Question

DISCUSSION CASE Craig Thorne works in a public accounting firm and hopes to eventually be a partner. The management of Allnet Company invites Thorne to prepare a bid to audit Allnet's financial statements. In discussing the audit fee, Allnet's management suggests a fee range in which the amount depends on the reported profit of Allnet. The higher its profit, the higher will be the audit fee paid to Thorne's firm. Question 1: Identify the parties potentially affected by this audit and the fee plan proposed Question 2: What are the ethical factors in this situation? Question 3: Would you recommend that Thorne accept this audit fee arrangement? Why or why not? Question 4: Describe some ethical considerations guiding your recommendation. Required a. Submit a substantive posting of at least 250 words that answers the questions above. This posting must

Answer 1

Answer:

1. Madison Thorne will be the party mostly affected by it because his pay is based on the profit amount which could be good or bad.

2. There is nothing ethical about this situation because the company is basing the fee off of the total profits that both parties don’t really know the outcome of how high the total profit will be. Unless it’s in a legal contract then I don’t feel it should be an option.

3. I feel that he should not accept it due to the fact that it’s not a legitimate. The major auditing standard would be broken if the auditing fee is based on the profit of a firm or company. Auditing fee has to do with the independence of the auditor. Basing the auditing fee on profit could affect the impartiality of the auditor or at least give the appearance of bias.

4. The "audit fee" is how much will be charged. A "fee range" would mean the fees would change depending upon what actions are taken or what the results are. It would be ethical if an audit fee is charged, and thus should not violate the auditing standards