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Council Interpretation 215
Contingent Fees
Introduction
215/1 A member is entitled to charge for professional services such fees as the member considers to be fair and reasonable for the work undertaken. Generally it is prudent to refer to fees and the basis on which they are to be computed in an engagement letter to the client or potential client.
Contingent Fees
215/2 When providing a professional service for a fee payable only where there is a specified determination or result of the service, or for a fee the amount of which is to be fixed, whether as a percentage or otherwise, by reference to the determination or result of the service ("contingent fee"), a member must bear in mind the requirements of Rules 202, 203, 205 and 206. These rules require a member to perform services with integrity and due care; to sustain professional competence in all functions in which the member practices; not to associate with any letter, report, statement or representation which the member knows or should know is false or misleading; and to comply with the generally accepted standards of practice of the profession.
215/3 Rule 215 prohibits a contingent fee arrangement where the member providing the service is required to be free of any influence that would impair the member's professional judgment or objectivity in respect of the particular engagement. This means that a contingent fee arrangement is not permitted for an assurance or specified auditing procedures engagement. In addition, a compilation engagement may not be performed on a contingent fee basis.
215/4 A member must also ensure that a contingent fee arrangement in a client engagement does not, in the view of a reasonable observer, create an influence which would impair the member's or the member's partner's professional judgment or objectivity with respect to another engagement for the same client which requires objectivity on the part of the service provider. For example, a member may be seen to have compromised professional judgment or objectivity with respect to an audit where the member in giving an opinion may be seen to be supporting a material amount which is reported in the client's financial statements and upon which a contingent fee for the member or member's firm is based.
215/5 The following examples of engagements undertaken on a contingent fee basis are provided as guidance to assist members in determining whether their professional judgment or objectivity may be compromised with respect to the types of engagements for which objectivity is required by the rules of professional conduct or would be seen to influence the result of a compilation engagement.
Examples of engagements which, if undertaken on a contingent fee basis, would not normally be seen to impair professional judgment or objectivity with respect to another engagement for the same client which requires objectivity on the part of the service provider (such as an audit or review of financial statements) are:
(i) commodity tax refund claims;
(ii) assisting with tax appeals and preparing notices of objection to tax assessments and reassessments; and
(iii) executive search services.
Examples of engagements which, if undertaken on a contingent fee basis, may be seen to impair professional judgment or objectivity with respect to another engagement for the same client which requires objectivity on the part of the service provider (such as an audit or review of financial statements) are:
i) valuation engagements which involve the expression of a professional opinion;
ii) assisting with the purchase or sale of all or part of a business;
iii) financing proposals, the success of which is dependent, in whole or in part, upon the client's financial statements or the client's future oriented financial information
iv) litigation support and forensic investigations which use financial statements or other financial information of the client or result in reports which impact on or bear a relationship to the client's financial statements;
v) business interruption insurance claims; and
vi) re-engineering or efficiency studies, the results of which could materially impact on the client's financial statements or other financial information.
215/6 The examples in paragraphs 4 and 5 are not intended to be exhaustive or conclusive in determining whether a particular engagement may be undertaken on a contingent fee basis. A member must always exercise professional judgment in concluding whether a particular engagement may be undertaken on a contingent fee basis in accordance with Rule 215.3.
215/7 If the application of Rule 215.1 prohibits an engagement from being provided on a contingent fee basis, a member is not precluded from having regard at the time of billing to criteria which include:
i) the level of training and experience of the persons engaged in the work;
ii) the time expended by the persons engaged in the work;
iii) the degree of risk and responsibility which the work entails;
iv) the priority and importance of the work to the client;
v) the value of the work to the client; and
vi) any other circumstances which may exist (e.g. fees fixed by the court or other public authority, fees in insolvency work and the administration of estates and trusts which, by statute or tradition, are often based on a percentage of realizations and/or assets under administration).
Value billing should not be used, however, to justify what is in substance an otherwise inappropriate contingent fee arrangement.
215/8 Members are cautioned that professional engagements may be subject to standards of other professional bodies or organizations which must be considered in determining whether contingent fees are appropriate for a particular engagement.
Definition
215/9 For the purpose of Rule 215.3, "partner" means a
member's partner, whether or not a member of the Institute, in
either the member's public practice or a related business or
practice, and for greater certainty, includes any person whether
or not a member who is a partner or shareholder in the related
business or practice.
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