Submission on audit fee provisions in APES 110
APESB’s proposed amendments to the fee-related provisions of the Code of Ethics
The changes proposed in APESB ED 03/21 Proposed Amendments to Fee-related provisions of APES 110 Code of Ethics for Professional Accountants (including Independence Standards) can be grouped as follows:
- To incorporate changes made by the International Ethics Standards Board for Accountants (IESBA) to the International Code of Ethics for Professional Accountants (including International Independence Standards).
- To address two recommendations from the Australian Parliamentary Inquiry into the Regulation of Auditing.
- Introduce defined categories in relation to audit and non-audit services.
- Broaden the existing prohibition on audit partners being incentivised for selling non-assurance services to their audit clients to all audit clients of the firm.
- To respond to regulators’ requests to establish an explicit threshold at which the threats to independence must be evaluated and appropriate safeguards implemented, if required, where the fee dependency on a single referral source is more than 20%.
Overall, we supported the APESB’s proposals to incorporate the changes made by the IESBA to the International Code of Ethics. However, we took the opportunity to reiterate some of the concerns we raised in our submission to the IESBA on its exposure draft.
We expressed our concern that the introduction of explicit thresholds could have potential unintended consequences, including the risk that the focus will be solely on fulfilling compliance requirements rather than applying the principles within the Code. We also encouraged the APESB to carefully consider the impact of these proposals on smaller firms’ ability to engage with markets, particularly where they may, in effect, result in mandatory audit firm rotation.
We recognised the challenges faced by the APESB in balancing the principles-based framework which underpins the Code, with the perceived benefits of definitive thresholds. These challenges manifest in determining the role of standard setters and the role of regulators, and how these must be clearly defined and delineated. In our submission we urged for the retention of a principles-based Code where possible.
