Fees Flashcards
According to the Code of Professional Conduct of the AICPA, for which type of service may a CPA receive a contingent fee?
Performing an audit of a financial statement.
Performing a review of a financial statement.
Performing an examination of prospective financial information.
Seeking a private letter ruling.
Seeking a private letter ruling.
Assuming appropriate disclosure is made, which of the following fee arrangements generally would be permitted under the ethical standards of the profession?
A fee paid to the client’s audit firm for recommending investment advisory services to the client.
A fee paid to the client’s tax accountant for recommending a computer system to the client.
A contingent fee paid to the CPA for preparing the client’s amended income tax return.
A contingent fee paid to the CPA for performing a review of the client’s financial statements.
A fee paid to the client’s tax accountant for recommending a computer system to the client.
This answer is incorrect because a contingent fee may not be received for attest services (here a review).
According to the AICPA Code of Professional Conduct, under which of the following circumstances may a CPA receive a contingent fee for services?
Examining a client’s prospective financial information.
Preparing a client’s federal income tax return.
Representing a client in an IRS examination of the client’s federal income tax return.
Reviewing a client’s financial statements.
Representing a client in an IRS examination of the client’s federal income tax return.
Reviewing a client’s financial statements.
This answer is correct because the Code of Professional Conduct (on contingent fees) allows representing of a client in an IRS examination of the client’s federal income tax return for a contingent fee.
Under which of the following circumstances may a CPA charge fees that are contingent upon finding a specific result?
For an examination of prospective financial statements.
For an audit or a review if agreed upon by both the CPA and the client.
For a compilation if a third party will use the financial statement and disclosure is not made in the report in regards to the lack of independence.
If fixed by courts, other public authorities, or in tax matters if based on the results of judicial proceedings.
If fixed by courts, other public authorities, or in tax matters if based on the results of judicial proceedings.
This answer is correct. Fees that are fixed by the courts, or other public authorities, or in tax matters if based on the results of judicial proceedings are allowable under the AICPA Code of Professional Conduct.
Tammy is looking to increase the revenue stream for her accounting firm. She is thinking of using commissions and referral fees to do so. Which of the following is true regarding commissions and referral fees?
I. Neither is permitted when the client is an attest client.
II. Both are permitted when the client is not an attest client, if they are properly disclosed.
I only.
II only.
I and II.
Neither I nor II.
I and II.
Because both I and II are accurate, this is the best answer.
According to the Code of Professional Conduct of the AICPA, for which type of service may a CPA receive a contingent fee?
Performing an audit of a financial statement.
Performing a review of a financial statement.
Performing an examination of a prospective financial statement.
Seeking a private letter ruling.
Seeking a private letter ruling.
While auditors may not receive contingent fees for performing attest-related services, seeking a private letter ruling is not an attest-related service. Unless the auditor is also providing attest services for the client, a contingent fee for seeking a private letter ruling is allowed.
In which of the following scenarios has Ed, a CPA, not committed an ethical violation in relation to a tax client, Harriett, who asked Ed what she should do with a $12,000 tax refund she received from the IRS?
Ed referred Harriett to investment adviser Sue, without disclosing to Harriett that Sue was Ed’s sister-in-law.
Ed referred Harriett to the investment advising firm of Stuart, Scott & Barney, without disclosing that he (Ed) was an unnamed partner in that firm.
Ed recommended that Harriett purchase certain investment instruments from Mathwell Kilby & Co., without disclosing that Mathwell Kilby paid Ed a 5% commission on each transaction.
Ed sold Harriett an investment instrument, disclosing that he was earning a 5% commission on the transaction.
Ed sold Harriett an investment instrument, disclosing that he was earning a 5% commission on the transaction.
Assuming that Harriett is not also an audit client, then commissions and referral fees are permitted, if properly disclosed.
Assuming appropriate disclosure is made, which of the following fee arrangements generally would be permitted under the ethical standards of the profession?
A fee paid to the client’s audit firm for recommending investment advisory services to the client.
A fee paid to the client’s tax accountant for recommending a computer system to the client.
A contingent fee paid to the CPA for preparing the client’s amended income tax return.
A contingent fee paid to the CPA for reviewing the client’s financial statements.
A fee paid to the client’s tax accountant for recommending a computer system to the client.
Tax accountants can accept referral fees and commissions. However, they should be disclosed to the client (and the question instructs us to assume appropriate disclosure).
Considering only the provisions of the AICPA Code of Professional Conduct, which of the following services may a CPA perform for a commission or contingent fee?
Preparation of an original income tax return.
Representation of a nonattest client in an IRS examination.
Preparation of an amended income tax return to claim a deduction that was inadvertently omitted on an originally filed return.
Performance of consulting services for an audit client.
Representation of a nonattest client in an IRS examination.
CORRECT! Because during an examination the IRS will almost certainly look at the merits of the tax return, there is no temptation to play the “audit lottery,” so contingent fees are allowed under the Code. Of course, in regard to attest clients, PCAOB rules say that an auditor of a public company may not provide to it any tax services on a contingent fee basis and remain independent.
