In connection with an audit client, for each of the following subsequent events indicate the appropriate treatment from the list below. Assume your client has a December 31 yearend.

1. Adjust the year-end financial statements to reflect the information contained in the event.

2. Disclose the event in the notes to the financial statements and/or in the audit report.

3. Neither adjustment nor disclosure is necessary.

1. At 11:45 PM on December 31 (the last day of the fiscal year), a cruise ship owned by your client is struck by an iceberg. On January 1, the ship sinks. Luckily, in case you were wondering, all passengers and crew were safely rescued.

2. After year-end, the Vice President for Human Resources resigned to take a job elsewhere.

3. After year-end, a lawsuit is filed regarding a defect in one of your clients products that the client was not previously aware of. It seems likely that this will be a costly lawsuit to defend and/or settle.