An audit firm has total annual fee income of $8.0 million. It receives total fees of $1.4 million from Corvid Co, a listed audit client. What percentage of the firm's total fee income comes from Corvid Co, and which threat does this primarily create?

Correct answer: A) 17.5%, self-interest threat

Explanation

Fee percentage = $1.4m / $8.0m x 100 = 17.5% (to one decimal place). The figure of 21.2% wrongly divides by the firm's other income ($1.4m / $6.6m). Heavy fee dependence creates a self-interest threat because the firm may fear losing the client. For a public interest entity, the Code's threshold is 15% of the firm's total fees: if exceeded for two consecutive years, the firm must disclose this to those charged with governance and arrange a pre-issuance review by a professional accountant outside the firm, and if it continues for five consecutive years the firm should generally cease to be the auditor.