The correct answer is: Where an audit client is a public interest entity and, for two consecutive years, the total fees from the client represent more than 15% of the total fees received by the firm, the firm shall disclose this fact to those charged with governance of the audit client, and shall apply safeguards to reduce the threat to an acceptable level.

If the client is a private company, then there is no threshold % above which there is a threat. Rather, the threat depends on:

• The operating structure of the firm;

• Whether the firm is well established or new; and

• The significance of the client qualitatively and/or quantitatively to the firm.

Safeguards may need to be applied to reduce the threat to an acceptable level.

If the client is a public interest entity, however, if fees are more than 15% of total fees for 2 consecutive years, then the firm must disclose this fact to those charged with governance, and apply a safeguard - either a 'pre-issuance review' ('hot review') or a 'post-issuance review' ('cold review'). (The same considerations that apply to private entities also apply to public interest entities - the 15% threshold is in addition to them.)