Case Study: Financial Audit Failure - Deloitte & Touche v. Livent Inc.

This case study analyzes the financial audit failure in the case of Deloitte & Touche v. Livent Inc. The assignment examines the responsibilities of auditors, the failure to identify misstatements in financial statements, and the subsequent legal and financial repercussions. The case highlights the negligence of Deloitte in its audit duties, the role of management and internal audit, and the impact on investors due to inaccurate financial reporting. The study explores the root causes of the audit failure, including competitive pressures and the structure of the audit industry, and recommends improvements in audit strategies, programs, and regulatory oversight. The Supreme Court of Canada's decision and the awarded penalties are also discussed, emphasizing the importance of adherence to accounting standards and the consequences of audit failures. This case study provides a comprehensive overview of the issues surrounding audit quality and the importance of effective governance in financial reporting.

Deloitte & Touche v.
Livent Inc.

Executive summary
 Issue- responsibilities of auditors in external audit assignment.
 Quality of audit services provided by Deloitte will be examined in this
report.
 Auditors were not able to identify if management of Livent Inc. has used
accounting standards.
 Supreme court of Canada made decision in the favour of Livent Inc.

Event and issues
 Event- Management of the company does not prepare the financial statements in
accordance with financial standards.
 It continued from 1997 to 1998.
 Management has to revise their financial statements.
 Revision decreases their market price per share from $6.75 to $0.28 (Widhoyoko, 2014).
 It resulted in huge losses for investors.
 Issue- Auditor during these years was Deloitte
 Primary issue in this scenarios is whether Deloitte was responsible for this error of
management or not.

Responsible parties
 Accounting department- financial statements not in line with the
accounting standards.
 Internal audit department- Not able to identify the material
misstatements.
 Board of directors- Unable to identify the deficiency in accounting
process.
 Auditor of the organization- not able to identify material misstatements
that are apparent from records.

Discussion of the issue
 Auditors were negligent negligent in discharging their functions of
auditor.
 Primary function of auditor was to make sure that all the rules and
regulations were followed.
 This requirement was ignored by Deloitte.
 $84750000 was awarded to shareholders of Livent Inc. by Deloitte
(Laing, A. and Nickerson, 2018).

Root cause of the actions of auditor
 Level of competition in the audit industry- Increased competition has
forced business organizations to complete audit quickly.
 The monopoly of big 4 audit firms- majority of large scale organizations
are taking services from Big 4.
 Lack of proper governing authority- Lack of governing authority on audit
organizations.

Possibility of contributory negligence
 The case filed by Livent Inc. on Deloitte for the negligence of audit
duties.
 Supreme Court of Canada instructed Deloitte to pay $84,750,000.
 No negligence of error on part of Livent Inc. that might have decreased
the amount of penalty.

Recommendation for improvement
 Improvement in audit strategy- Ensure that proper planning is
undertaken to prepare audit strategies.
 Improvement in audit program- Fixed set of rules and regulations should
be developed by top management.
 Effective and efficient governing authorities- Regulatory authorities
should implement performance measurement strategies (Knechel and
Salterio, 2016).

References
 Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk.
Routledge.
 Laing, A. and Nickerson, A., 2018. Deloitte & Touche v. Livent Inc.(Receiver of):
The Supreme Court of Canada Affirms Duty of Care but Reduces Auditor's
Damages in Livent Decision. Banking & Finance Law Review, 33(2), pp.293-
297.
 Widhoyoko, S.A., 2017. Fraud in Rights and Contracts: A Review of Bankruptcy
Case of Livent Inc. Based on Governance, Risk, and Compliance (GRC)
Framework. Binus Business Review, 8(1), pp.31-39.