1. On January 5, 2021, a lawsuit was filed against Harbinger for a copyright infringement action that allegedly took place in early 2020. 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, 2021, Harbinger settled a lawsuit out of court that had originated in 2020 and is currently listed as a contingent liability.

Possible actions

(a) Adjust the December 31, 2020, financial statements.

(b) Disclose the information in a footnote in the December 31, 2020, financial statements.

(c) Request that the client revise and reissue the December 31, 2020, financial statements. The revision should involve an adjustment to the December 31, 2020, financial statements.

(d) Request that the client revise and reissue the December 31, 2020, financial statements. The revision should involve the addition of a footnote, but no adjustment to the December 31, 2020, financial statements.

(e) No action is required.

Assume both situations are material. Which of the following actions for each of the situations above are appropriate choices for an auditor to make under those circumstances?

1 (a); 2 (b)

1 (c); 2 (d)

1 (e); 2 (c)

1 (b); 2 (a)

1 (d); 2 (e)

1 (d); 2 (c)

1 (d); 2 (a)