A REPORT

ON
Livent Incorporation: A Case Study
Course Name: Audit, Risk and Control
Course Code: AIS 5204

Prepared For:

Abdul Alim Baser

Associate Professor
Department of Accounting and Information Systems
University of Barishal

Prepared By:

Group 02

Group Members ID No.

Gopal Karmakar 21 AIS 001

Md. Shamim 21 AIS 012

Shanti Ranjan Howlader 21 AIS 025

Mohiuddin Ahmed 21 AIS 026

Sabbir Ahmed 21 AIS 048

Date of Submission: May 31, 2023

Acknowledgement

This is our pleasure that We could successfully complete our report by the grace of almighty
Allah. We want to convey our heartfelt respect and cordial thank to Abdul Alim Baser,
Associate Professor, University of Barishal for his encouragement, guidance, advices and
valuable supervision. We consider ourselves very fortunate to have been given the opportunity
to create this report under his supervision and direction. It would have been difficult for us to
complete this paper without his guidance.

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Letter of transmittal

Date: May 31, 2023

To
Abdul Alim Baser
Associate Professor
Dept. of Accounting and Information Systems
University of Barishal.
Sub: Submission of the report on “Livent Incorporation: A Case Study”.
Dear Sir,
With due respect, we would like to inform you that we are the student of the Accounting and
Information Systems Department. We are submitting our report on the “Livent Incorporation:
A Case Study” with great pleasure. This report has been informative, useful, and insightful to
us. We did our best to write an effective report. We acquired this information from a variety of
sources.
To prepare this report, we did my best possible. We will gladly provide you with any additional
explanations or clarifications you may require. We will be thankful if you kindly approve this
effort.
Sincerely Yours,
The members of Group-02
MBA, 2nd Semester
Session: 2020-2021
Dept. of Accounting and Information Systems
Faculty of Business Studies
University of Barishal

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Table of Contents
Acknowledgement ..................................................................................................................... 2

Letter of transmittal.................................................................................................................... 3

Introduction: ............................................................................................................................... 6

Chapter 01: Overview of Livent Incorporation & Deloitte and Touche .................................... 7

1.1: Overview of Livent Incorporation .................................................................................. 7

1.1.1: Preface of Livent Incorporation................................................................................ 7

1.1.2: Livent Incorporation at a glance ............................................................................... 9

1.2: Overview of Deloitte and Touche ................................................................................. 10

Chapter 02: Overview of the Case: .......................................................................................... 11

2.1: Background ................................................................................................................... 11

2.2: Fraud ............................................................................................................................. 11

2.3: Detection ....................................................................................................................... 11

2.4: Litigation ....................................................................................................................... 12

2.5: Outcome ........................................................................................................................ 12

2.6: Implications ................................................................................................................... 13

Chapter 03: Case Analysis ....................................................................................................... 14

Chapter 04: Decline and fall .................................................................................................... 23

Subsequent events ................................................................................................................ 23

Insolvency proceedings .................................................................................................... 23

Criminal proceedings ........................................................................................................ 24

Civil proceedings .............................................................................................................. 24

Chapter 05: Findings, Recommendations & Conclusion......................................................... 25

5.1: Findings:........................................................................................................................ 25

5.2: Recommendations: ........................................................................................................ 26

5.3: Conclusion: ................................................................................................................... 26

Chapter 06: Solution of the Case Questions ............................................................................ 27

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 6.1: Question 01 ................................................................................................................... 27

6.2: Question 02 ................................................................................................................... 27

6.3: Question 03 ................................................................................................................... 28

6.4: Question 04 ................................................................................................................... 29

6.5: Question 05 ................................................................................................................... 29

6.6: Question 06 ................................................................................................................... 30

6.7: Question 07 ................................................................................................................... 31

References ................................................................................................................................ 32

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Introduction:
Livent Inc. was a Canadian company that specialized in live theatrical productions. Founded
by Garth Drabinsky and Myron Gottlieb in the early 1990s, Livent appeared to be a highly
successful and profitable business, attracting investors and creditors from both Canada and the
US. However, behind the scenes, Drabinsky and Gottlieb were orchestrating a massive
accounting fraud that involved manipulating the company's financial records to inflate its
revenues and assets, conceal its expenses and liabilities, and mislead its auditors and
shareholders. The fraud involved various schemes, such as recording expenses as assets,
inflating revenue by backdating contracts, and transferring costs between shows to manipulate
profit margins. Deloitte was Livent's auditor from 1989 to 1998, and issued unqualified audit
opinions for each fiscal year. Deloitte discovered some accounting irregularities in 1997, but
did not report them to Livent's audit committee or board of directors. Instead, Deloitte issued
a comfort letter and a press release to assist Livent in raising $12.5 million through a public
offering. Deloitte also failed to disclose the fraud in its 1997 audit opinion, which Livent relied
on to obtain a $7.4 million loan from a bank. Livent's new management uncovered the fraud in
1998 and restated the financial statements for 1996 and 1997, resulting in a significant
downward adjustment of reported income and a drop in share value. Livent filed for bankruptcy
protection in 1998 and was placed into receivership in 1999. The receiver sued Deloitte for
negligence, claiming that Deloitte breached its duty of care to Livent by failing to detect and
report the fraud, and that Livent relied on Deloitte's false representations of its financial health
to make business decisions. The trial judge found Deloitte liable for both allegations and
awarded $84.75 million in damages to Livent. The Ontario Court of Appeal upheld the trial
decision. The Supreme Court of Canada allowed Deloitte's appeal in part and reduced the
damages to $40.425 million. The Court held that Deloitte was not liable for the first allegation,
because the comfort letter and press release were intended for investors, not Livent, and any
reliance Livent placed on them was outside the scope of Deloitte's duty of care. However, the
Court held that Deloitte was liable for the second allegation, because the statutory audit was
intended to enable shareholder oversight of management, and Livent relied on it for that
purpose. The Court also clarified the framework for deciding auditor's negligence cases, based
on the Anns/Cooper test. The Court emphasized that the duty of care is limited by the purpose
for which the auditor undertook to provide the representation or service, and that policy
considerations may negate or restrict the duty of care in some circumstances.

