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.
Who are 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?
What are some ethical considerations guiding your recommendation?
Sample Solution
1. Tana Thorne: As a member of the public accounting firm hoping to eventually become a partner, she stands to benefit if her firm is awarded the audit contract and makes a profit from conducting it.
2. Allnet Company: They are looking to have their financial statements audited and are willing to pay an audit fee depending on their reported profits. If they report higher profits, then they will pay more for the audit.