| 240.1 |
When entering into negotiations regarding professional services, a registered auditor may quote whatever fee is deemed appropriate. The fact that one registered auditor may quote a fee lower than another is not in itself unethical. Nevertheless, there may be threats to compliance with the fundamental principles arising from the level of fees quoted. For example, a self- interest threat to professional competence and due care is created if the fee quoted is so low that it may be difficult to perform the engagement in accordance with applicable technical and professional standards for that price. |
| 240.2 |
The existence and significance of any threats created will depend on factors such as the level of fee quoted and the services to which it applies. The significance of any threat shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards include: |
| • |
Making the client aware of the terms of the engagement and, in particular, the basis on which fees are charged and which services are covered by the quoted fee. |
| • |
Assigning appropriate time and qualified staff to the task. |
| 240.3 |
Contingent fees are widely used for certain types of non- assurance engagements10. They may, however, create threats to compliance with the fundamental principles in certain circumstances. |
They may create a self-interest threat to objectivity. The existence and significance of such threats will depend on factors including:
| • |
The nature of the engagement. |
| • |
The range of possible fee amounts. |
| • |
The basis for determining the fee. |
| • |
Whether the outcome or result of the transaction is to be reviewed by an independent third party. |
| 240.4 |
The significance of any such threats shall be evaluated and safeguards applied when necessary to eliminate or reduce them to an acceptable level. Examples of such safeguards include: |
| • |
An advance written agreement with the client as to the basis of remuneration. |
| • |
Disclosure to intended users of the work performed by the registered auditor and the basis of remuneration. |
| • |
Quality control policies and procedures. |
| • |
Review by an independent third party of the work performed by the registered auditor. |
|
240.4A |
Notwithstanding paragraphs 240.3 and 240.4, a registered auditor shall not charge contingent fees for assurance services provided to clients, or for the preparation of an original or amended tax return, as these services are regarded as creating a self interest threat to objectivity for which appropriate safeguards cannot be applied to eliminate the threats or reduce them to an acceptable level. |
| 240.5 |
In certain circumstances, a registered auditor may receive a referral fee or commission relating to a client. For example, where the registered auditor does not provide the specific service required, a fee may be received for referring a continuing client to another registered auditor or other expert. A registered auditor may receive a commission from a third party (e.g., a software vendor) in connection with the sale of goods or provision of services to a client. Accepting such a referral fee or commission creates a self-interest threat to objectivity and professional competence and due care. |
| 240.6 |
A registered auditor may also pay a referral fee to obtain a client, for example, where the client continues as a client of another registered auditor but requires specialist services not offered by the existing auditor. The payment of such a referral fee also creates a self-interest threat to objectivity and professional competence and due care. |
| 240.7 |
The significance of the threat shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. Examples of such safeguards include: |
| • |
Disclose to the client in advance, in writing, any arrangements to pay a referral fee to another registered auditor for the work referred. |
| • |
Disclose to the client in advance, in writing, any arrangements to receive a referral fee for referring the client to another registered auditor. |
| • |
Obtain agreement in advance, in writing, from the client for commission arrangements in connection with the sale by a third party of goods or services to the client. |
| 240.8 |
A registered auditor may purchase all or part of another firm on the basis that payments will be made to individuals formerly owning the firm or to their heirs or estates. Such payments are not regarded as commissions or referral fees for the purpose of paragraphs 240.5-240.7 above. |
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10 Contingent fees for non-assurance services provided to audit clients and other assurance clients are discussed in Sections 290 and 291
Stamp Duties Act, 1968 (Act 77 of 1968)
