Jim de Bree | Accounting Profession’s Lesson for the Supreme Court

Jim de Bree
Jim de Bree
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A recent poll by Marquette Law School concluded that Americans’ approval of the Supreme Court has been challenged by concerns over its ethics and transparency. 

Whether those concerns have a factual basis or are based on perception is a controversial topic. 

The court is expected to lack conflicts of interest in the cases it hears. 

If a justice is conflicted, he or she should recuse themselves from the case. 

Currently, how the court determines whether conflicts exist appears to lack both a comprehensive set of guidelines and transparency with the public. 

For the public to have confidence in the court and to respect its decisions, the court must not only prevent conflicts of interest, but also must avoid the appearance of conflicts.  

This is not dissimilar to issues faced by the public accounting profession who serve as auditors. Auditors are required to be independent of the clients they audit.  

Auditor independence is a two-pronged test. The audit firm must be independent in fact; it must not have an economic interest in or be obligated to its clients, including the clients’ management and owners. 

Furthermore, the auditor must maintain independence in appearance by not acting in way that could cause the public to perceive that it is not independent in fact. 

After the Enron/Arthur Andersen scandal, the accounting profession suffered a crisis of confidence due, in part, to questions and concerns about auditor independence. As a result, Congress created the Public Company Accounting Oversight Board to regulate the audits of public companies.  

As a retired Big 4 accounting firm partner, I can attest that the PCAOB means business when it comes to enforcing auditor independence. 

The PCAOB mandated that firms make comprehensive inquiries of their partners and employees to ensure that there are no independence violations. 

The PCAOB’s standard is that anything less than perfection is failure. 

Strict rules with comprehensive guidelines were implemented. 

As part of that process, I was required to complete an extensive semi-annual questionnaire that felt like a financial colonoscopy. 

Most of the questions sought to uncover evidence of independence in appearance, rather than independence in fact. 

Every 18-24 months, my questionnaire was audited by a special team. If an independence violation was uncovered or if I did not properly complete the questionnaire, I was subject to severe financial penalties or could even be required to resign. 

The rules are strict. I remember when a client wanted to give me his courtside seats to a Lakers game because he could not attend. 

While this may seem innocuous, those tickets were expensive and when the partner in charge of the client’s audit found out about it, I was told that I could not accept a gift of that magnitude from a client because it could potentially affect our firm’s appearance of independence.  

Today, the court believes its procedures concerning conflicts are sufficient. 

Prior to the implementation of the PCAOB mandated processes, most accounting firms and their employees also believed that independence concerns were adequately addressed. 

Once these processes were implemented, most firms were shocked to discover that issues existed — all of which were promptly corrected. The court may very well be in the same position. 

We live in an era where the ability to share data has expanded exponentially; information about the justices’ activities is increasingly available to the public. Consequently, this can result in a public perception of conflicts even if the justices do not believe a conflict exists. 

Furthermore, the Supreme Court is exempted from the ethical canons known as the Code of Conduct for United States Judges that were promulgated to promote public confidence in the integrity, independence and impartiality of the federal judiciary. Evidently, there is no comparable comprehensive set of Supreme Court rules defining a conflict, the court’s reporting requirements appear lax and malleable, and review/enforcement is opaque to the public. 

The current court is likely to deliver unpopular, controversial decisions, which will make it a lightning rod for criticism and questions regarding the integrity of those decisions. Just like the auditors 20 years ago, the court faces an increasing crisis of confidence because of public perceptions.  

As is the case with auditors, the court must avoid the perception of conflicts. Unfortunately, the court appears reluctant to impose an improved regime on itself and the extent to which Congress can impose ethical canons on the court is unclear. 

A draconian system of reporting, similar to that imposed on the accounting profession, is probably not warranted. 

However, if the court does not take some sort of action to reduce adverse public perceptions, the situation will only worsen, causing the integrity of the court’s decisions to be questioned. 

Jim de Bree is a Valencia resident. 

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