September 8, 2011
Case 5.6: American Fuel & Supply Company, Inc.
Paragraph 8 of AU section 561 states the auditor responsibilities for the two sets of circumstances. “Unless the auditor's attorney recommends a different course of action, the auditor should take the following steps to the extent applicable: a. Notification to the client that the auditor's report must no longer be associated with the financial statements. b. Notification to regulatory agencies having jurisdiction over the client that the auditor's report should no longer be relied upon. c. Notification to each person known to the auditor to be relying on the financial statements that his report should no longer be relied upon.”
The Auditor will also have to inform the SEC about the misleading financial statements. “In many instances, it will not be practicable for the auditor to give appropriate individual notification to stockholders or investors at large, whose identities ordinarily are unknown to him; notification to a regulatory agency having jurisdiction over the client will usually be the only practicable way for the auditor to provide appropriate disclosure. Such notification should be accompanied by a request that the agency take whatever steps it may deem appropriate to accomplish the necessary disclosure. The Securities and Exchange Commission and the stock exchanges are appropriate agencies for this purpose as to corporations within their jurisdictions.”
No, Touche Ross did not follow the professional standards because it did not contact all of the third parties relying on ASF’s financial information. AU section 561 requires that all parties that rely on the financial information should be contacted.
No, Touche Ross would not violate the professional confidentiality rule by withdrawing AFS’s 1985 financial statements. The Auditor is obligated to disclose certain information regarding statements on Auditing...