Obtaining professional work, fees and tendering

An audit firm is a business, and it must win clients, price its work and collect its fees. Each of those activities touches the ethical principles. An advertisement can mislead, a fee can be so low that quality suffers, and a client that owes fees for too long becomes a lender to its own auditor.

The codes of International Federation of Accountants (IFAC) and Institute of Chartered Accountants of Nigeria (ICAN) set limits, and the tendering process shows how a firm competes for an audit within them.

This topic covers how firms obtain work, the rules on advertising and publicity, how fees are set and the ICAN guidance on them, Companies and Allied Matters Act 2020 (CAMA 2020)’s rule on auditors’ remuneration (s. 408), tendering from the first questions to the evaluation, lowballing, and credit control for overdue fees.

Examiners test the fee rules inside ethics scenarios, as in November 2025 where fee dependence and the ICAN fee guidance were examined, and they ask for the tender process as a list of stages.

Obtaining professional work

Firms want to grow the client base to raise profit. They do so by promoting a good reputation in the business community, by recommendations from existing clients, by advertising, and by publicity and promotion, such as sponsorship.

Advertising and publicity

Soliciting work through advertising or other marketing may threaten the fundamental principles. A self-interest threat to professional behaviour arises if services, achievements or products are marketed in a way that is not consistent with it. IFAC and ICAN therefore regulate advertising through their codes, and ICAN has adopted IFAC’s guidance. Advertising and publicity material:

• must not bring the professional body, the firm or the profession into disrepute;
• should not exaggerate services, qualifications or experience, and should be honest, truthful and not misleading;
• must not discredit the services of other firms or make disparaging references or unsubstantiated comparisons to another chartered accountant’s work; and
• must not break locally recognised advertising codes.

It is also recommended that it avoid any reference to fees. If fees are mentioned, the basis of charging should be stated, and the comments must not mislead, must not offer discounts and must not compare with the fees of others. A chartered accountant in public practice in doubt about a proposed form of advertising should consult through the Registrar and Chief Executive of ICAN.

Setting fees

Price is a sensitive matter, because disputes arise if fees are unreasonable. In setting a fee, the accountant must follow professional guidance and must not breach any fundamental principle. For instance, a fee so low that the work cannot be done to professional standards for that price creates a self-interest threat to professional competence and due care.

Safeguards include making the client aware of the terms of the engagement, in particular the basis of fees and the services covered, through the engagement letter, and assigning enough time and qualified staff.

ICAN’s Code says a member may charge for services. Where the basis has not been agreed, the member should charge a fee that is fair and reasonable, taking into account:

1. the seniority and professional expertise of the people needed;
2. the time spent by each;
3. the degree of risk and responsibility; and
4. the priority and importance of the work to the client, with any expenses properly incurred.

A firm should charge the fee it has quoted, or the tender the client accepted, unless extra work is needed. If extra work was not expected when the fee was agreed, the firm must explain and justify the higher fee.

Specific ICAN guidance on fees

• ICAN advises minimum charge-out rates, a benchmark below which members are not ordinarily expected to charge. A member should tell a client in writing, before the engagement starts, the basis on which the fee will be calculated and, on request and where practicable, the likely level of fees.
• The member should discuss and explain the basis, including the estimated initial fee, at the earliest opportunity, and confirm it in writing, normally in an engagement letter.
• Firms should not quote a fee for new audit work lower than that charged by an existing auditor, and should not quote by tender a fee they have reason to think is significantly lower than those of other tendering firms. In both cases objectivity could be threatened.
• Firms must make sure the work complies with auditing standards and quality control procedures. If a complaint reaches the Institute, where fees were a feature in getting or keeping the work, the firm must be able to show that the work met auditing standards and that the client was not misled about how fees for the current and later years would be determined.
• A member whose fees are unpaid may exercise a lien over books and papers on which he worked and may refuse to pass on information until paid, but must take reasonable steps to resolve any dispute on the fee. The incoming auditor has a duty to help recover the fees within a reasonable time.
• Fees should generally not be based on a percentage or on contingency calculations for audit work, reporting assignments and similar non-audit roles.

CAMA 2020, section 408

If the directors appointed the auditors, the directors may fix their remuneration. In other cases the company fixes it at the annual general meeting or in the way the company decides in general meeting. Remuneration here means fees and expenses.

Tendering

Tendering is a commercial process, widely used by larger companies, when they want to change auditors. Two or more firms are invited to submit a proposal for the audit. The invitation may or may not include the existing auditor. The legal and ethical mechanism for changing auditors in Nigeria is covered in the previous topic.

Initial questions

A firm should begin to tender only when approached by a prospective client, and should not submit a tender unless it can answer these satisfactorily:

• Does the firm have the expertise?
• Does it have, or could it have, enough staff at the right time?
• Is there any ethical reason it could not act, such as a problem with independence or a conflict of interest?
• Does it know of any problems with the current audit or auditors?

For a tender, the firm should also ask why it has been asked to tender, whether it could and should offer a lower fee than others, whether the audit is particularly attractive (a quiet time of year or an industry in which it wishes to build experience) and what audit risks the client presents.

The process

The main benefit to the client should be lower fees, because several firms compete. Firms have responded by becoming more efficient and cutting costs. The process is still high risk for a firm.

It must be confident that it can deal with the client professionally and economically if it wins, and if it loses, the time and cost, which may be considerable, are wasted, so enough tenders must succeed to justify the cost. The stages are:

1. collect background information on the possible client;
2. establish the exact scope of the work and the client’s requirements;
3. carry out a preliminary audit risk assessment and prepare a preliminary plan covering staffing and time;
4. estimate a fee;
5. prepare a submission document, typically covering: the firm’s key characteristics; the nature of the audit or other work; the client’s requirements and how the firm will meet them; how the work will be done; the proposed fee and how it is calculated; and the other services the firm could offer; and
6. if required, give a presentation.

