Case Study Essay

Submitted By clb_1981
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Guidance required by auditors on contingencies:
Contingent fee arrangement can be described as a fee structure that gives incentives to the auditors for completing the audit work on or before time and could get penalized for not being able to complete the audit work on time. Contingent fee structure could create bonus or incentives for the auditors for assessing the highest amount of tax and for interpreting the laws and regulations aggressively. The auditors are not eligible for any incentive for informing the client about potential overpayment, tax credits, refunds and any deductions missed by them. The issue with this contingent fee arrangement is keeping significant privacy and security of this confidential information that is collected and used by the auditors. For all the business and corporations, security of confidential data and information all fall within top priority to avoid identity theft and fraud. It becomes the auditors’ responsibility to maintain privacy and security of client’s confidential data. Contingent fee arrangement can be described as contract audit and it contains an issue of quality of the audit too. Generally Jurisdiction gets less control on the audit methods used by contract auditors compare to jurisdiction’s employees and raises the chance of methodologies used by the auditors of being improper and biased.
After analyzing the contingent fee structure the audit manager should consider following reasons which describes the concern of auditors and taxpayers:
Contingent fee payment structure for auditors could generate an incentive for the auditors for pursuing unrealistically high tax assessment. Contingent fee encourage the auditors to increase their compensation by interpreting statutes and regulations more aggressively and avoid informing the client about their overpayments, missed deduction, tax credits are refunds etc.
Contingent fee is a part or type of contract audit which raises concern about giving access to the contract auditors to confidential information about the tax payer. Some state and local laws and regulations prohibit disclosure of confidential information about taxpayer but in the case of contract audit.
What can be done - Alternative Strategies
My organization has given me a responsibility of generating new business and if I accept to work on contingent fee arrangement it may result in a large fee collection from the client by being overly aggressive in interpreting tax statues. I can accept the offer of the client and could use it for monetary advantage of the firm. But as an audit manager it is unethical for me to be overly aggressive in interpreting tax statutes for my organization’s monetary advantages and being unfair. As an
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