#_ftn2) and other relevant Australian Auditing Standards, with respect to litigation and claims involving the entity in an audit of a financial report.","sortOrder":14},{"sectionNumber":"Effective Date","sectionType":"section","heading":"Effective Date","content":"###### Effective Date\n\n1. \\[Deleted by the AUASB. Refer Aus 0.3\\]","sortOrder":15},{"sectionNumber":"Objective","sectionType":"section","heading":"Objective","content":"##### Objective\n\n1. The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the completeness of litigation and claims involving the entity.","sortOrder":16},{"sectionNumber":"Requirements","sectionType":"section","heading":"Requirements","content":"Auditing Standard ASA 502\n\nThe Auditing and Assurance Standards Board (AUASB) made Auditing Standard ASA 502 Audit Evidence ─ Specific Considerations for Litigation and Claims, pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001, on 27 October 2009.\n\nThis compiled version of ASA 502 incorporates subsequent amendments contained in other Auditing Standards made by the AUASB up to and including 5 November 2021 (see Compilation Details).\n\n## Auditing Standard ASA 502\n\nAudit Evidence ─ Specific Considerations for Litigation and Claims\n\n##### Application\n\nAus 0.1 This Auditing Standard applies to:\n\n(a) an audit of a financial report for a financial year, or an audit of a financial report for a half‑year, in accordance with the Corporations Act 2001; and\n\n(b) an audit of a financial report, or a complete set of financial statements, for any other purpose.\n\nAus 0.2 This Auditing Standard also applies, as appropriate, to an audit of other historical financial information.\n\n##### Operative Date\n\nAus 0.3 This Auditing Standard is operative for financial reporting periods commencing on or after 1 January 2010. \\[Note: For operative dates of paragraphs changed or added by an Amending Standard, see Compilation Details.\\]\n\n##### Introduction\n\n###### Scope of this Auditing Standard\n\n1. This Auditing Standard deals with specific considerations by the auditor in obtaining sufficient appropriate audit evidence in accordance with ASA 330,[\\[1\\]](#_ftn1) ASA 500[\\[2\\]](#_ftn2) and other relevant Australian Auditing Standards, with respect to litigation and claims involving the entity in an audit of a financial report.\n\n###### Effective Date\n\n1. \\[Deleted by the AUASB. Refer Aus 0.3\\]\n\n##### Objective\n\n1. The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the completeness of litigation and claims involving the entity.\n\n##### Requirements\n\n###### Completeness of Litigation and Claims\n\n1. The auditor shall design and perform audit procedures in order to identify litigation and claims involving the entity which may give rise to a risk of material misstatement, including: (Ref: Para. A1‑Aus A4.1)\n 1. Enquiry of management and, where applicable, others within the entity, including in‑house legal counsel;\n 2. Reviewing minutes of meetings of those charged with governance and correspondence between the entity and its external legal counsel; and\n 3. Reviewing legal expense accounts. (Ref: Para. A4)\n\n###### Communication with the Entity’s Legal Counsel\n\nExternal Legal Counsel\n\n1. If the auditor assesses a risk of material misstatement regarding litigation or claims that have been identified, or when audit procedures performed indicate that other material litigation or claims may exist, the auditor shall endeavour to, in addition to the procedures required by other Australian Auditing Standards, seek direct communication with the entity’s external legal counsel. The auditor shall do so through a letter of enquiry, prepared by management and sent by the auditor, requesting the entity’s external legal counsel to communicate directly with the auditor. If law, regulation or the respective legal professional body prohibits the entity’s external legal counsel from communicating directly with the auditor, the auditor shall perform alternative audit procedures. (Ref: Para. A5‑A8)\n\nIn‑house and/or External Legal Counsel\n\nAus 5.1 Where in‑house legal counsel has the primary responsibility for litigation and claims and is in the best position to corroborate management’s representations, the auditor shall endeavour to obtain a representation letter from the in‑house legal counsel, seeking information similar to that sought from the entity’s external legal counsel. (Ref: Para. Aus A8.1‑Aus A8.2)\n\nLegal Counsel’s Response\n\nAus 5.2 If a response from the entity’s external or internal legal counsel contains a material disagreement with management’s original evaluation of a particular matter, the auditor shall seek discussions with management and the entity’s legal counsel, unless management subsequently agrees with the legal counsel’s evaluation. \n(Ref. Para. Aus A8.3-Aus A8.6)\n\n1. If:\n 1. management refuses to give the auditor permission to communicate or meet with the entity’s external legal counsel, or the entity’s external legal counsel refuses to respond appropriately to the letter of enquiry, or is prohibited from responding; and (Ref: Para. Aus A8.7‑Aus A8.8)\n 2. the auditor is unable to obtain sufficient appropriate audit evidence by performing alternative audit procedures, (Ref: Para. Aus A8.9‑Aus A8.10)\n\nthe auditor shall modify the opinion in the auditor’s report in accordance with ASA 705 Modifications to the Opinion in the Independent Auditor’s Report. (Ref: Para. Aus A8.11)\n\n###### Written Representations\n\n1. The auditor shall request management and, where appropriate, those charged with governance, to provide written representations that all known actual or possible litigation and claims whose effects should be considered when preparing the financial report have been disclosed to the auditor and accounted for and disclosed in accordance with the applicable financial reporting framework. (Ref: Para. Aus A8.12‑Aus A8.13)\n\n###### Related Procedures\n\nAus 7.1 The auditor shall enquire of management about new litigation and claims referred to the entity’s legal counsel subsequent to the date of the request for a letter of enquiry to the entity’s legal counsel and prior to signing the auditor’s report. \n(Ref. Para A9-Aus A9.1)\n\nAus 7.2 If audit procedures lead to the discovery of matters of a legal nature not previously identified by management, the auditor shall consider the impact of each of the matters on the financial report. (Ref: Para. Aus A9.2‑Aus A9.3)\n\n\\* \\* \\*\n\n##### Application and Other Explanatory Material\n\n###### Completeness of Litigation and Claims (Ref: Para.4)\n\n1. Litigation and claims involving the entity may have a material effect on the financial report and thus may be required to be disclosed or accounted for in the financial report.\n\nAus A1.1 It is the responsibility of those charged with governance of an entity to adopt policies and procedures to identify, evaluate, record and report on the outcome of any material litigation and claims. However, since the factors that would be considered in the accounting for and reporting of litigation and claims are within the direct knowledge and control of the management of an entity, management is the primary source of information. Ordinarily, the auditor would seek audit evidence from different sources to corroborate management’s assertions.\n\n1. In addition to the procedures identified in paragraph 4, other relevant procedures include, for example, using information obtained through risk assessment procedures carried out as part of obtaining an understanding of the entity and its environment to assist the auditor to become aware of litigation and claims involving the entity.\n\nAus A2.1 The procedures identified in paragraphs 4 and A2 would ordinarily include the following:\n\n- reviewing and discussing with management the procedures within the entity’s internal control structure for identifying and recording litigation and claims and bringing them to the attention of management;\n- reviewing and discussing with management the procedures within the entity’s internal control structure for the identification, control and recording of litigation and claims and associated revenues and expenses in appropriate accounts; and\n- obtaining and discussing with management:\n 1. a list of litigation and claims, including a description of the matters and an estimate of their likely financial consequences; and\n 2. an analysis identifying litigation and claims.\n\nAus A2.2 Audit procedures that are undertaken for different purposes might also identify litigation and claims. Such procedures include:\n\n- examining contracts, loan agreements, leases, insurance policies and claims, and other correspondence;\n- reading minutes of meetings of the audit committee, shareholders and appropriate committees;\n- obtaining information concerning guarantees from bank confirmations; and\n- enquiries of management and other employees of the entity.\n\n1. Audit evidence obtained for purposes of identifying litigation and claims that may give rise to a risk of material misstatement also may provide audit evidence regarding other relevant considerations, such as valuation or measurement, regarding litigation and claims. ASA 540[](#_ftn3) establishes requirements and provides guidance relevant to the auditor’s consideration of litigation and claims requiring accounting estimates or related disclosures in the financial report.\n\nReviewing Legal Expense Accounts (Ref: Para. 4(c))\n\n1. Depending on the circumstances, the auditor may judge it appropriate to examine related source documents, such as invoices for legal expenses, as part of the auditor’s review of legal expense accounts.\n\nOutcome of Litigation and Claims (Ref: Para. 4)\n\nAus A4.1 The procedures outlined in paragraphs A1‑A4 are methods whereby the auditor can identify both material litigation and claims and legal counsel who have been consulted by the entity. However, these procedures may not necessarily provide the auditor with sufficient appropriate audit evidence concerning the likely outcome of litigation and claims. Furthermore, the auditor ordinarily does not possess the skills necessary and is not in a position to make legal judgements concerning the likely outcome of litigation and claims.