Section 410Part 4A

Fees

Introduction

410.1 Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120Section 120 to identify, evaluate and address threats to independence. 410.2 Section 330Section 330 sets out application material relevant to applying the conceptual framework where the level and nature of fee and other remuneration arrangements might create a self-interest threat to compliance with one or more of the fundamental principles. This section sets out specific requirements and application material relevant to applying the conceptual framework to identify, evaluate and address threats to independence arising from fees charged to audit clients.

Requirements and Application Material

General

410.3 A1 Fees for professional services are usually negotiated with and paid by an audit client and might create threats to independence. This practice is generally recognized and accepted by intended users of financial statements.

Fees Paid by an Audit Client

410.4 A1 When fees are negotiated with and paid by an audit client, this creates a self-interest threat and might create an intimidation threat to independence. 410.4 A2 The application of the conceptual framework requires that before a firm or network firm accepts an audit or any other engagement for an audit client, the firm determines whether the threats to independence created by the fees proposed to the client are at an acceptable level. The application of the conceptual framework also requires the firm to re-evaluate such threats when facts and circumstances change during the engagement period for the audit. 410.4 A3 Factors that are relevant in evaluating the level of threats created when fees for an audit or any other engagement are paid by the audit client include: • The level of the fees and the extent to which they have regard to the resources required, taking into account the firm’s commercial and market priorities. • Any linkage between fees for the audit and those for services other than audit and the relative size of both elements. • The extent of any dependency between the level of the fee for, and the outcome of, the service. Whether the fee is for services to be provided by the firm or a network firm. • The level of the fee in the context of the service to be provided by the firm or a network firm. • The operating structure and the compensation arrangements of the firm and network firms. • The significance of the client, or a third party referring the client, to the firm, network firm, partner or office. • The nature of the client, for example whether the client is a public interest entity. • The relationship of the client to the related entities to which the services other than audit are provided, for example when the related entity is a sister entity. • The involvement of those charged with governance in appointing the auditor and agreeing fees, and the apparent emphasis they and client management place on the quality of the audit and the overall level of the fees. • Whether the level of the fee is set by an independent third party, such as a regulatory body. • Whether the quality of the firm’s audit work is subject to the review of the Institute. 410.4 A5 The requirements and application material that follow identify circumstances which might need to be further evaluated when determining whether the threats are at an acceptable level.

For those circumstances, application material includes examples of additional factors that might be relevant in evaluating the threats.

Level of Audit Fees

410.5 A1 Determining the fees to be charged to an audit client, whether for audit or other services, is a business decision of the firm taking into account the facts and circumstances relevant to that specific engagement, including the requirements of technical and professional standards. 410.5 A2 Factors that are relevant in evaluating the level of self-interest and intimidation threats created by the level of the audit fee paid by the audit client include: • The firm’s commercial rationale for the audit fee. • Whether undue pressure has been, or is being, applied by the client to reduce the audit fee. 410.5 A3 Examples of actions that might be safeguards to address such threats include: • Having an appropriate reviewer who does not take part in the audit engagement assess the reasonableness of the fee proposed, having regard to the scope and complexity of the engagement. • Having an appropriate reviewer who did not take part in the audit engagement review the work performed.

Impact of Other Services Provided to an Audit Client

R410.6

Subject to paragraph R410.7, a firm shall not allow the audit fee to be influenced by the provision of services other than audit to an audit client by the firm or a network firm. 410.6 A1 The audit fee ordinarily reflects a combination of matters. However, the provision of other services to an audit client is not an appropriate consideration in determining the audit fee.

R410.7

As an exception to paragraph R410.6, when determining the audit fee, the firm may take into consideration the cost savings achieved as a result of experience derived from the provision of services other than audit to an audit client.

Contingent Fees

R410.9

The fees which are based on a percentage of profits or which are contingent upon the findings, or results of such work, is not allowed except in cases which are permitted under Regulation 192 of The Chartered Accountants Regulations, 1988, given as under:-

(a)

in the case of a receiver or a liquidator, the fees may be based on a percentage of the realization or disbursement of the assets;

(b)

in the case of an auditor of a co-operative society, the fees may be based on a percentage of the paid-up capital or the working capital or the gross or net income or profits;

(c)

in the case of a valuer for the purposes of direct taxes and duties, the fees may be based on a percentage of the value of the property valued.

(d)

in the case of certain management consultancy services as may be decided by the resolution of the Council from time to time, the fees may be based on percentage basis which may be contingent upon the findings, or results of such work;

(e)

in the case of certain fund raising services, the fees may be based on a percentage of the fund raised;

(f)

in the case of debt recovery services, the fees may be based on a percentage of the debt recovered;

(g)

in the case of services related to cost optimisation, the fees may be based on a percentage of the benefit derived; and

(h)

any other service or audit as may be decided by the Council.

Note: Following activities have been decided by the Council under clause “h” above-:

(i)

In the case of Insolvency professional the fees may be based on percentage of recovery/assets for the services rendered Insolvency and Bankruptcy Code, 2016 and rules framed thereunder.

(ii)

In the case of Non-Assurance services to Non-Audit Clients, the fees may be charged on contingent basis. Total Fees – Proportion of Fees for Services Other than Audit to Audit Fee 410.11 A1 The level of the self-interest threat might be impacted when a large proportion of fees charged by the firm or network firms to an audit client is generated by providing services other than audit to the client, due to concerns about the potential loss of either the audit engagement or other services. Such circumstances might also create an intimidation threat. A further consideration is a perception that the firm or network firm focuses on the non-audit relationship, which might create a threat to the auditor’s independence. 410.11 A2 Factors that are relevant in evaluating the level of such threats include: • The ratio of fees for services other than audit to the audit fee. • The length of time during which a large proportion of fees for services other than audit to the audit fee has existed. • The nature, scope and purposes of the services other than audit, including: ○ Whether they are recurring services. ○ Whether law or regulation mandates the services to be performed by the firm. 410.11 A3 Examples of actions that might be safeguards to address such self-interest or intimidation threats include: • Having an appropriate reviewer who was not involved in the audit or the service other than audit review the relevant audit work. • Reducing the extent of services other than audit provided to the audit client.

