Definition
A commission is compensation, other than a fee for a professional service, for recommending or referring a product or service to a client. A referral fee is a payment for referring a client or work. Under the Commissions and Referral Fees Rule (ET 1.520.001), a member in public practice may not accept a commission for recommending a product or service to a client for whom the member or the firm performs an attest engagement. Where a commission or referral fee is permitted, the member discloses acceptance or payment to the client. State boards of accountancy often add their own limits.
Why it matters in an audit or review
A commission on a product sold to an attest client gives the firm a financial stake in a recommendation, which creates a self-interest threat to objectivity. Reviewers test whether firm policies prohibit such fees for attest clients and whether disclosures were made for others.
Example
Illustrative: a firm audits a manufacturer, and an insurance broker offers the firm a percentage of premiums if it recommends the broker. The firm declines, since accepting would breach the Code. For a tax-only client, the firm could accept a permitted commission only after telling the client in writing.
Common mistakes
- Treating a marketing partnership or revenue share as outside the rule.
- Assuming a client's consent removes the prohibition for attest clients.
Sources
- AICPA, Code of Professional Conduct, ET 1.520.001, Commissions and Referral Fees: https://pub.aicpa.org/codeofconduct/ethics.aspx
- State board of accountancy rules on commissions and referral fees
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error