Acca aaa s21 Notes

Loans and guarantees
– the existence and significance of any threat depends on whether 
making loans is the client’s business, the terms and conditions and to whom it is made. 
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Fees
– the Code does not prescribe the basis for calculating fees. However:
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Contingent fees – are not permitted for audit engagements
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Relative size – the only benchmark in the Code is 15% of total fees, for two consecutive years, 
for a PIE client
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Low-balling – quoting a lower fee is not in itself unethical, but must not be so low that it 
threatens professional competence and due care
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Overdue fees – may be seen as equivalent to a loan
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Recruiting services
– generally, must not assume management responsibility (eg act as 
negotiator for management) and hiring decision must be the client’s. For a PIE, cannot seek or 
take up references for a director or senior management position.
See Chapter 4 of our AA notes if you need to revise these example of self-interest threats.
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3.2. Self-review threats
Self review threats arise when an auditor does work for a client and that work may then be subject to 
self-checking during the subsequent audit. For example, if the auditor prepares the financial 
statements, and then has to audit them, or the auditor performs internal audit services and then has 
to check that the system of internal control is operating properly. Auditors could obviously be 
reluctant to criticise the work which their own firms have earlier undertaken, and this could interfere 
with independence and objectivity.
Generally auditors must be very careful when undertaking such work. Certainly it is common for 
auditors to do additional work for their clients, but what is important that the work is done by an 
entirely different team from the audit firm.
Whether auditors should be allowed to provide non-assurance ('other') services to an audit client is a 
controversial topic, as there are both pros and cons. For example, auditors will know a great deal 
about the operations of their clients and this can make the performance of other work much more 
efficient. If entirely new companies have to be brought in to supply these services, much of the 
information they find out about the client will already be known by the auditor and there is a real 
duplication of effort. 
The provision of many non-assurance services will create a