Case Stuy 8.1 Livent Inc

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1. The entertainment industry poses inherent risk factors for independent auditors, such as revenue recognition and valuation of intangible assets. Specific audit procedures required for audits of companies involved in live theatrical productions include attending performances, reviewing contracts with performers and venues, and verifying ticket sales.2. The responsibilities of an audit partner and a CFO differ in terms of the scope of their work, but both roles carry significant importance and stress. It is subjective to determine which role is more important or stressful, and it ultimately depends on individual preferences and strengths.3. Some corporate executives may perceive their auditors as a necessary evil due to the perceived intrusiveness of the audit process. Auditors can combat this attitude by building strong relationships with their clients and providing value beyond the audit.4. When an accounting firm is retained to issue an objective report on an auditor-client dispute, they have a responsibility to remain impartial and objective in their analysis and reporting.5. Whether Deloitte & Touche should have approved Livent’s decision to record the naming rights payment as revenue depends on the specific details of the transaction and relevant accounting standards. Accounting concepts such as revenue recognition and materiality should be considered.6. Maria Messina’s statement about feeling guilty by association suggests that she felt responsible for the fraudulent activity at Livent even though she was not directly involved. It is difficult to determine what one would do in her position, but ethically, reporting the fraud to regulatory or law enforcement authorities would be the appropriate course of action.7. Professional standards for due diligence investigations performed by accounting firms include conducting thorough research and analysis, maintaining objectivity, and adhering to ethical guidelines.

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Questions 1. Identify common inherent risk factors that companies involved in the entertainment industry pose for their independent auditors. List and briefly describe specific audit procedures that would not be used on “typical” audit engagements but would be required for audits of companies involved in live theatrical productions, such as Livent. 2. Compare and contrast the responsibilities of an audit partner of a major accounting firm with those of a large public company’s CFO. Which work role do you believe is more important?

Which is more stressful? Which role would you prefer and why? 3. Explain why some corporate executives may perceive that their independent auditors are a “necessary evil. ” How can auditors combat or change that attitude? 4. When auditor-client disputes arise during an audit engagement, another accounting firm is sometimes retained by the client and/or the existing auditor to provide an objective report on the issue at the center of the dispute—as happened during Deloitte’s 1997 audit of Livent.

Discuss an accounting firm’s responsibilities when it is retained to issue such a report. 5. Do you believe Deloitte & Touche should have approved Livent’s decision to record the $12. 5 million “naming rights” payment as revenue during the third quarter of 1997? Defend your answer. What broad accounting concepts should be considered in determining the proper accounting treatment for such transactions? 6.

Maria Messina has testified that when she learned of the accounting irregularities at Livent, shortly after becoming the company’s CFO, she felt “guilty by association,” which prevented her from revealing the fraud to regulatory or law enforcement authorities. Explain what you believe she meant by that statement. Place yourself in Messina’s position. What would you have done after discovering the fraudulent schemes affecting Livent’s accounting records? 7. What professional standards apply to “due diligence” investigations performed by accounting firms?

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Case Stuy 8.1 Livent Inc. (2016, Nov 08). Retrieved from

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