In December 2004 we learned that Best Buy is dropping Ernst & Young as its external auditor. It seems that Ernst & Young has been paying Mark Thompson for various services rendered to the accounting firm. The cash transfers were somewhere in the neighborhood of $400,000. Mark Thompson, it turns out, was formerly a director at Best Buy.

One of the fascinating things about this case is the contrast between the reactions of Ernst & Young and Best Buy. When the facts became known to the rest of the board and management of Best Buy on or about May 4, 2004, the others became incensed and realized the impropriety of the relationship. Mark Thompson then resigned as a director of Best Buy.

Apparently, Ernst & Young did not feel the same angst about the relationship. After all, Ernst & Young had the contract with Thompson and did nothing to sever that relationship. The only possible conclusion is that the management of Ernst & Young did not perceive an independence issue with respect to the matter.

But, paying a director $400,000 for any services might be seen as an attempt to influence future votes on matters pertinent to the auditor. That might not be the reality, but when it comes to independence, perception is everything.

It might be argued that the payment had nothing to do with business at Best Buy, but that point seems irrelevant. What matters is what went into Thompson's wallet and by whom. The services might be real or bogus.

One could claim that the $400,000 is not material given the economics of Best Buy. This is a silly notion because it compares the amount of cash to the wrong set of numbers. The question is not whether it is material with respect to Best Buy but whether it is material to Mark Thompson's financials. I have no idea of his wealth, but I know human nature enough to realize that there are very few (if any) people on the face of this earth for whom $400,000 is a trivial or immaterial amount. What matters is how much goes into Thompson's wallet and whether it might trigger actions unfavorable to the shareholders of Best Buy.

Actually, there is no materiality when it comes to independence. One is either independent or not.

If we follow the profession's partitioning of independence into independence in fact and independence in appearance, I have to admit that it is possible for Ernst & Young to be independent of Thompson and the other directors and managers of Best Buy. When I turn to independence in appearance, however, there is no shred of doubt about the relationship. It looks dirty.

The good outcome from this story is that Best Buy dropped Ernst & Young as its auditors. At least the remaining managers and directors at that corporation understand the need for independence in appearance. The most bothersome aspect of this story is that Ernst & Young had a contract with Thompson, did not reveal it to others at Best Buy, and shows no remorse over happened. That attitude demonstrates a remarkable disdain for independence.

With the bedrock in shambles, whither the profession?

J. EDWARD KETZ is accounting professor at The Pennsylvania State University. Dr. Ketz's teaching and research interests focus on financial accounting, accounting information systems, and accounting ethics. He is the author of Hidden Financial Risk, which explores the causes of recent accounting scandals, and columnist of The Accounting Cycle for SmartPros.com.