December 12, 2018

Clarifying Sex and Auditor Independence After the EY and Ventas Affair

With all that went down with Ventas and EY1, I needed a little clarification on our independence rules, so I took the initiative to send the following email to the AICPA:

Dear AICPA Ethics Hotline,

I understand that earlier this month Ernst & Young was fired by Ventas, Inc. due to an inappropriate relationship between a partner at EY and the controller at Ventas. It is assumed that the relationship was deemed inappropriate due to the bumping of uglies.

In a statement, Ernst and Young said the "partner’s actions were a flagrant violation of … professional standards”; however, I am unaware of anything in the AICPA Code of Professional Conduct prohibiting sex with clients.

According to section 1.210.010.14, independence is threatened if an immediate family member holds a key position at the attest client, and the definition of "immediate family" specifically includes "spousal equivalent," but based on the conservative nature of our profession, I assume the definition of spousal equivalent is not broad enough to include booty calls.

The Code also states that independence is threatened if a "close friend" holds a key position at an attest client. I failed to ask if missionary is considered a key position.

As a controller myself, I prefer to avoid jeopardizing the relationship my company has established with our independent accounting firm; therefore, I would like to know which people within that firm I should avoid having sex with.

Any guidance would be helpful since one never knows when one may be propositioned by an accountant doing fieldwork, especially since "doing fieldwork" is a euphemism for sex.

Our profession has a penchant for making things ridiculously complex — although it’s all done in the name of authoritative guidance — and we increase confusion in our attempt to reduce it. If sexual relations2 impair independence, you'd think the AICPA would have already issued a comprehensive series of interpretations like:

  • A review with a happy ending impairs independence.
  • Inserting column D impairs independence.
  • Releasing your exposure draft impairs independence.
  • A reach-around from an intern is okay.
  • The Cleveland steamer is an act discreditable.

I have not yet received a reply, but I hope they simply quote section 0.300.050.01, "A member in public practice should be independent in fact and appearance," and then point out that you and your client don't appear independent when you're fucking.

1It's unclear if anyone actually went down.
2aka "agreed upon procedures"

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