Threats Arising From Financial Matters (4)

Question 1

What if the audit client is a public interest entity?

Answer 1

Then there are additional ethical requirements

Question 2

What if public interest entity total fees represent more than 15% of total fees received by firm for two consecutive years

Answer 2

There is likely to be undue dependence on client and firm should put safeguards in place

Question 3

What if public interest entity total fees represent more than 15% of total fees received by firm for two consecutive years safeguards (Disclosure)

Answer 3

Disclose to those charged with governance

Question 4

What if public interest entity total fees represent more than 15% of total fees received by firm for two consecutive years safeguards (pre-issuance)

Answer 4

Pre-issuance review on second year’s financial statements prior to auditor’s opinion being issued

Question 5

What if public interest entity total fees represent more than 15% of total fees received by firm for two consecutive years safeguards (post-issuance)

Answer 5

Post-issuance review on second year’s financial statements after auditor’s opinion has been issued

Question 6

What is an overdue fee?

Answer 6

When a significant part of fee is not paid before the audit report for the following year is issued. Creating a self-interest threat

Question 7

Problem with overdue fees?

Answer 7

Firm may issue favourable opinion rather than possibly lose the amounts owed

Question 8

Overdue fees safeguard (fees)

Answer 8

Obtain partial payment of overdue fees

Question 9

Overdue fees safeguard (committee)

Answer 9

Discuss with audit committee

Question 10

Overdue fees safeguard (resignation)

Answer 10

Consider resignation if overdue fees not paid