Officers of the Kingston Company do not want to disclose information about the product liability lawsuit filed by a customer asking $500,000 in damages. They believe the suit is frivolous and without merit. Outside counsel is more cautious. The auditors insist upon disclosure. Angered, the Kingston Company chairman of the board threatens to sue the auditors if a standard unmodified report is not issued within three days.

Required:
Explain the issues rose in the preceding situation. What actions do you recommend to the company’s auditor?