AUDIT FEE

 

Fees

            

        Professional fees should be a fair reflection of the value of the professional service performed for the client, taking into account the skill and knowledge required, the level of training and experience of the persons performing the services, the time necessary for the services and the degree of responsibility that performing those services entails. The IESBA Ethics Code discusses threats to independence in pricing auditing services in terms of size, whether fees are overdue, and contingent fees.

                                                                             

Size of client fees and unpaid fees

• If an audit client is a public interest entity and, for two consecutive years, the total fees from the client represent more than 15% of the total fees received by the audit firm, the firm must disclose to the audit client that fact and discuss safeguards it will apply.

• The Code warns that a self-interest threat may be created if fees due from an assurance client for professional services remain unpaid for a long time.

 

Compensation and Evaluation Policies

            A self-interest threat is created when a member of the audit team or a key audit partner is evaluated on or compensated for selling nonassurance services to that audit client.

Professional fees should be a fair reflection Of Auditor

·         the skill and knowledge required for the type of professional services involved

·         the level of training and experience of the persons performing the services

·         the time necessarily to perform services;

·         the degree of responsibility that performing those services entails.

·         No contingency fees

 

Commissions and Referral Fees

·         If proper safeguards are in place

·         An auditor may receive a referral fee or commission.

·         For example, when she does not provide the specific service required, a fee may be received for referring a client to another accountant or other expert.

·         A auditor may also pay a referral fee to obtain a client for example, where the client requires

·         specialist services not offered by the existing auditor.

 

Fee Proposal

            The detailed description of the proposed fee is traditionally a separate part of the

proposal, presented as a separate document. The fee proposal may involve several levels

of detail or a few depending on type. The core audit requires the most time and detail.

It will show costs for operation audits including, perhaps, audits of subsidiaries and

quarterly audits. Less level of detail would be required for statutory audits and potential

future developments.

Establishing and Negotiating Audit Fees

            Professional fees should be a fair reflection of the value

            of the professional services performed for the client, taking into account:

■ the skill and knowledge required for the type of professional services involved;

■ the level of training and experience of the persons necessarily engaged in performing

the professional services;

■ the time required by each person engaged in performing the professional services;

■ the degree of responsibility that performing those services entails.

 

Contingency Fees

            Professional services should not be offered or rendered to a client under a contingency

fee. A contingency fee is an arrangement whereby no fee will be charged unless a specified

finding or result is obtained, or when the fee is otherwise contingent on the findings or

results of these services. Furthermore, fees charged on a percentage or similar basis,

should be regarded as contingent fees. It is easy to see that a contingency fee can jeopardize the auditor’s independence. Imagine what impact it could have on an auditor’s independence and objectivity if the audit fee were a percentage of the net profit.

 

            There are two exceptions to the prohibition of contingency fees.

First, fees are not considered contingent if fixed by a court or other public authority.

Secondly, in those countries where charging contingent fees is permitted either by statute or by a professional member body, such engagements are permitted, but should be limited to those

for which independence is not required (e.g. services other than assurance services).

 

Commissions

            The auditor also should not take or pay commissions. The payment or receipt of a

commission by a professional accountant could impair objectivity and independence.

Nor should the auditor accept a commission for the referral of the products or services of

others.