\n\n###### Communication with the Entity’s Legal Counsel (Ref: Para.5-6)\n\nExternal Legal Counsel (Ref: Para. 5)\n\n1. Direct communication with the entity’s external legal counsel assists the auditor in obtaining sufficient appropriate audit evidence as to whether potentially material litigation and claims are known and management’s estimates of the financial implications, including costs, are reasonable.\n2. In some cases, the auditor may seek direct communication with the entity’s external legal counsel through a letter of general enquiry. For this purpose, a letter of general enquiry requests the entity’s external legal counsel to inform the auditor of any litigation and claims that the counsel is aware of, together with an assessment of the outcome of the litigation and claims, and an estimate of the financial implications, including costs involved.\n3. If it is considered unlikely that the entity’s external legal counsel will respond appropriately to a letter of general enquiry, for example if the professional body to which the external legal counsel belongs prohibits response to such a letter, the auditor may seek direct communication through a letter of specific enquiry. For this purpose, a letter of specific enquiry includes:\n 1. A list of litigation and claims;\n 2. Where available, management’s assessment of the outcome of each of the identified litigation and claims and its estimate of the financial implications, including costs involved; and\n 3. A request that the entity’s external legal counsel confirm the reasonableness of management’s assessments and provide the auditor with further information if the list is considered by the entity’s external legal counsel to be incomplete or incorrect.\n\nAus A7.1 An example of a letter of specific enquiry is included in \\[Aus\\] Appendix 1.\n\nAus A7.2 An auditor may in some cases request that management send a letter of enquiry to the entity’s legal counsel who are not identified as currently handling the entity’s litigation and claims. For example when the entity has changed legal counsel on a particular matter, or when legal counsel engaged by the entity has resigned, the auditor would consider the need for enquiries concerning the reasons for the change or resignation.\n\n1. In certain circumstances, the auditor also may judge it necessary to meet with the entity’s external legal counsel to discuss the likely outcome of the litigation or claims. This may be the case, for example, where:\n\n- The auditor determines that the matter is a significant risk.\n- The matter is complex.\n- There is disagreement between management and the entity’s external legal counsel.\n\nOrdinarily, such meetings require management’s permission and are held with a representative of management in attendance.\n\nIn‑house and/or External Legal Counsel (Ref: Para. Aus 5.1)\n\nAus A8.1 If both in‑house and external legal counsel are involved in advising the entity on the same litigation and claims, the auditor would ordinarily seek a letter of enquiry from the legal counsel with the primary responsibility for that matter. However, there may be circumstances where the in‑house legal counsel has primary responsibility, but the matter has involved substantial participation by an external legal counsel, and is of such significance that the auditor would consider obtaining a letter of enquiry from the external legal counsel to determine that their opinion does not differ materially from that of the in‑house legal counsel.\n\nAus A8.2 In circumstances where both in‑house and external legal counsel have devoted substantial attention to litigation and claims involving the entity and primary responsibility rests with the external legal counsel, evidence obtained from an in‑house legal counsel is not an adequate substitute for any information that the external legal counsel may refuse to furnish.\n\nLegal Counsel’s Response\n\nAus A8.3 Before relying on the opinion of either in‑house legal counsel or external legal counsel, care should be exercised to ensure that conditions prevail which would make such reliance reasonable.[](#_ftn4)\n\nAus A8.4 If a disagreement between management and legal counsel is resolved after discussions, the auditor would ordinarily request the entity’s legal counsel to confirm the details in writing to the auditor. (Ref: Para. Aus 5.2)\n\nAus A8.5 If the disagreement is not resolved, the auditor would ordinarily prepare a memorandum of the discussion and seek written confirmation from management and the entity’s legal counsel that it is an accurate record of the discussion. In conjunction with evidence from other audit procedures, the auditor, under ASA 705, needs to consider the effect of such disagreement on the auditor’s report.\n\nAus A8.6 If the response from the entity’s legal counsel contains information that requires clarification, the auditor would ordinarily make further enquiries of management and the entity’s legal counsel, as appropriate, and request clarification in writing.\n\nLegal Counsel’s Inability to Respond Comprehensively or Limitations in a Response (Ref: Para. 6(a))\n\nAus A8.7 If a response is not received from the entity’s legal counsel, or the response received is incomplete, the auditor would ordinarily consider:\n\n(a) requesting management to contact the entity’s legal counsel to either seek a complete answer to the original request, or an explanation for the lack of, or limitation in, a response, which ought to be sent directly to the auditor; or\n\n(b) making arrangements to discuss with management or the entity’s legal counsel the reasons for the lack of, or limitation in, a response.\n\nAus A8.8 Due to the following circumstances it may be difficult to either obtain a response to a letter of enquiry or be provided with information about litigation and claims from the entity’s legal counsel:\n\n(a) If the entity is involved in litigation, or litigation is anticipated or contemplated, relevant information about legal matters may be subject to legal professional privilege. Disclosure of this information in the letter of enquiry, directly to the auditor for the purposes of the audit of the entity’s financial report, is not privileged. This may cause legal professional privilege attaching to the entity’s communications with its legal counsel to be compromised, as information in the letter of enquiry might become discoverable in litigation proceedings.\n\n(b) Factors influencing the outcome of a legal matter may sometimes not be within the legal counsel’s competence to judge, for example where there is no relevant or historical experience of the entity or other entities in similar matters, or where the litigation is at an early stage.\n\n(c) Due to material uncertainties, the entity’s legal counsel may be unable to form a conclusion to corroborate management’s representations regarding outstanding litigation and claims.\n\nAlternative Audit Procedures (Ref: Para. 6(b))\n\nAus A8.9 Where the auditor has not obtained sufficient appropriate audit evidence as to a material financial report assertion regarding litigation and claims, under ASA 330, the auditor needs to consider whether alternative audit procedures can provide further audit evidence. Alternative audit procedures may include:\n\n(a) further enquiries of management or those charged with governance, about for instance the processes, procedures and assumptions they implement, adopt or make to ensure litigation and claims are recognised and disclosed in accordance with the applicable financial reporting framework;\n\n(b) where possible, making arrangements to discuss litigation and claims with management and the entity’s legal counsel;\n\n(c) further review of documents in management’s possession concerning litigation and claims, including the entity’s board minutes; and\n\n(d) further examination of accounts rendered by the entity’s external legal counsel.\n\nAus A8.10 The auditor may also consider any relevant legislation to assist in obtaining information about litigation and claims, including, for example:\n\n- Section 310 of the Corporations Act 2001 which entitles the auditor to a right of access at all reasonable times to the books of a company, registered scheme or disclosing entity, and to require from any officer information, explanations or other assistance for the purposes of the audit or review.\n- When the entity is a disclosing entity, whether disclosure of any litigation and claims has been made in accordance with the continuous disclosure requirements under sections 674 or 675 of the Corporations Act 2001.\n\nOther Audit Reporting Considerations (Ref: Para. 6)\n\nAus A8.11 In those circumstances where, due to uncertainties, the entity’s legal counsel is unable to form a conclusion to corroborate management’s representation, the auditor needs to consider the effect on the auditor’s report arising from the extent of disclosure of the uncertainty in the financial report:\n\n(a) where the auditor considers that the disclosure of the uncertainty in the financial report is adequate, the auditor needs to consider including an Emphasis of Matter paragraph; in accordance with ASA 706,[](#_ftn5) or\n\n(b) if in the auditor’s opinion the disclosure of the uncertainty is inadequate or unreliable, a modified opinion needs to be expressed in accordance with ASA 705.\n\n###### Written Representations (Ref: Para.7)\n\nAus A8.12 ASA 580[](#_ftn6) deals with the auditor’s responsibility to obtain written representations from management and, where appropriate, those charged with governance, in an audit of a financial report. Appendix 2 of that Standard provides an illustrative example of a representation letter.