Audit and Assurance · Professional ethics and ACCA's Code of Ethics and Conduct

Ethical Issues on Fees, Gifts and Relationships in Audit

Updated 11 October 2026 · Fact-checked

These are specific situations where the ACCA Code of Ethics threatens auditor independence: fee dependence, contingent fees, gifts, family or financial links, loans, long association and non-audit services. Identify the threat, judge its significance, then apply a safeguard such as a second partner review, rotation or declining the work.

Understand Specific Ethical Situations: Fees, Gifts, Relationships

The Code does not give a rule for every case. It asks you to spot a threat to the fundamental principles, decide if it is significant, and apply safeguards to remove it or reduce it to an acceptable level. If no safeguard works, you decline or end the engagement.

The main threats are self-interest (the firm gains financially), self-review (the firm checks its own work), advocacy (the firm promotes the client), familiarity (too close to the client) and intimidation (pressure from the client). Each situation in this topic maps to one or more of these.

Fees: if one client provides a large share of a firm's income, the firm may fear losing it. That is a self-interest and intimidation threat. The Code's provisions for a public interest entity (PIE) refer to fees from the entity representing more than 15% of the firm's total fees for two consecutive years. In that case the firm must disclose this to those charged with governance and apply a pre- or post-issuance review of the second year's audit engagement as a safeguard. The disclosure and review do not stop after the first breach. The firm keeps monitoring and considers them again each further year the fees stay above that level. For non-PIEs the Code gives no fixed percentage. A 10% guide for non-listed clients is a study-text convention, so use it only when the question gives it. The percentage is a trigger for action, not an automatic ban. Contingent fees (fees based on the outcome of the work) are not allowed for audit engagements, because the result would depend on the opinion given.

Gifts and hospitality: accepting them can create self-interest and familiarity threats. Trivial and inconsequential items are fine. Anything more should be declined unless the value is clearly insignificant.

Financial interests and family relationships are separate from gifts. A direct or material indirect financial interest in an audit client is a serious self-interest threat. The safeguard is to dispose of the interest. If the holder is a member of the audit team, that person must be removed from the team. A close family member of a team member who holds a key position at the client creates a familiarity or self-interest threat. The usual response is to remove that team member from the audit.

Loans, long association and non-audit services: a loan to or from a non-bank audit client creates a serious self-interest threat that is usually unacceptable. A loan from a client that is a bank, on normal commercial terms, is acceptable. Using the same senior people for many years creates familiarity, so the Code requires rotation of key audit partners. For PIEs a key audit partner rotates after a maximum of seven years, followed by a cooling-off period. Providing non-audit services such as bookkeeping, valuations or tax advice can create self-review and advocacy threats, and for PIEs many services are prohibited or restricted.

Key rules to remember

Fee dependence guide: Fees from one client ÷ total firm fees × 100, compared with 15% for a PIE (more than 15% for two consecutive years) or with the guide in the question for a non-PIE; For a PIE, the Code's provisions refer to fees above 15% of total fees for two consecutive years: disclose to those charged with governance and apply a pre- or post-issuance review of the second year's engagement. Keep monitoring each further year the fees stay above the level. For non-PIEs the Code gives no fixed percentage. A 10% guide is a study-text convention, so use the figure the question gives.
Contingent fees: Fee depends on outcome of the audit work = not permitted; Prohibited for audit and assurance engagements. For non-assurance services to audit clients, contingent fees are prohibited if the fee is material or depends on a judgement related to a material audit matter. Otherwise, assess the threat and apply safeguards.
Gifts and hospitality: Value trivial and inconsequential → may accept; otherwise decline; Consider value, frequency, intent and whether it is customary. Report to the firm.
Financial interests: Direct or material indirect interest in an audit client → serious self-interest threat → dispose of the interest; If the holder is a member of the audit team, remove that person from the team.
Long association: Same senior personnel for too long → familiarity threat → rotate; For PIEs, key audit partners rotate after a maximum of seven years, with a cooling-off period. If the question gives a different period, use it.
Overdue fees: Large unpaid fees = loan to client; Self-interest threat. Consider whether to issue the report before fees are settled.

How to solve Specific Ethical Situations: Fees, Gifts, Relationships questions

Use the same method for any scenario question on fees, gifts or relationships.

1Read the scenario and underline each fact: amounts, percentages, years, roles, relationships.
2Name the issue (for example, fee dependence or family relationship) and the type of threat: self-interest, self-review, advocacy, familiarity or intimidation.
3State whether the client is listed or a PIE, because stricter rules apply.
4Judge significance using the facts, such as the percentage, value or seniority. Say if the threat is significant or not.
5Give specific safeguards: rotate the partner, remove the person from the team, independent review, disclose to those charged with governance, or decline the work.
6Conclude clearly: continue with safeguards, or resign or refuse if none works.

Quickest way: Threat, size, safeguard

When to use it: Use it for Section A and B objective questions and for short parts of a Section C answer when time is tight.

Match the fact to a threat label in a few words.
Check for a hard prohibition or an unacceptable item: contingent audit fee, direct financial interest, or a loan to or from a non-bank client (a serious self-interest threat, usually unacceptable). A bank loan on normal commercial terms is acceptable.
If prohibited, the answer is to stop or dispose. If not, pick the safeguard that fits the threat.
For written parts, use one line each: issue, threat, safeguard.

