The Theater's Backstage: When Numbers Serve the Show—A Case Study on Livent (Part 1)*

Abstract

On November 19, 1998, Toronto entertainment company Livent Inc. filed for protection under the Companies' Creditors Arrangement Act, further to issuing a press release stating that the company's audited financial statements contained irregularities. This high-profile bankruptcy serves as a reminder that Canadian companies are not immune from financial manipulations. The proposed case study lets students act as the auditors responsible for the audit engagement for Livent's financial year ended December 31, 1996, which was the financial year that preceded its failure. Students will be responsible for discussing the work performed by Deloitte & Touche and implementing audit procedures for complex transactions that the company has handled. The students must be capable of identifying the factors that may have impacted the audit and the engagement risk and will be asked to establish materiality. This case study is based on facts as related by the press and the various legal authorities who dealt with the affair.