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Chapter 01: Overview of Livent Incorporation & Deloitte and Touche
1.1: Overview of Livent Incorporation
1.1.1: Preface of Livent Incorporation
The company was founded in 1989 by Garth Drabinsky and Myron Gottlieb, former chairman
and vice chairman, respectively, of Cineplex Odeon Corporation. In 1979, Drabinsky and a
close friend, Myron Gottlieb, decided to enter the show business world via the "back door."
The two young entrepreneurs persuaded a
prominent Toronto businessman to invest
nearly $1 million in a "cinema complex"
project they had conceived. This project
involved converting the basement of a large
shopping mall into a multi-screen theater.
The design for the "cineplex" included plush interiors for each theater, luxurious seats, and
cappuccino bars in the lobby Drabinsky intended to make a trip to the local movie theater the
captivating experience it had been several decades earlier in the halcyon days of Hollywood.
Most industry insiders predicted that Drabinsky's blueprint for his cineplex concept would fail,
principally because the large overhead for his theaters forced his company to charge much
higher ticket prices than competitors. But the critics were wrong. Toronto's moviegoers were
more than willing to pay a few extra dollars to watch a film in Drabinsky's upscale theaters.
Over the next several years. Drabinsky and Gottlieb expanded their company with the help of
well- heeled investors who they convinced to pony up large sums to finance the development
of multi-screen theater complexes throughout Canada and the United States. By the mid-1980s,
their company, Cineplex Odeon, controlled nearly 2,000 theaters, making it the second-largest
theater chain in North America.
In the meantime, several major investors in Cineplex Odeon eventually began complaining of
Drabinsky's unrestrained spending practices. The company's rapid expansion and the
increasingly sumptuous designs Drabinsky developed for new theaters required Cineplex
Odeon to borrow enormous amounts from banks and other lenders (An internal investigation
in 1989 uncovered irregularities in the company's accounting records that wiped out a large
profit for the year and resulted in Cineplex Odeon reporting a significant loss instead) The
controversy sparked by the discovery of the accounting irregularities gave Cineplex Odeon's
major investors the leverage they needed to force Drabinsky and Gottlieb to resign. During the
negotiations that led to their departure from the company, Drabinsky and Gottlieb acquired the

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Pantages Theatre, a large live production theater in Toronto, as well as the Canadian rights to
certain Broadway plays.
Within a few weeks after severing their ties with Cineplex Odeon, Drabinsky and Gottlieb had
organized Live Entertainment Corporation to produce Broad- way-type shows in their
hometown of Toronto. Drabinsky's concept for this new company, which he coaxed several
large investors and lenders to bankroll, was to bring "corporate management" to the notoriously
freewheeling and undisciplined show business industry. Following a series of widely acclaimed
productions, the company-renamed Livent, Inc-went public in 1993. Livent became a publicly
traded company in May 1993 with a stock offering that raised $40 million. This made it the
first publicly traded company whose primary business was live theatre.
In May 1995, Livent filed an application with the Securities and Exchange Commission (SEC)
to sell its stock in the United States. The SEC approved that application and Livent's stock
began trading on the NASDAQ stock exchange. Within two years, U.S. investors controlled
the majority of Livent's outstanding stock
By early 1998, Livent owned five large live production theaters in Canada and the United
States, including a major Broadway theater in New York. The company's productions, among
them Fosse, Kiss of the Spider Woman, Ragtime, Show Boat, and The Phantom of the Opera,
had garnered a total of more than 20 Tony Awards. Show business insiders attributed Livent's
rapid rise to prominence to Garth Drabinsky. After organizing Livent, Drabinsky quickly
developed a keen sense of what types of shows would appeal to the public. (Livent,INC., 1998)

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1.1.2: Livent Incorporation at a glance

LIVENT INC.

Trade name LIVENT INC

Type Canadian public limited company

Industry Theatrical production & show

Founded 1989; Toronto, Canada

Founder Garth Drabinsky and Myron Gottlieb

Area Served Canada & USA

Key people ❖ Garth Drabinsky (Founder & CEO)

❖ Myron Gottlieb (Founder & President)
❖ Roy Furman (Investment & Banker)
❖ Maria Messina (CFO)
❖ Robert Webster (Former KPMG audit partner & now executive vice
president)
❖ Michael Ovitz (Chairman of board executive committee)
❖ Gordon Eckstein (senior vice president of finance & administration)

Services • Entertainment

(Livent,INC., 1998)

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1.2: Overview of Deloitte and Touche
Deloitte Touche Tohmatsu Limited commonly
referred to as Deloitte, is an international
professional services network headquartered in
London, England. Deloitte is the largest Trade name Deloitte
Deloitte
professional services network by revenue and
Type UK private
UK private company
company limited
limited by guarantee by
number of professionals in the world and is guarantee[1]
considered one of the Big Four accounting firms Professional services
Industry
Industry Professional services
along with EY, KPMG and PwC.
The firm was founded by William Welch Deloitte Founded 1845; 178 years ago in London, England
Founded 1845; 178 years ago in London, England
in London in 1845 and expanded into the United
States in 1890. It merged with Haskins & Sells to Founder William Welch Deloitte
Founder William Welch Deloitte
form Deloitte Haskins & Sells in 1972 and with
Headquarters London, England
Headquarters London, England
Touche Ross in the US to form Deloitte & Touche
in 1989. In 1993, the international firm was Area
Area served
served Worldwide
Worldwide
renamed Deloitte Touche Tohmatsu, later
Key •
abbreviated to Deloitte. In 2002, Arthur Andersen's Key people
Sharon Thorne
people • Sharon Thorne
(Chairperson Deloitte Global)
practice in the UK as well as several of that firm's (Chairperson Deloitte Global)[2]
• Joseph B. Ucuzoglu (CEO Deloitte
practices in Europe and North and South America • Joseph B. Ucuzoglu
Global)[3]
(CEO Deloitte Global) [3]

agreed to merge with Deloitte. Subsequent

acquisitions have included Monitor Group, a large Services • •AuditAudit
Services
• •Management consulting
Management consulting
strategy consulting business, in January 2013. The
• •Financial advisory
Financial advisory
international firm is a UK private company, limited
• •RiskRisk
advisory
advisory
by guarantee, supported by a network of • •Tax Tax
independent legal entities. • •LegalLegal
Deloitte provides audit, consulting, financial
Revenue US$59.3
US$59.3billion (2022)
billion (2022)[4]
advisory, risk advisory, tax, and legal services with
approximately 415,000 professionals globally. In 415,000 (2022)
Number of of 415,000 (2022)[5]
FY 2021, the network earned revenues of US$50.2
employees
billion in aggregate. The firm has sponsored a
number of activities and events including the 2012 Website www.deloitte.com
www.deloitte.com

Summer Olympics.
(Wikipedia, 2023)

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Chapter 02: Overview of the Case:
Livent Inc. was a Canadian live entertainment company that produced and staged theatrical
shows in Canada and the United States. It was involved in a massive accounting fraud that led
to its bankruptcy and litigation against its auditors, Deloitte & Touche.

