ACCA AA · Chapter 4 · Question 7 of 11
The directors of Bramble Co propose that the audit fee should be set at 0.5% of the company's profit before tax for the year being audited. How should the audit firm respond?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Refuse the arrangement, because contingent fees for audit engagements are not permitted
Explanation
A fee that depends on the reported result is a contingent fee. It creates a self-interest threat so significant that no safeguard can reduce it to an acceptable level, so contingent fees are prohibited for audit engagements. The fee should be based on the skill, time and responsibility involved.
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