ACCA Strategic Professional · Advanced Audit and Assurance (International)

Advertising, tendering, and obtaining professional work and fees: formula sheet

Full chapter guide

Key formulas

Core test for marketing: Acceptable = honest + truthful + not misleading + not damaging to the profession; Apply this to every claim in a scenario. If one part fails, the marketing breaches the Code.
Three prohibited behaviours: No exaggerated claims | No disparaging references to others' work | No unsubstantiated comparisons; Name the one that fits. Exaggerated claims cover services, qualifications and experience.
Fundamental principles engaged: Integrity + Professional behaviour; Misleading marketing is dishonest (integrity) and harms the profession's reputation (professional behaviour).
Claim test: Can the firm prove it? Yes = factual. No = unsubstantiated; Claims about rankings, market share or results need evidence on file.
Fundamental principles: Integrity, Objectivity, Professional competence and due care, Confidentiality, Professional behaviour; Name the principle at risk in each issue you spot.
Threat categories: Self-interest, Self-review, Advocacy, Familiarity, Intimidation; Low fees and the wish to win work are usually self-interest threats.
Acceptance test: Accept only if ethical requirements can be met and the firm has the competence, time and resources; This follows the ISQM 1 approach to acceptance of client relationships.
Clearance sequence: Client permission → contact outgoing auditor → outgoing auditor replies (with client consent to disclose) → assess → decide; No permission from the client means treat it as a red flag and normally decline.
Low-balling safeguards: Disclose fee basis to the client + assign enough time and competent staff + apply quality review; Show that quality is not reduced by a low fee.
Engagement letter: Agree terms (ISA 210) before starting the audit; Includes objective and scope, responsibilities, framework, expected report form and fee basis.
Fee dependency percentage: Fee dependency % = (Total fees from client and related entities ÷ Total fees of the firm) × 100; Include audit and non-audit fees. For a PIE, the Code's trigger is more than 15% for two consecutive years.
PIE fee dependency response: Fees > 15% for 2 consecutive years → disclose the fact and extent to TCWG and arrange a review of the second year's audit by a professional accountant outside the firm; Tell TCWG once fees first exceed 15%. The review is pre-issuance (before the opinion on the second year) or post-issuance (after it, before the next year's opinion). If fees stay above 15%, keep communicating and reviewing each year.
Non-PIE fee dependency: No fixed Code percentage; judge significance and apply safeguards; Do not quote 15% as a rule for private companies. Say the Code sets no fixed percentage and a firm may use its own policy limits.
Contingent fee on an audit: Audit fee depending on a result or outcome = not permitted; Self-interest threat is too significant for any safeguard to reduce it to an acceptable level.
Low-balling test: Fee must allow adequate time and appropriately skilled staff to meet professional standards; A low fee is acceptable only if quality is not compromised. Disclosing the fee basis to the client is a common safeguard.
Overdue fee test: Size of debt × length of time overdue = significance of the threat; Large, long-overdue fees can be seen as a loan to the client. Resolve them before issuing the report.
Gifts and hospitality test: Intent to improperly influence: do not offer or accept. No such intent: evaluate the threat. Clearly insignificant or inconsequential: threat acceptable. Otherwise: apply safeguards or decline; Judge it as a reasonable and informed third party would, not by your own view.
Threats created by gifts: Self-interest, familiarity, intimidation; Name the specific threat the facts create, and do not just say independence is threatened.
Factors to weigh: Value + frequency + intent + recipient's seniority + transparency; Use these as a checklist for every gift or hospitality scenario.
Referral fees and commissions: Evaluate the self-interest threat, apply safeguards, or decline; Typical safeguards are disclosure to the client, informed agreement, advice in the client's interest, and checking local law.
Three-step response: Identify the threat, evaluate its significance, address it or decline; This is the conceptual framework approach and gives a clear exam structure.

Quick revision

Threat categories: self-interest, self-review, advocacy, familiarity, intimidation.
Method: identify the threat, evaluate significance, apply safeguards or decline.
Marketing must be honest, not misleading and not disparage others.
Do not make exaggerated claims about services or qualifications.
Fees may be quoted at any level, but a very low fee creates a self-interest threat to quality.
Safeguards for low fees: make the client aware of the scope, assign suitable staff and time.
Fees depending on one client or overdue fees can threaten independence.
Contingent fees for audit engagements are not permitted.
Gifts and hospitality: acceptable only if value is clearly insignificant; otherwise decline.
Referral fees and commissions create self-interest threats and need safeguards or refusal.
Before bidding, check competence, resources, integrity and conflicts.
Always apply to the scenario and end with a clear recommendation.

Common mistakes

Saying audit firms are not allowed to advertise at all. Fix: State that advertising is allowed if it is honest and not misleading. The restriction is on how, not whether.
Naming the wrong fundamental principle, such as objectivity or confidentiality. Fix: Link misleading marketing to integrity and professional behaviour. Use others only if the scenario clearly raises them.
Saying low-balling is prohibited. Fix: Say it is permitted but creates a self-interest threat. Then show safeguards that protect quality.
Contacting the outgoing auditor without saying client permission is needed. Fix: State that you must first ask the client for permission. Treat a refusal as a warning sign.
Saying low-balling is unethical in itself. Fix: State that the fee level alone is not a breach. The threat is to competence and due care, so the firm must show it can still do a proper audit and tell the client the fee basis.
Applying the 15% fee dependency test to every client. Fix: The 15% trigger is for PIEs and applies when it is exceeded for two consecutive years. For non-PIEs, say the Code sets no fixed percentage and the firm judges significance.
Saying all gifts and hospitality must be refused. Fix: State that clearly insignificant or inconsequential items may be accepted, and explain how you judge that.
Using your own view of value instead of the reasonable and informed third party test. Fix: Frame the conclusion as what an informed outsider would think, and consider value, frequency and intent.

Exam tips

Always separate claims and judge each one. Marks go for showing which are acceptable and which are not.
Quote the scenario's wording, then apply the test. Generic rule recitals score low on application.
Name integrity and professional behaviour, and use the three prohibited behaviours as your checklist.
Finish with practical recommendations. Professional skills marks reward clear, commercial advice.
Watch for linked issues in the same scenario, such as fee quotes, gifts or referral payments, and deal with each under its own heading.
Tendering questions usually come with pressure facts, such as a big client, a very low fee or a refusal to allow contact. Find the pressure and build your answer around it.
Always show the client-permission step before contacting the outgoing auditor, and say that refusal is a red flag.
Use the format asked, such as a briefing note or email to the partner. Professional skills marks reward clear structure, judgement and tone.