IESBA created new requirements with respect to
fees, including certain communications requirements for
public interest entities. Because there is an inherent self-interest
threat and possibly an intimidation threat to
independence from fees negotiated with and paid by an audit
client, IESBA standards require auditors to assess
whether threats are at an acceptable level by considering
various fee-related measures. First, is the level of the
audit fee. The audit fee is required to be a standalone fee,
meaning fees from other services for the audit client cannot
influence the level of the audit fee. Additionally, the
level of the threat might be impacted when a large
proportion of fees is generated by providing non-audit
services. Therefore, the proportion of fees from non-audit
services to the audit fee is relevant to the evaluation of
such threats. Also, when the total fees generated from an
audit client represent a large proportion of the total fees
of the audit firm, the dependence on, and concern about the
potential loss of fees from that client can create a self-interest
threat and an intimidation threat. Similarly,
threats can be created when the fees from an audit client
represent a large proportion of the revenue of one partner
or one office of the firm. IESBA requires certain fee-related
communication to Those Charged With Governance of a
public interest entity audit client to assist in their
assessment of the firm’s independence: First, the fees paid
or payable to the firm and any member firms for the audit of
the financial statements of which an opinion is expressed.
Second, firms must communicate fees for all other services
charged to the audit client and any of its controlled,
consolidated entities. Fees charged to controlled entities
that are not consolidated are also required to be
communicated, but only in instances when the firm knows or
has reason to believe such fees are relevant to the
evaluation of the firm’s independence. Next, where the total
fees from a public interest entity audit client represent
more than 15% of the total fees received by the firm, IESBA
requires such fee dependency to be communicated. Lastly,
we must communicate whether the threats created by the level
of the audit fees and the proportion of fees for other
services relative to the audit fee are at an acceptable
level and if not, what actions will be taken to reduce
threats to an acceptable level. Language to facilitate
required fee-related communications is included in the PCAOB
audit results Audit Committee presentation templates on
Alex within the ‘Audit and professional services fees’ slide,
along with other required fee-related communications.
In addition to communicating the fee-related matters with Those
Charged with Governance, IESBA now requires public
disclosure of such fees if applicable laws and regulations
do not already require such disclosure. The fee information
required to be reported by SEC registrants in the proxy
statement or annual report will typically satisfy the IESBA
public disclosure requirements. If a public interest
entity audit client is not required by law or regulation to
publicly disclose auditor fees, then KPMG must discuss the
benefit of doing so with Those Charged With Governance and
if the client does not publicly disclose fees, then KPMG
would be required to do so, including fees paid for the audit
and for other services.