\n\nAus A8.13 As management is the primary source of information regarding litigation and claims, the auditor is required to request management to provide written representations about such matters. Written representations from management provide audit evidence regarding litigation and claims that may have a material effect on the financial report.\n\n###### Related Procedures (Ref: Para. Aus 7.1-Aus 7.2)\n\n1. In accordance with ASA 700,[\\[†\\]](#_ftn7) the auditor is required to date the auditor’s report no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial report. Audit evidence about the status of litigation and claims up to the date of the auditor’s report may be obtained by enquiry of management, including in‑house legal counsel, responsible for dealing with the relevant matters. In some instances, the auditor may need to obtain updated information from the entity’s external legal counsel.\n\nAus A9.1 When new litigation or claims, which may have a material effect on the financial report, have been referred to the entity’s legal counsel subsequent to sending the letter of enquiry to the entity’s legal counsel and prior to signing the auditor’s report, the auditor would ordinarily request management to prepare an additional letter of enquiry to the legal counsel regarding the new litigation or claims.\n\nAus A9.2 When litigation and claims matters, which may have a material effect on the financial report, are discovered, which were not previously identified by management, the auditor would ordinarily inform management and request management to address further enquiries to, or arrange a meeting with, the entity’s legal counsel or other relevant experts, at which the auditor would be present. In addition, the auditor needs to extend the auditor’s audit procedures to ensure that sufficient appropriate audit evidence on which to form an opinion has been obtained. If, however, having regard to all the circumstances, the auditor is unable to obtain satisfaction that all the information required for the purposes of the audit has been received, the auditor considers the effect on the auditor’s report.[](#_ftn8)\n\nAus A9.3 If information comes to the auditor’s attention that may indicate the existence of material liabilities resulting from litigation and claims on which management has not sought advice, the auditor ordinarily discusses the matter with those charged with governance. Depending on the circumstances, refusal by management to seek advice may be considered to be a limitation in the scope of the auditor’s work.\n\n\\[Aus\\] Appendix 1\n\n(Ref: Para. 5 and A7)\n\n| This example letter relates to specific enquiry directed to the entity’s external legal counsel, but may be adapted, as appropriate, to specific enquiry directed to the entity’s internal legal counsel. |\n| --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |\n\n##### Example of a Letter of Specific Enquiry to External Legal Counsel (For an Audit Client)\n\n(Client Letterhead)\n\n(Date)\n\n(Name and Address of External Legal Counsel)\n\nDear ...\n\nIn connection with the preparation and audit of the financial report of (name of company) (and the following subsidiaries and/or divisions) for the reporting period ended (date) we request that you provide to this company, at our cost, the following information:\n\n1. Confirmation that you are acting for the company (and the above‑named subsidiaries and/or divisions) in relation to the matters mentioned below and that the directors’ description and estimates of the amounts of the financial settlement (including costs and disbursements) which might arise in relation to those matters are in your opinion reasonable.\n\n| Name of Company (subsidiary or division) | Directors’ Description of Matter(including current status) | Directors’ Estimate of the Financial Settlement (inclusive of costs and disbursements) |\n| ---------------------------------------- | ---------------------------------------------------------- | -------------------------------------------------------------------------------------- |\n\n1. Should you disagree with any of the information included in 1 above, please comment on the nature of your disagreement.\n2. In addition to the above, a list of open files that you maintain in relation to the company (and the above mentioned subsidiaries and/or divisions).\n3. In relation to the matters identified under 2 and 3 above, we authorise you to discuss these matters with our auditor (name and address), if requested, and at our cost.\n\nIt is understood that:\n\n(a) the company (and the above-named subsidiaries and/or divisions) may have used other legal counsel in certain matters;\n\n(b) the information sought relates only to information relating to litigation and claims referred to your firm (including branches or subsidiaries) which were current at any time during the \nabove-mentioned reporting period, or have arisen since the end of the reporting period and up to the date of your response;\n\n(c) unless separately requested in writing, you are not responsible for keeping the auditors advised of any changes after the date of your reply;\n\n(d) you are only required to respond on matters referred to you as legal counsel for the company (and the above-mentioned subsidiaries and/or divisions), not on those within your knowledge solely because of the holding of any office as director, secretary or otherwise of the company (and the above-mentioned subsidiaries and/or divisions) by a consultant, partner or employee of your firm; and\n\n(e) your reply is sought solely for the information of, and assistance to, this company in connection with the audit of, and report with respect to, the financial report of the company (and the above-mentioned subsidiaries and/or divisions) and will not be quoted or otherwise referred to in any financial report or related documents of the company (and the above-mentioned subsidiaries and/or divisions) nor will it be furnished to any governmental agency or other person, subject to specific legislative requirements, without the prior written consent of your firm.\n\nYour prompt assistance in this matter will be appreciated. If you are unable to confirm or provide the information requested above, please advise us and our auditor the reasons for any limitation or impediment to fulfilling this request.\n\nPlease forward a signed copy of your reply directly to our auditors, (name) at (address), by (date).\n\nYours faithfully,\n\n(Signature and Title of client)","sortOrder":17},{"sectionNumber":"Completeness of Litigation and Claims","sectionType":"section","heading":"Completeness of Litigation and Claims","content":"###### Completeness of Litigation and Claims\n\n1. The auditor shall design and perform audit procedures in order to identify litigation and claims involving the entity which may give rise to a risk of material misstatement, including: (Ref: Para. A1‑Aus A4.1)\n 1. Enquiry of management and, where applicable, others within the entity, including in‑house legal counsel;\n 2. Reviewing minutes of meetings of those charged with governance and correspondence between the entity and its external legal counsel; and\n 3. Reviewing legal expense accounts. (Ref: Para. A4)","sortOrder":18},{"sectionNumber":"Communication with the Entity’s Legal Co","sectionType":"section","heading":"Communication with the Entity’s Legal Counsel","content":"###### Communication with the Entity’s Legal Counsel\n\nExternal Legal Counsel\n\n1. If the auditor assesses a risk of material misstatement regarding litigation or claims that have been identified, or when audit procedures performed indicate that other material litigation or claims may exist, the auditor shall endeavour to, in addition to the procedures required by other Australian Auditing Standards, seek direct communication with the entity’s external legal counsel. The auditor shall do so through a letter of enquiry, prepared by management and sent by the auditor, requesting the entity’s external legal counsel to communicate directly with the auditor. If law, regulation or the respective legal professional body prohibits the entity’s external legal counsel from communicating directly with the auditor, the auditor shall perform alternative audit procedures. (Ref: Para. A5‑A8)\n\nIn‑house and/or External Legal Counsel\n\nAus 5.1 Where in‑house legal counsel has the primary responsibility for litigation and claims and is in the best position to corroborate management’s representations, the auditor shall endeavour to obtain a representation letter from the in‑house legal counsel, seeking information similar to that sought from the entity’s external legal counsel. (Ref: Para. Aus A8.1‑Aus A8.2)\n\nLegal Counsel’s Response\n\nAus 5.2 If a response from the entity’s external or internal legal counsel contains a material disagreement with management’s original evaluation of a particular matter, the auditor shall seek discussions with management and the entity’s legal counsel, unless management subsequently agrees with the legal counsel’s evaluation. \n(Ref. Para. Aus A8.3-Aus A8.6)\n\n1. If:\n 1. management refuses to give the auditor permission to communicate or meet with the entity’s external legal counsel, or the entity’s external legal counsel refuses to respond appropriately to the letter of enquiry, or is prohibited from responding; and (Ref: Para. Aus A8.7‑Aus A8.8)\n 2. the auditor is unable to obtain sufficient appropriate audit evidence by performing alternative audit procedures, (Ref: Para. Aus A8.9‑Aus A8.10)\n\nthe auditor shall modify the opinion in the auditor’s report in accordance with ASA 705 Modifications to the Opinion in the Independent Auditor’s Report. (Ref: Para. Aus A8.11)","sortOrder":19},{"sectionNumber":"Written Representations","sectionType":"section","heading":"Written Representations","content":"###### Written Representations\n\n1. The auditor shall request management and, where appropriate, those charged with governance, to provide written representations that all known actual or possible litigation and claims whose effects should be considered when preparing the financial report have been disclosed to the auditor and accounted for and disclosed in accordance with the applicable financial reporting framework. (Ref: Para. Aus A8.12‑Aus A8.13)","sortOrder":20},{"sectionNumber":"Related Procedures","sectionType":"section","heading":"Related Procedures","content":"###### Related Procedures\n\nAus 7.1 The auditor shall enquire of management about new litigation and claims referred to the entity’s legal counsel subsequent to the date of the request for a letter of enquiry to the entity’s legal counsel and prior to signing the auditor’s report. \n(Ref. Para A9-Aus A9.1)\n\nAus 7.2 If audit procedures lead to the discovery of matters of a legal nature not previously identified by management, the auditor shall consider the impact of each of the matters on the financial report. (Ref: Para. Aus A9.2‑Aus A9.3)\n\n\\* \\* \\*","sortOrder":21},{"sectionNumber":"Application and Other Explanatory Materi","sectionType":"section","heading":"Application and Other Explanatory Material","content":"Auditing Standard ASA 502\n\nThe Auditing and Assurance Standards Board (AUASB) made Auditing Standard ASA 502 Audit Evidence ─ Specific Considerations for Litigation and Claims, pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001, on 27 October 2009.