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ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

Orlin plc's external auditor has proposed a fee for the audit that is 40% below the previous year's fee, with the firm hoping to earn substantial non-audit consulting fees from Orlin later. Which is the MOST significant ethical concern under the IESBA-based approach to independence?

The main concern is a self-interest threat: a heavily discounted audit fee relying on future consulting income creates commercial dependence and may reduce the work done, impairing audit quality and objectivity. Fees may be negotiated, so the problem is the dependence and quality risk, not negotiation itself.

  1. AThe low audit fee may compromise audit quality and the firm's objectivity because of commercial dependence on the client's other workCorrect
  2. BThe audit fee must always equal the previous year's fee to be ethical
  3. CFees can never be negotiated between auditor and client
  4. DLow fees only matter if the client is unlisted

Explanation

A fee set so low that it is only viable through anticipated non-audit work creates a self-interest threat, and may mean insufficient audit work is performed. Fees can be negotiated, and there is no rule that they must equal prior fees. Listed status makes the concern greater, not lesser.

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