WEBVTT 00:00:00.240 --> 00:00:03.300 IESBA created new requirements with respect to 00:00:03.300 --> 00:00:06.720 fees, including certain communications requirements for 00:00:06.720 --> 00:00:10.230 public interest entities. Because there is an inherent self-interest 00:00:10.230 --> 00:00:13.350 threat and possibly an intimidation threat to 00:00:13.350 --> 00:00:17.130 independence from fees negotiated with and paid by an audit 00:00:17.130 --> 00:00:21.030 client, IESBA standards require auditors to assess 00:00:21.060 --> 00:00:24.420 whether threats are at an acceptable level by considering 00:00:24.420 --> 00:00:28.290 various fee-related measures. First, is the level of the 00:00:28.290 --> 00:00:32.400 audit fee. The audit fee is required to be a standalone fee, 00:00:32.520 --> 00:00:36.090 meaning fees from other services for the audit client cannot 00:00:36.090 --> 00:00:39.690 influence the level of the audit fee. Additionally, the 00:00:39.690 --> 00:00:42.390 level of the threat might be impacted when a large 00:00:42.390 --> 00:00:45.810 proportion of fees is generated by providing non-audit 00:00:45.810 --> 00:00:49.830 services. Therefore, the proportion of fees from non-audit 00:00:49.830 --> 00:00:53.400 services to the audit fee is relevant to the evaluation of 00:00:53.400 --> 00:00:57.330 such threats. Also, when the total fees generated from an 00:00:57.360 --> 00:01:01.020 audit client represent a large proportion of the total fees 00:01:01.020 --> 00:01:04.680 of the audit firm, the dependence on, and concern about the 00:01:04.680 --> 00:01:08.100 potential loss of fees from that client can create a self-interest 00:01:08.100 --> 00:01:12.210 threat and an intimidation threat. Similarly, 00:01:12.270 --> 00:01:15.330 threats can be created when the fees from an audit client 00:01:15.420 --> 00:01:18.780 represent a large proportion of the revenue of one partner 00:01:18.810 --> 00:01:23.040 or one office of the firm. IESBA requires certain fee-related 00:01:23.040 --> 00:01:26.430 communication to Those Charged With Governance of a 00:01:26.430 --> 00:01:29.760 public interest entity audit client to assist in their 00:01:29.760 --> 00:01:33.480 assessment of the firm’s independence: First, the fees paid 00:01:33.480 --> 00:01:37.080 or payable to the firm and any member firms for the audit of 00:01:37.080 --> 00:01:40.530 the financial statements of which an opinion is expressed. 00:01:40.890 --> 00:01:44.850 Second, firms must communicate fees for all other services 00:01:44.910 --> 00:01:48.090 charged to the audit client and any of its controlled, 00:01:48.090 --> 00:01:52.260 consolidated entities. Fees charged to controlled entities 00:01:52.320 --> 00:01:55.260 that are not consolidated are also required to be 00:01:55.260 --> 00:01:59.040 communicated, but only in instances when the firm knows or 00:01:59.040 --> 00:02:01.860 has reason to believe such fees are relevant to the 00:02:01.860 --> 00:02:06.030 evaluation of the firm’s independence. Next, where the total 00:02:06.030 --> 00:02:09.570 fees from a public interest entity audit client represent 00:02:09.570 --> 00:02:14.160 more than 15% of the total fees received by the firm, IESBA 00:02:14.160 --> 00:02:18.750 requires such fee dependency to be communicated. Lastly, 00:02:18.810 --> 00:02:22.020 we must communicate whether the threats created by the level 00:02:22.020 --> 00:02:25.110 of the audit fees and the proportion of fees for other 00:02:25.110 --> 00:02:28.530 services relative to the audit fee are at an acceptable 00:02:28.530 --> 00:02:32.190 level and if not, what actions will be taken to reduce 00:02:32.190 --> 00:02:35.880 threats to an acceptable level. Language to facilitate 00:02:35.880 --> 00:02:40.350 required fee-related communications is included in the PCAOB 00:02:40.350 --> 00:02:43.740 audit results Audit Committee presentation templates on 00:02:43.770 --> 00:02:47.730 Alex within the ‘Audit and professional services fees’ slide, 00:02:47.940 --> 00:02:51.840 along with other required fee-related communications. 00:02:51.840 --> 00:02:55.050 In addition to communicating the fee-related matters with Those 00:02:55.050 --> 00:02:58.530 Charged with Governance, IESBA now requires public 00:02:58.530 --> 00:03:02.400 disclosure of such fees if applicable laws and regulations 00:03:02.460 --> 00:03:06.360 do not already require such disclosure. The fee information 00:03:06.360 --> 00:03:09.930 required to be reported by SEC registrants in the proxy 00:03:09.930 --> 00:03:13.800 statement or annual report will typically satisfy the IESBA 00:03:13.800 --> 00:03:17.280 public disclosure requirements. If a public interest 00:03:17.280 --> 00:03:21.630 entity audit client is not required by law or regulation to 00:03:21.630 --> 00:03:25.830 publicly disclose auditor fees, then KPMG must discuss the 00:03:25.830 --> 00:03:29.550 benefit of doing so with Those Charged With Governance and 00:03:29.550 --> 00:03:33.540 if the client does not publicly disclose fees, then KPMG 00:03:33.540 --> 00:03:37.320 would be required to do so, including fees paid for the audit 00:03:37.350 --> 00:03:38.760 and for other services.