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Being an Independent Auditor Is So Much Easier (and Effective) If You Are a Total Prick

I love HGTV in fact but not in appearance. No one looks at me and thinks, "I bet that guy TiVos Yard Crashers, Curb Appeal, and House Hunters," but I do. And although I think Hilari was robbed in Design Star All Stars, I never really talk about it with anybody. Fortunately, there is no expectation for me to appear to be an HGTV fan or to have a man-crush on David Bromstad. HGTV doesn't care about appearances, but the AICPA does.

The AICPA Code of Professional Conduct states, "A member in public practice should be independent in fact and appearance when providing auditing and other attestation services" (ET Section 55 – Article IV). Unfortunately you can't be independent in fact from somebody who pays you. Everything we do as CPAs to "maintain independence in fact" is really an elaborate attempt to create the illusion of independence.

Let's say you work for EY and you are on the Build-A-Bear Workshop, Inc. engagement. (I'm so sorry if you really are. Build-A-Bear doesn't have a CFO, they have a CFB or "Chief Financial Bear," and there's nothing sharp enough at Build-A-Bear Workshop with which you can stab yourself in the neck.) Then your mom goes and buys one share of Build-A-Bear's common stock as a gift for your daughter because she thinks it's cute. And now, due to that one share, your independence is compromised. Thanks, mom. I'm sure baby Lucy will be able to afford the college of her choice from the dividends and appreciation on one $3.36 share of a company that will go bankrupt as soon as parents remember that other retailers sell teddy bears that don't require nearly as much work to purchase.
But Build-A-Bear also gives money to your firm that used to pay 100 percent of your salary. If you happen to piss off an internal audit bear or a controller bear, and EY loses Build-A-Bear as a client, you'll become an unemployed bear. And there's no way that impairs your independence. (Please re-read that last sentence with more sarcasm in your brain-voice.)
As CPAs we do not maintain independence; we only maintain the appearance of independence.
The Sarbanes-Oxley Act helps us perpetuate the illusion. Section 301(m)(2) states:
The audit committee […] shall be directly responsible for the appointment, compensation, and oversight of the work of any registered public accounting firm employed by that issuer.
A company's management team produces the financial statements, so if they can hire and fire the auditor, there's no way the auditor can be independent. The audit committee, a subset of the board of directors, doesn't produce financial statements. So if they're the ones hiring and firing the company's external auditors, everybody will believe that the auditor is independent, just as long as they don't pull their heads too far out of their asses.
This Kabuki dance seemed to be working reasonably well for ten years. But then in mid-October, Cindy Fornelli of the CAQ (Center for Audit Quality – I believe the acronym is pronounced like the catch phrase of Bill the Cat from Bloom County) undermined CPAs' collective efforts to appear independent with a mass email that included a link to the Audit Committee Annual Evaluation of the External Auditor.
The evaluation includes a questionnaire for management and other company personnel so that the audit committee can get their feedback regarding the external auditor. A recurring theme throughout the questionnaire was "respect." As in:
[Did the external auditor] communicate effectively by […] being constructive and respectful in all interactions.
[Did the external auditor] demonstrate integrity and objectivity by maintaining a respectful but questioning approach throughout the audit.
No! We're required to appear independent, not to be respectful, and a belligerent lack of respect does wonders for the appearance of independence. Consider this. Which auditor appears more independent?
Auditor #1: "Your revenue recognition procedures could be perceived as aggressive."
Auditor #2: "You're a bunch of crooks!"
Don't think for a second that auditor independence is enhanced if we're expected to be "respectful in all interactions" and "maintain a respectful approach throughout the audit." Instead we should be encouraged to say the following to our clients, "I'm bound by a code of professional conduct. To comply with that code of conduct, I'm going to be an asshole. So go fuck yourself, and get me those God damn bank recs."