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A practice should ensure that recurring fees paid by one client do not exceed 15% of the gross fees. What does 15% of Gross fees mean in the sentence above?
What if a firm which has no branch has only two clients and charges $50000 each? In this case, its next year income from each client exceeds 15%, so is there the threat to objectivity?
Gross = billed fees before expenses
If a firm gets 50% of fees from 1 client there is an obvious threat to objectivity because 50% is a lot to lose. That’s why there is a 15% limit.
What if the firm finds only a few clients each year so that the fee from each client constitutes more than 15 % limit? In this way, how can new audit firms survive in the market, as in the beginning years most firms find only a few customer?
Can’t survive on just audit income. Most new accountant will start with a mix of accountancy, tax and audit work. The 15% related to income coming from audit clients. Therefore you could have one very large client who paid you 90% of your fee income for accountancy and another who paid you 10% of your fee income for audit. That would be OK.
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