2.1: Background
➢ Livent Inc. was founded by Garth Drabinsky and Myron Gottlieb in 1989 after
resigning Cineplex Odeon Corporation.
➢ Livent went public company in 1993 and in 1995 Livent got the approval on issuing
the stock on the Toronto Stock Exchange and NASDAQ.
➢ Livent produced and staged popular shows such as Phantom of the Opera, Ragtime,
Show Boat, and Kiss of the Spider Woman.
➢ Livent owned and operated several theatres in Canada and the United States, including
the Pantages Theatre in Toronto and the Ford Center for the Performing Arts in New
York.

2.2: Fraud
Livent's management manipulated the company's financial records to inflate revenues, hide
expenses, and boost profits.
Some of the fraudulent accounting practices included:
➢ Recording revenues from future or cancelled shows as current revenues.
➢ Capitalizing pre-production costs that should have been expensed.
➢ Creating fictitious assets and liabilities to balance the books.
➢ Entering into side agreements with third parties to conceal transactions.
➢ The fraud was concealed by falsifying documents, overriding internal controls,
intimidating staff, and lying to auditors.
(Widhoyoko, May, 2017)

2.3: Detection
➢ The fraud was discovered in 1998 by new investors who appointed a new management
team for Livent.

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 ➢ The new management team conducted an internal investigation and a re-audit of
Livent's financial statements with the help of Deloitte.
➢ Livent restated its financial statements for 1996, 1997, and the first quarter of 1998,
revealing losses of approximately over $100 million instead of profits.
➢ Livent's share price plummeted and the company filed for bankruptcy protection in
Canada and the United States in November 1998.

2.4: Litigation
➢ Livent's special receiver sued Deloitte for negligence and breach of contract, claiming
damages of $450 million.
➢ The receiver alleged that Deloitte failed to exercise due care and professional
skepticism in auditing Livent's financial statements from 1992 to 1998.
➢ The receiver argued that Deloitte should have detected and reported the fraud earlier,
and that Deloitte's negligence caused or contributed to Livent's demise.
➢ Deloitte denied liability and argued that it performed its audits in accordance with
generally accepted auditing standards (GAAS).
➢ Deloitte also argued that it was not responsible for Livent's business decisions or the
actions of its fraudulent management.
(Laing & Nickerson, May 2018)

2.5: Outcome
➢ The trial court found Deloitte liable for negligence and breach of contract, and awarded
damages of $85.6 million to the receiver.
➢ The court held that Deloitte owed a duty of care to Livent as its client, and that Deloitte
breached that duty by failing to meet the standard of care expected of a reasonable
auditor.
➢ The court also held that Deloitte's negligence caused some of Livent's losses, but not
all of them, as Livent was already insolvent before the fraud was exposed.
➢ The court apportioned liability between Deloitte (25%) and Livent (75%), based on
their respective degrees of fault.
➢ The Court of Appeal upheld the trial court's decision, but reduced the damages to $40.5
million, based on a different method of calculating Livent's losses.

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 ➢ The Supreme Court of Canada partially overturned the lower courts' decisions, and held
that Deloitte was only liable for $10.5 million in damages.
➢ The Supreme Court refined the framework for analyzing a defendant's duty of care in
cases of negligent misrepresentation or performance of a service.
➢ The Supreme Court ruled that Deloitte owed a duty of care to Livent only for specific
audit-related services that were intended to assist Livent in overseeing its management.
➢ The Supreme Court found that Deloitte breached its duty of care only in relation to its
review engagement report for Livent's press release in September 1997, which
misrepresented Livent's financial position and enabled it to raise funds from investors.
➢ The Supreme Court concluded that Deloitte's negligence caused Livent's losses only to
the extent that Livent incurred additional debt as a result of relying on Deloitte's report.
(Laing & Nickerson, May 2018)

2.6: Implications
➢ The Supreme Court's decision has significant implications for auditors, clients, and
shareholders in cases of corporate fraud.
➢ The decision clarifies the scope and limits of auditor liability for negligence, and
emphasizes the need for auditors to exercise professional judgment and skepticism
when performing their audits.
➢ The decision also reaffirms the principle that auditors are not insurers or guarantors of
their clients' financial statements, and that clients are responsible for their own business
decisions and actions.
➢ The decision also recognizes the role of shareholders as beneficiaries of audit services,
but cautions against imposing excessive liability on auditors that would undermine their
independence and objectivity.

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Chapter 03: Case Analysis
● Drabinsky relied on his own drive, inspiration, and indomitable work ethic to claw his way
to the top of the volatile and fickle entertainment industry
By the mid-1980s, their company, Cineplex Odeon, controlled nearly 2,000 theaters,
making it the second largest theater chain in North America.
Several major investors in Cineplex Odeon eventually began complaining of
Drabinsky’s unrestrained spending practices
The company’s rapid expansion and the increasingly sumptuous designs Drabinsky
developed for new theaters required Cineplex Odeon to borrow enormous amounts
from banks and other lenders
● An internal investigation in 1989 uncovered irregularities in the company’s accounting
records that wiped out a large profit for the year and resulted in Cineplex Odeon reporting a
significant loss instead.
● Within a few weeks after severing their ties with Cineplex Odeon, Drabinsky and Gottlieb
had organized Live Entertainment Corporation to produce Broadway-type shows in their
hometown of Toronto
● In 1995, Canadian native Maria Messina was promoted to partner with Deloitte & Touche
Messina’s promotion earned her the respect and admiration of her family, her friends,
and her colleagues and catapulted her to a much higher tax bracket and a more
comfortable standard of living.
But another opportunity soon arose, an opportunity that promised even more intrinsic
and extrinsic rewards for Messina.
● Throughout the 1993s, Livent, Inc., was the only publicly owned company whose primary
line of business was live theatrical productions
Livent’s co-founder = Garth Drabinsky.
Livent’s audit firm = Deloitte & Touche, Maria Messina served as the engagement
partner for the 1996 audit, after having been the audit manager on several prior audits
of the company
Following the completion of the 1996 Livent audit, Drabinsky asked Messina to leave
Deloitte & Touche and become Livent’s CFO and she took it
● At Livent, the pressures she faced were much more intense, much more difficult to manage
and control, even physically debilitating at times

