Contingent fees for audit clients are prohibited under AICPA Rule 1.510.001: a CPA firm cannot charge, or receive, a contingent fee from any client for whom it performs an audit, a review, certain compilations, or an examination of prospective financial information. The prohibition covers every service the firm provides to that client, not just the attest work itself. Two narrow situations fall outside the definition of a contingent fee — amounts fixed by a court or public authority, and fees in tax matters that depend on a governmental agency’s findings — and a separate provision bars contingent-fee tax return preparation for every client, attest or not.
Which Engagements Trigger the Ban
The prohibition activates when the firm performs one of a specific list of services for the client.1American Institute of Certified Public Accountants. AICPA Code of Professional Conduct Those services are:
- An audit or review of a financial statement.
- A compilation of a financial statement when the firm expects a third party will use the statement and the compilation report does not disclose a lack of independence.
- An examination of prospective financial information, such as a financial forecast or projection.
The compilation category is the one that surprises smaller firms. A compilation whose report openly discloses that the firm lacks independence does not pull the client under the rule. Only compilations that an outside reader might rely on without knowing about the independence gap count.
Once any of these services is on the table, the strictest standard governs the whole client relationship. If your firm audits a company and also handles its valuation work or consulting, contingent-fee billing is off-limits for the consulting too.
How Far the Prohibition Reaches
The ban applies during two overlapping windows: the period the firm is engaged to perform the attest service, and the period covered by the historical financial statements involved.1American Institute of Certified Public Accountants. AICPA Code of Professional Conduct A firm auditing a client’s 2025 financial statements in early 2026 is subject to the rule across all of 2025 as well. A contingent fee arrangement that started and finished before the engagement letter was signed can still violate the rule if it overlapped with the fiscal year now under audit.
That reach-back matters at the point of accepting new work. Before signing an audit or review engagement letter with an existing consulting client, take inventory of every fee arrangement currently in place. A contingent fee that was fine last quarter can become a conflict the moment the attest engagement is accepted.
What Is Not Counted as a Contingent Fee
Rule 1.510.001 does not so much create exceptions as narrow the definition. Two categories of fees are not treated as contingent in the first place.
Fees Fixed by Courts or Public Authorities
A fee set by a court or other public authority is not considered contingent, even if the dollar amount depends on the outcome of a proceeding.1American Institute of Certified Public Accountants. AICPA Code of Professional Conduct Bankruptcy court approval of fees for accounting services rendered to an estate is a common example. The external authority must genuinely control the fee amount, not simply approve what the firm requests.
Tax Matters Decided by a Government Agency
In tax matters, a fee based on the results of judicial proceedings or the findings of a governmental agency is not treated as contingent.1American Institute of Certified Public Accountants. AICPA Code of Professional Conduct Representing a client in an IRS examination is the classic case, because the IRS makes the final call. Preparing a tax protest against a state property tax assessment works the same way.
The carve-out is narrower than it looks. The fee has to genuinely depend on what the government decides. Charging more because a refund happened to be large, with no government proceeding driving the result, is still a contingent fee.
Tax Return Preparation Is Its Own Prohibition
Rule 1.510.001(b) contains a second ban that catches people off guard because it applies to every client. A CPA firm cannot prepare an original tax return, an amended return, or a claim for a tax refund on a contingent-fee basis for any client.1American Institute of Certified Public Accountants. AICPA Code of Professional Conduct The client’s attest status is irrelevant. Even a client with no audit or review relationship is off-limits for a fee tied to how a deduction lands or how large the refund turns out.
The tax-matter carve-out described above does not rescue return preparation. That carve-out covers representation before governmental agencies and in judicial proceedings, activities that occur after a return has already been filed and the government has begun its review.
Circular 230 for Practice Before the IRS
CPAs who practice before the IRS face a parallel federal rule. Treasury Department Circular 230, Section 10.27, restricts contingent fees for IRS-related work and permits them only in four situations:2eCFR. 31 CFR 10.27 – Fees
- An IRS examination or challenge of an original return.
- An amended return or refund claim, but only if that filing was made within 120 days of the taxpayer receiving written notice of the IRS examination of the original return.
- A refund claim filed solely to recover statutory interest or penalties the IRS assessed.
- Any judicial proceeding arising under the Internal Revenue Code.
The 120-day window is where Circular 230 runs stricter than the AICPA rules. An amended return filed months after an examination notice, even one on solid legal footing, will not qualify for a contingent fee under Circular 230 no matter what the AICPA definition might allow. CPAs comply with both sets of rules, so the stricter one controls.
Circular 230 also defines contingent fees broadly. A percentage of the refund, a percentage of taxes saved, and any arrangement where the practitioner reimburses the client if a position is later challenged all count.
Public Company Audits Under PCAOB Rule 3521
Auditors of publicly traded companies operate under tighter rules. PCAOB Rule 3521 states that a registered public accounting firm is not independent of its audit client if the firm provides any service or product to that client for a contingent fee during the audit and professional engagement period.3Public Company Accounting Oversight Board. Section 3. Auditing and Related Professional Practice Standards The rule reaches commissions as well and extends to any affiliate of the firm.
PCAOB Rule 3521 has no tax-matter carve-out. The only definitional exclusion is the one for fees fixed by courts or public authorities that are not dependent on a finding or result. A public company auditor cannot charge a contingent fee for representing the audit client in an IRS examination, even though a private-company auditor might be able to under the AICPA definition. Firms auditing both public and private clients need to track which regime governs each engagement.
Non-Attest Clients and Changing Roles
If a CPA firm provides only consulting, valuation, or advisory work to a client, with no audit, review, or covered compilation, the firm can generally accept contingent fees for that work. The separate ban on contingent-fee return preparation still applies, but other advisory arrangements are available.1American Institute of Certified Public Accountants. AICPA Code of Professional Conduct
One narrow allowance sits inside the rule for attest clients. A firm may provide contingent-fee investment advisory services to individual owners, officers, or employees of an attest client, or to a nonattest-client employee benefit plan sponsored by an attest client.1American Institute of Certified Public Accountants. AICPA Code of Professional Conduct The service runs to the individual or the plan, not to the attest client entity, which is what keeps it inside the line.