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

Dalton & Co, an audit firm, is invited to tender for the audit of Verity Ltd. To win the work, the engagement partner proposes a fee well below the level needed to perform an audit under ISAs, saying the shortfall will be recovered through later non-audit services. Under the IESBA Code, which statement is most accurate?

A very low audit fee is not banned outright, but it creates a self-interest threat to professional competence and due care. The firm must make sure the audit can still be done to professional standards, with enough time and suitably qualified staff, rather than relying only on telling the client.

  1. AQuoting a significantly low fee is prohibited in all circumstances because it always breaches the Code
  2. BQuoting a low fee is acceptable provided the client is told about it in writing, with no other action needed
  3. CQuoting a low fee may create a self-interest threat to professional competence and due care, and the firm must ensure the audit can still be performed to professional standardsCorrect
  4. DA low fee only creates a threat if the firm is a listed-company auditor

Explanation

The IESBA Code does not ban low fees, but a significantly low fee creates a self-interest threat to compliance with the fundamental principle of professional competence and due care. The firm must apply safeguards, such as making the client aware of the terms and scope and assigning adequate time and qualified staff. Disclosure alone is not enough, and the rule is not limited to listed entities.

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