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

Hartwell & Partners audits Zeta plc, a listed entity, and has a relationship with Zeta in which fees from Zeta have represented a large proportion of total firm fees for two consecutive years. Under the IESBA Code, which is the most appropriate response for the firm?

The firm should disclose the fee dependency to those charged with governance and apply safeguards such as a pre-issuance review by another professional accountant. Fee dependency is a self-interest threat, especially relevant for listed clients, and the Code requires evaluation and action rather than automatic resignation.

  1. ADisclose the fee dependency to those charged with governance and apply safeguards, such as a pre-issuance review by another professional accountant, where the threat is significantCorrect
  2. BIgnore the matter, because fee dependency is only relevant to non-listed audit clients
  3. CResign from the engagement automatically, as the Code prohibits any significant fee level
  4. DAsk management to approve the audit fee level to remove the self-interest threat

Explanation

Fee dependency creates a self-interest (and intimidation) threat. For public interest entities, the Code requires disclosure to those charged with governance when fees exceed 15% for two consecutive years, and a review before the opinion is issued where appropriate. Automatic resignation is not mandated, and the issue matters particularly for listed entities.

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