In the old days, one could hold an original document and discern the story told by its date, its handwritten notations, its relation to subsequent correspondence, copies of itself and other information perceived by the eye. Nowadays, electronic records are invisible to the eye and one must rely upon "data about data" called metadata. That is, the file creation, modification, last written and last accessed dates, electronic comparisons of file physical and logical sizes and other arcane characteristics that are found both in the file itself and on the computer's file allocation system.

The current complexity and difficulty in discernment lead to misunderstanding, suspicion and controversy. Care must be taken by the producer of the electronic records to track the myriad versions of files at the outset of discovery requests for such files. Likewise, a tedious and specialized process of tracking the metadata of productions is required of the requesting party.

A magistrate's recommendation involving sanctions against an auditing firm characterizes electronic discovery disputes involving spoliation claims. According to the recommendation, a long-running discovery dispute over electronic audit work papers existed, with many supplemental disclosures and a great deal of electronic discovery:

Most important, it would be difficult for anyone to argue that [auditor]'s conduct over the course of this litigation, particularly in its repeated assurances to the court and to the parties that it had fully disclosed all relevant information, was not due to willfulness, bad faith, or fault. [auditor] failed at the start of discovery to check thoroughly its local servers and its archives for relevant documents, failed to compare the various versions of relevant documents on those databases, failed to produce documents as they were kept in the ordinary course of business, and failed to reproduce thoroughly and accurately all documents and their attachments. . . . Despite these failures, [auditor] time and time again told the court and the parties that it had made a complete disclosure of all relevant documents and attachments and that it had produced them in the order in which they were stored by [auditor]. The only conclusion the court can reach is that [auditor] and/or its counsel engaged in deliberate fraud or was so recklessly indifferent to their responsibilities as a party to the litigation that they failed to take the most basic steps to fulfill those responsibilities.. . . As already described, Telxon and plaintiffs argue that they have been prejudiced by [auditors] failure to cooperate in discovery in at least three ways: (1) [auditors] failure to produce certain documents during discovery adversely affected Telxon's and plaintiffs' decisions as to whom to depose and which questions to ask deponents; (2) [auditors] failure to produce all versions of relevant documents deprived Telxon and plaintiffs of the opportunity to examine how [auditors] audit evolved and the timing, nature, extent, and purpose of changes in the audit; and (3) [auditor]s failure to produce documents timely and in the order in which they were kept in the regular course of business slowed Telxon's and plaintiffs' discovery of relevant information and increased the cost of discovery. Telxon and plaintiffs also point out that (1) [auditors] failure to protect documents from alteration when [auditor] was on notice to do so means that Telxon and plaintiffs have no assurance that the extant documents have not been modified to their injury; and (2) missing documents, missing attachments, missing metadata, and hard copies of documents in a version different from the versions on any of the electronic databases so far produced suggest that [auditor] may be withholding or has improperly destroyed discoverable information. Telxon and plaintiffs cite evidence to back each of these claims. The magistrate judge has heard [auditors] explanations for apparently missing documents and metadata and for differences between hardcopy versions of documents and those on any of the electronic databases and finds that those explanations may explain these phenomena in whole or in part, but "may" is the operative conditioner here. Otherwise, the magistrate judge finds Telxon's and plaintiffs' arguments compelling. IN RE: TELXON CORPORATION SECURITIES LITIGATION; WILLIAM S. HAYMAN, et al., Plaintiffs,CASE NO.5:98CV2876, CASE NO. 1:01CV1078 UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO, EASTERN DIVISION 2004 U.S. Dist. LEXIS 27296

As recent cases have highlighted it is more important than ever to ensure that the documentation requirements for audits conducted in accordance with generally accepted auditing standards are met. The AICPA Journal of Accountancy recently listed several important items to be included in audit documentation [Journal of Accountancy source: Gifford, Hillegass and Ingwersen LLP]:

Work papers should be able to provide a clear link between key findings and the resulting investigation, research and resolution. The retention requirements for work papers are for CPA’s in Texas, five years and for engagements conducted pursuant to the standards of the Public Company Accounting Oversight Board the requirement seven years.

We note how advances in technology and the need for efficient operations have consolidated oil & gas operations away from field offices and into district offices. Attempts by operators to charge non-operators for a portion of the district expense as a direct charge instead of overhead have lead to disputes under joint operating agreements and references to Council of Petroleum Accountants Societies Model Form Interpretations, especially MFI-21.

In a reported decision involving an Oklahoma class action, (Lobo Exploration Company v Amoco Production Company, CJ-97-72, Beaver County Oklahoma) Amoco argued that the term "office" is technical, and that any office (or portion thereof) that houses directly chargeable employees is also to be directly charged per the intent of COPAS. The court disagreed and gives a detailed analysis of its rationale, explaining that under each of the relevant COPAS accounting procedures, offices are never to be billed directly, but instead are covered by the fixed rate overhead charge. We have a copy of this decision available upon request. We thank Harvey Nelson of AMS, a joint interest auditing firm, for this case.

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