Given your previous answer, do you believe that Touche Ross complied with the applicable professional standards after learning of the error in AFS's 1985 financial statements? Explain.

AFS filed for bankruptcy in April 1987. The company's president filed for personal bankruptcy approximately two years later. In early 1989, Chevron Chemical sued Touche Ross, alleging that the accounting firm negligently audited AFS's 1985 financial statements. Chevron Chemical also claimed that Touche Ross had a responsibility to notify it after learning of the error in AFS's 1985 financial statements.

A Wisconsin state court rejected the allegation that Touche Ross negligently audited AFS in 1985. However, the court ruled, and a Wisconsin state appellate court later agreed, that Touche Ross "was negligent as a matter of law in failing to notify plaintiff [Chevron Chemical] of the withdrawal of their opinion." The original state court awarded damages of $1.6 million to Chevron Chemical.