Attorneys are often asked to take on a litigation assignment where there is a potential for a large monetary amount to be awarded to their clients by the court. They may take on the work solely based on a contingent fee arrangement with their client. What this usually means is that if the attorney wins the case for their client, they will get paid. If they don’t win, they don’t get paid. CPAs who are retained by clients to be testifying expert witnesses cannot similarly accept a litigation support engagement on a contingent fee arrangement.
The American Institute of CPAs (AICPA) indicates in its rules that a contingent fee is a fee established for the performance of any service pursuant to an arrangement in which no fee will be charged unless a specified finding or result is attained or in which the amount of the fee is otherwise dependent upon the finding or result of such service. The AICPA also states for purposes of this rule, fees are not regarded as being contingent if fixed by courts or other public authorities or, in tax matters, if determined based on the results of judicial proceedings or the findings of governmental agencies. (*)
The AICPA is pretty explicit regarding the prohibition of its CPA members from taking contingent fees when the member performs: I) an audit or review of a financial statement; or II) a compilation of a financial statement when the member expects, or reasonably might expect, that a third party will use the financial statement and the member’s compilation report does not disclose a lack of independence; or III) an examination of prospective financial information; or IV) prepares an original or amended tax return or claim for a tax refund for a contingent fee for any client. (**)
But, what about a CPA providing expert witness services in a litigation case? The AICPA’s 2009 publication, Special Report 09-1, FVS Section, Introduction to Civil Litigation Services, states the following in footnote 39 on page 19 in reference to the paragraph, Timekeeping, Fees and Billings:
“Contingent fees arrangements are almost never acceptable for an expert witness. Laws in many jurisdictions preclude expert contingent fees, as do the ethics rules of many bar associations, including rules of the American Bar Association. Even if an expert witness was in a situation that did not preclude a contingent fee by law or rule, a contingent fee creates the appearance that the expert witness lacks objectivity because fees are potentially dependent on the favorable testimony of the expert, or perhaps the successful outcome for the practitioner’s client. Regardless of the fee arrangements, it is advisable for the practitioner to collect any outstanding balances prior to expert testimony to avoid unintentionally creating a contingent fee arrangement, or the perception of one.”
By Don R. Bays, CPA/ABV/CFF, CVA
(*) AICPA Code of Professional Conduct, effective December 15, 2014; Section 1.510.001 Contingent Fees Rule, par. .03. The Arizona State Board of Accountancy’s Rule R4-1-455 Professional Conduct: Independence, Integrity, and Objectivity, par. B.1, contains similar language.
(**) Ibid; par. .01 (AICPA)