Low balling

The auditor may be unwilling to do anything that may lose the client or, better still, the

auditor may be willing to do anything in order not to lose the client so there is an independence issue and a self-interest issue involved here

The standard argument against the practice is that it could pose a major threat in that the auditor could be tempted to cut corners and carry out an inadequate audit

It’s also tempting to suggest that, following that first year’s exceedingly cheap audit, there is nothing to prevent the client from taking advantage of the next low-balled offer that comes along

You may think that that could be avoided by tying the client into a, say, three year agreement with the auditor but that surely wouldn’t stand up to scrutiny – auditors are appointed every year for a one year term and an extended contract would circumvent that requirement

There are advantages for the auditor in that non-audit work could be offered and carried out … but again, that goes against all that’s good in the Corporate Governance Code and would require the approval of the audit committee

A further advantage for the auditor is that the firm may be able to avoid losing quality staff by way of redundancy by keeping the level of audit work up to the stage where marginal costs are covered

In direct answer to your question, no, it’s not illegal, it’s not a criminal offence, but it is frowned upon as, basically, not cricket

My unanswered concern is that, if an existing auditor, in order to fight off competition, low-balls their proposed fee level, as a client I would be inclined to ask “Why have you been charging me so much in the past and now you’re prepared to do the same work for a fraction of last year’s charges?”

I could get very upset by that!

OK?