Accrued Audit Fees Journal Entry

An audit fee is a professional fee charged by an auditor for performing an audit on company financial statements. The fee is generally based on the size and complexity of the company being audited, as well as the time required to perform the audit.

Audit fees are typically tax-deductible expenses for businesses. While the cost of an audit can be significant, it is important to remember that an audit provides valuable assurance to shareholders and other stakeholders that a company’s financial statements are accurate and free from material misstatement.

Most companies are required to have their financial statements audited by an external auditor. The audit fee is generally recognized as an expense in the year it is incurred. The primary argument for Expensing the audit fee is that it represents a current period cost that is necessary for the company to continue operating.

Journal Entry for Accrued Audit Fees

The audit fees are recorded as the expense on the income statement which needs to record in the same period. It is the expense that needs to record in the current year. The problem is the audit will start after the year-end.

The company will contact the auditors to perform the audit work after the year-end. But the expense should be included in the current year, so the company has to estimate the expense before preparing the annual financial statement.

At the end of the year, company has to accrue the audit fees on income statement.

The journal entry is debiting audit expense and credit accrued liability.

The audit expense will be recorded on the current income statement. The accrued liability will be recorded as a liability on the balance sheet.

Example

Company ABC is closing the current year financial statement. It is not yet recorded the audit expense. Based on the management team, the audit fee is around $ 8,000. Please prepare journal entry on accrued audit fees.

The company has to record the audit fees as the expense on income statement. It bases on the management estimation which arrives from the past year or other information.

The journal entry is debiting audit expense $ 8,000 and credit accrued liability $ 8,000.