Can we pay Audit fee in advance which we are following US Gaap
Can we pay Audit fee in advance which we are following US Gaap
Answers
Prasad:
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
Reply—According to FASB Concepts Statement No. 6, Elements of Financial Statements, paragraph 145, "The goal of accrual
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.
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.