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Advertising, publicity, obtaining professional work and fees

Example 1

Contingency fee for audit

The finance director of Orchid Co has asked your firm if the audit fee can be
calculated based on the final profit before tax figure.

The auditor has a financial interest in the profit before tax figure being as high
as possible as this will increase the audit fee for the engagement. This could
lead the auditor to ignore misstatements that would reduce profit before tax if
adjusted. An inappropriate auditor’s opinion could be issued as a result.

Fees should not be contingent on a particular outcome. Fees must be agreed
with the client before the engagement. The fee will be calculated taking into
consideration the time required to perform the work, the seniority of the audit
team members, expenses to be recovered, etc.

3.4 Referrals

 Members may pay a referral fee to a third party, in return for the introduction of
a client.

 The payment of such a fee may create a self-interest threat, therefore
safeguards should be established to eliminate the threat or reduce it to an
acceptable level.

 This is usually achieved by disclosing any such arrangements to the client.

Illustrations and further practice

Now try TYU question 1 from Chapter 5

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