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

Sable & Co has not been paid a large part of the prior-year audit fee by Mercer Co, which is a continuing client. The overdue fees are material relative to the annual audit fee, and the firm is about to start the current audit. Which approach is most appropriate under the IESBA Code?

The firm should evaluate the self-interest threat from the overdue fees, which may resemble a loan to the client, discuss payment with those charged with governance, apply safeguards such as payment before reporting or independent review, and consider withdrawal. The audit opinion must never be used as leverage.

  1. ADiscuss the overdue fees with those charged with governance, consider whether the debt is akin to a loan to the client, and if significant, arrange a payment or have a reviewer, and consider whether to resignCorrect
  2. BIgnore the overdue fees, as unpaid fees affect only the firm's cash flow
  3. CTreat the unpaid fees as a reduction in the audit fee for the current year
  4. DIssue a modified opinion until the fees are paid

Explanation

Large overdue fees can create a self-interest threat, since they may be seen as a loan to the client. The Code requires the firm to evaluate the threat, discuss payment with those charged with governance, and apply safeguards such as obtaining partial payment or an independent review, or consider withdrawing. Using the audit opinion as leverage would breach objectivity, and ignoring the debt overlooks the threat.

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