Section 330Part 3

Fees and Other Types of Remuneration

Introduction

330.1 Chartered accountants are required to comply with the fundamental principles and apply the conceptual framework set out in Section 120Section 120 to identify, evaluate and address threats. 330.2 The level and nature of fee and other remuneration arrangements might create a self-interest threat to compliance with one or more of the fundamental principles. This section sets out specific application material relevant to applying the conceptual framework in such circumstances.

Application Material

Level of Fees

330.3 A1 The level of fees might impact a chartered accountant’s ability to perform professional services in accordance with technical and professional standards. 330.3 A2 A chartered accountant might quote whatever fee is considered appropriate. Quoting a fee lower than another accountant is not in itself unethical. However, the level of fees quoted creates a self-interest threat to compliance with the principle of professional competence and due care if the fee quoted is so low that it might be difficult to perform the engagement in accordance with applicable technical and professional standards. 330.3 A3 Factors that are relevant in evaluating the level of such a threat include: • Whether the client is aware of the terms of the engagement and, in particular, the basis on which fees are determined and which professional services are covered. • Whether the level of the fee is set by an independent third party such as a regulatory body. 330.3 A4 Examples of actions that might be safeguards to address such a self-interest threat include: • Adjusting the level of fees or the scope of the engagement. • Having an appropriate reviewer review the work performed.

Contingent Fees

330.4 A1 Contingent fees are used for certain types of non-assurance services (specified in 330.4 A5). However, contingent fees might create threats to compliance with the fundamental principles, particularly a self-interest threat to compliance with the principle of objectivity, in certain circumstances. 330.4 A2 Factors that are relevant in evaluating the level of such threats include: • The nature of the engagement. • The range of possible fee amounts. • The basis for determining the fee. • Disclosure to intended users of the work performed by the chartered accountant and the basis of remuneration. • Quality control policies and procedures. • Whether an independent third party is to review the outcome or result of the transaction. • Whether the level of the fee is set by an independent third party such as a regulatory body. 330.4 A3 Examples of actions that might be safeguards to address such a self-interest threat include: • Having an appropriate reviewer who was not involved in performing the non-assurance service review the work performed by the chartered accountant. • Obtaining an advance written agreement with the client on the basis of remuneration. 330.4 A4 Requirements and application material related to contingent fees for services provided to audit or review clients and other assurance clients are set out in Independence Standards. 330.4 A5 The fees which are based on a percentage of profits or which are contingent upon the findings, or results of such work, is not allowed except in cases which are permitted under Regulation 192 of The Chartered Accountants Regulations, 1988, given as under:-

(a)

in the case of a receiver or a liquidator, the fees may be based on a percentage of the realisation or disbursement of the assets;

(b)

in the case of an auditor of a co-operative society, the fees may be based on a percentage of the paid-up capital or the working capital or the gross or net income or profits;

(c ) in the case of a valuer for the purposes of direct taxes and duties, the fees may be based on a percentage of the value of the property valued.

(d)

in the case of certain management consultancy services as may be decided by the resolution of the Council from time to time, the fees may be based on percentage basis which may be contingent upon the findings, or results of such work;

(e)

in the case of certain fund raising services, the fees may be based on a percentage of the fund raised;

(f)

in the case of debt recovery services, the fees may be based on a percentage of the debt recovered;

(g)

in the case of services related to cost optimisation, the fees may be based on a percentage of the benefit derived; and

(h)

any other service or audit as may be decided by the Council.

Note: Following activities have been decided by the Council under ‘’h” above:- • In the case of Insolvency professional, the fees may be based on percentage of recovery/assets for the services rendered under Insolvency and Bankruptcy Code, 2016 and rules framed thereunder. • In the case of Non-Assurance services to Non-Audit clients, the fees may be charged on contingent basis.

Referral Fees or Commissions

330.5 A1 A self-interest threat to compliance with the principles of objectivity and professional competence and due care is created if a chartered accountant pays or receives a referral fee relating to a client. Such referral fees include, for example: • A fee paid to another chartered accountant for the purposes of obtaining new client work when the client continues as a client of the existing accountant but requires specialist services not offered by that accountant. • A fee received for referring a continuing client to another chartered accountant or other expert where the existing accountant does not provide the specific professional service required by the client. 330.5 A2 Examples of actions that might be safeguards to address such a self-interest threat include: • Disclosing to clients any referral fees paid to, or received from, another chartered accountant for recommending services might address a self-interest threat.

Purchase or Sale of a Firm

330.6 A1 In accordance with the Council guidelines, sale of goodwill is permissible only after the death of the proprietor of the Firm.

The relevant extract of Council Guidelines is reproduced hereunder:

(a)

in respect of cases where the death of the proprietor concerned occurred on or after 30.8.1998.

Proviso

Provided such a sale is completed/effected in all respects and the Institute’s permission to practice in deceased’s proprietary firm name is sought within a year of the death of such proprietor concerned. In respect of these cases, the name of the proprietary firm concerned would be kept in abeyance (i.e. not removed on receipt of information about the death of the proprietor as is being done at present) only up to a period of one year from the death of proprietor concerned as aforesaid.

(b)

in respect of cases where the death of the proprietor concerned occurred on or after 30.8.1998 and there existed a dispute as to the legal heir of the deceased proprietor.

Proviso

Provided the information as to the existence of the dispute is received by the Institute within a year of the death of the proprietor concerned. In respect of these cases, the name of proprietary firm concerned shall be kept in abeyance till one year from the date of settlement of dispute.

(c)

in respect of cases where the death of the proprietor concerned had occurred on or before 29th August, 1998 (irrespective of the time lag between the date of death of the proprietor concerned and the date of sale/transfer of goodwill completed/to be completed).

Proviso

Provided such a sale/transfer is completed/effected and the Institute’s permission to practice in the deceased’s proprietary firm name is sought for by 28th August, 1999 and also further provided that the firm name concerned is still available with the Institute. It may be noted that the sale of goodwill of a Chartered Accountancy Firm is not allowed except as stated above.