Question

Katrina, CPA, performed an audit on the Willimantic Corporation and issued an unqualified opinion. Katrina performed the audit with due professional care and in accordance with generally accepted auditing standards (GAAS). Two months after Katrina issued the audit report, she discovers on the news that the CEO of Willimantic Corporation, Henry, had been stealing small amounts of inventory. The amount, however, is immaterial compared to the overall inventory of the corporation. Katrina soon receives a call from Willimantic Corporation 's CFO, Jordyn, wants Katrina to refund her audit fees. Jordyn thinks Katrina did not properly perform the audit, as she did not discover this fraud. Further, Jordyn feels that now Willimantic Corporation's financial statements are not fairly stated because of Katrina. Required:

How should Katrina respond to Jordyn’s claim?

Answer 1

Provision: Auditor should perform audit with professional care and due diligence and on the basis of generally accepted auditing standards. Such standards required the auditor to perform audit to the extent of materiality. Auditor is only required to give his opinion on the financial statements and his opinioin does not releive management from his responsibilities.

Facts: Katrina has already performed audt with professional care and as per standards. Mistatement found later is not material and doen not shows that Jane has not performed audit with professional care.

Conclusion: Keeping in mind the above provisions and facts, it can be said that Katrina is not required to refund fees. Also contention of Quagmire's that financial statments are not fairly presented is incorrect as immaterial misstaments does not make financials false.

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