Fee dependency on a single client

When one client provides a large share of a firm’s income, the fear of losing that client can make the firm less willing to challenge it. The ethical codes treat this as a self interest and intimidation threat. For audits there are hard percentage limits in the FRC Ethical Standard; for accounts, tax and advisory work there is no fixed cap, but the firm must still identify, evaluate and address the threat.

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Why is relying on one client an ethical problem?

The ICAEW Code of Ethics 2026, which applies from 1 July 2026 and is derived from the IESBA Code, describes the problem directly in paragraph 410.14 A1: when total fees from one client represent a large proportion of a firm’s fees, the dependence on, and concern about losing, those fees affects the level of the self interest threat and creates an intimidation threat. The FRC Ethical Standard puts it in practical terms in paragraph 4.26. A firm has to be willing and able to disagree with directors and management regardless of the consequences to its own position, and economic dependence may stop it qualifying an opinion because that could cost it the client.

The same logic applies outside audit. An accountant who earns half their income from one company may find it hard to refuse an aggressive tax position or to insist on a provision the directors do not want. That is why fee dependency is a question about objectivity and integrity, two of the fundamental principles, and not only a commercial risk.

Which rules apply to which kind of work?

The ICAEW Code (paragraph 1.6A2 and R400.0) says that audits carried out under ISAs (UK) and other public interest assurance engagements must follow the FRC’s Ethical Standard instead of Part 4A of the Code. The table at 400.0 A2 then sets out the rest:

Type of engagement	Independence rules on fees
Audit under ISAs (UK)	FRC Ethical Standard, section 4
Audit under other standards, and review engagements	Part 4A of the Code (section 410), or the FRC requirements if more convenient
Other assurance engagements	Part 4B of the Code (section 905)
Accounts preparation, tax, payroll, advice	Conceptual framework in Part 1 and section 330 of the Code; no percentage limit

ACCA’s Code of Ethics and Conduct also incorporates the IESBA Code, so the concepts are the same for ACCA members even where the supplementary rules differ.

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What are the limits for audit clients under the FRC Ethical Standard?

The FRC Ethical Standard tests whether total fees from a client, its subsidiaries, or entities with the same beneficial owner or controlling party are expected to regularly exceed a percentage of the firm’s annual fee income. Where profits are not shared firm wide, the test is applied to the part of the firm by reference to which the engagement partner’s profit share is calculated.

Non listed entity that is not a public interest entity: above 15%, the firm must resign or not stand for reappointment (paragraph 4.22). Between 10% and 15%, the engagement partner must disclose the expectation to the Ethics Partner and to those charged with governance, and the firm must arrange an external independent quality control review before the report is finalised (paragraph 4.29).
Public interest entity or other listed entity: above 10%, the firm must resign or not stand for reappointment (paragraph 4.21). Between 5% and 10%, disclosure to the Ethics Partner and those charged with governance is required (paragraph 4.25).

There are three reliefs. Paragraph 4.24 says the limits are not meant to force resignation because of an unpredictable one off event where ceasing to act would harm shareholders or the public interest, though full disclosure is then required. Paragraph 4.30 lets a new firm audit a non listed client above 15% for up to two years if it obtains external independent quality control reviews before issuing the report. Paragraph 6.5 removes the external review requirement in paragraph 4.29 for audits of Small Entities, but paragraph 6.6 keeps the disclosure to the Ethics Partner and those charged with governance. Our page on auditor independence and the FRC Ethical Standard covers the rest of the standard.

What applies to review engagements and other assurance work?

For engagements under Part 4A of the Code, such as review engagements, the test is longer term. Under R410.15, if total fees from a client that is not a public interest entity represent, or are likely to represent, more than 30% of the firm’s total fees for each of five consecutive years, the firm must consider having the fifth year’s work reviewed by a professional accountant outside the firm, either before the report is issued or before the sixth year’s report is issued. R410.16 repeats that assessment every year the 30% level continues. For public interest entities the trigger is 15% for two consecutive years (R410.18), and R410.20 requires the firm to cease acting after five consecutive years unless the narrow public interest exception in R410.21 applies.

For other assurance engagements, section 905 sets no percentage. Paragraph 905.10 A1 says a large proportion of fees creates a self interest and intimidation threat, and 905.10 A2 adds that the threat exists even if the client is not the party negotiating or paying the fee.

Does fee dependency apply to accounts and tax clients?

Yes, but through judgement rather than a numerical rule. Paragraph 330.2 of the Code says the level and nature of fee arrangements might create a self interest threat, and the conceptual framework in section 120 requires every accountant to identify, evaluate and address threats. In practice the factors the Code lists for audit clients in 410.14 A3, the operating structure of the firm and whether it is expected to diversify, are a sensible starting point for any client.

Dependence can also sit at partner or office level. Paragraph 410.14 A5 recognises a threat where one client represents a large share of the revenue of one partner or one office, and 410.14 A6 points to how far that partner’s pay depends on the client. Overdue fees add to the problem: paragraph 330.4B.A2 says a client that owes overdue fees can create a real or perceived self interest threat, which is relevant when a dominant client is also a slow payer. See also recovering unpaid fees.

How is the percentage worked out?

Paragraph 410.14 A2 allows a firm to use financial information from the previous financial year and estimate the proportion from it. The FRC tests are forward looking: they ask whether fees are expected to regularly exceed the threshold. Footnote 43 of the Ethical Standard says total fees include amounts billed by others where the firm is entitled to the fees, but not fees billed by the firm acting as agent for another party. Footnote 44 says that for a sole practitioner, annual fee income includes all earned income received by the individual. Fees from connected entities under common ownership are added together, so a group of family companies counts as one client for this purpose.

What safeguards are acceptable?

The Code gives examples in 410.14 A4 and A7:

having an appropriate reviewer who is not a member of the firm review the work;
reducing the extent of other services provided to the client;
increasing the client base, or the services provided to other clients, to reduce dependence;
making sure the partner’s pay is not significantly influenced by fees from that client.

The FRC adds engagement quality reviews and reallocating work within the practice (paragraphs 4.28 and 4.32). Whatever is chosen should be recorded, with the reasons why it brings the threat to an acceptable level. Our page on threats and safeguards explains how the framework tests whether a safeguard works.

How might this look in practice?

Illustration only. A two partner firm has annual fee income of £400,000. One client, a private trading company that is not a public interest entity, pays £70,000 a year for its audit, accounts and tax work, which is 17.5% of fees and expected to continue. Because the audit is under ISAs (UK), paragraph 4.22 applies: the firm must resign as auditor or not stand for reappointment. It could keep the accounts and tax work, which has no cap, but would need to evaluate the remaining dependence and record its safeguards.

If the same client paid £50,000, or 12.5%, paragraph 4.29 would require disclosure to the Ethics Partner and to the directors, plus an external independent quality control review before the audit report is finalised. If the company qualified as a Small Entity, the firm could use paragraph 6.5 to drop the external review, keep the disclosure under paragraph 6.6, and state in the audit report that it has applied the FRC’s provisions for audits of small entities, as paragraph 6.3 requires.

What mistakes do firms make?

Looking at one client company in isolation when the FRC test aggregates entities with the same owner or controlling party.
Assuming that because the work is not audit, fee dependency is irrelevant. The threat still has to be evaluated under the conceptual framework.
Measuring against whole firm income when the engagement partner’s profit share is based on one office or team.
Waiting for the year end figures. The tests ask what fees are expected to be, so a large new assignment should prompt the assessment straight away.
Applying a safeguard without recording why it works, which leaves nothing to show a monitoring reviewer.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.