Acca aa s21 Notes

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22

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High percentage fees. If the auditor earns a high percentage of total income from one audit 
client, then the auditor will rely too much on that client and can’t afford to lose them. This can 
give the client too much leverage over the auditor. The total fees from a public interest entity 
('PIE') client, (eg a company listed on a stock exchange) should not exceed 
15%
of the firm's 
total fees for 
two consecutive years
. If they do, safeguards must be applied or the engagement 
ended (see s.4). No figure is mentioned for non-PIE clients, but auditors need to be mindful of 
this threat.
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Low-balling refers to the practice of quoting a very low audit fee to win a client, in the hope of 
gaining more lucrative non-audit work. This means really that the audit does not pay for itself so 
how, therefore, could a proper audit be done? Winning an audit is a competitive business and 
the audit fee is an important factor to clients. There is nothing illegal about low-balling and 
quoting a lower fee is not, in itself, unethical. However, an auditor could find it difficult to claim 
that a proper audit has been carried out if a loss were made on the audit.
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Recruiting staff on behalf of a client should not be undertaken. The danger here is that if 
members of staff are recruited by the auditor, particularly financial staff, then subsequently the 
auditor might be reluctant to criticise the performance of those staff members as the advice 
they gave on recruitment looks bad. However, providing recruiting services to a non-PIE client is 
not prohibited as long as the hiring decision is left to the client. Similar considerations should be 
taken into account when asked to perform any management function for the client.