Qi Geng
ACC 522
Professor Tatum
04/19/2014
Lessons Learned From Litigation
Introduction
It’s not just clients who make mistakes, auditors also make fatal errors that directly or indirectly “contributes’ to the “death” of their client companies. Internal audit failures, most of the time, are due to reasons that easily could have been prevented during audit planning. These reasons could be not setting aside enough time to adequately plan the audit, not involving the client or failing to put together appropriate team members, etc. How can auditors to more effectively detect financial statement fraud? One of the best ways is to “profit” from the mistakes of others. The following is a list of lessons to be learned from the cases that we examined in class and AICPA codes that are applied to each case.

Independence (ET section 101)
Rule 101–Independence. A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council.

The impairment of independence can happen due to many reasons such as the close financial relationship between a covered member and a client, a covered member’s close relative’s position in the client’s company, etc. In the case of Leslie Fay, BDO Seidman’s independence was impaired, the auditing firm of Leslie Fay since mid-1970s, because the on-going litigation brought up by Leslie Fay’s stockholders. This is supported by the paragraph 8 of ET section 101, which states, “In some circumstances, independence may be considered to be impaired as a result of litigation or the expressed intention to commence litigation.” Another example of independence impairment could come from the case Livent. In this case, Maria Messina and Christopher Craib were two former members on Livent’s audit engagement team. Maria Messina became the CFO of Livent after leaving