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APESB releases draft fee provisions for auditor independence

APESB releases draft fee provisions for auditor independence
Tony Zhang
23 June 2021 — 2 minute read

The APESB has issued exposure draft amendments to fee provisions in the APES 110 Code of Ethics and its effects on auditor independence standards.

Recently, the Accounting Professional & Ethical Standards Board (APESB) announced it will be strengthening the fees provisions in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (2018) (the code).

To facilitate this, the APESB has issued an exposure draft of the proposed amendments to the fee-related provisions of the code for public consultation.


The ATO stated this is in response to changes made by the International Ethics Standards Board for Accountants (IESBA) to the International Code of Ethics for Professional Accountants (including International Independence Standards) and recommendations from the Parliamentary Joint Committee (PJC) on the Regulation of Auditing in Australia.

“The proposed amendments provide additional guidance to firms on evaluating and addressing independence threats created when fees are negotiated with and paid by an audit client, and those created by the level of fees, proportion of fees from non-audit services, and fee dependency,” the ATO said.

“It also introduces a rule for assessing fee dependency where there are multiple audit clients referred from one referral source.

“The rule states that where the total fees in respect of multiple audit clients referred from one source represent more than 20 per cent of the total fees of the firm, partner or office of the firm, a firm will be required to evaluate the significance of independence threats and apply safeguards, as necessary, to eliminate or reduce them to an acceptable level (AUST R410.14.1).” 

In the exposure draft, the APESB also sets out guidance to enhance the robustness of guidance in the code regarding factors to evaluate the level of the threats created when fees are paid by an audit or assurance client and safeguards to address such threats.

Taking into account key recommendations from the inquiry by the PJC, the proposals also include providing information on the different categories of services that may be provided by an auditor and broadening the extant prohibition on audit partners being incentivised, either directly or indirectly, for selling non-assurance services to their audit clients to now prohibit incentivisation for sales of non-assurance services to all audit clients of the firm. 

The APESB said it has also considered and accepted a request from the regulators to create a threshold to assess fee dependency on a referral source that refers multiple audit clients to a firm and determined to extend this threshold to apply to individual partners or an office within the accounting firm. 

The key recommendations include provisions to remove potential conflicts of interest, achieve transparency on all fees paid to the entity’s external auditor, and the importance of audit committees and boards on approving the audit and non-audit services. 

“The Code of Ethics must remain robust, and strengthening of the fees provisions in the code will help to increase transparency around audit fees and fees for other services paid to the entity’s external auditor,” APESB chair Nancy Milne OAM said.

“Importantly, these measures include the need to obtain the concurrence of those charged with governance, such as audit committees. The board has also proposed amendments to the code to address PJC recommendations on the categorisation of fees paid to the auditor and the incentivisation of audit partners.”

SMSF auditors and other tax professionals are encouraged to review the proposed amendments and provide any comments to the APESB by 31 August 2021.

The APESB anticipates the proposed amendments will take effect from 1 January 2023, and early adoption will be encouraged.

APESB releases draft fee provisions for auditor independence
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