\n\nThis compiled version of ASA 502 incorporates subsequent amendments contained in other Auditing Standards made by the AUASB up to and including 5 November 2021 (see Compilation Details).\n\n## Auditing Standard ASA 502\n\nAudit Evidence ─ Specific Considerations for Litigation and Claims\n\n##### Application\n\nAus 0.1 This Auditing Standard applies to:\n\n(a) an audit of a financial report for a financial year, or an audit of a financial report for a half‑year, in accordance with the Corporations Act 2001; and\n\n(b) an audit of a financial report, or a complete set of financial statements, for any other purpose.\n\nAus 0.2 This Auditing Standard also applies, as appropriate, to an audit of other historical financial information.\n\n##### Operative Date\n\nAus 0.3 This Auditing Standard is operative for financial reporting periods commencing on or after 1 January 2010. \\[Note: For operative dates of paragraphs changed or added by an Amending Standard, see Compilation Details.\\]\n\n##### Introduction\n\n###### Scope of this Auditing Standard\n\n1. This Auditing Standard deals with specific considerations by the auditor in obtaining sufficient appropriate audit evidence in accordance with ASA 330,[\\[1\\]](#_ftn1) ASA 500[\\[2\\]](#_ftn2) and other relevant Australian Auditing Standards, with respect to litigation and claims involving the entity in an audit of a financial report.\n\n###### Effective Date\n\n1. \\[Deleted by the AUASB. Refer Aus 0.3\\]\n\n##### Objective\n\n1. The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the completeness of litigation and claims involving the entity.\n\n##### Requirements\n\n###### Completeness of Litigation and Claims\n\n1. The auditor shall design and perform audit procedures in order to identify litigation and claims involving the entity which may give rise to a risk of material misstatement, including: (Ref: Para. A1‑Aus A4.1)\n 1. Enquiry of management and, where applicable, others within the entity, including in‑house legal counsel;\n 2. Reviewing minutes of meetings of those charged with governance and correspondence between the entity and its external legal counsel; and\n 3. Reviewing legal expense accounts. (Ref: Para. A4)\n\n###### Communication with the Entity’s Legal Counsel\n\nExternal Legal Counsel\n\n1. If the auditor assesses a risk of material misstatement regarding litigation or claims that have been identified, or when audit procedures performed indicate that other material litigation or claims may exist, the auditor shall endeavour to, in addition to the procedures required by other Australian Auditing Standards, seek direct communication with the entity’s external legal counsel. The auditor shall do so through a letter of enquiry, prepared by management and sent by the auditor, requesting the entity’s external legal counsel to communicate directly with the auditor. If law, regulation or the respective legal professional body prohibits the entity’s external legal counsel from communicating directly with the auditor, the auditor shall perform alternative audit procedures. (Ref: Para. A5‑A8)\n\nIn‑house and/or External Legal Counsel\n\nAus 5.1 Where in‑house legal counsel has the primary responsibility for litigation and claims and is in the best position to corroborate management’s representations, the auditor shall endeavour to obtain a representation letter from the in‑house legal counsel, seeking information similar to that sought from the entity’s external legal counsel. (Ref: Para. Aus A8.1‑Aus A8.2)\n\nLegal Counsel’s Response\n\nAus 5.2 If a response from the entity’s external or internal legal counsel contains a material disagreement with management’s original evaluation of a particular matter, the auditor shall seek discussions with management and the entity’s legal counsel, unless management subsequently agrees with the legal counsel’s evaluation. \n(Ref. Para. Aus A8.3-Aus A8.6)\n\n1. If:\n 1. management refuses to give the auditor permission to communicate or meet with the entity’s external legal counsel, or the entity’s external legal counsel refuses to respond appropriately to the letter of enquiry, or is prohibited from responding; and (Ref: Para. Aus A8.7‑Aus A8.8)\n 2. the auditor is unable to obtain sufficient appropriate audit evidence by performing alternative audit procedures, (Ref: Para. Aus A8.9‑Aus A8.10)\n\nthe auditor shall modify the opinion in the auditor’s report in accordance with ASA 705 Modifications to the Opinion in the Independent Auditor’s Report. (Ref: Para. Aus A8.11)\n\n###### Written Representations\n\n1. The auditor shall request management and, where appropriate, those charged with governance, to provide written representations that all known actual or possible litigation and claims whose effects should be considered when preparing the financial report have been disclosed to the auditor and accounted for and disclosed in accordance with the applicable financial reporting framework. (Ref: Para. Aus A8.12‑Aus A8.13)\n\n###### Related Procedures\n\nAus 7.1 The auditor shall enquire of management about new litigation and claims referred to the entity’s legal counsel subsequent to the date of the request for a letter of enquiry to the entity’s legal counsel and prior to signing the auditor’s report. \n(Ref. Para A9-Aus A9.1)\n\nAus 7.2 If audit procedures lead to the discovery of matters of a legal nature not previously identified by management, the auditor shall consider the impact of each of the matters on the financial report. (Ref: Para. Aus A9.2‑Aus A9.3)\n\n\\* \\* \\*\n\n##### Application and Other Explanatory Material\n\n###### Completeness of Litigation and Claims (Ref: Para.4)\n\n1. Litigation and claims involving the entity may have a material effect on the financial report and thus may be required to be disclosed or accounted for in the financial report.\n\nAus A1.1 It is the responsibility of those charged with governance of an entity to adopt policies and procedures to identify, evaluate, record and report on the outcome of any material litigation and claims. However, since the factors that would be considered in the accounting for and reporting of litigation and claims are within the direct knowledge and control of the management of an entity, management is the primary source of information. Ordinarily, the auditor would seek audit evidence from different sources to corroborate management’s assertions.\n\n1. In addition to the procedures identified in paragraph 4, other relevant procedures include, for example, using information obtained through risk assessment procedures carried out as part of obtaining an understanding of the entity and its environment to assist the auditor to become aware of litigation and claims involving the entity.\n\nAus A2.1 The procedures identified in paragraphs 4 and A2 would ordinarily include the following:\n\n- reviewing and discussing with management the procedures within the entity’s internal control structure for identifying and recording litigation and claims and bringing them to the attention of management;\n- reviewing and discussing with management the procedures within the entity’s internal control structure for the identification, control and recording of litigation and claims and associated revenues and expenses in appropriate accounts; and\n- obtaining and discussing with management:\n 1. a list of litigation and claims, including a description of the matters and an estimate of their likely financial consequences; and\n 2. an analysis identifying litigation and claims.\n\nAus A2.2 Audit procedures that are undertaken for different purposes might also identify litigation and claims. Such procedures include:\n\n- examining contracts, loan agreements, leases, insurance policies and claims, and other correspondence;\n- reading minutes of meetings of the audit committee, shareholders and appropriate committees;\n- obtaining information concerning guarantees from bank confirmations; and\n- enquiries of management and other employees of the entity.\n\n1. Audit evidence obtained for purposes of identifying litigation and claims that may give rise to a risk of material misstatement also may provide audit evidence regarding other relevant considerations, such as valuation or measurement, regarding litigation and claims. ASA 540[](#_ftn3) establishes requirements and provides guidance relevant to the auditor’s consideration of litigation and claims requiring accounting estimates or related disclosures in the financial report.\n\nReviewing Legal Expense Accounts (Ref: Para. 4(c))\n\n1. Depending on the circumstances, the auditor may judge it appropriate to examine related source documents, such as invoices for legal expenses, as part of the auditor’s review of legal expense accounts.