Answered Essay: Craig Thorne works in a public accounting firm and hopes to eventually become a partner. The management of Allnet Company invit

57 57 Audit Fees Craig Thorne works in a public accounting firm and hopes to eventually become a partner. The management of Allnet Company invites Thorne to prepare a bid to audit Allnets financial statements. In discussing the audit fee, Allnets management suggest a fee range in which the amount depends on the reported prpfht of Allnet. The higher the profit, the higher will be the audit fee paid to Thornes accounting firm. 1. What are the ethical factors in this situation? 2. Would you recommend that Thorne accept this audit fee arrangement? Why or why not?

Craig Thorne works in a public accounting firm and hopes to eventually become a partner. The management of Allnet Company invites Thorne to prepare a bid to audit Allnet’s financial statements. In discussing the audit fee, Allnet’s management suggest a fee range in which the amount depends on the reported profit of Allnet. The higher the profit, the higher will be the audit fee paid to Thorne’s accounting firm. What are the ethical factors in this situation? Would you recommend that Thorne accept this audit fee arrangement? Why or why not?

Expert Answer

 

(1) As per information given in the question, Allnet company invited Thorne to to audit financial statements but fees will be based upon the profits of firm. If we see these information provided in the questions then we will say there are some ethical factors that have been violated in given case.

Professional ethical code of Thorne will be violated because an auditor should bring out true and correct figures of financial statements. If he hopes to become partner in that firm then how it is possible that he will do his work of auditing honestly. Hence it is clear that professional ethics will be violated in given case. Apart from this fees of auditor is based upon the profits of the firm then it is quiet clear that auditor will want higher fees and then profits of the firm must be higher. So work of auditor will not be clean because he will want to show higher profits whether actually profits are low. So in given case transperancy in auditing work will not be seen at all.

Another point here is important. As firm is offering auditing fees on the basis of profits so firm is also violating the ethical aspect of true disclosure of information to the stakeholders hence firm is also violating ethical aspect.

(2)

Thorne should not accept this fee arrangement because this will be against the ethical code of conduct of a public accounting firm & auditor. Prime function of an employee is to protect its ethical conduct first of all and perform its duty honestly. Given fees arrangement will hammer on ethical aspect of Thorne.

This fee arrangement will also affect true & fair disclosure of financial statements of the firm too hence it is not advisable to accept this offer.

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