Hatami and Partners completed the field work for the December 31, 2011, audit of Harbinger Corporation on March 1, 2012. The financial statements and auditor's report were issued and mailed to shareholders on March 15, 2011.
Required
In each of the two situations below, select from the list possible actions below from the point of view of the auditor. Assume both situations are material.
Situations
1. On January 5, 2011, a lawsuit was filed against Harbinger for a copyright infringement action that allegedly took place in early 2000. In the opinion of Harbinger's lawyers, there is a reasonable (but not probable) danger of a significant loss to Harbinger.
2. On February 15, 2011, Harbinger settled a lawsuit out of court that had originated in 2005 and is currently listed as a contingent liability.
Possible Actions
(a) Adjust the December 31, 2011, financial statements.
(b) Disclose the information in a footnote in the December 31, 2011, financial statements.
(c) Request that the client revise and reissue the December 31, 2011, financial statements. The revision should involve an adjustment to the December 31, 2011, financial statements.
(d) Request that the client revise and reissue the December 31, 2011, financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2011, financial statements.
(e) No action is required.