Accounting · Auditing and Professional Ethics
Which of the following is the appropriate response according to professional auditing standards regarding a proposed contingent fee arrangement for an audit engagement?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The arrangement is acceptable because the fee is linked to financing secured rather than the audit opinion
- 2The arrangement is acceptable if additional safeguards are implemented, such as an independent partner review
- 3The arrangement is prohibited because contingent fees create unacceptable ethical threats and are not permitted for audit engagements✓
- 4The arrangement is acceptable if the contingent element is fully disclosed to users of the financial statements
Correct answer
The arrangement is prohibited because contingent fees create unacceptable ethical threats and are not permitted for audit engagements
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