Setting audit fees that do not threaten quality
How a firm can set and review audit fees so a low fee does not threaten the quality of the work, using hours, rates and write-downs as evidence.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
Every audit partner has felt the pressure: a client who says the other firm quoted less, a tender with a price ceiling, a relationship that has always been "good value". Cutting the fee feels like a commercial decision. Under the professional codes it is also an ethical one, because a fee too low to pay for the work creates pressure to do less of it.
This article covers why fee level is an ethics question, how to price from the work, how to compare the fee with planned and actual hours, why write-downs deserve attention and when to revisit the fee before next year.
Why a low fee is an ethics question
Most national codes, including those that bind auditors in South Africa, are built on the International Code of Ethics issued by the IESBA; check the code of the body your partners belong to. The IESBA's page on the International Code of Ethics for Professional Accountants introduces the Code, including the International Independence Standards, its five fundamental principles and the conceptual framework for addressing threats.
Fees feature in that framework in two ways. The level of a fee can create a self-interest threat to professional competence and due care, where it is so low that it may be difficult to perform the engagement in accordance with the standards. And a firm's dependence on one client's fees can create a self-interest threat to independence. Neither is automatically a breach; both require the firm to evaluate the threat and deal with it.
The practical test is simple to state: does the fee pay for the work the audit actually needs, done by people with the right experience, including the review time?
Pricing from the work the audit needs
Start from the work, not from last year's fee or a competitor's quote.
- Scope the engagement: the entity's size and complexity, its risks, the state of its records, any group or component work.
- Estimate hours by grade, covering planning, fieldwork, review, any engagement quality review and completion.
- Apply the firm's rates to those hours.
- Compare the result with what the client is prepared to pay, and decide consciously.
In Achekam, a firm can keep a service catalogue whose prices stay blank until a person types them; the starter list Achekam adds carries no prices. Proposals and quotations have fee lines priced by a person, with VAT at the standard rate for the firm's jurisdiction, and Achekam recalculates the total from the lines. AI can draft a proposal's sections, but never its fees. Rate cards hold the firm's own rates, so the estimate in the third step is consistent from one partner to the next.
Comparing the fee with planned and actual hours
The quote is only the start. The evidence on whether a fee is adequate comes from the hours.
Staff can compare each engagement's planned hours with hours logged, and see a people-by-weeks capacity plan in which a week with no capacity recorded shows as "not set". During the audit, that comparison tells the partner early when an engagement is heading over budget, and points to why: a difficult area, poor records, an inexperienced team.
The quality question is what happens next. When a team is over budget, the right responses are to understand why, to raise extra work with the client where the client caused it, and to keep doing the work the risks require. The wrong response is to cut procedures to fit the fee. Hours left unrecorded to keep a job "on budget" make the problem invisible, which is worse still. The monitoring itself is covered in audit hours against budget.
Write-downs as a warning sign
The other source of evidence is what happens to the time at billing.
In Achekam's WIP Register, a partner, manager or administrator can write unbilled time up, down or off with a reason and bill it into a client invoice, so the same hours cannot be billed twice. Write-downs above the firm's threshold, 10% by default, and every write-off wait for approval by another partner. Rate cards show realisation and recovery, with time that has no rate counted as unvalued rather than estimated.
Read those figures as a quality indicator, not only a financial one:
- A client whose audit is written down heavily every year is a client whose fee does not pay for the work. The firm is either subsidising it or, if the team knows the fee is fixed, under pressure to do less.
- A second partner approving a large write-down has the chance to ask whether the hours were needed and whether next year's fee should change.
- Reasons recorded against write-downs, read across the whole client list, reveal patterns: particular partners, sectors or kinds of client.
Reviewing fees before accepting next year's audit
Continuance is the natural moment to deal with a fee problem. Before accepting next year's audit:
- Compare this year's hours with the quote, and realisation with the firm's norm.
- Identify the causes of any overrun, and whether they will recur.
- Revisit scope and fee with the client where the work needed has grown.
- Where the client will not pay a fee that supports the work, consider whether to continue.
- Record the evaluation, particularly where the firm continues at a fee below its estimate, and the safeguards that will protect quality.
A firm that prices from the work, watches the hours and treats write-downs as information will rarely face a fee that threatens quality without knowing it. The choice between fixed fees and time billing is covered in fixed fee or time billing.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
