Magazine article The CPA Journal

Core Values and Commissions: Are They Compatible?

Magazine article The CPA Journal

Core Values and Commissions: Are They Compatible?

Article excerpt

The appropriateness of a CPA's accepting commissions or contingent fees has long been debated, and remains a contentious issue. The provision in the latest Uniform Accountancy Act to allow commissions and contingent fees for nonattest clients has again brought this issue to the forefront. Some argue that such forms of payment to a CPA are incompatible with the professionalism and independence that are the CPA's hallmarks. Others argue that contingent fees and, especially, commissions are competitively necessary and are appropriate means of compensation for certain CPA services. Core Values of the Profession

The AICPA's recently developed Vision Statement states: "Combining insight with integrity, CPAs deliver value by communicating the total picture with clarity and objectivity." This idea is further reflected in two of the top five core values that accompany the mission statement: integrity (CPAs conduct themselves with honesty and professional ethics) and objectivity (CPAs are able to deal with information free of distortions, personal bias, or conflicts of interest). Fee-Setting Methods for Professional Services

Fee setting is essential to all professions (except perhaps the ministry). All fee-setting methods have potential professional integrity problems, but only commissions and contingent fees appear to involve significant objectivity problems. An hourly rate system gives little motivation to control the time spent on the job and can encourage padding hours or reassigning time from over-budget jobs to under-budget ones. Fixed fees, including competitive bids and standard fees for routine services, may encourage delivering a perfunctory service of minimal quality. There is also the well-known problem of lowballing on an initial bid in order to gain a client. Value-based pricing, where the fee is based on the nature and value of the service rather than the time involved, may be influenced by what the client is willing and able to pay. All of these approaches allow for integrity problems, but none involve objectivity problems.

Contingent fees depend upon an outcome that is not under the control of the CPA or the client. The client's interests and the CPA's interests are typically aligned, minimizing integrity problems. Both want the deal to be completed or the overcharge to be repaid. However, the practitioner may emphasize services where the potential fee is high and the risk of failure is low and de-emphasize needed services where the outcome (and hence the fee) is highly uncertain. Such behavior would present an objectivity problem.

Commissions are paid to a CPA by a third party, based on an action taken by a CPA's client. …

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