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Hi,

I have one question

In case where a company failed to accrue for a professional fee in the prior year (example an audit fee for the prior year where the audit was executed in the current year) and paid the fee when due in the current year. Should the company restate the prior year figures as error committed for the professional fee or should account the fee in the current year as change in estimate?

Did you know, at the balance sheet date, that an audit of that period's results would be requested? (If it's a mandatory audit then clearly the answer is yes).

Thank you.

Though it is not legally mandatory, it is a common practice to file audited financial statements to the tax office.

did you engage an auditor before the year end

No. Usually, the auditors don’t perform an interim audit and the engagement letter is signed after the year end. However, as said before it is a usual practice to have the accounts audited.

I can't believe an audit fee, or similar fee, is material, so it's not restatement territory but as to the precise correct answer, you can make a judgement.

Thank you for the invaluable advice.

ha! this is the exact topic discussed some time ago:
viewtopic.php?f=6&t=461

IMO, there should be no accrual at year-end if no audit work was performed

Thank you.

For avoidance of doubt, (and I hope this is consistent with what I said in the other thread!), if it was known (or required) as at the year end that an audit would happen then I think an estimate of the cost should be accrued.

Yes, your view is clear, but I disagree
As I see it, you're proposing to recognise an expense for a service just because you know you need to buy it in the future. But at the year end, you don't have any obligation towards the auditors to pay the audit fee

I guess it's the combination of the fact that an audit is legally required (let's assume), in respect of that specific accounting period, so in some sense an obligation that should be reflected in the numbers being put in front of users.

But the obligation is to buy the audit service in the next accounting period, so there is no obligation and no service actually delivered at the end of the current accounting period

I don't think the obligation is allocated to any time period in particular, other than it relates to the year being audited. so that's the year the obligation arises in respect of.

I guess we need to agree to differ on this one

Yep - same as last time! Maybe one day Interpretations Committee can rule - I guess it's a Conceptual Framework question.....

My two cents' worth: if an engagement letter is not signed, and no audit work has been performed, recognising an expense does not seem correct.

ha, 'no expense' team is winning 2:1

I did ask "did you engage an auditor before the year end" as I agree that's a consideration

mere "engagement" is just an executory contract that is not recognised in FS
the valid question is whether the audit service was (at least partially) performed

I don't mean an engagement letter being signed and therefore giving rise to a contractual liability.
I also don't think actual performance is relevant to my argument. You would recognise 10% of the expected cost if 10% of the audit was performed by year end?
I think it's a special case because of how closely tied (ie perfectly tied) to the financial statements this specific service is.

Technically I would recognise 10% of the fee if I could assess that only 10% of the work is done, but of course that's hard to assess and I understand that for audits that are significantly advanced before the reporting date, you recognise 100% as a practical expedient with immaterial impact

but if the audit hasn't even started, then I would not recognise anything, it would be recognising future expenses IMO. It doesn't matter that the future service is "tied" to particular period.

I think that Example 6 Legal requirement to fit smoke filters from IAS 37 can be a good analogy, hm?