Advanced Audit and Assurance (International) · Advertising, tendering, and obtaining professional work and fees

Gifts, Hospitality and Referral Arrangements in ACCA AAA Ethics

Updated 11 October 2026 · Fact-checked

Under the IESBA Code, you must not offer or accept a gift or hospitality if you believe the intent is to improperly influence behaviour. If there is no such intent, evaluate the threat. A clearly insignificant or inconsequential value is acceptable; otherwise apply safeguards or decline. Referral fees and commissions create self-interest threats; apply safeguards or decline.

Understand Gifts, Hospitality and Referral Arrangements

Auditors must be objective and independent, in fact and in appearance. A gift from a client can make you feel obliged to the client. That is a self-interest threat. Regular lunches or events can create a familiarity threat, where you become too friendly to question the client. A gift that comes with pressure can create an intimidation threat.

The IESBA Code says you must not offer or accept a gift, hospitality or other inducement if you believe the intent is to improperly influence behaviour. If you do not believe there is such intent, you evaluate the threat. Where the value is clearly insignificant or inconsequential, the Code regards the threat as acceptable. The test is whether a reasonable and informed third party would conclude that the item is trivial and not intended to influence behaviour. If the item is above that level, you do not automatically refuse it. You evaluate how significant the threat is and apply safeguards to reduce it to an acceptable level. If you cannot, you decline. Consider the value, the frequency, the intent behind the offer, the seniority of the person receiving it and whether the gift is made openly.

A small gift, such as a branded pen or a modest working lunch, is usually fine. Expensive tickets, holidays, cash, lavish dinners or repeated hospitality are not. For listed or public interest entities the scrutiny is higher. Remember that a gift may also be a bribe. If you suspect that a client is trying to influence you improperly, you should consider your legal duties, including anti-money-laundering and anti-bribery reporting duties.

Referral fees and commissions work in two directions. If you pay a fee to obtain a client, or receive a fee for referring a client to a third party, you have a self-interest threat. You might favour the third party, or choose a client because of the payment. The Code does not ban these arrangements outright. It requires you to evaluate the threat and apply safeguards. Typical safeguards are disclosing the arrangement to the client, obtaining the client's informed agreement, and ensuring the advice given is genuinely in the client's interest. Check local law, because some jurisdictions restrict or prohibit such payments.

In the exam, treat this as a threats and safeguards question. Name the threat, judge its significance, and recommend a clear action that fits the facts.

Key rules to remember

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.

How to solve Gifts, Hospitality and Referral Arrangements questions

Use this method for any gift, hospitality, referral fee or commission scenario. It keeps your answer structured and earns professional skills marks.

1Read the requirement and mark what is asked: discuss ethical issues, advise the partner, or recommend actions.
2List the facts: who offers what, to whom, the value, the timing and whether it is a one-off or repeated.
3Name the fundamental principle at risk, mainly objectivity, and the threats: self-interest, familiarity or intimidation.
4Apply the clearly insignificant test for gifts and hospitality, and explain why the item passes or fails using the scenario facts.
5For referral fees or commissions, identify who pays and who receives, then assess the self-interest threat and any legal restriction.
6Recommend specific actions: decline, return the item, disclose to the client, inform the engagement partner or ethics partner, or remove a team member.
7Consider wider points: bribery suspicion, reporting duties, and the firm's own gifts policy and register.
8Conclude with a clear recommendation and keep a professional, sceptical tone.

Quickest way: Threat, test, action in three lines

When to use it: Use it when time is short and the question is a small part of a larger ethics requirement.

Write the threat in one line: for example, self-interest from an expensive gift.
Apply the test: is it clearly insignificant or inconsequential? Use one or two facts to justify.
State the action: decline or return, disclose, inform the partner, or apply safeguards for referral fees.
Add one extra point, such as a suspicion of bribery or a check of local law, to show judgement.