How the client evaluates tenders

The client is likely to consider: fees; the services offered; geographical coverage of the firm’s offices; expertise of the firm and staff; reputation; whether senior management think they can work well with the potential engagement partner and key staff; the presentation; and the extent to which the company wants to change firm and is dissatisfied with the current one.

Lowballing

Lowballing is tendering for audit work at a very low fee to win it, hoping to raise the fee in later years or to recover losses through more profitable non-audit services. There is no evidence that it leads to poor audits, but its existence suggests to business and the public that audit is low quality, which damages the profession’s reputation.

All fees should be enough to compensate the firm for its work.

Credit control and overdue fees

A firm must collect what it charges. Late invoicing or late collection indicates weak credit management that should be corrected. Sometimes fees are unpaid because the client is in financial difficulty.

• Overdue fees threaten independence and objectivity, because the work might be said to have been done free. If overdue for long, they may be a form of loan by the firm to the client.
• The threat can be significant if the amount is material.
• If a client is in temporary difficulty, the firm may agree staged payments, but must make the client aware of the ethical problem that late payment creates.
• For future audits, if the engagement continues, pay particular attention to going concern, which may be challenged where cash flow problems continue.
• If fees are overdue for longer than is commercially acceptable, the firm should consider whether it is ethically appropriate to resign. The ethics partner should assess the threat to independence and integrity, and if the firm continues, the reason should be documented. The latest audit papers should be checked for enough appropriate evidence on going concern.

The rules in more depth

Why a low fee is an ethical issue

The price decides the time the team can spend. If the fee is below the cost of doing the work properly, either quality drops or the firm loses money. The first breaches competence and due care. The second creates a temptation to make up the loss with other services, which creates independence threats. That is why ICAN bars fees below those of an existing auditor or significantly below other tenderers.

Why audit fees must not depend on the result

A percentage or contingent fee gives the auditor a stake in the outcome of the audit, a self-interest threat. The auditor should be paid for the work, not for a result.

Numbers: building a tender fee

A firm estimates the hours for a new audit and prices them at charge-out rates:

Adding expenses of ₦1,400,000 gives a quote of ₦19,000,000. If the existing auditor charged ₦26,000,000, the quote is 27% lower (₦7,000,000 ÷ ₦26,000,000), which is a warning sign that the ICAN rule against quoting less than the existing auditor may be broken, unless the firm can justify it by real efficiency or a change in scope.

Overdue fees: a client owes ₦9 million against an annual fee of ₦12 million, which is 75% of a year’s fee, a material amount that looks like a loan.

Worked example: a tender and overdue fees

1. Initial questions. Does Kudi have the expertise and staff, is there any ethical reason it could not act, and why was it asked to tender?
2. Fee level. ₦18 million is 40% below the incumbent’s ₦30 million (₦12 million ÷ ₦30 million). ICAN says firms should not quote lower than the existing auditor or significantly lower than other tenderers, because objectivity could be threatened. This is lowballing, and recovering the loss through consulting creates self-interest and self-review threats.
3. Contingent bonus. Audit fees must generally not rest on a percentage or contingency. The bonus must be dropped.
4. Tender process. Collect background, define scope, do a preliminary risk assessment and plan, estimate the fee from hours and rates, prepare the submission and a presentation.
5. Zest Ltd. ₦8 million overdue for a year is 80% of the annual fee, and a loan in effect, a threat to independence. The ethics partner should assess it, and the firm should consider resigning. If it continues, document why and check the going concern evidence.
6. Conclusion. Price the tender on a realistic build-up, drop the bonus, and deal with Zest’s overdue fees.

How to score full marks

• For fee questions, name the threat first. Low fee: self-interest threat to competence and due care. Fee dependence: self-interest and intimidation. Overdue fees: a loan. Then give the rule and the safeguard.
• Quote ICAN’s fee guidance as a list. Minimum rates, written basis before starting, not below the existing auditor or other tenderers, no percentage or contingent fees, standards followed, lien with reasonable steps.
• For tendering, give the stages in order. Background, scope, risk and plan, fee, submission, presentation. Describe what the submission contains.
• For advertising, give four prohibitions and the fee rule.
• Do the arithmetic when figures are given. Show percentages against the incumbent’s fee or the annual fee.
• Time. Spend time in proportion to marks.

Common mistakes in the exam

• Allowing a contingent or percentage audit fee.
• Saying a firm can quote below the existing auditor if it wants the work.
• Describing lowballing as always producing bad audits. The text says there is no evidence of it, but it harms reputation.
• Forgetting that advertising must avoid discounts and comparisons with others’ fees.
• Leaving the written basis of fees out of the engagement letter.
• Missing that overdue fees may amount to a loan.
• Forgetting section 408 on who fixes remuneration.
• Listing tender stages without the contents of the submission.

Quick revision

• Work: reputation, recommendations, advertising, publicity.
• Advertising: no disrepute, no exaggeration, no disparagement, obey codes; avoid fees, no discounts or comparisons.
• Fees: fair and reasonable (seniority, time, risk, importance). ICAN: minimum rates, written basis, not below existing auditor or other tenderers, no contingency or percentage.
• CAMA 2020 s. 408: directors if they appointed; otherwise the company in general meeting.
• Tender: background, scope, risk and plan, fee, submission, presentation. Lowballing.
• Overdue fees: threat; loan if long overdue; staged payments; going concern; consider resigning.

Practice questions

These are original questions written in the style of the ICAN exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

The real ICAN paper has no multiple-choice section. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

Spotted a mistake? Tell us and we will check it.