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When is it appropriate to disclose a commission?

Software commission and ethics problem

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After attending a recent CPD course I have had to consider if my firm is in receipt of any commissions that should be disclosed to clients. I have looked at the ICAEW ethics rules and am unclear under which circumstances they apply. With the rise of cloud accounting, I'm sure many firms are in recent of a variety of commissions and rebates so what disclosures do we need to make?

Our firm has always been a Sage partner. Historically this just meant we could get a discount for a client if they bought their software through us. Sage would invoice us with a discount applied and we'd pass the cost through to the client with no alteration. We just considered this part of the service. In recent months this has changed considerably. I broadly have two scenarios to consider:

1. Desktop software paid for by the client directly

A very large proportion of our client base use Sage and due to the large upfront cost they often do not update it for years (some decades) at a time. As it becomes harder and harder to access their backups we will suggest to these clients that they upgrade. Alternatively the client may come to us unprompted to organise an upgrade. Either way, we make contact with Sage, discuss the position and get a price to move them to the newest subscription. The client saves money here as we secure them a discount for the initial period. Once everything is set up, Sage pay us a 20% commission on the subscription income they are now making.

My reading of the guidance is that we have to notify the client of this arrangement. Would others agree? Whilst I can see the reason to safeguard against accountants pushing the wrong product onto a client for financial gains but if the client already uses the software, what's the risk?

2. Cloud software paid by the firm

The second scenario is for the cloud based options where we purchase the licence for £x and sell it to the client for £y. For some bizarre reason Sage then also pays us a 20% commission on £x (why they can't just charge less in the first place is beyond me). To me that is simply a commercial transaction so we are not obliged to disclose this however I have had some advice that the 20% "refund" is a commission that needs to be disclosed.

Any advice on what other firms do would be greatly appreciated.

Replies (2)

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By lionofludesch
13th Nov 2017 18:11

Personally, I've never accepted commissions. If I get some kind of backhander, I pass that on to the client. Obviously, I charge for any time I've spent on the matter.

I just don't like having a financial interest in making the sale. Obviously, the positive side is I'll still charge for my time if the sale is abortive.

Also, clients like it.

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By Paul Scholes
14th Nov 2017 00:47

Regardless of scenarios and regulatory bodies, if you're uncomfortable disclosing to the client what you make from the deal something isn't right. So do what makes you feel comfortable.

I only use cloud based software (and not Sage) and, in the majority of cases, quote a total fee for everything I do, including providing the software. In the few cases where the software is a separate charge, I tell the client the discount I get and split it with them.

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