Tenn. Comp. R. & Regs. 0020-03-.05 - CONTINGENT FEES, COMMISSIONS, AND OTHER CONSIDERATION

(1) As used in this rule unless the context otherwise requires:

(a) "Attest" shall be defined as in Tenn. Code Ann. § 62-1-103.

(b) "Audit" means an examination of financial statements of a person or entity by a certified public accountant or public accountant, conducted in accordance with generally accepted auditing standards, to determine whether, in the opinion of the certified public accountant or public accountant, the statements conform with generally accepted accounting principles or, if applicable, with another comprehensive basis of accounting.

(c) "Commission" means compensation for recommending or referring any product or service to be supplied by another person.

(d) "Compilation of a financial statement" means a presentation of information in the form of a financial statement that is the representation of any other person without the undertaking of the certified public accountant or public accountant to express any assurance on the statement.

(e) "Consideration" means compensation other than a commission, including but not limited to compensation for recommending or referring any service of a certified public accountant or public accountant to any person.

(f) "Contingent fee" means a fee established for the performance of any service pursuant to an arrangement under which a fee will not be charged unless a specified finding or result is attained, or under which the amount of the fee is otherwise dependent upon a finding or result of such service. "Contingent fee" does not mean a fee fixed by a court or other public authority, or a fee related to any tax matter which is based upon the results of a judicial proceeding or the findings of a governmental agency.

(g) "Examination of prospective financial information" means an evaluation by a certified public accountant or public accountant of a forecast or projection, the support underlying the assumptions in the forecast or projection, whether the presentation of the forecast or projection is in conformity with professional presentation guidelines, or whether the assumptions in the forecast or projection provide a reasonable basis for the forecast or projection.

(h) "Person" means any natural person, corporation, partnership, or other entity.

(i) "Review of a financial statement" means to perform inquiries and analytical procedures that permit a certified public accountant or public accountant to determine whether there is a reasonable basis for expressing limited assurance that there are no material modifications that should be made to financial statements in order for them to be in conformity with generally accepted accounting principles or, if applicable, with another comprehensive basis of accounting.

(2) A licensee shall neither pay any consideration or commission to obtain a client nor accept any consideration or commission when the licensee or the licensee's firm also performs for that client the services listed in T.C.A. § 62-1-122(a)(1) through (a)(3). This prohibition applies during the period in which the licensee is engaged to perform any of the listed services and the period covered by any historical financial statements involved in such listed services.

(3) A licensee who is not prohibited by this rule from performing services or receiving consideration or a commission and who is paid or expects to be paid consideration or a commission shall disclose that fact, in compliance with the requirements of T.C.A. § 62-1-122 and Rule 0020-03-.06, to any person to whom the licensee recommends or refers a product or service to which the commission or consideration relates.

(4) Any licensee who accepts consideration or a commission for a referral shall disclose such acceptance or payment to the client in compliance with the requirements of T.C.A. § 62-1-122 and Rule 0020-03-.06.

(5) A licensee shall not receive or agree to receive a contingent fee from a client for the following:

(a) Performance of any professional services for a client for whom the licensee or person associated with the licensee performs any of the services listed in T.C.A. § 62-1-123(b)(1)(A) through (C); or

(b) Preparation of an original tax return.

This prohibition applies during the period in which the licensee is engaged to perform any of the listed services and the period covered by any historical financial statements involved related to such services.

(6) Any licensee who accepts or agrees to accept a contingent fee shall disclose the terms of such contingent fee to the client in compliance with the requirements of Tenn. Code Ann. § 62-1-123 and Rule 0020-03-.06.

(7) Nothing in this rule shall be construed to prohibit:

(a) Payments for the purchase of all, or a part, of an accounting practice;

(b) Retirement payments to persons formerly engaged in the practice of public accountancy or payments to the heirs or estates of such persons; or

(c) Payments, including incentive or bonus payments, to employees or members of an accounting firm as compensation for their services.

Notes

Tenn. Comp. R. & Regs. 0020-03-.05

Original rule filed June 9, 1981; effective August 18, 1981. Amendment filed February 18, 1993; effective April 3, 1993. Amendment filed May 11, 1995; effective July 24, 1995. Amendment filed February 16, 1998; effective May 2, 1998. Repeal and new rule filed June 10, 1999; effective August 24, 1999. Amendment filed August 15, 2006; effective October 29, 2006.

Authority: T.C.A. §§ 62-1-105, 62-1-111, 62-1-122 and 62-1-123.