An $86.3 million lawsuit makes Canadian history. In the 1990’s a theatre company known as Livent was found guilty of accounting fraud and several of the founders of the company were convicted.
The formal auditor of the company known as Deloitte failed to uncover the fraud perpetuated by the theatre company and has been ordered to pay damages to the creditors of the theatre company.
This has sent shock waves through accounting firms and corporate auditors and their work has now come under fiercer scrutiny. It has been suggested that if the accounting firm Deloitte had done their work proficiently it would have stopped the fraud progressing which would of protected the various investors and creditors from getting ripped off.
As the accounting firm did not do its work properly the judges have ruled that the accounting firm is now liable for the costs incurred due to fraud and this has opened the door for similar cases to be ruled in the same way.
Deloitte is one of the biggest professional service providers in Canada which provides a large array of financial services such as audit tax, consulting and advisory services.
Auditors are required to carry out work subject to laws and regulations of the countries it works in, so for such a large company to be caught up in the blaze of publicity that surrounds the Livent case has indicated that there needs to be greater transparency of auditing companies. Deloitte was founded in 1845 and prides itself on professional standards, quality and integrity.
Financial auditing is a very complex affair and it is important that we can trust the auditors to make sound judgements. The Livent case has put the spotlight on auditing firms to take responsibility for the decisions they make or fail to make. Greater transparency amongst the dealings of these firms is to everyone’s benefit to prevent such large scale fraud occurring again.
We should expect auditing firms to identify if fraud is occurring and the fact that the creditors and investors of Livent has been able to sue the accounting firm Deloitte is a very positive step.