\n\nOutcome of Litigation and Claims (Ref: Para. 4)\n\nAus A4.1 The procedures outlined in paragraphs A1‑A4 are methods whereby the auditor can identify both material litigation and claims and legal counsel who have been consulted by the entity. However, these procedures may not necessarily provide the auditor with sufficient appropriate audit evidence concerning the likely outcome of litigation and claims. Furthermore, the auditor ordinarily does not possess the skills necessary and is not in a position to make legal judgements concerning the likely outcome of litigation and claims.\n\n###### Communication with the Entity’s Legal Counsel (Ref: Para.5-6)\n\nExternal Legal Counsel (Ref: Para. 5)\n\n1. Direct communication with the entity’s external legal counsel assists the auditor in obtaining sufficient appropriate audit evidence as to whether potentially material litigation and claims are known and management’s estimates of the financial implications, including costs, are reasonable.\n2. In some cases, the auditor may seek direct communication with the entity’s external legal counsel through a letter of general enquiry. For this purpose, a letter of general enquiry requests the entity’s external legal counsel to inform the auditor of any litigation and claims that the counsel is aware of, together with an assessment of the outcome of the litigation and claims, and an estimate of the financial implications, including costs involved.\n3. If it is considered unlikely that the entity’s external legal counsel will respond appropriately to a letter of general enquiry, for example if the professional body to which the external legal counsel belongs prohibits response to such a letter, the auditor may seek direct communication through a letter of specific enquiry. For this purpose, a letter of specific enquiry includes:\n 1. A list of litigation and claims;\n 2. Where available, management’s assessment of the outcome of each of the identified litigation and claims and its estimate of the financial implications, including costs involved; and\n 3. A request that the entity’s external legal counsel confirm the reasonableness of management’s assessments and provide the auditor with further information if the list is considered by the entity’s external legal counsel to be incomplete or incorrect.\n\nAus A7.1 An example of a letter of specific enquiry is included in \\[Aus\\] Appendix 1.\n\nAus A7.2 An auditor may in some cases request that management send a letter of enquiry to the entity’s legal counsel who are not identified as currently handling the entity’s litigation and claims. For example when the entity has changed legal counsel on a particular matter, or when legal counsel engaged by the entity has resigned, the auditor would consider the need for enquiries concerning the reasons for the change or resignation.\n\n1. In certain circumstances, the auditor also may judge it necessary to meet with the entity’s external legal counsel to discuss the likely outcome of the litigation or claims. This may be the case, for example, where:\n\n- The auditor determines that the matter is a significant risk.\n- The matter is complex.\n- There is disagreement between management and the entity’s external legal counsel.\n\nOrdinarily, such meetings require management’s permission and are held with a representative of management in attendance.\n\nIn‑house and/or External Legal Counsel (Ref: Para. Aus 5.1)\n\nAus A8.1 If both in‑house and external legal counsel are involved in advising the entity on the same litigation and claims, the auditor would ordinarily seek a letter of enquiry from the legal counsel with the primary responsibility for that matter. However, there may be circumstances where the in‑house legal counsel has primary responsibility, but the matter has involved substantial participation by an external legal counsel, and is of such significance that the auditor would consider obtaining a letter of enquiry from the external legal counsel to determine that their opinion does not differ materially from that of the in‑house legal counsel.\n\nAus A8.2 In circumstances where both in‑house and external legal counsel have devoted substantial attention to litigation and claims involving the entity and primary responsibility rests with the external legal counsel, evidence obtained from an in‑house legal counsel is not an adequate substitute for any information that the external legal counsel may refuse to furnish.\n\nLegal Counsel’s Response\n\nAus A8.3 Before relying on the opinion of either in‑house legal counsel or external legal counsel, care should be exercised to ensure that conditions prevail which would make such reliance reasonable.[](#_ftn4)\n\nAus A8.4 If a disagreement between management and legal counsel is resolved after discussions, the auditor would ordinarily request the entity’s legal counsel to confirm the details in writing to the auditor. (Ref: Para. Aus 5.2)\n\nAus A8.5 If the disagreement is not resolved, the auditor would ordinarily prepare a memorandum of the discussion and seek written confirmation from management and the entity’s legal counsel that it is an accurate record of the discussion. In conjunction with evidence from other audit procedures, the auditor, under ASA 705, needs to consider the effect of such disagreement on the auditor’s report.\n\nAus A8.6 If the response from the entity’s legal counsel contains information that requires clarification, the auditor would ordinarily make further enquiries of management and the entity’s legal counsel, as appropriate, and request clarification in writing.\n\nLegal Counsel’s Inability to Respond Comprehensively or Limitations in a Response (Ref: Para. 6(a))\n\nAus A8.7 If a response is not received from the entity’s legal counsel, or the response received is incomplete, the auditor would ordinarily consider:\n\n(a) requesting management to contact the entity’s legal counsel to either seek a complete answer to the original request, or an explanation for the lack of, or limitation in, a response, which ought to be sent directly to the auditor; or\n\n(b) making arrangements to discuss with management or the entity’s legal counsel the reasons for the lack of, or limitation in, a response.\n\nAus A8.8 Due to the following circumstances it may be difficult to either obtain a response to a letter of enquiry or be provided with information about litigation and claims from the entity’s legal counsel:\n\n(a) If the entity is involved in litigation, or litigation is anticipated or contemplated, relevant information about legal matters may be subject to legal professional privilege. Disclosure of this information in the letter of enquiry, directly to the auditor for the purposes of the audit of the entity’s financial report, is not privileged. This may cause legal professional privilege attaching to the entity’s communications with its legal counsel to be compromised, as information in the letter of enquiry might become discoverable in litigation proceedings.\n\n(b) Factors influencing the outcome of a legal matter may sometimes not be within the legal counsel’s competence to judge, for example where there is no relevant or historical experience of the entity or other entities in similar matters, or where the litigation is at an early stage.\n\n(c) Due to material uncertainties, the entity’s legal counsel may be unable to form a conclusion to corroborate management’s representations regarding outstanding litigation and claims.\n\nAlternative Audit Procedures (Ref: Para. 6(b))\n\nAus A8.9 Where the auditor has not obtained sufficient appropriate audit evidence as to a material financial report assertion regarding litigation and claims, under ASA 330, the auditor needs to consider whether alternative audit procedures can provide further audit evidence. Alternative audit procedures may include:\n\n(a) further enquiries of management or those charged with governance, about for instance the processes, procedures and assumptions they implement, adopt or make to ensure litigation and claims are recognised and disclosed in accordance with the applicable financial reporting framework;\n\n(b) where possible, making arrangements to discuss litigation and claims with management and the entity’s legal counsel;\n\n(c) further review of documents in management’s possession concerning litigation and claims, including the entity’s board minutes; and\n\n(d) further examination of accounts rendered by the entity’s external legal counsel.\n\nAus A8.10 The auditor may also consider any relevant legislation to assist in obtaining information about litigation and claims, including, for example:\n\n- Section 310 of the Corporations Act 2001 which entitles the auditor to a right of access at all reasonable times to the books of a company, registered scheme or disclosing entity, and to require from any officer information, explanations or other assistance for the purposes of the audit or review.\n- When the entity is a disclosing entity, whether disclosure of any litigation and claims has been made in accordance with the continuous disclosure requirements under sections 674 or 675 of the Corporations Act 2001.\n\nOther Audit Reporting Considerations (Ref: Para. 6)\n\nAus A8.11 In those circumstances where, due to uncertainties, the entity’s legal counsel is unable to form a conclusion to corroborate management’s representation, the auditor needs to consider the effect on the auditor’s report arising from the extent of disclosure of the uncertainty in the financial report:\n\n(a) where the auditor considers that the disclosure of the uncertainty in the financial report is adequate, the auditor needs to consider including an Emphasis of Matter paragraph; in accordance with ASA 706,[](#_ftn5) or\n\n(b) if in the auditor’s opinion the disclosure of the uncertainty is inadequate or unreliable, a modified opinion needs to be expressed in accordance with ASA 705.