Question

Manny Machado, CPA, signed on to perform an inventory control study for a new client, ABC Company. Once the study is complete, he recommends a new inventory control system. Currently, ABC engages another audit firm to audit its financial statements. The financial arrangement is that ABC will implement the new systems and over the next 5 years, the will pay Machado 50% of the savings in inventory costs.

1. Indicate which principle or rule would be violated, or if none would be violated.
2. State why the rule would be violated.
3. Explain if there is a way to avoid breaking the rule by doing something different in these examples.

Answer 1

Rule: 302 - Combingent fees. I A membest in public practice shall not y perform for a contingent fees any professional Services for, or receive such fees from a client for whom the member / membeau firem performs a) audit / review of financial statement d e b) Compilation of financial statements within c) examination of prospective financial information a) prepare an osciginal amended fax refusin or claim for a tax refund for a contingent fees. Angi a) manny machado, CPA has clearly violated Rule 302 b) since manny machado, CPA has for performed inventory control study & has charged fee on contingent basis ;e, 50% of savings in inventory will be paid over next 5 years. This arrangement of payment of fees on contingent baris is a violation of code of etchig ethics c) CPA, can fix the fees initially. It should not be variable & should be influenced by outcome/ circumstances. Then violation can be avoided The fees should be fixed fees which should be varied based on out come of the result.