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

Brennan LLP, an audit firm, is asked by a bank to refer its audit clients needing loans. The bank offers Brennan a 1% commission on every loan arranged. Brennan will continue to audit these clients. Which statement is correct under the IESBA Code?

Brennan should decline the commission. Being paid for referring audit clients to a bank creates a self-interest threat to independence that safeguards such as client consent or a low percentage cannot reasonably reduce to an acceptable level under the IESBA Code.

  1. AThe commission is acceptable provided it is disclosed to the bank's regulators
  2. BThe commission is acceptable if it is below 2% of the loan value
  3. CThe commission is acceptable if the clients give written consent after disclosure, with no need for safeguards
  4. DThe commission is a referral fee for an audit client that creates a self-interest threat which is unlikely to be reducible to an acceptable level, so it should be declinedCorrect

Explanation

Receiving a commission for referring an audit client to a third party creates a significant self-interest threat to independence and objectivity. The Code states that a firm should not accept commissions in such circumstances for audit clients because safeguards will rarely be sufficient. Client consent or a low rate does not resolve the threat.

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