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Can you please explain difference between fee dependency and contingent fees?
Answer is C and I was confused in A and C.In relation to the proposal that 20% of the audit fee is based on the profit after tax of the company, which of the following statements is TRUE?
This will lead to fee-dependency which is a self-interest threat. The proposal should be rejected.
This is a contingent fee arrangement which creates an advocacy threat. The proposal should only be accepted if no more than 15% of the audit fee is based on profit before tax
This is a contingent fee arrangement which creates a self-interest threat. The proposal should be rejected.
This will lead to fee-dependency which is a self-interest threat. The proposal should only be accepted if no more than 15% of the audit fee is based on profit
If you download the notes and search “contingent fee” ,,, last point on page 22 says this basis is not permitted (i.e. prohibited) for audit services and gives the example a % of profit.
Top of page 23 is about fee dependency – i.e. depending on a high % of total FEES of the audit firm (nothing to do with client’s reported profit). This is not a “prohibition” as long as safeguards are put in place to reduce the threats to objectivity to an acceptable level.
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