Question

Becker & Smith, CPAs, and its client, Troper Lighting, are discussing a possible advisory engagement in which the firm would review Troper's accounts receivable system and recommend changes that would streamline the company's collection process. Troper will pay Becker & Smith a fee based on improved performance in accounts receivable collections. Would this contingent fee arrangement raise any ethical concerns under the profession's rules?

A. Yes, but only if Becker & Smith was performing other services for Troper.
B. Yes, if Becker & Smith also performed a review engagement for Troper.
C. No, but only if Troper is a publicly traded company subject to SEC and PCAOB rules.
D. No, provided Becker & Smith documents the arrangement in the engagement letter.

Answer 1

Answer:

Answer is Option B: Yes, if Becker & Smith also performed a review engagement for Troper.

Explanation:

Contingent fee is a fee provided for a service if that service has produced a favourable result.

A "contingency fee arrangement" gives entry to the courts for those people who cannot pay the fees for lawyer or advocates and costs of civil court cases.  A review engagement is an audit with only difference that auditor would check that there are no apparent issues on how things are reported or managed.

If Becker and Smith are performing the review and they are also managing Troper's accounts, it will raise ethical concern.