A CPA in public practice is offered a contingent fee engagement for an audit client. According to the CPA Code of Professional Conduct and independence standards (e.g., as per CPA Canada Handbook), what is the CPA's appropriate action?

Question: A CPA in public practice is offered a contingent fee engagement for an audit client. According to the CPA Code of Professional Conduct and independence standards (e.g., as per CPA Canada Handbook), what is the CPA's appropriate action?

Answer options:

• Accept the engagement if the contingency is based on the client obtaining financing. ✅ Decline the engagement, as contingent fees are generally prohibited for assurance clients.
• Accept the engagement if the fee is disclosed in the audit report.
• Accept the engagement if the client's audit committee approves it.

Correct answer: Decline the engagement, as contingent fees are generally prohibited for assurance clients.

Explanation: For assurance engagements, contingent fees are generally prohibited under the CPA Code of Professional Conduct. Such fee arrangements create a significant self-interest threat to independence, as the professional accountant's remuneration is dependent on the outcome of the engagement.