The above is subject to the provisions of Chapter-VI

“Appointment as Statutory Auditor” of Guidelines on Ethical Issues, 2026 (Ref. Code of Ethics, Volume I).

Total Fees – Overdue Fees

410.12 A1 The level of the self-interest threat might be impacted if fees payable by an audit client for the audit or services other than audit are overdue during the period of the audit engagement. 410.12 A2 It is generally expected that the firm will obtain payment of such overdue fees before the audit report is issued. 410.12 A3 Factors that are relevant in evaluating the level of such a self-interest threat include: • The significance of the overdue fees to the firm. • The length of time the fees have been overdue. • The firm’s assessment of the ability and willingness of the audit client to pay the overdue fees. 410.12 A4 Examples of actions that might be safeguards to address such a threat include: • Obtaining partial payment of overdue fees. • Having an appropriate reviewer who did not take part in the audit engagement review the audit work.

R410.13

When a significant part of the fees due from an audit client remains unpaid for a long time, the firm shall determine:

(a)

Whether the overdue fees might be equivalent to a loan to the client, in which case the requirements and application material set out in section 511section 511 are applicable; and

(b)

Whether it is appropriate for the firm to be re-appointed or continue the audit engagement.

The above is subject to the provisions of Chapter-X “Non-

payment of undisputed Audit fees” of Guidelines on Ethical Issues, 2026 (Ref. Code of Ethics, Volume I).

Total Fees – Fee Dependency

All Audit Clients

410. 14 A1 When the total fees generated from an audit client by the firm expressing the audit opinion represent a large proportion of the total fees of that firm, the dependence on , and concern about the potential loss of, fees from audit and other services from that client impact the level of the self-interest threat and create an intimidation threat. 410.14 A2 In calculating the total fees of the firm, the firm might use financial information available from the previous financial year and estimate the proportion based on that information if appropriate. 410.14 A3 Factors that are relevant in evaluating the level of such self-interest and intimidation threats include: • The operating structure of the firm. • Whether the firm is expected to diversify such that any dependence on the audit client is reduced. 410.14 A4 Examples of actions that might be safeguards to address such threats include;- • Having an appropriate reviewer who is not a member of the firm review the audit work. • Reducing the extent of services other than audit provided to the audit client. • Increasing the client base of the firm to reduce dependence on the client. • Increasing the extent of services provided to other clients.

410. 14 A5 A self-interest or intimidation threat is created when the fees generated by a firm from an audit client represent a large proportion of the revenue of one partner or one office of the firm. 410.14 A6 Factors that are relevant in evaluating the level of such threats include: • The qualitative and quantitative significance of the audit client to the partner or office. • The extent to which the compensation of the partner, or the partners in the office, is dependent upon the fees generated from the client. 410.14 A7 Examples of actions that might be safeguards to address such self-interest or intimidation threats include: • Having an appropriate reviewer who was not involved in the audit engagement review the audit work. • Ensuring that the compensation of the partner is not significantly influenced by the fees generated from the client. • Reducing the extent of services other than audit provided by the partner or office to the audit client. • Increasing the client base of the partner or the office to reduce dependence on the client. • Increasing the extent of services provided by the partner or the office to other clients.

Audit Clients that are Not Public Interest Entities

R410.15

Where an audit client is not a public interest entity and for five consecutive years, the total gross annual professional fees (“total fees”) from the client and its related entities represent more than 40% of the total fees received by the firm expressing the opinion on the financial statements of the client, the firm shall:

Disclose to the Institute the fact that for five consecutive years, the total of such fees represents more than 40% of the total fees received by the firm. Provided that no such ceiling on the total fees of the firm shall be applicable where total fees of the firm does not exceed fifty lakhs of rupees in respect of a firm including fees received by the firm for other services rendered. Provided further that no such ceiling on the total fees of the firm shall be applicable where total fees from any audit client and its related entities do not exceed twenty lakhs of rupees. Provided further that no such ceiling on the total fees of a firm would be applicable in the case of audit of government Companies, public undertakings, nationalised banks, public financial institutions or where appointments of auditors are made by the Government or Regulators.

R410.16

If the fees described in paragraph R410.15 continue to exceed 40% after five years, the firm shall each year disclose to the Institute the matters set out in paragraph R410.15.

Audit Clients that are Public Interest Entities

R410.18

Where an audit client is a public interest entity and for two consecutive years, the total gross annual professional fees (“total fees”) from the client and its related entities represent more than 20% of the total fees received by the firm expressing the opinion on the financial statements of the client, the firm shall disclose to the Institute the fact that for two consecutive years, the total of such fees represents more than 20% of the total fees received by the firm. Provided that no such ceiling on the total fees of the firm shall be applicable where total fees of the firm does not exceed fifty lakhs of rupees in respect of a firm including fees received by the firm for other services rendered. Provided further that no such ceiling on the total fees of the firm shall be applicable where total fees from any audit client and its related entities do not exceed twenty lakhs of rupees. Provided further that no such ceiling on the total fees of a firm would be applicable in the case of audit of government Companies, public undertakings, nationalised banks, public financial institutions or where appointments of auditors are made by the Government or Regulators.

R410.20

If the fees described in paragraph R410.18 continue to exceed 20% after two years, the firm shall each year disclose to the Institute the matters set out in paragraph R410.18.