Common mistakes in Specific Ethical Situations: Fees, Gifts, Relationships

Treating the 15% fee figure as a legal ban.
Students memorise the number without its purpose.
Fix: Say it is a trigger for safeguards such as independent review and disclosure, and note the two-year condition.
Allowing a contingent fee on an audit with safeguards.
Students assume every threat has a safeguard.
Fix: Contingent fees on audits are prohibited. No safeguard fixes it.
Naming the wrong threat, such as self-review for a gift.
Threat labels are mixed up.
Fix: Gifts are self-interest and familiarity. Own work checked is self-review. Promoting the client is advocacy.
Giving generic safeguards like 'be independent'.
Students run out of time or ideas.
Fix: Name a concrete action: rotate the partner, use a separate team, appoint a reviewer, tell those charged with governance.
Ignoring the PIE or listed status.
The detail is buried in the scenario.
Fix: Check client status first. Stricter rules on rotation, fees and non-audit services apply to PIEs.
Saying all non-audit services are banned.
Over-simplification of the self-review threat.
Fix: Many are allowed with safeguards for non-PIEs. Judge the service, its materiality and whether management decisions are taken by the auditor.

Worked examples

Example 1

Alpha & Co audits Zed Ltd, a listed company, which is a public interest entity. Zed's fees were 18% of Alpha's total fees this year and 17% last year. Zed's audit partner has led the audit for four years. Discuss the ethical issues and the actions Alpha should take.

Show the solution

Issue: fee dependence. 18% and 17% are both above the 15% level in the Code's PIE provisions, and this has lasted two consecutive years. This year is the second year.
Threat: self-interest, because Alpha may fear losing Zed, and intimidation if Zed pressures the firm.
Significance: high, as Zed is a PIE and the level is persistent.
Required actions: disclose the fee dependence to those charged with governance at Zed, and apply a pre- or post-issuance review of this year's (the second year's) audit, for example a review by an independent partner before the report is issued.
Alpha must keep monitoring: if fees stay above 15% in later years, disclosure and review are considered again each year, not only on the first breach.
Resignation is only considered if the threat cannot be reduced to an acceptable level by these actions.
Partner tenure: PIE key audit partners rotate after a maximum of seven years, so four years is within the limit. Alpha should still plan for rotation.
Conclusion: Alpha can continue if it discloses to those charged with governance and applies the review.

Answer: Fees above 15% for two consecutive years from a PIE create a significant self-interest threat. Alpha should disclose this to those charged with governance and apply a pre- or post-issuance review of the second year's audit, and keep monitoring each further year. It should consider resigning only if the threat cannot be reduced. The partner's four years is within the seven-year PIE limit, but rotation should be planned.

Example 2

Beta LLP audits Quin Ltd, an unlisted company. The audit manager's spouse was recently appointed finance director of Quin. Quin has also offered Beta a fee that is 20% higher if the audit results in a clean opinion. Explain the ethical issues and what Beta should do.

Show the solution

Issue 1: close family relationship. The spouse is in a key financial position, so the manager has a familiarity and self-interest threat.
Safeguard: remove the manager from the audit team immediately, and review work the manager has done recently.
Issue 2: the higher fee depends on a clean opinion. This is a contingent fee on an audit.
Contingent fees on audits are prohibited because the opinion would be influenced by the fee. No safeguard is enough.
Action: Beta must decline the contingent arrangement and keep the fee fixed, based on time and risk.

Answer: Remove the manager from the team and review recent work. Reject the contingent fee, as it is prohibited on an audit. Agree a fixed fee that reflects the work required.

Exam tips

Always name the threat type and the safeguard. Marks are given for both, not just for spotting the issue.
Quote the figure from the question. If it gives a threshold, use it instead of one from memory.
In objective questions, look for the prohibited or unacceptable item: contingent audit fees, direct financial interests, loans to or from a non-bank client.
In Section C, use a short table-style layout in lines: issue, threat, action. Conclude with continue, safeguard or resign.
Check whether the client is listed or a PIE before writing anything else.

Specific Ethical Situations: Fees, Gifts, Relationships: frequently asked questions

What is the fee dependency rule for listed clients in ACCA AA?

For a PIE, the Code's provisions refer to fees representing more than 15% of the firm's total fees for two consecutive years. The firm must then disclose this to those charged with governance and apply a pre- or post-issuance review of the second year's engagement. It keeps monitoring each further year the fees stay above that level. For non-PIEs the Code gives no fixed percentage, and a 10% guide is a study-text convention. Use it only when the question gives it.

Are contingent fees allowed for an audit?

No. Contingent fees for audit engagements are prohibited because the fee would depend on the result of the work. For non-assurance services to audit clients, contingent fees are prohibited if the fee is material or depends on a judgement related to a material audit matter. Otherwise you must assess the threat and apply safeguards.

Can an auditor accept gifts and hospitality from a client?

Only if the value is trivial and inconsequential. Larger or frequent gifts create self-interest and familiarity threats, so they should be declined.

Why does long association with an audit client matter?

Using the same senior people for many years creates a familiarity threat and reduces scepticism. The usual safeguard is rotation of senior staff and key audit partners, with a cooling-off period for PIEs.

Can an audit firm provide non-audit services to an audit client?

Often yes for non-PIE clients, provided threats such as self-review are managed with safeguards like separate teams. For PIEs, many services are prohibited or restricted, so you must assess the service and the client type.