The case of the methane methodology
Ethics
Charles Selcer, CPA, MBA | August/September 2024 Footnote
Editor's note: Updated August 1, 2024
The firm of Bosco, Ovaltine & Nesqwik is the auditor of Bovine Energy LLC, an entity that has mastered harnessing methane gas from cows for rural electrification purposes. Don Bosco is the audit partner and, for the audits of 2022 and 2023, he charged Bovine Energy $41,000 and $42,500, respectively.
In 2024, Bovine Energy hired Don’s firm to do a large system consulting engagement for which they charged $84,000. Therefore, Don decided to cut the audit fee to $21,000. The systems engagement did not effect the budgeted audit hours.
Q. Is this fee reduction OK?
A. No. A new item in the Code of Professional Conduct at 1.230.030.02 notes:
The provision of other services to an attest client is not an appropriate consideration in determining the attest engagement fee, except as provided for in Paragraph .03. If a covered member responsible for determining the attest engagement fee allows the attest engagement fee to be influenced by the firm’s provision of other services to an attest client, the self-interest and undue influence threats to the covered member’s compliance with the “Independence Rule” [1.200.001] would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards. Accordingly, independence would be impaired.
Paragraph .03 notes that if other services yield cost savings they can be considered. This interpretation is effective Jan. 1, 2025, with early implementation permitted.
