Final answer:
An auditor must estimate the effects of non-disclosure of a lawsuit on management decisions, which could misguide strategy and risk assessment due to the lack of information on potential liabilities.
Step-by-step explanation:
When a client is unwilling to disclose an existing lawsuit, the auditor must estimate the likely effect on various aspects of the company's operations and financial statements. However, the question here pertains to management's future decisions, which is a broader and more subjective area.
The non-disclosure of a lawsuit could significantly impact management's strategic decisions, risk assessments, and financial planning. They would lack crucial information about potential liabilities, which could result in misguided policymaking and resource allocation. This situation exemplifies the importance of having accurate information for corporate governance, which, when lacking, can lead to the failure of institutions tasked with overseeing executive actions, illustrated by historical cases like Lehman Brothers.