Fees

Introduction

410.1 Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. 410.2 Section 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.