Assessing a Prospective Client's Legal and Financial Stability Is a Necessary

Multiple Choice

Assessing a prospective client's legal and financial stability is a necessary part of the accept/reject decision. Which of the following situations would be of most concern to the auditor?

A) Two outside board members are being investigated by the SEC for insider trading.
B) A sporting goods manufacturer has a number of product liability suits outstanding.
C) A small computer chip manufacturer is being sued by a major competitor over patent infringements involving their only significant product.
D) Due to a heavy debt load, a financial services company was forced to raise needed capital through a stock issue.
E) An appliance manufacturer recently issued "junk" bonds in order to raise some quick capital.