\n\n###### Written Representations (Ref: Para.7)\n\nAus A8.12 ASA 580[](#_ftn6) deals with the auditor’s responsibility to obtain written representations from management and, where appropriate, those charged with governance, in an audit of a financial report. Appendix 2 of that Standard provides an illustrative example of a representation letter.\n\nAus A8.13 As management is the primary source of information regarding litigation and claims, the auditor is required to request management to provide written representations about such matters. Written representations from management provide audit evidence regarding litigation and claims that may have a material effect on the financial report.\n\n###### Related Procedures (Ref: Para. Aus 7.1-Aus 7.2)\n\n1. In accordance with ASA 700,[\\[†\\]](#_ftn7) the auditor is required to date the auditor’s report no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial report. Audit evidence about the status of litigation and claims up to the date of the auditor’s report may be obtained by enquiry of management, including in‑house legal counsel, responsible for dealing with the relevant matters. In some instances, the auditor may need to obtain updated information from the entity’s external legal counsel.\n\nAus A9.1 When new litigation or claims, which may have a material effect on the financial report, have been referred to the entity’s legal counsel subsequent to sending the letter of enquiry to the entity’s legal counsel and prior to signing the auditor’s report, the auditor would ordinarily request management to prepare an additional letter of enquiry to the legal counsel regarding the new litigation or claims.\n\nAus A9.2 When litigation and claims matters, which may have a material effect on the financial report, are discovered, which were not previously identified by management, the auditor would ordinarily inform management and request management to address further enquiries to, or arrange a meeting with, the entity’s legal counsel or other relevant experts, at which the auditor would be present. In addition, the auditor needs to extend the auditor’s audit procedures to ensure that sufficient appropriate audit evidence on which to form an opinion has been obtained. If, however, having regard to all the circumstances, the auditor is unable to obtain satisfaction that all the information required for the purposes of the audit has been received, the auditor considers the effect on the auditor’s report.[](#_ftn8)\n\nAus A9.3 If information comes to the auditor’s attention that may indicate the existence of material liabilities resulting from litigation and claims on which management has not sought advice, the auditor ordinarily discusses the matter with those charged with governance. Depending on the circumstances, refusal by management to seek advice may be considered to be a limitation in the scope of the auditor’s work.\n\n\\[Aus\\] Appendix 1\n\n(Ref: Para. 5 and A7)\n\n| This example letter relates to specific enquiry directed to the entity’s external legal counsel, but may be adapted, as appropriate, to specific enquiry directed to the entity’s internal legal counsel. |\n| --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |\n\n##### Example of a Letter of Specific Enquiry to External Legal Counsel (For an Audit Client)\n\n(Client Letterhead)\n\n(Date)\n\n(Name and Address of External Legal Counsel)\n\nDear ...\n\nIn connection with the preparation and audit of the financial report of (name of company) (and the following subsidiaries and/or divisions) for the reporting period ended (date) we request that you provide to this company, at our cost, the following information:\n\n1. Confirmation that you are acting for the company (and the above‑named subsidiaries and/or divisions) in relation to the matters mentioned below and that the directors’ description and estimates of the amounts of the financial settlement (including costs and disbursements) which might arise in relation to those matters are in your opinion reasonable.\n\n| Name of Company (subsidiary or division) | Directors’ Description of Matter(including current status) | Directors’ Estimate of the Financial Settlement (inclusive of costs and disbursements) |\n| ---------------------------------------- | ---------------------------------------------------------- | -------------------------------------------------------------------------------------- |\n\n1. Should you disagree with any of the information included in 1 above, please comment on the nature of your disagreement.\n2. In addition to the above, a list of open files that you maintain in relation to the company (and the above mentioned subsidiaries and/or divisions).\n3. In relation to the matters identified under 2 and 3 above, we authorise you to discuss these matters with our auditor (name and address), if requested, and at our cost.\n\nIt is understood that:\n\n(a) the company (and the above-named subsidiaries and/or divisions) may have used other legal counsel in certain matters;\n\n(b) the information sought relates only to information relating to litigation and claims referred to your firm (including branches or subsidiaries) which were current at any time during the \nabove-mentioned reporting period, or have arisen since the end of the reporting period and up to the date of your response;\n\n(c) unless separately requested in writing, you are not responsible for keeping the auditors advised of any changes after the date of your reply;\n\n(d) you are only required to respond on matters referred to you as legal counsel for the company (and the above-mentioned subsidiaries and/or divisions), not on those within your knowledge solely because of the holding of any office as director, secretary or otherwise of the company (and the above-mentioned subsidiaries and/or divisions) by a consultant, partner or employee of your firm; and\n\n(e) your reply is sought solely for the information of, and assistance to, this company in connection with the audit of, and report with respect to, the financial report of the company (and the above-mentioned subsidiaries and/or divisions) and will not be quoted or otherwise referred to in any financial report or related documents of the company (and the above-mentioned subsidiaries and/or divisions) nor will it be furnished to any governmental agency or other person, subject to specific legislative requirements, without the prior written consent of your firm.\n\nYour prompt assistance in this matter will be appreciated. If you are unable to confirm or provide the information requested above, please advise us and our auditor the reasons for any limitation or impediment to fulfilling this request.\n\nPlease forward a signed copy of your reply directly to our auditors, (name) at (address), by (date).\n\nYours faithfully,\n\n(Signature and Title of client)","sortOrder":22},{"sectionNumber":"Completeness of Litigation and Claims (R","sectionType":"section","heading":"Completeness of Litigation and Claims (Ref: Para.4)","content":"###### Completeness of Litigation and Claims (Ref: Para.4)\n\n1. Litigation and claims involving the entity may have a material effect on the financial report and thus may be required to be disclosed or accounted for in the financial report.\n\nAus A1.1 It is the responsibility of those charged with governance of an entity to adopt policies and procedures to identify, evaluate, record and report on the outcome of any material litigation and claims. However, since the factors that would be considered in the accounting for and reporting of litigation and claims are within the direct knowledge and control of the management of an entity, management is the primary source of information. Ordinarily, the auditor would seek audit evidence from different sources to corroborate management’s assertions.\n\n1. In addition to the procedures identified in paragraph 4, other relevant procedures include, for example, using information obtained through risk assessment procedures carried out as part of obtaining an understanding of the entity and its environment to assist the auditor to become aware of litigation and claims involving the entity.\n\nAus A2.1 The procedures identified in paragraphs 4 and A2 would ordinarily include the following:\n\n- reviewing and discussing with management the procedures within the entity’s internal control structure for identifying and recording litigation and claims and bringing them to the attention of management;\n- reviewing and discussing with management the procedures within the entity’s internal control structure for the identification, control and recording of litigation and claims and associated revenues and expenses in appropriate accounts; and\n- obtaining and discussing with management:\n 1. a list of litigation and claims, including a description of the matters and an estimate of their likely financial consequences; and\n 2. an analysis identifying litigation and claims.\n\nAus A2.2 Audit procedures that are undertaken for different purposes might also identify litigation and claims. Such procedures include:\n\n- examining contracts, loan agreements, leases, insurance policies and claims, and other correspondence;\n- reading minutes of meetings of the audit committee, shareholders and appropriate committees;\n- obtaining information concerning guarantees from bank confirmations; and\n- enquiries of management and other employees of the entity.\n\n1. Audit evidence obtained for purposes of identifying litigation and claims that may give rise to a risk of material misstatement also may provide audit evidence regarding other relevant considerations, such as valuation or measurement, regarding litigation and claims. ASA 540[](#_ftn3) establishes requirements and provides guidance relevant to the auditor’s consideration of litigation and claims requiring accounting estimates or related disclosures in the financial report.