Auditors and Legal Liability

Auditors and Legal Liability 1
AUDITORS AND LEGAL LIABILITY
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Auditors and Legal Liability 2
Table of Contents
Executive Summary.........................................................................................................................3
Auditors and Legal Liability............................................................................................................4
Livent v Deloitte & Touche LLP (Court of Appeal, 2014).............................................................4
Introduction..................................................................................................................................4
The Key Events That Led to the Case of Livent v Deloitte & Touche LLP.................................4
The Culpability of the Two Parties (Livent v Deloitte & Touche LLP).....................................5
Pertinent Accounting and Auditing Issues Raised in the Case of Livent v Deloitte & Touche LLP
.........................................................................................................................................................6
Livent’s Accounting Software is Modified.................................................................................6
Amortization................................................................................................................................7
Revenue Transactions..................................................................................................................7
The Root Cause Behind Why the Case Arise..............................................................................7
Recommendations to be Used to Improve an Audit Program and Audit Strategy to Prevent
Recurrence of the Same Legal Suit in Future Against Professional Auditors.................................8
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

Auditors and Legal Liability 3
Executive Summary
The Live Entertainment Corporation of Canada popularly known as Livent was a
theatre production company formed in Toronto, Ontario Canada. The company began
as a division of Ciniplex Odeon a motion picture organization based in Toronto. Livent
was therefore found as an entertainment company that was intended to grow into a
publicly traded corporation in the North American Market. Livent’s most popular musical
production was The Phantom of the Opera. Livent had raised capital in May 1993
through a Canadian IPO and equity in May 1995 in the US. For the next three years
after 1995, Livent had sought various public and private debts.
The case of Livent v Deloitte & Touche LLP which was concluded on April 4,
2014, can be traced back to the years between 1996 and 1997. The audit firm- Deloitte
& Touche was found liable to pay $ 85 million in damages and penalties for professional
negligence in the audit of Livent an entertainment company first incorporated in Canada
on May 1993. Livent was intended to trade its shares in the North American Markets.
The cause of all the issues was as a result of the restatement of the financial
statements of the company for the financial period 1996 and 1997 which resulted into a
downward and significant adjustment of the income reported. Following the downward
restatement of reported income for Livent’s, the share value dropped from $ 6.75 to $
0.28 and numerous, civil, regulatory, disciplinary and criminal proceedings in the US
and Canada were peddled against the audit firm- Deloitte & Touche. In part of the
comments made from the unqualified audit opinion made by Deloitte & Touche, the
auditor believes that the financial statement for Livent presented "fairly, in all material
respects, the financial position of the company and in accordance with generally
accepted accounting principles(GAAP’s) in Canada."