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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional and ethical developments

Harlow Partners audits Drennan plc, a listed company. Over the last two years, total fees from Drennan, including non-audit services, have exceeded 15% of Harlow's total annual fee income. Under the IESBA Code, which action is required for a PIE audit client where this has happened?

Harlow must communicate the fee dependency to those charged with governance and have an appropriate reviewer assess the audit work, using a pre-issuance review after the second year, since the IESBA Code requires this for PIE clients when fees exceed 15% of the firm's income for two consecutive years.

  1. AHarlow must resign immediately from the audit because fee dependency above 15% is an absolute prohibition
  2. BHarlow must disclose this to those charged with governance and apply a pre-issuance or post-issuance review as a safeguard, depending on the periodCorrect
  3. CHarlow must reduce audit fees to below 15% of its income by discounting the audit fee for Drennan
  4. DHarlow need take no action, because the Code only restricts fee dependency for non-listed audit clients

Explanation

For PIE clients, the Code requires disclosure to those charged with governance where total fees exceed 15% for two consecutive years, and an appropriate reviewer must carry out a pre-issuance review after the second year, with continuing reviews if the situation persists. The Code does not mandate immediate resignation at that point, and discounting the fee would create a different problem rather than solve dependency. The rule applies specifically to PIEs.

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