\n\nReviewing Legal Expense Accounts (Ref: Para. 4(c))\n\n1. Depending on the circumstances, the auditor may judge it appropriate to examine related source documents, such as invoices for legal expenses, as part of the auditor’s review of legal expense accounts.\n\nOutcome of Litigation and Claims (Ref: Para. 4)\n\nAus A4.1 The procedures outlined in paragraphs A1‑A4 are methods whereby the auditor can identify both material litigation and claims and legal counsel who have been consulted by the entity. However, these procedures may not necessarily provide the auditor with sufficient appropriate audit evidence concerning the likely outcome of litigation and claims. Furthermore, the auditor ordinarily does not possess the skills necessary and is not in a position to make legal judgements concerning the likely outcome of litigation and claims.","sortOrder":23},{"sectionNumber":"Written Representations (Ref: Para.7)","sectionType":"section","heading":"Written Representations (Ref: Para.7)","content":"###### Written Representations (Ref: Para.7)\n\nAus A8.12 ASA 580[](#_ftn6) deals with the auditor’s responsibility to obtain written representations from management and, where appropriate, those charged with governance, in an audit of a financial report. Appendix 2 of that Standard provides an illustrative example of a representation letter.\n\nAus A8.13 As management is the primary source of information regarding litigation and claims, the auditor is required to request management to provide written representations about such matters. Written representations from management provide audit evidence regarding litigation and claims that may have a material effect on the financial report.","sortOrder":25},{"sectionNumber":"Related Procedures (Ref: Para. Aus 7.1-A","sectionType":"section","heading":"Related Procedures (Ref: Para. Aus 7.1-Aus 7.2)","content":"###### Related Procedures (Ref: Para. Aus 7.1-Aus 7.2)\n\n1. In accordance with ASA 700,[\\[†\\]](#_ftn7) the auditor is required to date the auditor’s report no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial report. Audit evidence about the status of litigation and claims up to the date of the auditor’s report may be obtained by enquiry of management, including in‑house legal counsel, responsible for dealing with the relevant matters. In some instances, the auditor may need to obtain updated information from the entity’s external legal counsel.\n\nAus A9.1 When new litigation or claims, which may have a material effect on the financial report, have been referred to the entity’s legal counsel subsequent to sending the letter of enquiry to the entity’s legal counsel and prior to signing the auditor’s report, the auditor would ordinarily request management to prepare an additional letter of enquiry to the legal counsel regarding the new litigation or claims.\n\nAus A9.2 When litigation and claims matters, which may have a material effect on the financial report, are discovered, which were not previously identified by management, the auditor would ordinarily inform management and request management to address further enquiries to, or arrange a meeting with, the entity’s legal counsel or other relevant experts, at which the auditor would be present. In addition, the auditor needs to extend the auditor’s audit procedures to ensure that sufficient appropriate audit evidence on which to form an opinion has been obtained. If, however, having regard to all the circumstances, the auditor is unable to obtain satisfaction that all the information required for the purposes of the audit has been received, the auditor considers the effect on the auditor’s report.[](#_ftn8)\n\nAus A9.3 If information comes to the auditor’s attention that may indicate the existence of material liabilities resulting from litigation and claims on which management has not sought advice, the auditor ordinarily discusses the matter with those charged with governance. Depending on the circumstances, refusal by management to seek advice may be considered to be a limitation in the scope of the auditor’s work.\n\n\\[Aus\\] Appendix 1\n\n(Ref: Para. 5 and A7)\n\n| This example letter relates to specific enquiry directed to the entity’s external legal counsel, but may be adapted, as appropriate, to specific enquiry directed to the entity’s internal legal counsel. |\n| --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |","sortOrder":26},{"sectionNumber":"Example of a Letter of Specific Enquiry ","sectionType":"section","heading":"Example of a Letter of Specific Enquiry to External Legal Counsel (For an Audit Client)","content":"##### Example of a Letter of Specific Enquiry to External Legal Counsel (For an Audit Client)\n\n(Client Letterhead)\n\n(Date)\n\n(Name and Address of External Legal Counsel)\n\nDear ...\n\nIn connection with the preparation and audit of the financial report of (name of company) (and the following subsidiaries and/or divisions) for the reporting period ended (date) we request that you provide to this company, at our cost, the following information:\n\n1. Confirmation that you are acting for the company (and the above‑named subsidiaries and/or divisions) in relation to the matters mentioned below and that the directors’ description and estimates of the amounts of the financial settlement (including costs and disbursements) which might arise in relation to those matters are in your opinion reasonable.\n\n| Name of Company (subsidiary or division) | Directors’ Description of Matter(including current status) | Directors’ Estimate of the Financial Settlement (inclusive of costs and disbursements) |\n| ---------------------------------------- | ---------------------------------------------------------- | -------------------------------------------------------------------------------------- |\n\n1. Should you disagree with any of the information included in 1 above, please comment on the nature of your disagreement.\n2. In addition to the above, a list of open files that you maintain in relation to the company (and the above mentioned subsidiaries and/or divisions).\n3. In relation to the matters identified under 2 and 3 above, we authorise you to discuss these matters with our auditor (name and address), if requested, and at our cost.\n\nIt is understood that:\n\n(a) the company (and the above-named subsidiaries and/or divisions) may have used other legal counsel in certain matters;\n\n(b) the information sought relates only to information relating to litigation and claims referred to your firm (including branches or subsidiaries) which were current at any time during the \nabove-mentioned reporting period, or have arisen since the end of the reporting period and up to the date of your response;\n\n(c) unless separately requested in writing, you are not responsible for keeping the auditors advised of any changes after the date of your reply;\n\n(d) you are only required to respond on matters referred to you as legal counsel for the company (and the above-mentioned subsidiaries and/or divisions), not on those within your knowledge solely because of the holding of any office as director, secretary or otherwise of the company (and the above-mentioned subsidiaries and/or divisions) by a consultant, partner or employee of your firm; and\n\n(e) your reply is sought solely for the information of, and assistance to, this company in connection with the audit of, and report with respect to, the financial report of the company (and the above-mentioned subsidiaries and/or divisions) and will not be quoted or otherwise referred to in any financial report or related documents of the company (and the above-mentioned subsidiaries and/or divisions) nor will it be furnished to any governmental agency or other person, subject to specific legislative requirements, without the prior written consent of your firm.\n\nYour prompt assistance in this matter will be appreciated. If you are unable to confirm or provide the information requested above, please advise us and our auditor the reasons for any limitation or impediment to fulfilling this request.\n\nPlease forward a signed copy of your reply directly to our auditors, (name) at (address), by (date).\n\nYours faithfully,\n\n(Signature and Title of client)","sortOrder":27}],"analysis":{"flash_summary_failed":{"failed":true,"reason":"A positive credit balance is required for all requests, including BYOK, so fallback providers remain available. Add credits at https://vercel.com/d?to=%2F%5Bteam%5D%2F%7E%2Fai%3Fmodal%3Dtop-up to continue.","source":"analysis-cron"},"flash_summary":{"complexity_score":5,"scope_assessment":{"changed":true,"description":"This compilation of ASA 502 incorporates additional material that broadens the Australian standard beyond the equivalent ISA 501. The Authority Statement and related paragraphs state the AUASB retained content from the former ASA 508 and added Australia‑specific guidance (paragraphs prefixed \"Aus\"), for example Aus 5.1–5.2 (in‑house counsel representation and disagreement handling), Aus A8.7–A8.11 (detailed treatment of non‑responses and consequences for the auditor's report), and Aus A8.10 (explicit reference to section 310 Corporations Act access powers). Concretely, the Australian version therefore extends the ISA text by (a) prescribing how to treat in‑house vs external counsel, (b) adding steps and statutory options auditors can use where counsel refuses or is prohibited from responding, and (c) including an example letter of specific enquiry. These additions expand practical scope and procedural detail compared to the base ISA 501 rather than changing the core objective (obtaining sufficient appropriate audit evidence about litigation and claims)."