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

Ashby & Partners audits Telford Plc, a listed entity. Over the last two years, fees from Telford were 18% and 20% of the firm's total fee income. The engagement partner is concerned about the firm's reliance on Telford. Which response is most consistent with the IESBA Code?

With fees above 15% of total firm income for two consecutive years for a public interest entity, the firm must tell those charged with governance and apply a review safeguard by an independent accountant. It is not an automatic prohibition, nor reported in the audit report.

  1. AFor a public interest entity, disclose the fact to those charged with governance when the percentage exceeds 15% for two consecutive years, and apply a pre- or post-issuance review safeguardCorrect
  2. BNo action is needed unless the percentage exceeds 50%
  3. CResign immediately, as any percentage above 10% prohibits the audit
  4. DDisclose the percentage in the published audit report to shareholders

Explanation

For public interest entities, where total fees exceed 15% of the firm's fees for two consecutive years, the Code requires disclosure to those charged with governance and a review (pre- or post-issuance) by a professional accountant not involved in the audit, to reduce the self-interest and intimidation threats. There is no 10% prohibition and no 50% threshold, and fees dependence is not disclosed in the audit report.

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