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 January 1999 = Messina pleaded guilty to a felony for her role in a massive financial
fraud
The single mother of a 10 years old daughter faced up to 5 years in prison and a $250K
fine.
Sold stocks in the U.S. on NASDAQ
Within two years, U.S. investors controlled the majority of Livent’s outstanding stock
● Drabinsky relied heavily on his friend and confidant, Myron Gottlieb—who had an
accounting background—to help him oversee the company’s accounting and financial
reporting functions.
● Critics were prone to point out that Drabinsky also had a darker side to his personality.
“He is—by his own admission—complex and difficult, cranky and litigious,
breathtakingly ambitious, singled-minded and self-centered.”
Drabinsky could be “tyrannical and abusive” to his subordinates, berating them when
they failed to live up to his perfectionist standards or when they questioned his decisions
Maria Messina subsequently revealed that Livent’s accountants were common targets
of verbal abuse by Drabinsky and other Livent executives.
▪ “They [Livent’s accountants] were told on a very regular basis that they are paid
to keep their [expletive] mouths shut and do as they are [expletive] told. They
are not paid to think.”
● By 1998, Livent was buckling under the huge load of debt Drabinsky had incurred to finance
the company’s lavish productions.
Roy Furman, a Wall Street investment banker and close friend, persuaded Drabinsky to accept
a $20 million investment from former Disney executive Michael Ovitz to alleviate Livent’s
financial problems
Condition: He be granted sufficient common stock voting rights to allow him to control the
company’s board of directors. (former Disney president but terminated)
● Before agreeing to invest in Livent, the cautious Ovitz retained the Big Five accounting firm
KPMG to scrutinize the company’s accounting records
After KPMG’s “due diligence” investigation yielded a clean bill of health for Livent, Ovitz
became the company’s largest stockholder in early June of 1998 and took over effective control
of the company
Ovitz took a seat on the company’s board and became chairman of the board’s executive
committee, while Furman assumed Drabinsky’s former titles of chairman of the board and CEO
● Drabinsky continued to oversee the all-important creative facets of Livent’s operations.
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 To provide a second opinion on artistic matters, Ovitz appointed noted producer and
songwriter Quincy Jones to Livent’s board.
He also demoted Myron Gottlieb to a VP position
A former Disney executive who left that company along with Ovitz assumed Gottlieb’s
former position as Livent’s president.
The hiring of former KPMG audit partner Robert Webster to serve as an executive VP
of the company. Webster, who had supervised KPMG’s due diligence investigation of
Livent’s accounting records, was given a broad range of responsibilities, but his
principal role was to monitor Livent’s accounting and finance functions for Ovitz’s new
management team.
● Like Maria Messina, Robert Webster quickly discovered that the work environment within
Livent was much less than ideal
Webster found that the accounting staff, including Messina, who remained Livent’s
CFO, was reluctant to discuss accounting matters with him and Webster later testified
that some of the Livent accountants “told him that Mr. Drabinsky had warned them not
to provide certain financial information until [Drabinsky] had reviewed and approved
it
Even more troubling to Webster was Drabinsky’s management style
▪ Webster testified that, “I had never before experienced anyone with Drabinsky’s
abusive and profane management style.”
▪ He was shocked to find that Livent’s executives often screamed and swore at
the company’s accountants
▪ after meeting with Drabinsky, Livent’s accountants were often in tears or even
nauseated.
▪ Following one such meeting, Webster recalled Messina “shaking like a leaf.”
● When Webster demanded that Livent’s accountants provide him with unrestricted access to
the company’s accounting records, the former KPMG partner became the target of Drabinsky’s
wrath
Drabinsky accused Webster of attempting to “tear the company” apart with his
persistent inquiries and told him that he was there to “service his [Drabinsky’s]
requirements.”
Webster refused to be deterred by Drabinsky’s bullying tactics
● In early August 1998, after Webster began asking questions regarding a suspicious
transaction he had uncovered, Messina and four of her subordinates secretly met with him
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 The 5 accountants admitted to Webster that Livent’s accounting records had been
distorted by a series of fraudulent schemes initiated and coordinated by Drabinsky and
other top Livent executives.
Webster relayed the disturbing revelations to Livent’s board
On August 11, 1998, Roy Furman issued a press release announcing that “significant
financial irregularities” adversely affecting Livent’s financial statements for the past
three years had been discovered
Press release also indicated that Drabinsky and Gottlieb had been indefinitely
suspended pending the outcome of a forensic investigation by KPMG
● During the fall of 1998, company officials issued successive press releases suggesting that
the impact of the accounting irregularities would be more severe than initially thought
Adding to Livent’s problems was the suspension of all trading in the company’s stock
and a series of large class-action lawsuits filed against the company and its officers. In
August 1998 alone, 12 such lawsuits were filed.
● On November 18, 1998, Livent’s board announced that KPMG’s forensic investigation had
revealed “massive, systematic, accounting irregularities that permeated the company.”
The press release issued by Livent’s board also disclosed that Deloitte & Touche had
withdrawn its audit opinions on the company’s 1995–1997 financial statements.
Finally, the press release reported that Drabinsky and Gottlieb had been dismissed and
that Livent had simultaneously filed for bankruptcy in Canada and the United States
A few weeks later, a federal grand jury in New York issued a 16-count fraud indictment
against Drabinsky and Gottlieb
When the former Livent executives failed to appear for a preliminary court hearing, a
U.S. federal judge issued arrest warrants for the two Canadian citizens and initiated
extradition proceedings.
● In numerous enforcement and litigation releases, SEC officials repeatedly used the
descriptive phrase “pervasive and multifaceted” when referring to the Livent fraud
One of the earliest elements of the fraud was a large kickback scheme.
“As early as 1990, and continuing through 1994, Drabinsky and Gottlieb operated a
kickback scheme with two Livent vendors designed to siphon millions of dollars from
the company directly into their own pockets.”
Gottlieb reportedly instructed the two vendors to include in the invoices that they
submitted to Livent charges for services that they had not provided to the company

