Borey & Associates: a PIE client that pays 21% of the office's fees
Borey & Associates is a fourteen-partner firm in Phnom Penh. Mekong Agri Holdings, listed on the Cambodia Securities Exchange, has been an audit client for seven years. The engagement partner, Dara, has led the audit throughout. The 2025 audit fee is $210,000, which represents 21% of the fees of the Phnom Penh office.
Four further facts have come to light while planning the 2025 audit.
- The firm has, for four years, maintained the accounting records and processed payroll for three of Mekong Agri's Cambodian subsidiaries. Those subsidiaries are fully consolidated.
- Dara's sister was appointed financial controller of Mekong Agri in August 2025. She reports to the group finance director and signs off the monthly consolidation pack.
- Mekong Agri has proposed a 15% additional fee, $31,500, payable if the audit report is signed by 31 March 2026, to meet a bond covenant deadline.
- The firm has no other listed-entity clients and no engagement quality reviewer has been appointed to date.
1. Identify the ethical threats arising from these facts and evaluate whether each can be reduced to an acceptable level by safeguards.
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1. Fee dependency (self-interest). $210,000 is 21% of office fees. For a public interest entity, the IESBA Code requires disclosure to those charged with governance and an engagement quality review whenever total fees from a PIE client exceed 15% of total firm fees for consecutive years, and the threat may simply not be capable of being reduced to an acceptable level. On this figure the threat is significant and cannot be safeguarded away by good intentions; the firm must consider whether to continue after the 2025 engagement and how fees will be reduced.
2. Bookkeeping and payroll for consolidated subsidiaries (self-review and advocacy). For a PIE audit client, providing accounting and bookkeeping services, including payroll, to the client or its components is prohibited. There is no safeguard. The firm must withdraw from the work, or resign from the audit. Preparation of the components' records means the firm would be auditing its own output.
3. The partner's sister as financial controller (familiarity and intimidation). A close family member in a position to exert significant influence over the accounting records and the consolidation pack is a threat so significant that no safeguard reduces it to an acceptable level. Dara must be removed from the engagement team, and the matter escalated to the firm's leadership, not merely disclosed.
4. Contingent fee (self-interest). A fee contingent on the outcome of the audit - here, completion by a deadline - is prohibited for audit engagements. The fee must be declined in writing, whatever the commercial pressure.
5. Partner tenure (familiarity). Dara has been engagement partner for seven years on a PIE. Rotation is required after seven years, with a five-year cooling-off period. Dara must rotate off now.
6. No EQR (self-review). For a listed client, an engagement quality review is mandatory before the report is dated. The firm has no eligible reviewer and no process; this is a breach of the Code and of ISQM 2.
2. Recommend the actions the firm must take before accepting or continuing the 2025 engagement, and explain what would change if Mekong Agri were instead a private company with two shareholders.
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Actions before the engagement is continued
- Decline the $31,500 contingent fee in writing and confirm the arrangement is not present in any side letter.
- Remove Dara from the engagement immediately and appoint a different engagement partner, and rotate Dara off for the required cooling-off period. Document the reason.
- Withdraw from the bookkeeping and payroll work for the three subsidiaries. If an orderly transition is genuinely required, it must be short and must end before the audit work begins; if the client refuses, resign from the audit.
- Appoint an eligible engagement quality reviewer - a partner not involved in the engagement, or an external reviewer - and ensure the review is completed before the auditor's report is dated.
- Escalate the fee dependency to the firm's leadership. Present a plan to reduce the ratio, disclose the matter to the audit committee, and reassess at the end of 2026. If fees cannot be reduced, consider resigning and follow the firm's communication and documentation procedures.
- Communicate all of the above to those charged with governance, and document the threats identified, the safeguards adopted and the rationale.
If Mekong Agri were a private company with two shareholders The analysis softens but does not disappear:
- Bookkeeping and payroll would be permitted if the client takes responsibility for the records, the firm does not make management decisions, and the client is not a PIE - but the self-review threat for a consolidated group is still real, and a reviewer separate from the engagement team would be needed. Payroll remains problematic where the firm also audits the payroll liability.
- The contingent fee would still be prohibited - the prohibition on contingent fees for audit engagements is not limited to PIEs.
- The sister as financial controller would still remove Dara from the engagement; for a small entity there may be no alternative partner, in which case the firm must decline.
- Fee dependency would require disclosure and monitoring, and an EQR may still be required where the threat is significant.
- Partner rotation would be a matter of firm policy and local law rather than a Code requirement.