Question

John has recently been appointed as an audit partner to a Top End audit firm.
One of his duties is to review the firm's audit clients to ensure that the
independence
requirements of APES110 Code of Ethics for Professional Accountants are being
met.
His review revealed that several audit engagements were potentially in breach of the
APES110 independence requirements.
On review of a successful audit tender submitted to obtain the audit of a major
childcare center for a four year tenure period, it was discovered that your audit firm
mostly likely won the audit tender because the quoted audit fee was $13,000 lower
than the predecessor auditor.
Required: Identify potential threats to independence and recommend any
safeguards to reduce any threats to independence.

Answer 1

The IESBA Code requires that 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 . It states that 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 a self-interest threat may be created if fees due from an audit client remain unpaid for a long time a contingent fee charged directly or indirectly, by a firm in
respect of an audit engagement creates a self-interest threat.