Final answer:
The auditor must assess whether bonds should be classified as a current liability if there is a potential for the bond trustee to demand immediate repayment. Disclosure of the situation in the auditor's report may be necessary, and an opinion from the company's attorney might be sought to evaluate the enforcement risk.
Step-by-step explanation:
If an entity has violated a minor requirement of its bond indenture with the risk of the trustee requiring immediate payment of the principal amount due, but where a request for immediate payment is not considered likely, the auditor has a duty to evaluate the situation carefully. If the entity refuses to seek a waiver from the bond trustee, the auditor must first assess the likelihood and potential impact of enforcement of the requirement by the trustee.
Firstly, the auditor may need to require classification of the bonds payable as a current liability if repayment is considered probable within the next year. Secondly, if there is uncertainty regarding the entity's ability to meet its obligations or the actions of the trustee, the auditor may need to disclose the situation in the auditor's report as it relates to the financial statement's accuracy and completeness. Lastly, obtaining an opinion from the company's attorney can provide an assessment of the likelihood of the trustee enforcing the demand for payment, which guides the auditor in evaluating the appropriate financial statement treatment and disclosure.