Herbert McCoy is the president of McCoy Forging Corporation. For the past several years, Donovan & Company,
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The audit was performed in accordance with GAAS. The audit did not reveal a clever defalcation plan. Harper, the assistant treasurer, was siphoning off substantial amounts of McCoy Forging’s funds. The defalcations occurred both before and after the audit. Harper’s embezzlement was discovered by McCoy’s new internal auditor in October after Donovan had delivered the auditors’ opinion. Although the scheme was fairly sophisticated, it could have been detected if Donovan & Company had performed additional procedures. McCoy Forging demands reimbursement from Donovan for the entire amount of the embezzlement, some $ 40,000 of which occurred before the audit and $ 65,000 after. Donovan has denied any liability and refuses to pay.
Required:
Discuss Donovan’s responsibility in this situation. Do you think McCoy Forging could prevail in whole or in part in a lawsuit against Donovan under common law? Explain your conclusions.
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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Related Book For
Auditing and Assurance Services
ISBN: 978-0077862343
6th edition
Authors: Timothy Louwers, Robert Ramsay, David Sinason, Jerry Straws
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