New Jersey Permits Commissions and Contingent Fees

By Ann E. Spaulding

The New Jersey State Board of Accountancy adopted regulations on November 16 that allow commission and contingent fee arrangements for CPAs licensed in the state.

The new regulations track the AICPA's rules with some differences. The New Jersey rules do not allow commissions or contingent fees if the CPA performs a compilation of a financial statement accompanied by a report. The AICPA prohibits commissions or contingent fees in this situation if the member's compilation report does not disclose a lack of independence. Therefore, if a CPA disclaims independence on a compilation report, he or she could receive a commission or contingent fee according to AICPA but not New Jersey rules.

The New Jersey regulations also clarify AICPA rules requiring disclosure to the person to whom the CPA recommends a product or service to which a commission relates. New Jersey requires that the notification be in writing, contemporaneously with or before the recommendation, and signed and dated by the person who receives the referral. The AICPA rule is silent about these three matters.

One unique aspect of New Jersey's regulations is an added category called "performance fees." The regulations define performance fees as "compensation to a licensee on the basis of a share of the capital gains upon, or the capital appreciation of, the funds or any portion of the funds of a client."