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 ▪ After Livent paid the inflated invoice amounts, Drabinsky and Gottlieb received
kickbacks equal to the payments for the bogus services.
▪ According to the SEC, over a four-year period in the 1990s, Drabinsky and
Gottlieb received approximately $7 million in kickbacks from the two Livent
vendors
▪ The fake charges billed to Livent by the vendors were capitalized in
“preproduction” cost accounts for the various shows being developed by the
company.
Legitimate costs charged to those accounts included expenditures to produce sets and
costumes for new shows, costs that were amortized over a maximum period of five
years.
● The kickback scheme and large losses being registered by several of Livent’s plays made it
increasingly difficult for the company to achieve quarterly earnings targets that Drabinsky and
Gottlieb had relayed to Wall Street analysts.
The two conspirators realized that if Livent failed to reach those earnings targets, the
company’s credit rating and stock price would fall, jeopardizing the company’s ability
to raise the additional capital needed to sustain its operations.
Faced with these circumstances, the SEC reported that beginning in 1994 Drabinsky
and Gottlieb directed Livent’s accounting staff to engage in an array of “accounting
manipulations” to obscure the company’s financial problems.
▪ Ex. blatant subterfuges as simply erasing from the accounting records
previously recorded expenses and liabilities at the end of each quarter
▪ A particularly popular accounting scam within Livent involved the transfer of
preproduction costs from a show that was running to a show still in production.
▪ Such transfers allowed the company to defer, sometimes indefinitely, the
amortization of those major cost items.
▪ To further reduce the periodic amortization charges for preproduction costs,
Livent’s accountants began charging such costs to various fixed asset accounts

● These assets were typically depreciated over 40 years, compared with the five-year
amortization period for preproduction costs
● Eventually, the company’s accountants began debiting salary expenses and other common
operating expenses to long-term fixed asset accounts.

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● The SEC estimated that the accounting manipulations understated Livent’s expenses by more
than $30 million in the mid-1990s.
● Beginning in 1996, Drabinsky and Gottlieb organized and carried out what the SEC referred
to as a “fraudulent revenue-generating” scheme.
This new scam involved several multimillion-dollar transactions arranged by
Drabinsky and Gottlieb.
The specific details of these transactions varied somewhat, but most of them involved
the sale of production rights owned by Livent to third parties.
Livent’s accounting staff included at least $34 million of revenues on those transactions
in the company’s 1996- and 1997-income statements.
● A final Livent scam documented by the SEC involved inflating reported box-office results
for key productions
Livent executives arranged to have two of the company’s vendors—the same
individuals involved in the fraudulent kickback scheme alluded to previously—
purchase several hundred thousand dollars of tickets to the show.
Livent reimbursed the vendors for these ticket purchases and charged the payments to
various fixed asset accounts.
The fraudulent schemes engineered by Livent’s executives caused the company’s
periodic financial statements to be grossly misrepresented.
Ex. in 1992, the company reported a pretax profit of $2.9 million when the actual figure
was approximately $100,000.
● SEC officials found two features of the Livent fraud particularly disturbing:
“Because of the sheer magnitude and dollar amount of the manipulations, it became
necessary for senior management to be able to track both the real and the phony
numbers.”
▪ Gordon Eckstein, the company’s senior VP of finance and administration and
Maria Messina’s immediate superior, allegedly instructed a subordinate to
develop computer software to filter the bogus data out of the company’s
accounting records.
▪ The secret software also served a second purpose, namely, allowing Livent’s
accountants to record fraudulent transactions “without leaving a paper trail that
Livent’s outside auditors might stumble across.”
▪ When these so-called “adjustments” were processed, they replaced the initial
journal entries for the given transactions, making the adjustments appear as if
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 they were the original transactions, thus duping the company’s Deloitte
auditors.
● The second extremely troubling feature of the Livent fraud, according to the SEC, was the
matter-of-fact manner in which the company’s management team organized and carried out the
fraud
Reportedly, Drabinsky, Gottlieb, and Robert Topol, Livent’s chief operating officer
(COO), regularly met with Eckstein, Messina, and other members of the company’s
accounting staff to discuss the details of the fraud
At these meetings, the three top executives reviewed preliminary financial reports
prepared by the accounting staff and instructed the accountants on the “adjustments”
needed to improve or embellish those reports
Livent’s top executives relied on coercion and intimidation to browbeat their
accountants, including Messina, into accepting these illicit changes
Once the adjustments were processed, “the bogus numbers were presented to Livent’s
audit committee, the auditors, investors, and eventually filed with the Commission
[SEC].”
● The disclosure of the Livent fraud in the late summer and fall of 1998 caused Deloitte &
Touche to become a target of such criticism
Critics could readily point to several red flags or fraud risk factors during Deloitte’s
tenure with Livent that should have placed the accounting firm on high alert
regarding the possible existence of financial statement misrepresentations.
Ex. an extremely aggressive, growth-oriented management team; a history of prior
financial reporting indiscretions by Drabinsky and Gottlieb; a constant and growing
need for additional capital; and the existence of related-party transactions.
● In Deloitte’s defense, a massive collusive fraud that involves a client’s top executives and
the active participation of its accountants is difficult to detect.
● The personal relationships the auditors had with Messina and Craib may have impaired their
objectivity during the Livent engagements.
Christopher Craib replaced Maria Messina as the audit manager assigned to the
Livent audit engagement team following Messina’s promotion to partner in 1995.
Like Craib, Maria Messina realized that concealing the Livent fraud from the
Deloitte auditors was among her primary responsibilities.

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 During a meeting shortly after Messina joined Livent, she became aware of the
adversarial attitude that Livent’s top executives had toward the company’s
independent auditors.
● The Deloitte auditors became increasingly skeptical of Livent’s accounting records in 1996
and 1997 when Drabinsky and his colleagues were scrambling to conceal the deteriorating
financial condition of their company while, at the same time, attempting to raise much needed
debt and equity capital.
initially refused to allow its Canadian affiliate to issue an unqualified audit opinion
on Livent’s financial statements that were to be filed with the SEC
believed that Livent had been much too aggressive in recognizing revenue on a few
large transactions
After a series of meetings between Livent officials and representatives of Deloitte
& Touche LLP, a compromise was reached
Livent agreed to defer the recognition of revenue on one of the two large
transactions in question until 1997.
In return, Deloitte allowed the company to record the full amount of the revenue for
the other disputed transaction.
● To quell another audit partner’s concern, Gottlieb arranged to have an executive of the real
estate firm send the partner a letter indicating that the put agreement had been cancelled—
which it had not
After receiving the letter, the Deloitte partner told Gottlieb that the revenue resulting
from the transaction could be recorded during Livent’s third quarter when the put
agreement had allegedly been cancelled
At this point, a frustrated Gottlieb ignored the partner’s decision and included the
disputed revenue in Livent’s earnings press release for the second quarter of 1997.
When Deloitte officials learned of the press release, they demanded a meeting with
Livent’s board of directors
▪ At this meeting, Deloitte threatened to resign. After considerable
discussion, Livent’s board and the Deloitte representatives reached a
compromise
▪ the board agreed to reverse the journal entry for the $7.4 million transaction
in the second quarter, recording it instead during the third quarter
▪ The board also agreed to issue an amended earnings release for the second
quarter
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 ▪ In exchange for these concessions, Deloitte officials purportedly agreed to
allow Livent to reverse certain accrued liabilities that had been recorded at
the end of the second quarter
▪ The reversal of those accrued liabilities and the corresponding expenses
reduced by approximately 20% the profit “correction” reported by Livent in
the amended earnings press release for Q2
● Another serious disagreement arose between Livent executives and Deloitte auditors shortly
after the dispute just described was resolved
During the third quarter of 1997, Livent’s management arranged to sell for $12.5
million the naming rights for one of its existing theaters and a new theater that the
company was planning to build
Neither Maria Messina nor the Deloitte auditors assigned to the Livent engagement
believed that the $12.5 million payment should be recorded immediately as revenue
since the contract between Livent and the other party, AT&T, was strictly an oral
agreement at the time and since one of the theaters was yet to be built
Gottlieb retained E&Y to review the matter. = E&Y’s report simply suggested that
the $12.5 million payment for the naming rights could be “considered” for recording
during the third quarter.
After receiving a copy of E&Y’s report, Deloitte hired Price Waterhouse to review
the transaction
When Price Waterhouse reached the same conclusion as E&Y, Deloitte allowed
Livent to book the $12.5 million as revenue during the third quarter.
● January 1999, Myron Gottlieb filed a civil lawsuit against Maria Messina, Christopher Craib,
Gordon Eckstein, and three other former Livent accountants; the lawsuit charged those six
individuals with responsibility for the Livent accounting fraud
In court documents filed with this lawsuit, Gottlieb alleged that he was not “an
expert on accounting practices” and that he had relied on Livent’s accounting staff
to ensure that the company’s financial statements were accurate
In responding to that lawsuit, the six named defendants, with the exception of
Eckstein, claimed that they had been coerced into participating in the fraud by its
principal architects and rejected Gottlieb’s assertion that he was unfamiliar with
accounting practices.
Eckstein claimed that Messina had used her relationship with the Deloitte auditors
to ensure that they approved Livent’s fraudulent financial statements.
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 ▪ To support her claim that she had not been a willing member of the Livent
conspiracy, Messina pointed out that she had refused to sign the letters of
representations for the 1996 and 1997 audits, each of which indicated that
there were no material inaccuracies in Livent’s financial statements.
▪ In fact, near the end of the 1997 audit, Messina had redrafted Deloitte’s
preformatted letter of representations to remove her name from it
● Judge observed that Livent’s “accounting manipulations” were so flagrant that there was a
reasonable likelihood Deloitte was reckless in failing to discover them.

Chapter 04: Decline and fall

On April 13, 1998, Garth Drabinsky stepped down as CEO, and was replaced by Michael
Ovitz, former president of the Walt Disney Company, who had spent US$20 million for a
controlling stake of Livent. On August 10, Livent announced they had discovered serious
'accounting irregularities', and would need to release revised earnings statements going back to
1996. While the irregularities were being investigated, Drabinsky and Gottlieb were suspended
as employees, and trading of Livent's stock temporarily ceased. On November 18, 1998, Livent
released corrected financial statements for 1996 through the second quarter of 1998, showing
that their debts were greater than their assets. The same day, they filed for US bankruptcy
protection in a Manhattan court. The company's stock resumed trading November 20,
plummeting to a share price of 50 cents from its previous price of Can$10.15 when trading was
halted. In August 1999, Livent's assets were sold off to American company SFX
Entertainment for an estimated US$97 million.

Subsequent events
Insolvency proceedings
In November 1998, Livent sought bankruptcy protection in the US and Canada, claiming a debt
of $334 million.

In April 2014, Livent's special receiver obtained judgment against Deloitte & Touche LLP for
$84,750,000 in the Ontario Superior Court of Justice, in relation to Deloitte's failure to exercise
its duty of care with respect to the audit of Livent's financial statements during 1993–1998. The
ruling was upheld by the Ontario Court of Appeal in January 2016, but in December 2017,
the Supreme Court of Canada in Deloitte & Touche v Livent Inc (Receiver of) allowed an
appeal in part, declaring that liability existed only in respect of Deloitte's negligence in

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conducting the audit for Livent's 1997 fiscal year, and accordingly reduced the amount of
damages awarded to $40,425,000.

Criminal proceedings
In January, 1999, Livent's former chairman Garth Drabinsky and president Myron Gottlieb
were indicted in the United States District Court for the Southern District of New York on
charges they personally misappropriated $4.6 million in company funds and "cooked the
books" to hide enormous losses from investors. Arrest warrants are outstanding with respect to
the US criminal proceedings, but double jeopardy rules prevent US extradition proceedings
from taking place, because of the conviction in Canadian courts.
On March 25, 2009, Drabinsky and Gottlieb were found guilty of fraud and forgery in Ontario
Superior Court for misstating the company's financial statements between 1993 and 1998. On
August 5, 2009, Drabinsky and Gottlieb were sentenced to jail terms of seven and six years,
respectively.
Drabinsky filed an appeal in the Ontario Court of Appeal with respect to his sentence on
September 3, 2009. During that appeal, he remained free on bail. On September 13, 2011, the
Court of Appeal, while upholding the convictions, reduced Drabinsky's sentence to 5 years.
Drabinsky appealed to the Supreme Court of Canada, and the application was dismissed
without costs on March 29, 2012. Drabinsky was originally held at Millhaven Institution for
assessment. In December 2011, he was transferred to serve out his sentence at Beaver Creek
Institution, a minimum security prison, located in Gravenhurst, Ontario, and was released
on day parole in February 2013. Drabinsky was granted full parole on January 20, 2014, and
completed his sentence in September 2016.
Civil proceedings
In 2005, former investors in Livent corporate bonds won a $23.3 million settlement against
Drabinsky and Gottlieb in the United States District Court for the Southern District of New
York, for which enforcement of the judgment was upheld by the Ontario Court of Appeal in
2008, but the judgment was still unpaid in 2012.
Regulatory proceedings
In January 1999, Livent reached an administrative settlement with the U.S. Securities and
Exchange Commission, while civil and criminal proceedings were simultaneously pursued
against Drabinsky, Gottlieb and certain other former Livent employees.
Administrative proceedings were initiated against Livent, Drabinsky and others by the Ontario
Securities Commission in 2001, and they were suspended in 2002 until all outstanding criminal

