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

Brightwell LLP is invited to tender for the audit of Corvan plc, a listed manufacturer. Before submitting a fee, the engagement partner proposes quoting a fee well below expected cost to win the work, intending to recover the shortfall through non-audit services in later years. Which is the most appropriate assessment under the IESBA Code?

A low fee is acceptable only if the firm can still perform the audit to ISA standards with sufficient time and qualified staff. Otherwise it creates a self-interest threat to professional competence and due care. The Code does not prohibit low fees outright, so safeguards and clear communication of terms are what matter.

  1. AAcceptable, provided the fee is disclosed to the previous auditor
  2. BAcceptable, because fees are purely a commercial matter outside the Code
  3. CNot acceptable, because a fee significantly below that of the predecessor is irrelevant but cross-subsidy through non-audit work is always prohibited
  4. DAcceptable only if the firm can demonstrate it has the resources to perform the audit in accordance with ISAs and applies appropriate time and skills, otherwise a self-interest threat to professional competence and due care arisesCorrect

Explanation

The Code states that a low fee is not in itself unethical, but it creates a self-interest threat to compliance with professional competence and due care if the fee is so low that it is difficult to perform the engagement to professional standards. The firm must ensure appropriate time and qualified staff are assigned and that the client is aware of the terms. Option C is wrong because cross-subsidy is not prohibited outright and the fee comparison point is mis-stated.

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