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What is objectivity and how does it differ from independence? What is integrity in the context of auditing? What are the main threats to auditor independence? What safeguards can mitigate threats to independence? What is a familiarity threat and how is it managed? How does the conceptual framework approach to ethics work? What is an advocacy threat, with an example? What financial and business relationships threaten independence? What are the rules on providing non-audit services to audit clients? What are the rotation requirements for auditors of public interest entities?
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Auditing & Assurance › Ethics & Independence

How do audit fees create threats to independence?

Intermediate

Answer

Fees create self-interest and intimidation threats: over-dependence on one client (fees a large proportion of firm/office income), overdue fees resembling a loan, contingent fees (prohibited for audits), and lowballing that pressures corners. Safeguards include monitoring fee dependency, disclosure to those charged with governance, independent reviews, and thresholds for public interest entities.
Real-world example When one client's fees exceed a set percentage of office revenue, the firm imposes an independent review to manage the dependency threat.

Common follow-ups: Why are contingent fees banned for audits? | What is fee dependency?

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All 18 Ethics & Independence questions