What year should audit fees be reflected in?

Question

Say, at the end of 2011 we have our financials audited should the fees incurred for the audit be reflected in 2011 or 2012?

Answer 1

Report in the same year as the audit is being performed on. The fees are estimated before year end and adjusted accordingly. The answer is 2011 in this case.

Answer 2

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You get a 1099-C for canceled debt, not a W-2. You NEVER report something in one tax year if it occurred in the previous tax year. The date on the 1099 reflects the date that the company canceled your debt which is the date that the IRS considers it income. If the 1099 is dated for 2009 it must be reported on your 2009 taxes, NOT your 2010 taxes. Sooner or later the IRS will run your tax return through a computer program that cross checks it against the income statements submitted. They will catch this discrepancy 100% of the time. The problem is that by the time they catch it the $100 in taxes owed will have interest and penalties added and the debt could be $200 or more. If you cannot find the 1099-C form then you should contact the company that issued it and ask for another copy (they’re allowed to charge a fee for this). You can also request a transcript of your taxes from the IRS which will show the amount. Once you have that information, you need to file an amendment and pay the taxes due. The IRS will bill you later for the interest and penalties, but it will be a lot less than if you wait for the IRS to catch the mistake.

Answer 3

Are you asking for an accounting course? The answer is not a yes or no like you hope to find.



Here's a professional discussion on the subject



http://www.proformative.com/accounting/accounting-concepts/discussions/audit-tax-fee-accrual



One of the better repulse cites



Margaret - I think because we sign contracts with the CPA firms we accrue in the period incurred via contract versus when the work is performed. Here is the cite - It's Concepts 6:



.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 (e.g., confirmation work) would be accruable for the year under audit.



But this is not GAAP and the next comment notes



I am impressed that you were able to find this citation, not many folks know about it. It is in fact an AICPA Technical Q&A which is not an authoritative source of US GAAP. However some firms have adopted it as if it were in fact US GAAP when it is not. US GAAP in this area is not fully defined. I beleive it is acceptable to adopt a policy consistent with the Q&A or accrue in full under a FAS 5 theory.



Ultimately both arguments are valid and best practice would depend on the company. Is the company audited yearly with predictable expenses that are accrued over the year? Is this an unforeseen audit where no accruals have been made.



GAAP leaves some gray area for this subject. As I said it's not an either or.

Answer 4

Audit fees for a 2011 tax year should be accrued in 2011. They will be an account payable as of the end of the year.

Answer 5

The year the audit is performed, not the year for which the audit is performed. Y'all remember the matching principle, right? Do they still teach that at our fine universities? The cost does not benefit the year being audited - since the audit ain't done yet, son. It benefits the year in which the audited financials are issued. You should have learned this in the third grade! Or so it seems to me. But then, I've only been doing this for 40 years.