Question

In 1997, a disagreement arose between Livent Inc. and its auditor, Deloitte and Touche (Deloitte). Livent, which operated several theaters for live stage production, had sold the naming rights to one of its theaters to AT&T for $12.5 million. The agreement was oral, and one of the theaters was under construction. The auditors for Deloitte believed that only a portion of the deal should be included in revenue, but Livent wanted to book the entire $12.5 million. Livent retained Ernst & Young (EY) to provide an opinion on the transaction. EY’s report indicated that all $12.5 million could be recorded as revenue. Deloitte hired Price Waterhouse (currently PricewaterhouseCoopers) to review the transaction. Price Waterhouse agreed with EY and Livent, and Deloitte allowed Livent to book the $12.5 million. In 1998, Livent issued a series of press releases indicating the discovery of significant account irregularities and, later in 1998, Livent declared bankruptcy.

Required:

Exhibiting professional competence and due professional care are part of the general standards set forth in the AICPA Code of Professional Conduct. Comment on the decision to engage public accounting firm competitors EY and Price Waterhouse concerning the disagreement over the accounting treatment of the $12.5 million transaction. Do you believe that hiring a competitor firm is sufficient to meet due professional care standard even though the company eventually declares bankruptcy?

Answer 1

As per companies creditors arrangement act, livent looked for insolvency scrutiny and put accordingly into receivership with Ernst and young being named as administrator and recipient. Deloitee should give guarantee that all budgetary explanations of livent were properly accounted as per its own bookkeeping strategies and sound accounting standards and accounting rules.

No, irrespective of fact that the possibility of a general obligation of care is exists which is broadly acknowledged, there are certain contrasts among the custom based laws which are concerning about the particular conditions under which the obligation of care exists. Clearly, court cannot hold everybody subject for every other person issues or cannot force boundless obligation.