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In this situation, in an effort to be respectful of the student, the counselor might have informed the student of her decision before informing the principal (if she did not fear an immediate violent response on the part of the student), or might have met with the student and the principal when the principal confronted the student regarding the situation.
The omnibus exposure draft, Audit Adjustments, Reporting on Consistency, and Service Organizations (Omnibus Statement on Auditing Standards--1999), adds to a list of matters addressed in the audit engagement letter an item reminding management it is responsible for correcting material misstatements and for informing the auditor of any uncorrected, nonmaterial misstatements.