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 (€œlegal response€). For each excerpt, select the most appropriate financial statement effect and audit response. Each excerpt is independent. Responses may be used once, more than once, or not at all.
a. The client€™s year end is December 31, year 1.
b. The anticipated audit report date is February 15, year 2.
c. All amounts are material to the financial statements.

Financial Statement Effect
(1) No impact on financial statement amounts or notes.
(2) Disclosure in notes relating to nature of litigation, but no amount disclosed.
(3) Disclosure in notes relating to nature of litigation, 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.

Audit Response
(7) Legal response is appropriately dated.
(8) Update legal response.
(9) Update audit reportdate.

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Financial Statement Effect Response Audit Situations 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 office 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 contingen- cies. There were fees outstanding of $3,675 due to this office for services provided at December 31, year 1" Letter dated February 26, year 2 K. Bowt v. XYZ Co.: This matter commenced in December, year 1. The plaintiff alleges discrimination relating to his termination on November 17, year 1. The company intends to defend this case vigorously. At this time, we are unable to evaluate the like- lihood of an unfavorable outcome or estimate the amount or range of potential los. Letter dated March 16, year 2: J. Myers v. XYZ Co.: This matter commenced in March, year 2. The plaintiff alleges discrimination relating to his termination on November 17, 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 14, year 2 R. Brown v. XYZ Co.: This matter commenced in November, year 1. The plaintiff alleges discrimination relating to his termination on March 17, year 1. It is reason- ably possible that the case will be settled for approximately $35,000 Letter dated February 14, year 2 L Peep v. XYZ Co.: This matter commenced in November, year 1. The plaintiff alleges discrimination relating to his termination on March 17, year 1. The case is tenta tively settled for $35,000