Accounting · Audit and Assurance
If both internal and external audit assignments are proposed for a client, what safeguards can be applied if the fee determination for the internal audit assignment is proposed to be based on a percentage of the client's profit after tax?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1No safeguards can be applied for contingent fees in an audit engagement, and this basis for fee determination must be rejected.✓
- 2The fees should be adjusted to be based on the client's profit before tax instead.
- 3The client should be informed that only the internal audit fee can be based on profit after tax.
- 4As long as the total fee received from the client is less than 15% of the firm's total fee income, no safeguards are needed.
Correct answer
No safeguards can be applied for contingent fees in an audit engagement, and this basis for fee determination must be rejected.
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