Common mistakes in Gifts, Hospitality and Referral Arrangements

Saying all gifts and hospitality must be refused.
Students remember that independence matters and overstate the rule.
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.
Students judge the amount as a personal opinion.
Fix: Frame the conclusion as what an informed outsider would think, and consider value, frequency and intent.
Not naming the threat.
Students write generally about independence.
Fix: Name self-interest, familiarity or intimidation, and tie each to a fact in the scenario.
Treating referral fees as banned in all cases.
Students confuse them with prohibited contingent arrangements.
Fix: Explain that they are a self-interest threat to be evaluated and safeguarded, subject to local law, and decline if safeguards are not enough.
Ignoring repeated hospitality.
Students look at one item and miss the pattern.
Fix: Consider cumulative value and frequency, since regular lunches can build a familiarity threat.
Giving no recommendation.
Students only list threats.
Fix: Always end with a specific action and who should take it.

Worked examples

Example 1

You are an audit senior on Lynx Co, a long-standing audit client. The finance director offers you and the audit manager two tickets to a major international sporting final, worth about $1,500 each, and says it is a thank you for good service. Discuss the ethical issues and recommend what you should do.

Show the solution

Threats: the tickets create a self-interest threat, since you may want to keep the benefit flowing. They also create a familiarity threat from the closer relationship, and possibly an intimidation threat if refusing could damage the relationship.
Test: the value of $1,500 each is not clearly insignificant or inconsequential. A reasonable and informed third party would see it as capable of influencing judgement.
Context: the offer comes from the finance director, who is a key person in the financial reporting process and whose judgements you must challenge, and it is described as a reward for service, which suggests an expectation of goodwill.
Action: decline the tickets politely and explain that firm policy and the IESBA Code prevent acceptance.
Report: tell the engagement partner and record the offer in the firm's gifts register, and consider whether the team needs to be reminded of the policy.
Wider view: if the offer looks aimed at influencing the audit, for example around a disputed judgement, consider whether it is an attempt at bribery and whether legal or reporting duties arise.

Answer: Decline the tickets. The value is not clearly insignificant, and acceptance would create self-interest and familiarity threats. Inform the engagement partner, record the offer, and consider bribery reporting duties if the intent looks improper.

Example 2

Your firm, Orca & Co, refers audit clients needing corporate finance advice to Delta Advisers. Delta offers Orca a 10% commission on fees from each client referred. Discuss the ethical issues and the safeguards available.

Show the solution

Threat: receiving a commission is a self-interest threat. Orca could refer clients to Delta because of the payment, not because Delta is best for the client.
Audit link: some referred clients are audit clients. Commission income from Delta could also affect Orca's objectivity on those audits, which strengthens the threat.
Significance: the threat depends on the size of the commission, the number of clients, and whether Orca's income relies on it.
Safeguards: disclose the arrangement to each client and obtain their informed agreement before referral.
Safeguards: compare alternative advisers, confirm Delta is competent, and document that the referral is in the client's interest.
Safeguards: have a partner not involved in the audit review the arrangement, and check local law and regulation, because some jurisdictions restrict or prohibit commissions.
If the threat cannot be reduced to an acceptable level, decline the commission or stop the referral.

Answer: The commission creates a self-interest threat, made worse for audit clients. Orca may accept it only with client disclosure and consent, independent referral choices, review by an uninvolved partner, and compliance with local law. Otherwise, it should decline.

Exam tips

Always name the threat and quote a fact from the scenario. Generic answers score few marks.
Use the exact wording clearly insignificant or inconsequential, and show how you applied it.
Finish with a firm recommendation, such as decline, disclose or escalate, and state who should act.
Look for hidden signals: repeated hospitality, seniority of the recipient, timing near a dispute, or a listed client.
Keep professional skills in mind by being sceptical, commercial and clear when you advise the partner.

Practice questions from Advertising, tendering, and obtaining professional work and fees

Gifts, Hospitality and Referral Arrangements: frequently asked questions

Can an auditor ever accept a gift from an audit client?

Yes, if the value is clearly insignificant or inconsequential, such as a small branded item. Judge it as a reasonable and informed third party would. If in doubt, decline.

Are referral fees allowed for accountants?

The IESBA Code does not ban them outright. You must evaluate the self-interest threat and apply safeguards such as client disclosure and agreement. Local law may restrict them, so check it first.

What threats do gifts and hospitality create?

Mainly self-interest, familiarity and intimidation threats to objectivity. Name the one that fits the facts, for example familiarity from regular hospitality.

What should I do if a client offers a gift I should not accept?

Decline or return it politely, explain the firm's policy, and tell the engagement partner. Record the offer in the gifts register. If you suspect bribery, consider your legal and reporting duties.