Question

An attorney is aware of a violation of a patent agreement that could result in a significant loss to the client if it were known. This is an example of a(n)

A) commitment.
B) unasserted claim.
C) pending litigation.
D) subsequent event.

Answer 1

An attorney's knowledge of a patent agreement violation that could impact a client's financials is labeled as a 'subsequent event' because it occurs after the balance sheet date and requires adjustment or disclosure in financial statements.

Step-by-step explanation:

The scenario presented where an attorney is aware of a violation of a patent agreement that could result in significant loss to a client if known falls into the category of a subsequent event. In accounting and auditing, subsequent events are events or transactions that occur after the balance sheet date which may materially impact the financial statements. The term 'subsequent event' is used to describe the need for adjustments or disclosures in financial statements to reflect the impact or the need to inform users of the financial statements about the occurrence of such events.

This is clearly different from a commitment, an unasserted claim, or pending litigation as it pertains to an event occurring post balance sheet date that could affect the valuation of assets, liabilities, or overall financial health of the entity.