November 1999

The NYSSCPA offers assistance with members' questions on ethics and regulation. The following is a ruling recently adopted by the AICPA. Although the Society does not officially adopt AICPA rulings, the Professional Ethics Committee uses them as guidance for members.

Contingent Fees and Commissions

A member or member's firm provides for a contingent fee investment advisory services, or refers for a commission products or services of a nonclient or a nonattest client, to the owners, officers, or employees of an attest client or to a nonattest client employee benefit plan sponsored by an attest client. Would the member be considered to be in violation of either Rule 302 or Rule 503?

No. The member would not be in violation of either Rule 302 or Rule 503 provided that, with respect to Rule 503, the member discloses the commission to the owners, officers, or employees, or to the employee benefit plan. The member should also consider the applicability of Interpretation 102-2, Conflicts of Interest, and his or her professional responsibility to clients under Rule 301, Confidential Client Information.

Confidential Information on Management Consulting Services Engagements

In the course of performing a feasibility study, a nonclient outside source has provided pertinent information to the member's firm with the understanding that the source and the details of the information will not be disclosed. The information, which the firm believes is pertinent, directly affects its conclusions and recommendations. How may this information be utilized in connection with the feasibility study engagement and related conclusions and recommendations?

Rule 301 regarding confidential client information is not directly applicable to the circumstances described; however, Rule 501--Acts Discreditable--is applicable to situations involving confidential relationships with nonclients. For an engagement in which it appears likely that the development of pertinent information must come from outside nonclient sources and such information must remain confidential, the engagement terms should specify that the confidences of outside nonclient sources will not be divulged by the member's firm even when they might affect the outcome of the engagement. If the use of confidential outside sources is necessary and the engagement terms are silent regarding disclosure of source and details, the member should promptly seek the approval of the client to present his or her recommendations without making disclosures that include confidential information. If the client does not agree to this, the member should withdraw rather than breach a confidence or improperly limit the inclusion of information in his or her final recommendation. *