Accounting · Auditing Ethical Standards
If an audit firm is offered both the internal and external audit assignments for Maldini Co, and the client proposes that 20% of the total fees be contingent on the company's profit after tax, which of the following is TRUE?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1No safeguards can be applied and this contingent fee basis must be rejected.✓
- 2The fee basis is acceptable if it is renegotiated to be based on profit before tax.
- 3Only the internal audit fee can be based on profit after tax, with appropriate safeguards.
- 4No safeguards are needed as long as the fee is under 15% of the firm's total income.
Correct answer
No safeguards can be applied and this contingent fee basis must be rejected.
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