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Can we pay Audit fee in advance which we are following US Gaap

Prasad Menon's Profile

Can we pay Audit fee in advance which we are following US Gaap


Stephen Turk
Title: Principal
Company: Stephen Turk, CPA
(Principal, Stephen Turk, CPA) |

I am not sure of your exact question, but I do come across questions regarding the timing for recording the expense for audit fees. I am including, below, an excerpt from the AICPA's technical practice aids that addresses this - basically, the answer is that you expense fees when the services are rendered. So, if you pay the fee in advance it would be recorded as prepaid expense until the work is performed.

TIS Section 5290.05 Accrual of Audit Fee
 Inquiry—A CPA has been engaged to audit the financial statements of a client company. The audit is being conducted after year end. Is it proper to accrue the audit fee as an expense of the year under audit?
 Reply—According to FASB Concepts Statement No. 6, Elements of Financial Statements, paragraph 145, "The goal of accrual accounting is to account in the periods in which they occur for the effects on an entity of transactions and other events and circumstances, to the extent that those financial effects are recognizable and measurable." The audit fee expense was incurred in the period subsequent to year end. Therefore, it is properly recorded as an expense in the subsequent period. However, fees incurred in connection with planning the audit, together with preliminary procedures (for example, confirmation work) would be accruable for the year under audit.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

As Stephen points out, guidance and the purest treatment would be to accrue based on when the service is provided. The problem is most audit firms may not bill this way. In practice you can have some accrual for the current year and the audit occurs the next year, but don't try to accrue for all of the audit this way. The auditors will give you the benefit of the doubt if done reasonably accurate.

Topic Expert
Karoline Mello
Title: Director, FP&A
Company: Apollo Group
(Director, FP&A, Apollo Group) |

Pay this item as a prepaid in FY13 and then you can expense the audit fees as incurred monthly in FY 14 by crediting the prepaid and debiting the expense account in a journal entry.


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