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

Lindqvist & Co, an audit firm, proposes to pay a referral fee to another firm that introduced a new audit client. The fee is a share of the audit fee for the first two years. Which is the main consideration for Lindqvist under the IESBA Code?

Lindqvist must assess whether the referral fee creates a self-interest threat to objectivity and whether safeguards, such as disclosing the arrangement to the client and independent review of work, can reduce it to an acceptable level. Secrecy or fee comparisons are not relevant tests.

  1. AWhether the fee creates a self-interest threat to objectivity and whether safeguards, such as disclosure to the client and having the work reviewed, can reduce it to an acceptable levelCorrect
  2. BWhether the fee is lower than the audit fee the introducer would have earned
  3. CWhether the introducing firm is in the same country as Lindqvist
  4. DWhether the introducing firm has agreed to keep the arrangement confidential from the client

Explanation

Paying or receiving referral fees can create self-interest and other threats to the fundamental principles. The firm must evaluate those threats and apply safeguards such as disclosure to the client and review of the work. Confidentiality from the client would worsen transparency, and location or relative fee size is not the test.

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