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proceedings had been completed. In February 2013, the OSC announced that proceedings were
to be withdrawn against Livent and another party, and that hearings would take place on March
19, 2013, in the remainder of the matter. Myron Gottlieb and Gordon Eckstein, who were other
parties in the proceedings, subsequently entered into settlement agreements with the OSC in
September 2014 and May 2015 respectively.
In 2017, the Ontario Securities Commission permanently banned Drabinsky from becoming a
director or officer of any public company in Ontario. The OSC also prohibited him from acting
as an investment promoter, and banned him from trading securities (other than as a retail
investor, for trades within his RRSP or through a registered dealer for accounts in his name
only).
(Besant & Salvi, 2014)

Chapter 05: Findings, Recommendations & Conclusion

5.1: Findings:
❖ Livent's management committed a massive accounting fraud that involved
manipulating the company's financial records to inflate its revenues and assets, conceal
its expenses and liabilities, and mislead its auditors and shareholders.
❖ Deloitte failed to detect and report the fraud, despite discovering some accounting
irregularities in 1997. Deloitte issued a comfort letter and a press release to assist Livent
in raising $12.5 million through a public offering, and a clean audit opinion for the 1997
financial statements, which Livent relied on to obtain a $7.4 million loan from a bank.
❖ Livent's new management uncovered the fraud in 1998 and restated the financial
statements for 1996 and 1997, resulting in a significant downward adjustment of
reported income and a drop in share value.
❖ Livent filed for bankruptcy protection in 1998 and was placed into receivership in 1999.
The receiver sued Deloitte for negligence, claiming that Deloitte breached its duty of
care to Livent by failing to detect and report the fraud, and that Livent relied on
Deloitte's false representations of its financial health to make business decisions.
❖ The Supreme Court of Canada allowed Deloitte's appeal in part and reduced the
damages to $40.425 million. The Court held that Deloitte was not liable for the comfort
letter and press release, because they were intended for investors, not Livent, and any
reliance Livent placed on them was outside the scope of Deloitte's duty of care.
However, the Court held that Deloitte was liable for the statutory audit, because it was
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 intended to enable shareholder oversight of management, and Livent relied on it for that
purpose.

5.2: Recommendations:
❖ Auditors should exercise professional skepticism and due diligence when performing
audits, especially for high-risk clients or industries. Auditors should follow the auditing
standards and ethical principles, and report any suspected fraud or irregularities to the
appropriate authorities.
❖ Auditors should clearly define the scope and purpose of their engagement with their
clients, and communicate their roles and responsibilities to the clients and other
stakeholders. Auditors should limit their liability by specifying the intended users and
beneficiaries of their representations or services.
❖ Auditors should maintain adequate documentation and evidence to support their audit
opinions and findings. Auditors should also keep themselves updated on the relevant
accounting principles and industry practices.
❖ Auditors should seek legal advice and representation if they face any potential or actual
claims of negligence or breach of duty of care. Auditors should cooperate with the legal
process and provide truthful and accurate information.

5.3: Conclusion:
Convinced accounting department and many others to assist them in creating a multimillion-
dollar fraud scheme. Deloitte questioned many large revenue amounts, but always came to a
compromise during meetings with Livent, Inc. Investors complained about Drabinsky’s
spending habits which led to an investigation where accounting irregularities were found.
Everyone involved, including Drabinsky, Gottlieb, Deloitte, and Livent, Inc.’s accounting
department personnel, was charged. Trials are still going on. It was important that CPA Canada
intervened in the Livent case. The Livent decision may create new challenges for the profession
in the future as it potentially expands the circumstances when auditors may be liable for losses.
So, given the significance of the public interest consequences of the SCC decision, CPA
Canada’s work is not done. Expect to hear more as the issues relating to auditors’ liability
continue to develop.

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Chapter 06: Solution of the Case Questions
6.1: Question 01
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.
Answer:
Information from an auditor’s risk assessment is used to assess the inherent risk factors within
an organization. Inherent risk is the risk that a misstatement due to error or fraud could occur
in the financial statements and not be detected during an audit. In the entertainment industry,
product obsolescence is probably the most significant inherent risk for an auditor. Often new
nightclubs, movies, or shows experience a large customer demand centered around the opening
of an event. These events can generate significant revenue quickly since most of the public
will want to experience an event within the first few weeks of release. Specifically related to
movies within the entertainment industry, auditors must assess the inherent risks associated
with the potential for a movie to not experience success at the box-office. I am only interested
in a few moves each year; thus, it is reasonable to conclude that many of these production
studios recognize significant losses since they can’t recover large production costs when the
general public does not have an interest in a movie.
Theatrical productions, such as Livent, require auditors to use specific audit procedures that
would not be used on standard audit engagements. The film industry has specific conditions
for cost and revenue recognition of its products. “Physical delivery is required in order to
recognize revenue, unless the licensing agreement contains terms to the contract. Companies
are required to amortize film costs and to accrue participation costs using the individual film-
forecast method by calculating the ratio of current period actual revenue to estimated remaining
unrecognized ultimate revenue. The auditor is responsible for evaluating whether the selection
and application of accounting principles are consistent with accounting principles used within
the industry. In addition, auditors should plan to test ticket sales to make sure they reconcile
with receipts.

6.2: Question 02
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?

