A practicing Chartered Accountant, Mr. P, is approached by a prominent retail chain to conduct "Mystery Audits" at their stores. The goal of the…

According to Clause (10) of Part I of First Schedule to the Chartered Accountants Act, 1949, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he charges or offers to charge, accepts or offers to accept in respect of any professional employment fees which are based on a percentage of profits or which are contingent upon the findings, or results of this employment, except as permitted under any regulations made under this Act. Further, as per Recent Decisions of Ethical Standards Board, it is permissible for a member in practice to accept the assignment of Mystery Audit. In the given case, Mr. P, a practicing Chartered Accountant, has accepted the assignment of Mystery Audit and structured his professional fees to be contingent upon the number of operational lapses and non-compliance he identifies, with higher fee for more significant findings. While acceptance of the Mystery Audit assignment per se is permissible, the fee arrangement being contingent upon the findings is not allowed. Accordingly, Mr. P would be held guilty of professional misconduct under Clause (10) of Part I of the First Schedule to the Chartered Accountants Act, 1949 for charging fees which are contingent upon the findings.