A major focus of the lawsuit that Chevron Chemical filed against Touche Ross was the auditing…

A major focus of the lawsuit that Chevron Chemical filed against Touche Ross was the auditing profession s rules regarding the “subsequent discovery of facts existing at the date of the auditor s report.” Those rules distinguish between situations in which a client cooperates with the auditor in making all necessary disclosures and situations involving uncooperative clients. Briefly summarize the differing responsibilities that auditors have in these two sets of circumstances. Consider this scenario. You are the audit manager responsible for supervising the fieldwork for a major audit client. After hundreds of hours of hard work, the audit is successfully completed, the client receives a clean opinion, and you and your colleagues go on to your next assignment. Now, the bad news. Several months later, you discover that the client s financial statements contain a material error, an error not revealed by the audit. What should you do at this point? What will you do? An audit manager with Touche Ross faced these difficult circumstances in 1986. In the mid-1980s, Wisconsin-based American Fuel & Supply Company, Inc. (AFS), was a wholesale distributor of automotive supplies, lawn and garden supplies, and related products.1 AFS purchased merchandise from several vendors. One of the company s largest suppliers was Chevron Chemical Company, a division of Chevron Corporation. Products that AFS purchased from Chevron included insecticides and weedkillers bearing the Ortho brand label.

 

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