Tana Thorne works in a public accounting firm and hopes to eventually be 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 suggests a fee range in which the amount depends on the reported profit of Allnet. The higher its profit, the higher will be the audit fee paid to Thorne’s firm.

Required

Identify the parties potentially affected by this audit and the fee plan proposed. 

What are the ethical factors in this situation? Explain.

Would you recommend that Thorne accept this audit fee arrangement? Why or why not?

Describe some ethical considerations guiding your recommendation.

Peer Replies:

1. Damaris:1. The party potentially affected would be the accouting firm because they could face legal issues if they provide misleading statements. Tana Thorne is also affected because the pay will be determined on the profit which can either be high or low.2. The ethical factor in the situation would be that the audit fee depends on the profit. I feel like the fee shouldnt depend on how good or bad the company does, it should be more focused on the fact that the service will be done. 3. I would recommend that Thorne should not accept the audit fee arrangement because the auditing fee is based on profit which is not legit and can seem bias. Dianelys:- parties affected: shareholders, investor, lender, directors, union, suppliers, accounting firm and others.2- The ethical factor in this situation is the independence of the auditor since he accepts the rate when the profits of the clients increase, which shows his interest in greater profits for the clients.3- I consider that T should reject it since it must avoid compromising the independence of the auditor. In addition to that it would be an illegal action since according to the AICPA code of professional conduct this is something that is not allowed in many states. Contingent fees that depend on the amounts reported in the clients’ financial statements cannot be accepted.4- The potential harm to affected parties by allowing this arrangement is one of the ethical considerations. Denial of this protects the profession against unethical actions that could affect society.