## SA 501: Completeness of Litigation & Claims

The auditor must obtain SAAE that all material litigation and claims involving the entity have been identified, properly accounted for, and disclosed in the financial statements.

### General Audit Procedures (mnemonic: IRR)

1. Inquiry (I) — Ask management and in-house legal counsel about known litigation and claims

2. Review legal expense account (R) — Identify payments or provisions for legal matters

3. Review minutes of meetings (R) — TCWG meeting minutes and correspondence between TCWG and the external legal team

---

### Letter to External Legal Counsel

The auditor sends a General Inquiry letter to the entity's external legal counsel.

Counsel's Response	Auditor's Next Step
Adequate response	No further action needed
Inappropriate or no response	Proceed to Special Inquiry

#### Contents of the Special Inquiry Letter

1. List of all litigation and claims

2. Management's assessment of the expected outcome and estimated cost involved

3. Request to legal counsel to: evaluate management's assessment AND provide any additional information they are aware of

---

### When Is Special Inquiry Mandatory?

Special inquiry is warranted when:

The matter is complex (legal or factual complexity)
The matter is of significant risk (material financial impact)
There is a disagreement between management and external legal counsel

---

### Meeting with External Legal Counsel

Process:

Management grants permission → Auditor meets external counsel, but only if an authorised management representative accompanies the auditor
Management refuses to allow a personal meeting → External counsel responds inappropriately → Auditor performs Alternative Audit Procedures (AAP) to obtain SAAE
Auditor unable to obtain SAAE → Modify opinion as per SA 705

Worked example

### Example 1

General Procedures in Practice: During the audit of XYZ Ltd., the auditor inquires from the CFO and in-house legal team about pending cases. The auditor also reviews the 'Legal Expenses' account and notices a large payment in March to an external law firm. The auditor then reviews board minutes for references to legal proceedings.

### Example 2

General → Special Inquiry Escalation: The auditor sends a general inquiry letter to XYZ Ltd.'s external law firm. The law firm's response is vague — it confirms representation but gives no assessment of outcomes or costs. Since this is inadequate, the auditor issues a special inquiry letter requesting a detailed list of cases, management's assessment, and the counsel's own evaluation of likely outcomes.

### Example 3

Management Refuses Access: Management of PQR Ltd. refuses to allow the auditor to meet the external legal team personally. The law firm also does not respond to the special inquiry letter. The auditor cannot perform AAP that yields SAAE, so the auditor issues a qualified opinion under SA 705 for limitation on scope.

⚠️ Common exam mistakes

Stopping at general inquiry and not escalating to special inquiry when the counsel's response is vague or missing.
Not including all three required elements in the special inquiry letter — the list of claims, management's assessment, AND the request for counsel's independent evaluation.
Forgetting that the auditor can only meet external legal counsel WITH an authorised management representative — unsupervised meetings are not the standard process.
Treating management's refusal to allow the meeting as a minor procedural issue — it can escalate to a modified audit opinion if SAAE cannot otherwise be obtained.

Bare-Act text Paragraphs 9–12 (Litigation and Claims) · SA 501 — Audit Evidence: Specific Considerations for Selected Items · click to expand

The auditor shall obtain sufficient appropriate audit evidence regarding the completeness of litigation and claims involving the entity by: (a) inquiring of management and, where applicable, others within the entity, including in-house legal counsel; (b) reviewing minutes of meetings of those charged with governance and correspondence between the entity and its external legal counsel; and (c) reviewing legal expense accounts.

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

SA 501 — Completeness of Litigation and Claims

Worked example

⚠️ Common exam mistakes