Luther King works for a CPA firm and eventually hopes to make partner. Allnet Company invites him to prepare a bid to audit the Allnet financial statements. In discussing the audit fee, Allnet suggests a fee structure in which the fee depends on the profit of the company. If the Allnet profit is higher, the fee to King's CPA firm will be higher.
1. Identify the parties potentially affected by this plan.
2. Would you recommend that King accept this audit fee arrangement?
3. Describe some considerations guiding your recommendation.