If a regular audit fee for a non-listed client is expected to exceed 15% of the firm's fee income, what must be done?

When a regular audit fee for a non-listed client is expected to exceed 15% of the firm's fee income, it indicates that the engagement poses a significant threat to the firm's independence and objectivity. This situation can create a dependency on a single client, which could compromise the auditor's impartiality and professional judgment. In accordance with ethical guidelines and standards set by professional bodies, including the ICAEW, firms are often required to avoid situations where their independence could be compromised.

The correct course of action in this scenario is to refrain from taking on the client, which is why the conclusion is that the firm cannot act on that client. This fundamental requirement aims to protect the integrity of the audit process and maintain public trust in the profession. The expectation of fees exceeding a certain threshold should prompt the firm to assess the risks and implications related to independence significantly, leading to the decision not to act on such a client to avoid potential ethical violations.

Alternative options such as merely implementing strict ethical guidelines, requiring auditing committee approval, or depending on internal policy do not address the critical independence issue in this scenario as directly or effectively as refusing to accept the client. The emphasis on integrity in auditing necessitates avoiding any circumstances that could jeopardize the auditor’s objectivity as a priority