An audit partner assigned to the engagement of Jaycee Enterprises has just learned from the client's legal counsel that the client is likely to be getting sued in the near future related to product defects. The auditor is planning to convene a meeting with the client's legal counsel to discuss this matter further and to determine if a contingent liability will need to be recorded in the financial statements. Which of the following statements is true pertaining to this potential litigation?

Upon learning of the likely litigation, the auditor should consider immediately withdrawing from the engagement to preserve the firms' reputation.

The auditor will need to record a contingent liability if an estimated dollar amount can be provided by the client's legal counsel, even if the probability of the litigation is unknown.

The auditor should meet with the client's legal counsel and gather all necessary information, and then defer the decision as to whether to include any information on this in the financial statements to management.

If upon meeting with the client's legal counsel, the auditor feels the litigation is probable and a dollar estimate can be reasonably estimated, the contingent liability should be recorded in the financial statements.