Question to be answered:

Letter dated February 14.. year 2: \"I advise you that at and since December 31, year 1, I have not been engaged to give substantive attention to. or represent, XYZ Co. in connection with any pending or threatened litigation, claims, or assessments, nor am I aware of any loss contingencies. No amounts were due to this oice for services provided at December 31, year 1." Letter dated January 21, year 2: \"I advise you that at and since December 31, year 1, I have not been engaged to give substantive attention to. or represent, XYZ Co. in connection with any pending or threatened litigation, claims, or assessments, nor am I aware of any loss contingencies. There were fees outstanding of $3,6T5 due to this ofce for services provided at December 31, year 1.\" Letter dated February 26. year 2: K. Bowt v. XYZ I(Io: This matter commenced in December. year 1. The plaintiff alleges discrimination relating to his termination on November 1?, year 1. The company intends to defend this case vigorously. At this time. we are unable to evaluate the likelihood oi an unfavorable outcome or estimate the amount or range of potential loss. Letter dated March 16, year 2: J. Myers v. W2 (30.: This matter commenced in March, year 2. The plaintiif alleges discrimination relating to his termination on November 1?, year 1. The company intends to defend this case vigorously. At this time. we are unable to evaluate the likelihood of an unfavorable outcome. The plaintiff is demanding $50,000. Letter dated February 111. year 2: R. Brown v. XYZ Co; This matter commenced in November, year 1. The plaintiff alleges discrimination relating to his termination on March 1?. year 1. It is reasonably possible that the case will be settled for approximately $35,l]l]. Letter dated February 111. year 2: L. Peep v. XYZ rDo: This matter commenced in November. year 1. The plaintlif alleges discrimination relating to his termination on March 1]". year 1. The case is tentatively settled for $35,0. The following situations represent excerpts from the responses to audit inquiries of external legal counsel of XYZ Co. during the annual audit of year 1 (\"legal response\"). For each excerpt, select the most appropriate na ncial statement effect and audit response. Each excerpt is independent. Responses mayr be used once, more than once, or not at all from the table below: a. "he client's yearend is December 31, year 1. it). "he anticipated audit report date is February 15, year 2- c. All amounts are material to the financial statements. Financial Statenent Effect Audit Response 1. No impact on financial statement T. Legal response is amounts or notes. appropriately dated. 2. Disclosure in notes relating to nature of litigationJ but no amount disclosed. 3. Disclosure in notes relating to nature of litigationJ including loss amount. 4. Potential litigation settlement accrued in financial statements. 5. Potential litigation settlement not accrued in financial statements, amount disclosed in notes. 6. Verify amount due attorney is recorded in financial statement amounts. [ 8. Update legal response. 9. Update audit report date