The Ethical Standard for Auditors, issued by the Irish Auditing & Accounting Supervisory Authority set out the basic principles that must be applied when carrying out an audit. All audit firms must comply with this standard. The standard also addresses certain circumstances where an auditor may be faced with an issue that challenges their ability to act independently. Where possible, the standard seeks to advise audit firms on circumstances that are prohibited and also circumstances that are only allowed after adequate safeguards have been put in place.

Contingent Fees - Audit and non-audit services

Contingent fees are fees which are dependent on a certain outcome (ie. based on a % of turnover or profit). If an audit firm were to undertakean audit assignment on a contingency basis, a significant self-interest threat would be created (ie. the fee payable to the audit firm would be directly linked to the figures being audited). Due to the significance of this threat, it cannot be eliminated by safeguards. As a result, no audit should be undertaken on a contingency basis. Instead, the engagement fee should reflect the time spent, skills and experience of the personnel performing the engagement in accordance with the relevant requirements and the competitive situation in the market. Audit firms should not undertake an engagement to provide non-audit services in respect of an audited entity on a contingent fee basis where:

• the contingent fee is material to the audit firm, or that part of the firm by reference to which the audit engagement partner’s profit share is calculated; or
• the outcome of those non-audit services (and, therefore, the amount of the fee) is dependent on a future or contemporary audit judgment relating to a material matter in the financial statements of an audited entity.

What questions do you have?

We are happy to help. Please post your comment below or contact our friendly and knowledgeable team on 01 677 9000.  To keep in touch, connect with us on Linkedin. If this article helped you, please share it with other businesses.