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lending institution client
lends an 
immaterial amount to
an audit firm or member of assurance team 
on normal commercial terms, there is no threat to independence. If the loan were material it would be 
necessary to apply safeguards to bring the risk to an acceptable level. A suitable safeguard is likely to be 
an 
independent review
(by a partner from another office in the firm). 
Loans to members of the assurance team from a bank or other lending institution client are likely to be 
material to the individual
but, provided that they are on normal commercial terms, these do not 
constitute a threat to independence. 
However, an audit firm or individual on the assurance engagement should not enter into any loan or 
guarantee arrangement with a client that is not a bank or similar institution. 
6.5.8 Overdue fees 
In a situation where there are overdue fees, the auditor runs the risk of, in effect, making a loan to a 
client, whereupon the guidance above becomes relevant. 
Audit firms should guard against fees building up and being significant by 
discussing the issues with
the 
audit committee or others involved in governance
and, if necessary, the possibility of resigning if 
overdue fees are not paid. 
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PART F: PROFESSIONAL ETHICS IN ACCOUNTING AND BUSINESS 
 
494
 
6.5.9 Percentage or contingent fees 
Contingent fees 
are fees calculated on a predetermined basis relating to the outcome or result of a 
transaction or the result of the work performed. 
Ethical guidelines state that a firm should not enter into any fee arrangement for an assurance 
engagement under which the amount of the fee is contingent on the result of the assurance work or on 
items that are the subject matter of the assurance engagement. It would also usually be inappropriate to 
accept a contingent fee for non-assurance work from an assurance client.
6.5.10 High percentage of fees 
A firm should be alert to the situation arising where when the