Question

Henry Owens, CPA works in a local accounting firm. He is the tax manager on a major client in the office. The firm prepares compiled financial statements for the client on a quarterly basis. The client was impacted by the BP oil spill off the Gulf coast, and the client would like to engage Henry to help the business prepare a claim for damages from BP. The client would like to pay Henry on a contingent fee basis where Henry and his firm would receive 15% of any amounts recovered in a settlement with BP. Henry would receive no fee unless amounts are recovered. Can Henry accept this engagement? Why or why not? a) Yes, because the client is seeking financial advice.

b) No, because it involves a conflict of interest.
c) Yes, but only if the firm agrees to a fixed fee structure.
d) No, because it breaches professional ethical standards.

Answer 1

Henry Owens cannot accept the engagement on a contingent fee basis because it breaches the AICPA ethical standards, which prohibit contingent fees for clients receiving certain services that require independence.

Step-by-step explanation:

No, Henry Owens, CPA, cannot accept the engagement to help the client prepare a claim for damages on a contingent fee basis because it breaches professional ethical standards. According to the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct, contingent fees are generally prohibited when performing certain services for clients for whom the CPA also performs audit, review, compilation, examination of prospective financial information, or other attestation services that require independence. Since Henry's firm prepares compiled financial statements for the client, accepting a contingent fee for the claim preparation could impair their independence and violate the AICPA ethical standards.