September 24, 2018

Sex and Professional Ethics, Round 2

In case you need to be caught up, the controller at Ventas and the audit partner at EY were banging. So Ventas fired their controller, and Ventas fired EY, and EY fired the audit partner.

EY also said that putting the sausage in the ham wallet was a flagrant violation of professional standards. Over the past year, I’ve been teaching a CPE course on ethics called “How to Cheat Your Way to the Highest Levels of Professional Ethics.” As a result, I’ve become intimately familiar1 with the AICPA Code of Conduct, and I don’t remember it saying mattress jousting violates independence rules.

It does, however, say that CPAs are supposed to be independent “in fact and appearance,” and in my opinion no two parties appear independent when they’re fucking.

So to clarify the impact of sex on auditor independence, I wrote to the AICPA Professional Ethics Division. The first email reply that I received from them came from an AICPA Ethics Division robot.

Thank you for contacting the AICPA Professional Ethics Division. We have received your inquiry and will respond within 2 business days.

But what if I want to have sex now?

Inquiries are answered in the order in which they are received.

Which is unfortunate if someone's real ethical inquiry was answered after my smartass inquiry about stuffing the envelope with Schedule D.

If you prefer, you can contact the Professional Ethics Division Hotline … and a Technical Manager will contact you by phone within 1 business day.

Because that’s how you turn the Ethics Hotline into a phone sex line. “Tell me again how an auditor/client orgy impairs independence, and this time talk slower.”

The second email response was maybe more interesting, not at all more enlightening, and it was sent by a human named Brandon.2

Hi Greg,
Thanks for the email.

That was the first lie “Brandon” told.

You are correct that the AICPA Code does not specifically address sex, nor does it specifically include sex as a factor in defining spousal equivalent or immediate family member.

Those last few words were pretty creepy, Brandon.

As in any case where a situation is not specifically addressed by a Rule or Interpretation of the Code, you would need to use the Conceptual Framework in ET Section 100-1, which uses a risk-based "threats-safeguards" approach.

Just like most adults use a risk-based “threats-safeguards” approach to condoms.

You identify threats to independence, evaluate the significance of the threat, and apply safeguards when possible to reduce those threats to an acceptable level. … Professional judgment is involved of course and the threats and any safeguards applied must be documented.

Okay. Let’s give it a try.

Step No. 1: Identify the Threat

Clearly sexual intercourse is a familiarity threat which is defined as, “Members having a close or longstanding relationship with an attest client or knowing individuals … who performed nonattest services for the client3. A sexual relationship is a close relationship, especially if you’re hung like Greg Kyte.

Step No. 2: Evaluate the Significance of the Threat

According to the Conceptual Framework, threats are considered to be at an acceptable level if “it is not reasonable to expect that the threats would compromise professional judgment.” Sex undoubtedly impairs the professional judgment of male accountants. Conversely, a female with impaired judgment may possibly have sex with a male accountant. Therefore, this threat is not at an acceptable level.

Step No. 3: Apply Safeguards

Abstinence is the only 100 percent effective way to prevent the loss of independence. Safeguards in the accounting profession should be modeled after those implemented in youth abstinence programs since those safeguards have proved so effective.

Safeguard No. 1: Take the “I won’t fuck clients” pledge.
Safeguard No. 2: Provide everyone in your firm with a Purity Independence Ring to remind them of their pledge.
Safeguard No. 3: Only do it in the butt.

Problem solved.

1Not like that.
2Or a robot pretexting as a human named Brandon
3Sex is a nonattest service.



Related articles

KPMG Thinks the Appearance of Independence is Overrated

200px-KPMG.svg.pngThe Radio Station is throwing caution to the wind in the UK, accepting a new arrangement with Rentokil Initial, that brings out the ghosts of accounting scandals past. Under the new agreement, the firm will serve as both the external auditors and take on internal audit work, working alongside the client’s internal audit staff.
Prior to the new agreement with KPMG, Rentokil’s external auditor was PwC and internal audit services were provided by Deloitte.
Last we checked, audit textbooks still state that external auditors are to be independent in fact and appearance but KPMG UK must have got their hands on an edition that was printed in auditor bizarro world.
Rentokil’s KPMG deal raises eyebrows []

PwC Calls Out KPMG

argument.jpgAwhile back, we mentioned how KPMG didn’t seem so concerned about the appearance of independence. Well now it appears that P. Dubs might be getting a little self-righteous about the whole issue or they’re just bent out of shape that the Radio Station swiped the Rentokil audit by lowballing the proposal:
More, after the jump

KPMG’s arrangement was able to shave 30% from Rentokil’s audit, but it was the manner in which the firm brought about the cost saving that raised eyebrows. Audit guidelines warn against two threats when an external auditor takes on internal audit work. The first threat, known as the self-review threat, warns against the external auditor relying heavily on its own internal audit work. The second threat, known as the management threat, warns against the internal auditors assuming the role of management.

KPMG says it’s totally fine because that’s where the client’s interest was:

KPMG said it was fielding interest from potential clients. ‘Unequivocally we have found interest,’ says Oliver Tant, KPMG’s UK head of audit. ‘We will be discussing it with more people, undoubtedly as will other competitors.’

PwC, at present, seems to be taking the highroad, even though we’re pretty sure they think Rentokil are a bunch of cheapskates:

PwC, would not be drawn on its opinion on the Rentokil audit, citing its policy not to comment on clients, but did say: ‘It is vital that we maintain our independence from – and in no way are seen to act as part of – management infrastructure…Internal audit can often be regarded as acting as part of that infrastructure.’

Typical passive-aggressive accounting rhetoric but it still sounds like P. Dubs is calling bullsh*t on KPMG. Feel free to defend your firm’s position by whatever means necessary (we suggest low blows and name calling) or get on your soap box about independence.
Debate rages on over KPMG’s cut-price Rentokil audit deal [Accountancy Age]