Question

The acceptance of a contingent fee for professional services when also preparing attest-related services for a client is prohibited because:

a. There is no third-party reliance on the services
b. It creates a self-review threat to independence
c. It creates an undue influence threat to independence
d. It is a violation of independence

Answer 1

The acceptance of a contingent fee for professional services when also preparing attest-related services is prohibited because it creates a self-review threat to independence.

The answer is option ⇒b

Step-by-step explanation:

Contingent fees are fees that depend on the outcome or results of the services provided. When a professional accepts a contingent fee while also preparing attest-related services (such as audits or financial statements) for a client, it creates a self-review threat to independence.

This is because the professional may be more inclined to provide a favorable outcome or opinion in order to receive a higher fee. This compromise in independence undermines the objective and unbiased nature required for attest-related services.

Therefore, acceptance of a contingent fee for professional services when also preparing attest-related services is prohibited to maintain independence and ensure the integrity of the services provided.

The correct answer is b. It creates a self-review threat to independence.