Susan, an audit staff associate assigned to the audit of Juno LLC has approached youher supervisor to assist with a query she has Susan advises that she has learned that Juno LLC is planning to record a contingent liability in this year's financial statements because they are expecting to be litigated against in connection to a product defect and subsequent recall. Susan is wondering if this is material to the audit. Your best response to this question would be to advise which of the following?

-As this is likely to involve a significant outlay of cash by the client should the lawsuit prevail, along with potential damage to the client's reputation regardless of the outcome of the lawsuit, this should be considered material and disclosed by the client accordingly.

-The decision as to whether this is material or not is solely at the discretion of client management, as they will be liable for any damages awarded, not the auditor. As a result, the auditor should simply document the potential litigation and nothing more.

-Any litigation against the client is always material, regardless of whether the dollar amount is known and whether the lawsuit is likely to prevail in court. As such, Susan should recommend to the client that this is material and must be disclosed

-Until an exact dollar amount and likelihood of the plaintiff's prevailing in court are known, any such threatened litigation should not be considered to be material, and should not be disclosed in either the financial statements or the notes to the financial statements