Fee-related disclosures

Audit regulators frequently identify audit documentation deficiencies when it comes to fee-related disclosures required by the IESBA Code for audits of public interest entities. Auditors often fail to document their considerations, or to consider whether sufficient fee-related disclosures were included in the financial statements.

The IESBA Code para R410.30 requires auditors to discuss the importance of fee-related disclosures with those charged with governance of the public interest entity, and para R410.31 sets out the required fee-related disclosures.

If the audit client does not make the relevant disclosure, the audit firm must publicly disclose in their audit report:

1. Fees paid or payable to the firm and network firms for the audit of the financial statements on which the firm expresses an opinion
2. Fees, other than those disclosed under (a), charged to the client for the provision of services by the firm or a network firm during the period covered by the financial statements on which the firm expresses an opinion. For this purpose, such fees shall only include fees charged to the client and its related entities, over which the client has direct or indirect control, that are consolidated in the financial statements on which the firm will express an opinion
3. Any fees, other than those disclosed under (a) and (b), charged to any other related entities, over which the audit client has direct or indirect control for the provision of services by the firm or a network firm, when the firm knows, or has reason to believe, that such fees are relevant to the evaluation of the firm’s independence
4. If applicable, the fact that the total fees received by the firm from the audit client represent, or are likely to represent, more than 15% of the total fees received by the firm for two consecutive years, and the year that this situation first arose.

Audit regulators are increasing their focus on these and other ethical issues. Auditors must ensure that their audit working papers provide proof of their compliance with relevant ethical requirements. For the audits of public interest entities, auditors must get into the habit of documenting their fee-related considerations on the audit file and making the necessary disclosures in their audit report based on the circumstances.