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Answer:
The audit partner is responsible for managing the audit department, client development, client
retention, and reviewing the audit team’s work before conducting a final meeting with the
client. The audit partner is responsible for attesting to the accuracy of the financial statements.
Audit partners at times are forced to make correct but unpopular decisions even if it means
potentially losing a client. The audit partner reports directly to the senior audit partner.
A CFO is responsible for the financial and risk management operations of a company, develops
financial and operational strategy, and develops and manages the internal control systems that
will produce materially accurate financial reports. In addition, a CFO is responsible for the
management of their accounting department. A CFO often reports directly to the CEO or Board
of Directors and has their work evaluated by investors and outside regulators. The CFO is
often tasked with making touch, subjective decisions within the operations of the organization.
Both the audit partner and the CFO position are critically important to their businesses, but
their functions have some key differences. Audit partners are responsible for auditing for many
different clients and the CFO is only responsible for reporting directly to one firm. Audit
partners are tasked with client development and retention while a CFO is not responsible the
creation or retention of business.
I feel that the audit partner’s position is of greater importance because their decisions and work
impact not only their firm but the firm’s clients and outside investors. A CFO’s impact is
generally limited to their organization and the investors that ultimately use the financials to
make investment decisions. Due to the greater impact associated with the audit partner’s
position, I feel that auditor partners generally have more stressful jobs.
My experience throughout my career has been limited to working as a Controller as well as tax
return work. Since my experience as a Controller has come from smaller, private companies,
I feel that Controllers are expected to duly function as both a CFO and Controller. I would
prefer working as a CFO since audit really does not interest me.

6.3: Question 03
Explain why some corporate executives may perceive that their independent auditors are a
“necessary evil.” How can auditors combat or change that attitude?
Answer:
Corporate executives may perceive auditors as a “necessary evil” for a variety of reasons.
Based on personal experience, auditors are perceived as expensive and time consuming.
Management and accountants may view the auditors as a disruption to the business because the

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company has nothing to hide and feel like they that are making their best effort to comply with
accounting standards and produce materially accurate and reliable financial statements.
Nevertheless, auditors have a responsibility to conduct a critical assessment of an
organization’s financial performance to expedite efficient and fair access to financial markets,
report to shareholders, and serve as a regulatory mechanism by providing reasonable assurance
that a company is complying with accounting principles and that the financials lack material
misstatements. Auditors can combat the perceived “necessary evil” attitude by communicating
that they have a responsibility to remain independent as well as have an obligation to serve the
public interest. Therefore, the auditor must test all businesses using the same standards and
procedures to assess the material health of each audited organization. Auditors are also
required to maintain professional skepticism throughout the audit and therefore, management
should cooperate with the auditor to make the process more efficient.

6.4: Question 04
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.
Answer:
If an auditor-client dispute arises during an audit engagement, the newly retained accounting
firm has some responsibilities in order to issue an objective report on the issue at the center of
the dispute. “The successor auditor should request permission from the prospective client to
make an inquiry of the predecessor auditor prior to final acceptance of the engagement”. The
inquiry should include disagreements with management on accounting practices at the center
of the dispute, communications to audit committees regarding fraud, the predecessor’s
understanding for the change in auditors, and if any significant unusual transactions exist. “If
a prospective client refuses to permit the predecessor auditor to respond or limits the response,
the successor auditor should inquire as to the reasons and consider the implications of that
refusal in deciding whether to accept the engagement”.

6.5: Question 05
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?

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Answer:
I believe that Deloitte and Touche should not have approved to record the $12.5 million naming
rights payment as revenue as of 1997. FASB 650-25, mentions that in order for revenue
recognition all of the following must be persuasive evidence of an arrangement, delivery and
performance, and a fixed or determinable sales price. In our case, not all of these are met. While
there is an oral agreement and the price is determinable, there has not yet been delivery. One
of the theaters has yet to be built. It should not have been recognized fully, but deferred and
amortized throughout the years.

6.6: Question 06
Maria Messina 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?
Answer:
As Livent’s CFO, Maria Messina felt “guilty by association” after learning of the accounting
irregularities which prevented her from revealing the fraud to regulatory or law enforcement
authorities. Maria felt “guilty by association” because the CFO is responsible for the design
and implementation of internal controls to ensure financial reports are materially accurate and
reliable. She probably felt helpless because she knew ultimately, she could be held accountable
for the fraudulent activity at Livent despite her short duration of employment.
Unfortunately, I was hired as the Controller of a privately-owned business five years ago and
like Maria, I quickly discovered the company was committing fraud. It is a very difficult
position for any employee to find themselves in because any action taken could affect their
employment resulting in a direct impact to their family. If I was Maria, I would have
recognized that I had options despite feeling “guilty by association” if I continued to maintain
objectivity and integrity. “A member shall maintain objectivity and integrity, shall be free of
conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her
judgement to others”. The AICPA Code of Professional Conduct details a conceptual
framework approach for handling issues that could jeopardize a member’s compliance. Under
the conceptual framework approach, members should identify threats, evaluate the significance
of a threat, and identify and apply safeguards to reduce a threat to an acceptable level. If no
safeguards will eliminate or reduce a threat to an acceptable level, the member should consult

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legal counsel and resign from the employing organization because continued employment
would compromise the member’s compliance.

6.7: Question 07
What professional standards apply to “due diligence” investigations performed by accounting
firms?
Answer:
Sarbanes Oxley and AU 230 (due professional care in performance of work) mentions due
diligence investigations. AU 230 mentions that the auditor must maintain professional
skepticism, independence, and reasonable assurance. Sarbanes Oxley goes more into depth
about the investigations. The first step should be similar to an audit in that there must be
planning. Then comes the gathering of the information about a company such as the company’s
history, financial statistics, assets and liabilities. The gathered data must now be analyzed and
verified. Finally, the memo is published to the client and in it reports of its findings and any
possible risks. This process is a thorough backup check on a company.

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References
Besant, C., & Salvi, L. (2014). The Livent CCAA/Chapter 11 Proceedings.

Laing, A., & Nickerson, A. (May 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. Proquest, 293-297.

Livent,INC., 1.15 (The Canadian Supreme Court November 19, 1998).

Widhoyoko, S. A. (May, 2017). Fraud in Rights and Contracts:A Review of Bankruptcy Case
of Livent Inc. Binus Business Review,, 31-39.

Wikipedia. (2023, May 21). Deloitte Touche Tohmatsu Limited . Retrieved from
Wikipedia.org: https://en.wikipedia.org/wiki/Deloitte

Bragg, S. (2018, December 8). Chief financial officer (CFO) job description.

Retrieved from: https://www.accountingtools.com/articles/2017/5/14/chief-financialofficer-

cfo-job-description

Nogler, G. (2015, June 30). Working with Auditors: Tips and Tricks. SF Magazine.

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and-traps/

PCAOBUS.org. (2010). Auditing Standards 2610:7-10. Initial Audits-Communications

Between Predecessor and Successor Auditors. Retrieved from: https://pcaobus.org/

Standards/Auditing/Pages/AS2610.aspx

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