opinion: You save your client millions. Your reward: a lower fee. Isn't there something amiss?

If the accountant finds nothing, he gets a premium. It is as if a judge were paid for each innocent verdict

Intense discussion by chartered accountants on the subject of contingency fees may at first sight appear to confirm Monty Python's image of the members of the profession as somewhat tedious figures of ridicule. How excited can anyone get about such a technical and academic issue? Not very, is the simple answer, for a consultation paper on this subject, published by the Chartered Accountants' Joint Ethics Committee received just 26 responses - and only one of these came from outside the profession.

Yet the subject of contingency fees for accountants has some serious contemporary relevance that surely should invite interest from within, and without, the profession. This is because it strikes at the very heart of the concept of professional independence and self-regulation.

Apart from acting as auditors, chartered accountants frequently carry out the role of "investigating accountants" on corporate transactions. They investigate and report, for example, on possible management buyouts, on companies proposed for flotation and on companies considered for takeover. This work is known as "due diligence" and is intended to provide independent, hardheaded and objective facts and professional opinions, which can temper the excitement of the corporate financier or potential acquirer who can sometimes be prepared to do the deal at any price. Increasingly, however, the investigating accountant has been asked to work on the basis of a contingency fee, which turns conventional logic on its head. If the accountant uncovers the problem that frustrates the deal, he doesn't get paid, or gets paid a much reduced fee. If he finds nothing, he gets a premium. It is rather as if the judge in court were paid a premium for each innocent verdict or a policeman received a prize for every crime not solved.

The Chartered Accountants' Joint Ethics Committee (Cajec) charged with the brief of safeguarding ethical standards has understandably been considering this issue long and hard. An initial Green Paper inviting comments was issued on this subject in 1994 and it was this that received just 26 replies. In July 1995, another consultation paper was issued inviting responses by August 1995. It is to be hoped that this has aroused more interest.

It might be expected that Cajec would find a simple solution, defining contingency fees and then insisting they be prohibited in all circumstances. Yet life is not that simple. The corporate finance departments of major accounting firms wish to be able to work (on substantial contingency fees) on jobs where their investigating accountant colleagues are also undertaking due diligence - even though this creates an inevitable and professional conflict of interest, as the firm will now have a material interest to make the deal happen, come what may.

Accountants wishing to grease the wheels of a transaction have suggested that a material discount for a non-completed deal should not be covered by the rules - even though the effect is identical to a contingency fee. Firms undertaking substantial due diligence for sophisticated acquisitive clients or financial institutions have asked to be excused from the rules (as their clients know the risk) - a curious clause is then to be included in the due diligence report, specifying that the report cannot be relied upon to be objective etc.

Why is life not kept simple with a straightforward prohibition of direct or indirect contingency fees in all its guises, whenever due diligence is involved and independence is required? The answer may lie in the inherent conflict between commercial self-interest and ethical purity, which inevitably results from self-regulation by the accountancy profession of its own standards. We consequently see attempts to reconcile the irreconcilable, to square the circle. This is well illustrated by the proposals contained in the latest, well-meaning, Cajec consultation paper on contingency fees which proposes to accommodate all of the commercially self-interested exceptions given above.

Where is this all leading? Perhaps the accounting profession will realise that unless it unambiguously puts its own house in order, matters may ultimately be taken out of its hands and self-regulation brought to an end. The issue of contingency fees is an important and topical test of ethical resolve, as it constitutes a "fault line" where professional standards and commercial self-interest can be seen to collide. It will be interesting to see whether an earthquake follows.

The author is a partner and national director of corporate advisory services at chartered accountants Pannell Kerr Forster.

News
A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
people
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmA cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Arts and Entertainment
Flora Spencer-Longhurst as Lavinia, William Houston as Titus Andronicus and Dyfan Dwyfor as Lucius
theatreThe Shakespeare play that proved too much for more than 100 people
News
exclusivePunk icon Viv Albertine on Sid Vicious, complacent white men, and why free love led to rape
PROMOTED VIDEO
Arts and Entertainment
Stir crazy: Noel Fielding in 'Luxury Comedy 2: Tales from Painted Hawaii'
comedyAs ‘Luxury Comedy’ returns, Noel Fielding on why mainstream success scares him and what the future holds for 'The Boosh'
Life and Style
Flow chart: Karl Landsteiner discovered blood types in 1900, yet scientists have still not come up with an explanation for their existence
lifeAll of us have one. Yet even now, it’s a matter of debate what they’re for
Arts and Entertainment
'Weird Al' Yankovic, or Alfred Matthew, at the 2014 Los Angeles Film Festival Screening of
musicHis latest video is an ode to good grammar. But what do our experts think he’s missed out?
Sport
New Real Madrid signing James Rodríguez with club president Florentino Perez
sportColombian World Cup star completes £63m move to Spain
Travel
Hotel Tour d’Auvergne in Paris launches pay-what-you-want
travelIt seems fraught with financial risk, but the policy has its benefits
Arts and Entertainment
booksThe best children's books for this summer
Life and Style
News to me: family events were recorded in the personal columns
techFamily events used to be marked in the personal columns. But now Facebook has usurped that
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Programme Director - Conduct Risk - London

    £850 - £950 per day: Orgtel: Programme Director - Conduct Risk - Banking - £85...

    Business Analyst (Agile, SDLC, software)

    £45000 - £50000 Per Annum + excellent benefits: Clearwater People Solutions Lt...

    Finance Manager - Bank - Leeds - £300/day

    £250 - £300 per day + competitive: Orgtel: Finance Manager - Accountant - Bank...

    Compliance Officer - CF10, CF11, Compliance Oversight, AML, FX

    £100000 - £120000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fi...

    Day In a Page

    Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

    Noel Fielding's 'Luxury Comedy'

    A land of the outright bizarre
    What are the worst 'Word Crimes'?

    What are the worst 'Word Crimes'?

    ‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
    Can Secret Cinema sell 80,000 'Back to the Future' tickets?

    The worst kept secret in cinema

    A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
    Facebook: The new hatched, matched and dispatched

    The new hatched, matched and dispatched

    Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
    Why do we have blood types?

    Are you my type?

    All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
    Honesty box hotels: You decide how much you pay

    Honesty box hotels

    Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
    Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

    Michael Jamieson: Why weight of pressure rests easy on his shoulders

    The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
    Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

    The 'scroungers’ fight back

    The welfare claimants battling to alter stereotypes
    Amazing video shows Nasa 'flame extinguishment experiment' in action

    Fireballs in space

    Amazing video shows Nasa's 'flame extinguishment experiment' in action
    A Bible for billionaires

    A Bible for billionaires

    Find out why America's richest men are reading John Brookes
    Paranoid parenting is on the rise - and our children are suffering because of it

    Paranoid parenting is on the rise

    And our children are suffering because of it
    For sale: Island where the Magna Carta was sealed

    Magna Carta Island goes on sale

    Yours for a cool £4m
    Phone hacking scandal special report: The slide into crime at the 'News of the World'

    The hacker's tale: the slide into crime at the 'News of the World'

    Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
    We flinch, but there are degrees of paedophilia

    We flinch, but there are degrees of paedophilia

    Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
    The truth about conspiracy theories is that some require considering

    The truth about conspiracy theories is that some require considering

    For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn