In 1997, a disagreement arose between Livent Inc. andits auditor, Deloitte and Touche (Deloitte). Livent, which operatedseveral theaters for live stage production, had sold the namingrights to one of its theaters to AT&T for $12.5 million. Theagreement was oral, and one of the theaters was under construction.The auditors for Deloitte believed that only a portion of the dealshould be included in revenue, but Livent wanted to book the entire$12.5 million. Livent retained Ernst & Young (EY) to provide anopinion on the transaction. EYs report indicated that all $12.5million could be recorded as revenue. Deloitte hired PriceWaterhouse (currently PricewaterhouseCoopers) to review thetransaction. Price Waterhouse agreed with EY and Livent, andDeloitte allowed Livent to book the $12.5 million. In 1998, Liventissued a series of press releases indicating the discovery ofsignificant account irregularities and, later in 1998, Liventdeclared bankruptcy.

Required:

Exhibiting professional competence and dueprofessional care are part of the general standards set forth inthe AICPA Code of Professional Conduct. Comment on the decision toengage public accounting firm competitors EY and Price Waterhouseconcerning the disagreement over the accounting treatment of the$12.5 million transaction. Do you believe that hiring a competitorfirm is sufficient to meet due professional care standard eventhough the company eventually declares bankruptcy?