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

At the end of the year, Pell & Co has not been paid the prior-year audit fee of $60,000 by its audit client, Ostra Ltd, which is a significant sum relative to the current year's fee of $75,000. Which is the most appropriate consideration under the IESBA Code?

Significant unpaid prior-year fees create a self-interest threat because they may be seen as a loan to the client. The firm should agree payment arrangements with the client and assess whether safeguards, such as an independent review, are enough before issuing the audit report.

  1. AOverdue fees may be treated as a loan, so are always acceptable for the auditor
  2. BOverdue fees create a self-interest threat, and the firm should discuss payment arrangements and consider whether the outstanding amount could be seen as a loan to the client and whether it is appropriate to issue the reportCorrect
  3. CThe audit opinion must be withheld whenever any fee is unpaid
  4. DOverdue fees only affect the firm's liquidity and have no ethical implication

Explanation

Under the Code, when a significant part of fees is unpaid for a long time, a self-interest threat arises because it may be equivalent to a loan to the client. The firm should discuss terms with those charged with governance, consider whether it can issue the report, and consider safeguards such as a review by another professional accountant. Withholding the opinion automatically is not required, and the matter is ethical, not just financial.

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