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

Quill Audit proposes to Rowan Co a contingent arrangement: the fee for the statutory audit will be $40,000 if the audit opinion is unmodified, and $15,000 if it is modified. Separately, the firm offers a tax advisory service with a fee based on the tax saving achieved, which is dependent on the tax authority's final ruling and is material. Which statement is correct under the IESBA Code?

Both are inappropriate. An audit fee dependent on the opinion is a prohibited contingent fee, and a material contingent fee for a non-assurance service to an audit client creates a self-interest threat that safeguards cannot reduce to an acceptable level. Disclosure to the audit committee does not cure it.

1. ABoth arrangements are inappropriate: the audit fee is prohibited as a contingent fee, and the material tax fee creates a self-interest threat that no safeguard can reduce to an acceptable level for an audit clientCorrect
2. BBoth arrangements are acceptable if disclosed to the audit committee
3. CThe audit fee is prohibited but the tax fee is always acceptable
4. DThe audit fee is acceptable but the tax fee is prohibited