Fees

Introduction

905.1 Firms are required to comply with the fundamental principles, be independent and apply the conceptual framework set out in Section 120 to identify, evaluate and address threats to independence. 905.2 Fees or other types of remuneration might create a self- interest or intimidation threat. This section sets out specific requirements and application material relevant to applying the conceptual framework to identify, evaluate and address threats to independence arising from fees charged to assurance clients.

Requirements and Application Material

Fees Paid by an Assurance Client

905.3 A1 When fees are negotiated with and paid by an assurance client, this creates a self-interest threat and might create an intimidation threat to independence. 905.3 A2 The application of the conceptual framework requires that before a firm accepts an assurance engagement for an assurance client, the firm determines whether the threats to independence created by the fees proposed to the client are at an acceptable level. The application of the conceptual framework also requires the firm to re-evaluate such threats when facts and circumstances change during the engagement period. 905.3 A3 Factors that are relevant in evaluating the level of threats created when fees are paid by the assurance client include: • The level of the fees for the assurance engagement and the extent to which they have regard to the resources required, taking into account the firm’s commercial and market priorities. • The extent of any dependency between the level of the fee for, and the outcome of, the service. • The level of the fee in the context of the service to be provided by the firm or a network firm. • The significance of the client to the firm or partner. • The nature of the client. • The nature of the assurance engagement. • The involvement of those charged with governance in agreeing fees. • Whether the level of the fee is set by an independent third party, such as a regulatory body. 905.3 A5 The requirements and application material that follow identify circumstances which might need to be further evaluated when determining whether the threats are at an acceptable level.

(b)

Whether it is appropriate for the firm to be re-appointed or continue the assurance engagement.

Total Fees―Fee Dependency

905.10 A1 When the total fees generated from an assurance client by the firm expressing the conclusion in an assurance engagement represent a large proportion of the total fees of that firm, the dependence on, and concern about the potential loss of, fees from that client impact the level of the self-interest threat and create an intimidation threat. 905.10 A2 A self-interest and intimidation threat is created in the circumstances described in paragraph 905.10 A1 even if the assurance client is not responsible for negotiating or paying the fees for the assurance engagement. 905.10 A3 In calculating the total fees of the firm, the firm might use financial information available from the previous financial year and estimate the proportion based on that information if appropriate. 905.10 A4 Factors that are relevant in evaluating the level of such self- interest and intimidation threats include: • The operating structure of the firm. • Where the firm is expected to diversify such that any dependence on the assurance client is reduced. 905.10 A5 Examples of actions that might be safeguards to address such threats include: • Reducing the extent of services other than assurance engagements provided to the client. • Increasing the client base of the firm to reduce dependence on the assurance client. 905.10 A6 A self-interest or intimidation threat is created when the fees generated by a firm from an assurance client represent a large proportion of the revenue from an individual partner’s clients. 905.10 A7 Factors that are relevant in evaluating the level of such threats include: • The qualitative and quantitative significance of the assurance client to the partner. • The extent to which the compensation of the partner is dependent upon the fees generated from the client. 905.10 A8 Examples of actions that might be safeguards to address such a self- interest or intimidation threat include: • Having an appropriate reviewer who was not an assurance team member review the work. • Ensuring that the compensation of the partner is not significantly influenced by the fees generated from the assurance client. • Increasing the client base of the partner to reduce dependence on the client.