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lowballing

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › lowballing

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by Kim Smith.
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  • October 21, 2021 at 3:56 am #638661
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    “Offering an unrealistically low audit fee which is below market rate in order to win or retain an audit client is known as lowballing, and while this practice is not prohibited, the client must not be misled about the amount of work which will be performed and the outputs of the audit.”

    ma’am in this point I am unable to understand how the audit firm can potentially mislead the client with lowballing? Is it trying to say that when audit firm significantly undercharges compared to market rate then it will try to compensate for the reduced price, by compromising on the quality of audit work? and not mentioning this straightaway to the client would risk misleading them?

    October 21, 2021 at 8:29 am #638678
    Kim Smith
    Keymaster
    • Topics: 100
    • Replies: 6804
    • ☆☆☆☆☆

    To lowball is to undercut competitors on price. What is stated is what is meant – an audit firm can’t take on a client and half-way through the audit demand a fee hike saying that some aspect of the audit work was not included in the fee quote. They mustn’t be mislead about the FEE they will have to pay. Not just for the first audit, but they mustn’t be mislead about future fees. So to suggest that the first fee will be maintained for three years, but then after the first audit double the fee is what is unethical. It is not unethical to offer an initial low fee (like an “introductory price”) – if the client knows it will likely increase by a significant amount in future years.

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