},"complexity_factors":["Cross‑references to multiple other Australian Auditing Standards (ASA 101, ASA 200, ASA 330, ASA 500, ASA 540, ASA 580, ASA 700, ASA 705, ASA 706) which impose additional procedural and reporting obligations","Numerous Australia‑specific additions (many paragraphs prefixed 'Aus' including Aus 0.1–Aus A9.3) layered onto the ISA text","Branching conditional logic around contacting legal counsel (paras 5, Aus 5.1–5.2) and handling non‑responses or limited responses (Aus A8.7–A8.11)","Requirements that trigger different auditor actions depending on outcomes (e.g. perform alternative procedures, seek written confirmations, meet with counsel, modify opinion) — nested decision points","Practical template in Appendix 1 (letter of specific enquiry) plus guidance on when to use general vs specific enquiries (Aus A7.1–A7.2)","References to external law and statutory powers (e.g. section 310 Corporations Act in Aus A8.10), requiring auditors to consider statutory remedies alongside standard procedures","Multiple explanatory and application paragraphs (A‑series and Aus A‑series) that expand the basic requirements into practice‑level detail","Table of amendments and renumbering history implies attention to versioning and application/operative dates (administrative complexity)","Several places where auditor judgment is required (materiality assessment, competence to rely on counsel, adequacy of disclosure), increasing interpretive complexity","Potential interplay with legal professional privilege and professional body rules (Aus A8.8) introduces legal‑procedural ambiguity that auditors must resolve"],"plain_english_summary":"**What this standard does (mechanics)\n\n- Sets rules auditors must follow to find and test litigation and claims that could affect a company's financial report (see \"Completeness of Litigation and Claims\", para.4).\n- Requires auditors to ask management and, where relevant, in‑house staff about litigation, to review board minutes and correspondence with external lawyers, and to check legal expense accounts (para.4; Aus A2.1–A2.2).\n- When a risk of material misstatement from litigation or claims is identified, the auditor should try to communicate directly with the entity's external legal counsel by sending a management‑prepared letter of enquiry (para.5; Aus A7.1). If external counsel cannot or will not respond, the auditor must perform alternative audit procedures (para.5; Aus A8.9–A8.10).\n- Where in‑house counsel has primary responsibility, the standard requires the auditor to seek a representation from that counsel similar to what would be sought from external counsel (Aus 5.1; Aus A8.1–A8.2).\n- If legal counsel's reply materially disagrees with management's assessment and the disagreement is not resolved, the auditor must consider the effect on the auditor's report and, where necessary, modify the opinion (Aus 5.2; Aus A8.4–A8.6; Aus A8.11).\n- The auditor must obtain written representations from management confirming that all known litigation and claims have been disclosed and treated correctly in the financial report (para.7; Aus A8.12–A8.13).\n- The standard includes practical guidance and an example \"letter of specific enquiry\" to external legal counsel (Appendix 1).\n\n**Who is affected\n\n- Auditors and audit firms: must plan and perform the procedures and exercise judgment about contacting counsel and whether audit evidence is sufficient (paras 1–7; Aus guidance).\n- Management and those charged with governance: must maintain processes to identify litigation and claims, respond to auditor enquiries, and provide written representations (Aus A1.1; para.7).\n- External and in‑house legal counsel: may be asked to confirm management's assessments and to communicate directly with auditors (para.5; Aus A7.1; Appendix 1).\n- The audited entity's stakeholders and users of financial reports: reliability of reported liabilities and disclosures can be affected by how thoroughly litigation/claims are investigated.\n\n**Why it matters (purpose‑claims and practical implications)\n\n- The AUASB states the objective is to obtain \"sufficient appropriate audit evidence\" about completeness of litigation and claims (Objective). Practically, that means auditors must reduce the risk that material legal liabilities or contingent liabilities are omitted or misstated in the financial report.\n- If auditors cannot obtain corroborating evidence from counsel (because counsel refuses, is prohibited by professional rules, or legal privilege is a concern), they must take alternative steps and, if those fail, modify their audit opinion (Aus A8.7–Aus A8.11). That creates a direct link between the availability of legal information and the auditor's report.\n\n**Costs, incentives, trade‑offs and implementation risks\n\n- Who pays: the entity normally pays for the legal counsel replies and for the time auditors spend following up (Appendix 1). Legal counsel may also incur internal costs to prepare replies.\n- Compliance burden: auditors will spend additional time and incur costs preparing and following up letters of enquiry, reviewing legal invoices and minutes, and, where necessary, performing alternative procedures (paras 4–7; Aus A8.9).\n- Incentives and behaviour: management may improve internal controls and documentation for tracking legal matters to avoid qualified/modified opinions. Conversely, management could restrict auditor access to counsel, which triggers alternative procedures and may lead to a modified opinion (Aus A8.7; Aus A9.3).\n- Legal privilege and professional rules: letters of enquiry can create tension because information provided directly to the auditor is not privileged and could later be discoverable in litigation (Aus A8.8). This raises the risk that counsel will refuse to respond or will limit their response, forcing auditors into less direct evidence routes.\n- Substitution effects: reliance on in‑house counsel is permitted in some circumstances (Aus 5.1; Aus A8.1–A8.2), but the standard warns that in‑house responses are not always an adequate substitute for external counsel if external counsel had primary responsibility.\n- Audit‑report consequences: inability to obtain sufficient evidence can force auditors to modify their opinion, which affects the entity's reported credibility and may increase its cost of capital (Aus 5.2; Aus A8.11).\n\n**Who decides and what changes in behaviour\n\n- The auditor decides (based on professional judgment) whether identified litigation or claims present a risk of material misstatement and whether to seek direct contact with legal counsel (paras 1, 5; Aus guidance).\n- Management decides whether to authorise contact with external counsel and to prepare/forward the letter of enquiry (para.5; Appendix 1). Management also decides how well to document and disclose legal matters internally.\n- Legal counsel decides whether (or how fully) to respond, subject to professional rules and privilege concerns (Aus A8.7–A8.8).\n- Behaviour changes likely include better internal tracking and disclosure of litigation by management, more frequent direct enquiries to counsel by auditors, and possibly more instances where auditors perform additional alternative procedures or modify opinions when evidence is limited.\n\n**Relevant locations in the standard**\n- Core procedures: \"Completeness of Litigation and Claims\" (para.4; Aus A2.1–A2.2).\n- Contacting legal counsel: \"Communication with the Entity's Legal Counsel\" (para.5; Aus A7.1–A8.11; Appendix 1).\n- Written representations from management: para.7 and Aus A8.12–A8.13.\n- Actions when counsel will not/cannot respond: Aus A8.7–A8.11 and Aus A8.9–A8.10 (alternative procedures and potential modification of opinion).\n\n(Neutral summary prepared from ASA 502: Audit Evidence – Specific Considerations for Litigation and Claims, as compiled and amended; paragraph references given above.)"},"kimi_summary":{"_metrics":{"completionTokens":613},"content_quality":"ok","complexity_score":6,"scope_assessment":{"changed":false,"description":"The scope has remained focused on audit evidence regarding litigation and claims since its original 2009 issuance. While amendments have refined operative dates and paragraph numbering, and added Australian-specific guidance, the core purpose—ensuring auditors obtain sufficient appropriate evidence about completeness of litigation and claims—has not expanded beyond its original intent."},"complexity_factors":["Multiple cross-references to other Australian Auditing Standards (ASA 330, 500, 540, 580, 700, 705, 706)","Australian-specific additions ('Aus' paragraphs) layered on top of international base standard","Conditional requirements with nested exceptions (e.g., if external counsel can't respond, try alternatives; if alternatives fail, modify opinion)","Detailed procedural guidance spanning identification, communication, disagreement resolution, and reporting","Appendix with template legal letter requiring careful adaptation","Paragraph renumbering table showing complex mapping to international ISA 501"],"plain_english_summary":"This standard tells auditors of Australian companies, registered schemes and disclosing entities how to identify and gather evidence about litigation and claims that could materially affect financial statements, including obtaining information from management, boards and legal counsel.\n\nIt matters because undisclosed or misstated legal risks can mislead investors and regulators; the standard therefore requires auditors to pursue direct lawyer responses and other evidence and to act (including modifying the audit opinion) if they cannot obtain sufficient assurance."}},"importantCases":[],"_links":{"self":"/api/acts/asa-502-audit-evidence-specific-considerations-for-litigation-and-claims-october-2009","history":"/api/acts/asa-502-audit-evidence-specific-considerations-for-litigation-and-claims-october-2009/history","analysis":"/api/acts/asa-502-audit-evidence-specific-considerations-for-litigation-and-claims-october-2009/analysis","conflicts":"/api/acts/asa-502-audit-evidence-specific-considerations-for-litigation-and-claims-october-2009/conflicts","importantCases":"/api/acts/asa-502-audit-evidence-specific-considerations-for-litigation-and-claims-october-2009/important-cases","documents":"/api/acts/asa-502-audit-evidence-specific-considerations-for-litigation-and-claims-october-2009/documents"}}