At April 1, year 2, the Food and Drug Administration (FDA) is in the process of investigating allegations of false marketing claims by Pontus Food Supplements. The FDA has not yet proposed a penalty assessment. Pontus fiscal year ends on December 31, year 1. The companys financial statements are issued in April, year 2. Management feels a charge from the FDA is probable, and if an assessment is made an unfavorable settlement of $10 million is reasonably possible. How should Pontus report this in their year 1 financial statements?

Group of answer choices

Pontus can ignore this financial reporting purposes

Pontus would include a disclosure note in its year 1 financial statements

Pontus would accrue a $10 million liability

None of the above