Test Your Knowledge of Professional Ethics

By Coffey, Susan S. | Journal of Accountancy, March 1995 | Go to article overview

Test Your Knowledge of Professional Ethics


Coffey, Susan S., Journal of Accountancy


Periodically, the Journal publishes questions on ethics topics that have been raised by American Institute of CPAs members. This set deals with Rule 302--Contingent fees of the AICPA Code of Professional Conduct. In 1990, the AICPA entered into a consent agreement with the Federal Trade Commission that effectively revised Rule 302. While much publicity was given to this action, there appears to be some confusion among Institute members about the application of the revised rule.

Rule 302 now allows members to perform professional services on a contingent fee basis and accept contingent fees under certain circumstances. Before entering into a contingent fee arrangement with a client, a member must consider what other professional services the member and the member's firm are performing or have performed for the client and the time frames relating to such services. If a member is considering performing tax services on a contingent fee basis, Interpretation 302-1 must be considered as well.(*)

QUESTIONS

1. A member firm audited the financial statements of a client for the year ended December 31, 1993. In October 1993, a firm partner assisted the client in obtaining financing under an arrangement in which the fee for such service would not be paid unless the financing was obtained. Has a violation of Rule 302 occurred?

[] Yes [] No

2. Rule 302 provides that in tax matters, fees are not considered to be contingent if based on the findings of government agencies. Is the processing of an original tax return and the payment of a refund by the Internal Revenue Service considered to be a finding of a government agency under Rule 302?

[] Yes []No

3. A compilation client has engaged the member to find a buyer for some of its plant and equipment. The member will be paid only if the sale is realized. Would the member violate Rule 302 by performing this service and the compilation at the same time?

[] Yes [] No

4. Company A has asked a firm to audit company B in connection with a possible initial public offering (IPO). Company A established a holding company, C, to which the firm would issue an engagement letter. C would pay the firm only if the IPO was successful. Would this arrangement be a contingent fee in violation of Rule 302?

[] Yes [] No

5. A member is preparing a client's amended income tax return because a deduction was omitted from the original return. …

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