Definition
A contingent fee is a fee established for a service where nothing is payable unless a specified finding or result is achieved, or where the amount depends on that result. The AICPA Contingent Fees Rule (ET 1.510.001) prohibits a member in public practice from performing any professional service for a contingent fee for a client for whom the member performs an audit, review or other attest engagement, and from preparing an original or amended tax return or a refund claim for a contingent fee. Circular 230, section 10.27, separately limits contingent fees for matters before the IRS, with exceptions such as examination of an original return and certain judicial proceedings.
Why it matters in an audit or review
A contingent fee from an attest client impairs independence, because the firm gains financially from a particular outcome. Reviewers test engagement letters and billing records for fees tied to results.
Example
Illustrative: a firm audits a company and offers to prepare a loan application for a fee payable only if the bank approves. Because the firm audits the client and the fee depends on the result, the arrangement is not permitted under the Code.
Common mistakes
- Treating a bonus tied to a refund or a deal closing as a normal fee.
- Looking only at the AICPA Code and missing IRS rules or state board rules, which can be stricter.
Sources
- AICPA, Code of Professional Conduct, ET 1.510.001, Contingent Fees Rule: https://pub.aicpa.org/codeofconduct/ethics.aspx
- Treasury Department Circular No. 230, 31 CFR 10.27: https://www.law.cornell.edu/cfr/text/31/10.27
- State board of accountancy rules on contingent 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