FRC Ethics, Fees, remuneration and evaluation policies, gifts and hospitality, litigation Flashcards
What must audit firms ensure regarding the assignment of partners and staff to an audit?
Assign sufficient partners and staff with adequate time and skills to complete the audit, regardless of the audit fee charged. This prevents a self-interest threat.
Can audit fees be influenced by non-audit services provided to the client?
No, audit fees should not be influenced by the provision of non-audit services to clients.
Are contingent fees for audit and non-audit services allowed?
No, contingent fees for both audit and non-audit services are not permitted due to significant self-interest threats that cannot be eliminated or reduced.
What should be considered if there are non-trivial overdue fees?
Consider whether to accept or continue the engagement or resign, as overdue fees represent a self-interest threat.
What is the limit for non-audit service fees for listed clients?
Fees for non-audit services should be limited to 70% of the average audit fee over the last 3 years for listed clients.
What should be done if non-audit service fees exceed the audit fee for the year in a listed client?
Disclose this to the ethics partner and consider whether safeguards, such as an expanded engagement quality review (EQR), are needed.
What happens if a listed client’s fee income exceeds 10% or 5% of the audit firm’s total fee income?
If it exceeds 10%, the firm cannot act as the auditor. If it exceeds 5%, disclose to the ethics partner and those charged with governance, and consider applying safeguards.
What happens if a non-listed client’s fee income exceeds 15% or 10% of the audit firm’s total fee income?
If it exceeds 15%, the firm cannot act as the auditor. If it exceeds 10%, disclose to the ethics partner, those charged with governance, and arrange an EQR.
How should new firms handle compliance with economic dependence requirements?
New firms may find these requirements difficult, so they should consider using external quality reviewers to ensure compliance.
Can audit staff be assessed or paid based on their ability to cross-sell the firm’s products?
No, audit staff should not be assessed or paid based on their ability to cross-sell the firm’s products.
Can audit firms, partners, or covered persons accept gifts or hospitality from audit clients?
Gifts or hospitality can only be accepted if the value is trivial, to avoid self-interest and familiarity threats.
What should the auditor do if litigation with the client is in progress or threatened?
The auditor should resign due to self-interest, advocacy, and intimidation threats.
