Over the past month two of my web sites have received a growing numbers of visitors from Google and Bing search queries requesting examples of non-permitted contingent fees for CPAs. It appears that they come from multiple sources but I can not explain the sudden public interest. The reason, I suppose, is that I’ve written about two topics peripherally related to the subject: CPAs acting as regulated navigators for the Health Insurance Marketplace and, more recently, various social media posts about how I love the new AICPA Statement of Standards in Personal Financial Planning Services. Each of these posts is only cursory; I’m certainly not an expert on either topic.
The topic is interesting to me and so I find it a bit disturbing that there seems to be little information available to the public who may ask “What types of contingent fees or commissions are not allowed for CPAs?” It seems easy to explain that there are two simple and obvious categories of fees that are not allowed and I think that this information ought to be more obvious to the public.
The first area of restriction is for attest clients, AKA audit clients. While this is an important restriction, it applies only to the relatively small number of clients that require some type of independent audit service. Most clients do not, so this restriction does not apply. This restriction rarely applies to a typical CPA’s individual tax or advisory clients because the large majority of CPAs working in this field do not perform audits. As a result this restriction has little significance for most people, especially those who would be searching the internet for information on this topic. For the purposes of my social media posts when I do not perform any audits, I can simply skip this discussion.
The second area of restriction had much wider application. It applies to disclosure of fees and compensation. CPAs are required to disclose contingent fees and commissions. Conversely, a contingent fee or a commission that is undisclosed is not permitted.
This second topic apparently has the potential to trigger multitudes of follow-up questions like “examples of non-permitted fees” or “cases of non-permitted fees”. What does “disclosed” specifically mean in relation to the timing of typical client work? Does this mean the fee specific to a client or the CPA’s total cash and non-cash compensation related to firms that handle such transactions? What about endorsement contracts that extend for periods longer than the client engagement; does this mean compensation only during or before and after as well? All of these questions are likely to come up as consumers search for information governing CPA performance.
As a real life example, my work related to publication of consumer information related to the Affordable Care Act and its required insurance products earns me fees from insurance exchanges and insurance companies. I’m not licensed as an Obamacare agent or navigator but do receive fees for writing, endorsing and referring. As far as I know these fees have never been connected to an individual accounting or planning client. But the point is that I would not know if it was connected and so how would I be able to disclose it? Is simply stating that I receive contingent fees and commissions from the companies I endorse sufficient? If I wanted to make a more specific disclosure, how would I approach that since the amounts change monthly without any data that would allow me to connect the specific fee with a specific client?
The structure of today’s financial services and health care industry is ridiculously complicated and I don’t presume to have any of these specific answers. Rather, I would continue to rely on the basic principle that contingent fees and commissions must be fairly disclosed under the professional standards known as “ET sections” (the old rules that apply to all CPAs) as well as the new AICPA standards of practice for personal financial advisers.