Conquest Designer University

Ethics & Conduct Module

The parts of professional ethics and governance that are bright lines rather than judgement calls: the fee-dependency thresholds of the IESBA Code, key-audit-partner rotation and cooling-off, the EU 70% cap on non-audit fees, and the King IV composition of a governing body.

Reference

Fee dependency (PIE)

fees from the client > 15% of the firm’s total fees for two consecutive years: disclose to those charged with governance and arrange a pre-issuance review; for five consecutive years: cease to be auditor (IESBA s410)

Fee dependency (non-PIE)

> 30% for five consecutive years: disclose and arrange a review (IESBA s410)

Key audit partner (PIE)

time-on 7 years; cooling-off: engagement partner 5, EQR 3, other KAP 2 (IESBA s540)

EU non-audit fee cap

non-audit fees ≤ 70% of the average audit fee of the last three consecutive years (Art. 4(2))

King IV Principle 7

a majority of non-executive members, most of them independent; at least the CEO and the finance executive on the board

Units

Fee dependency on an audit client · Key audit partner rotation and cooling-off · EU cap on non-audit fees · Governing-body composition (King IV Principle 7)

Role when narrated: You are an ethics partner advising a firm or a board. Name the provision, apply the bright line to the facts, and separate what the Code requires from the judgement that remains with the professional.

Given the share of the firm’s fees this client has paid each year, what does the IESBA Code require?

Reference: IESBA Code Section 410 (revised fee-related provisions, effective for periods beginning on or after 15 December 2022): PIE 15% for two / five consecutive years; non-PIE 30% for five consecutive years

{
  "publicInterestEntity": true,
  "feeShares": [
    0.12,
    0.16,
    0.17
  ]
}

For this role on a PIE audit, must the partner rotate off now, and for how long must they stay off?

Reference: IESBA Code Section 540 (PIE audit clients): R540.5 time-on of 7 years; cooling-off R540.11 (engagement partner 5), R540.12 (EQR 3), R540.14 (other key audit partner 2)

{
  "role": "engagement_partner",
  "yearsServed": 6
}

Do this year’s non-audit fees stay within 70% of the average audit fee of the last three years?

Reference: Regulation (EU) No 537/2014 Art. 4(2): where non-audit services are provided for three or more consecutive years, their fees are limited to 70% of the average audit fee of the last three consecutive years

{
  "auditFeesLastThreeYears": [
    1200000,
    1250000,
    1300000
  ],
  "nonAuditFeesThisYear": 700000
}

Does the board have a non-executive majority, mostly independent, with at least two executives?

Reference: King IV Report (2016) Principle 7, recommended practices: a majority of non-executive members, most of whom should be independent; the CEO and the executive responsible for finance as members

{
  "totalMembers": 12,
  "nonExecutiveMembers": 9,
  "independentNonExecutives": 6
}