Hershell & Co. is a growing public practice firm in Vancouver. They have a growing client base and several successful clients who have been with the firm for many years.

One of their key clients, Orca Bay Resources, is in the mining and exploration industry. Recently, they have been listed on the TSX and are subject to additional reporting requirements. Orca Bay Resources has expanded very rapidly in the past few years; they are financially stretched and their accounting system is barely keeping up with the growth. There has been an increase in the number of shareholders, many of who depend on the auditors to guarantee their investment.

Comment on the last sentence from above. The audit engagement partner is concerned that Hershell & Co. there may be legal consequences if Orca Bay's financial situation deteriorates and fails. What can the audit firm do to avoid the threat of litigation if Orca Bay fails?