Holmes & Smith, LLP, Were Engaged to Audit the Financial

Holmes & Smith, LLP, were engaged to audit the financial statements of Sodolak Reality for the year ended December 31. During the engagement, Sodolak filed a lawsuit against Holmes & Smith, LLP. What effect, if any, will this lawsuit have on the auditors' report?

A) The report should be modified to include an emphasis-of-matter paragraph describing the pending litigation.
B) A disclaimer of opinion should be issued because the auditors' independence is impaired.
C) The litigation will not have any impact on the report or auditors' independence unless Holmes & Smith are found guilty.
D) A qualified or adverse opinion should be issued depending on the severity of the lawsuit.