Auditor independence, as the name implies, refers to the independence of an auditor from others who may have financial interests in businesses being audited. It requires an objective approach to the process, as well as sincere integrity. Auditors are expected to freely carry out their work. These standards are unfortunately not always met – or respected. Since the turn of the century, a significant amount of high-profile accounting scandals have altered the perception of auditor independence.James T. Adams, CPA, is a retired partner of Deloitte & Touche LLP. He worked for the company since its inception in 1985. He began working for their predecessor entities in 1974, and served as Chief Risk Officer from 2005 until his retirement in 2010. Earlier this week, Adams settled charges of violating auditor independence rules, engaging in improper professional conduct, and causing a firm audit client to violate the Exchange Act. Evidence indicates that Adams received loans from a casino audit client, compromising the firm’s credibility and independence. The charges were issued by the Securities and Exchange Commission.
The problem began early in 2009. Adams was an advisory partner for a casino gaming issuer. He functioned primarily as a liaison between Deloitte & Touch and the issuer’s management and audit committee. Prior to this time, James participated in the audit of the issuer’s financial records.
During his professional involvement with the casino, Adams sought and obtained casino markers from an establishment operated by the issuer. He paid numerous visits to the casino and took advantage of a line of credit. He eventually executed the markers and received more than $100,000. They remained outstanding. In 2010, Adams defaulted on them. The Commission contends that this involvement conflicted with guidelines that ensure that “audit firms maintain their objectivity and impartiality with respect to their clients.”
Adams concealed the casino markers from the firm and lied to another partner about the general topic. When he retired, the firm was still unaware of these issues.
Adams did not confirm or deny the validity of the charges, but agreed to the issuance of a cease and desist order. He will not act as an accountant for a period of two years, at which time he may request reinstatement.
Do you think James T. Adams was treated fairly by the Securities and Exchange Commission?