Fees - Relative Size
| 290.220 | When the total fees from an audit client represent a large proportion of the total fees of the firm expressing the audit opinion, the dependence on that client and concern about losing the client creates a self-interest or intimidation threat. The significance of the threat will depend on factors such as: |
| • | The operating structure of the firm; |
| • | Whether the firm is well established or new; and |
| • | The significance of the client qualitatively and/or quantitatively to the firm. |
The significance of the threat shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards include:
| • | Reducing the dependency on the client; |
| • | External quality control reviews; or |
| • | Consulting a third party, such as the Regulatory Board or another registered auditor, on key audit judgments. |
| 290.221 | A self-interest or intimidation threat is also created when the fees generated from an audit client represent a large proportion of the revenue from an individual partner's clients or a large proportion of the revenue of an individual office of the firm. The significance of the threat will depend upon factors such as: |
| • | The significance of the client qualitatively and/or quantitatively to the partner or office; and |
| • | The extent to which the remuneration of the partner, or the partners in the office, is dependent upon the fees generated from the client. |
The significance of the threat shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards include:
| • | Reducing the dependency on the audit client; |
| • | Having a registered auditor review the work or otherwise advise as necessary; or |
| • | Regular independent internal or external quality reviews of the engagement. |
Audit Clients that are Public Interest Entities
| 290.222 | Where an audit client is a public interest entity and, for two consecutive years, the total fees from the client and its related entities (subject to the considerations in paragraph 290.27) represent more than 15% of the total fees received by the firm expressing the opinion on the financial statements of the client, the firm shall disclose to those charged with governance of the audit client the fact that the total of such fees represents more than 15% of the total fees received by the firm, and discuss which of the safeguards below it will apply to reduce the threat to an acceptable level, and apply the selected safeguard: |
| • | Prior to the issuance of the audit opinion on the second year's financial statements, a registered auditor, who is not a member of the firm expressing the opinion on the financial statements, performs an engagement quality control review of that engagement or the Regulatory Board performs a review of that engagement that is equivalent to an engagement quality control review (“a pre-issuance review”); or |
| • | After the audit opinion on the second year's financial statements has been issued, and before the issuance of the audit opinion on the third year's financial statements, a registered auditor, who is not a member of the firm expressing the opinion on the financial statements, or the Regulatory Board performs a review of the second year's audit that is equivalent to an engagement quality control review (“a post-issuance review”). |
When the total fees significantly exceed 15%, the firm shall determine whether the significance of the threat is such that a post- issuance review would not reduce the threat to an acceptable level and, therefore, a pre-issuance review is required. In such circumstances a pre-issuance review shall be performed.
Thereafter, when the fees continue to exceed 15%, each year, the disclosure to and discussion with those charged with governance shall occur and one of the above safeguards shall be applied. If the fees significantly exceed 15%, the firm shall determine whether the significance of the threat is such that a post-issuance review would not reduce the threat to an acceptable level and, therefore, a pre-issuance review is required. In such circumstances a pre-issuance review shall be performed.
Fees - Overdue
| 290.223 | A self-interest threat may be created if fees due from an audit client remain unpaid for a long time, especially if a significant part is not paid before the issue of the audit report for the following year. Generally the firm is expected to require payment of such fees before such audit report is issued. If fees remain unpaid after the report has been issued, the existence and significance of any threat shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. An example of such a safeguard is having an additional registered auditor, who did not take part in the audit engagement, provide advice or review the work performed. The firm shall determine whether the overdue fees might be regarded as being equivalent to a loan to the client and whether, because of the significance of the overdue fees, it is appropriate for the firm to be re-appointed or continue the audit engagement. |
Contingent Fees
| 290.224 | Contingent fees are fees calculated on a predetermined basis relating to the outcome of a transaction or the result of the services performed by the firm. For the purposes of this section, a fee is not regarded as being contingent if established by a court or other public authority. |
| 290.225 | A contingent fee charged directly or indirectly, for example through an intermediary, by a firm in respect of an audit engagement creates a self-interest threat that is so significant that no safeguards could reduce the threat to an acceptable level. Accordingly, a firm shall not enter into any such fee arrangement. |
| 290.226 | A contingent fee charged directly or indirectly, for example through an intermediary, by a firm in respect of a non-assurance service provided to an audit client may also create a self-interest threat. The threat created would be so significant that no safeguards could reduce the threat to an acceptable level if: |
| (a) | The fee is charged by the firm expressing the opinion on the financial statements and the fee is material or expected to be material to that firm; |
| (b) | The fee is charged by a network firm that participates in a significant part of the audit and the fee is material or expected to be material to that firm; or |
| (c) | The outcome of the non-assurance service, and therefore the amount of the fee, is dependent on a future or contemporary judgment related to the audit of a material amount in the financial statements. |
Accordingly, such arrangements shall not be accepted.
| 290.227 | For other contingent fee arrangements charged by a firm for a non-assurance service to an audit client, the existence and significance of any threats will depend on factors such as: |
| • | The range of possible fee amounts; |
| • | Whether an appropriate authority determines the outcome of the matter upon which the contingent fee will be determined; |
| • | The nature of the service; and |
| • | The effect of the event or transaction on the financial statements. |
The significance of any threats shall be evaluated and safeguards applied when necessary to eliminate the threats or reduce them to an acceptable level. Examples of such safeguards include:
| • | Having a registered auditor review the relevant audit work or otherwise advise as necessary; or |
| • | Using professionals who are not members of the audit team to perform the non-assurance service. |
