Accounting for audit fees is a crucial accounting operation aimed at recording the fees paid to independent auditing firms. Statistically, this cost typically accounts for 0.51% – 1.51% of total management expenses, depending on the size of the business. Timely recording of these fees ensures the integrity of reporting and compliance with regulations. Accounting Law 88/2015/QH13.
This expense is considered reasonable when supported by sufficient invoices and documentation. Circular 96/2015/TT-BTCWhen accounting for audit expenses, accountants need to clearly distinguish between recurring audit fees and accompanying consulting services. This helps businesses avoid the risk of having expenses disallowed during the year-end corporate income tax settlement.
Legal basis governing the accounting of audit expenses.
Before delving into accounting techniques, we need to identify the relevant legal documents. Incorrect application of regulations can lead to discrepancies in the chart of accounts and balance sheet.
Current accounting regulations
Currently, Vietnamese businesses mainly apply audit cost accounting based on two main sets of standards:
- Circular 200/2014/TT-BTC: Applicable to all types of businesses, especially large-scale entities.
- Circular 133/2016/TT-BTC: Applicable to small and medium-sized enterprises (SMEs).
Regulations on the reasonableness of expenses under the Tax Law
According to Article 4 of Circular 96/2015/TT-BTC, for audit expenses to be deductible when calculating corporate income tax, businesses need to meet the following requirements:
- Actual expenses related to production and business operations.
- We have all the necessary legal documents and invoices (Contract, Acceptance Certificate, VAT Invoice).
- Cashless payment is accepted for invoices of 20 million VND or more.
Accounting for audit expenses according to Circular 200
In the Circular 200 system, the cost of outsourced services for management purposes is aggregated into account 642.
The accounts used primarily
To account for audit costs, accountants typically use the following accounts:
- Account 642: Business management expenses (details 6427 – Outsourced service costs).
- Account 1331: Input VAT is deductible.
- Account 331: Amount payable to the seller (Auditing firm).
- Accounts 111, 112: Cash or bank deposit.
Detailed accounting procedures
Upon receiving the invoice and service acceptance report, the accountant records the following entries:
Journal Entry 1: Recording Expenses and Liabilities
- Debit Account 6427: Audit fees excluding tax.
- Debit Account 1331: Value Added Tax (8% or 10%).
- Account 331: Total payment amount.
Journal entry 2: Payment to the auditing firm.
- Debit Account 331: Amount paid to settle debt.
- Account 112: Payment via bank transfer (mandatory if the amount is 20 million or more).
Accounting for audit expenses according to Circular 133
For small and medium-sized enterprises, the accounting system is more streamlined, but the fundamental principles remain the same.
Applicable accounts
Instead of account 6427, Circular 133 uses account 6422 (Business management expenses) to track this fee.
Method of recording
The accounting for audit costs in this case is as follows:
- Debit Account 6422: Auditing expenses.
- Debit Account 1331: Deductible Value Added Tax.
- Account 331: Accounts Payable to Suppliers.
| Criteria | Circular 200 | Circular 133 |
| Expense account | 642 (Details 6427) | 6422 |
| Applicable subjects | Large businesses | Small and medium-sized enterprises |
| Required documents | Contracts, Invoices, Minutes | Contracts, Invoices, Minutes |
Special cases when accounting for audit costs.
In practice, audits can span multiple accounting periods, requiring more complex processing techniques.
Advance payment of audit fees (Prepayment)
If the auditing firm requests an advance payment of 30-50% of the contract value, the accountant should proceed as follows:
- Debit Account 331: Amount of advance payment.
- Account 112: Bank deposits.
(Note: Only record the expense when the service has been completed and accepted).
Provision for year-end audit costs.
At the closing date (December 31st), if the audit is ongoing but no invoices have been received, expenses should be accrued in advance:
- Debit Account 642: Estimated expenses incurred.
- Account 335: Expenses payable.
When the invoice is received the following year, the accounting for audit fees will be adjusted based on the amount previously accrued.
Allocate costs across multiple periods.
If the expense is substantial and involves review over several years, the business can hold it in account 242 (Prepaid Expenses). It can then be gradually allocated over the months or quarters of the year.
Complete documentation is required to properly account for audit expenses.
To ensure legal compliance and avoid rejection by the Tax authorities, the application dossier must include:
- Audit contract: Clearly state the scope, service fees, and duration.
- Audit plan: Show the interaction between the two parties (if any).
- Acceptance report: Proof that the service was actually completed.
- VAT invoice: Correct business information and tax rates.
- Payment documents: Payment authorization or transfer order.
Analyzing the density of audit cost accounting in management reports.
In management accounting, accounting for audit costs provides data to assess operational efficiency. Businesses should compare audit fees across years to track changes.
For example, if fees increase dramatically, the accountant needs to explain that it is due to expansion or increased operational complexity. Transparency in accounting for audit expenses helps the board of directors trust the published financial figures.
Common mistakes when accounting for audit costs.
Accountants often make the following basic mistakes when processing transactions:
- Incorrect account: Transfer the fees to account 627 instead of account 642.
- Missing bank documents: Paying cash for bills over 20 million VND results in the expense being disallowed.
- Wrong timing: Recording the service in the following year even though it belongs to the previous year (violating the accrual principle).
- Forget about contractor tax: No tax deduction is allowed when hiring a foreign auditing firm.
A practical example of accounting for audit costs.
Company A signed an audit contract with MAN in 2023, with a fee of VND 100 million and VAT of 10%.
- December 15, 2023: Advance payment of 30 million VND.
- March 20, 2024: Final acceptance.
Accounting at Company A:
- Advance payment (December 15, 2023): Debit 331/Credit 112: 30 million.
- Excerpt (December 31, 2023): Debit 6427/Credit 335: 100 million.
- Final settlement (March 20, 2024): Debit 335: 100 million; Debit 1331: 10 million; Credit 331: 110 million.
Optimizing audit cost accounting to reduce tax risk.
Proper accounting practices make it easier for businesses to explain their operations to inspection agencies. Accountants should maintain records by year, combining contracts, invoices, and reports into a single set.
Choosing a reputable firm like MAN – Master Accountant Network simplifies the audit expense accounting process thanks to well-documented records. This also improves the quality of financial reports presented to investors.
Conclude
Accounting for audit fees is a crucial aspect of financial management. Following the correct procedures ensures transparency in costs and protects the business from legal risks. A thorough understanding of Circulars 200 and 133, and the Tax Law, will enable accountants to confidently handle any arising situations.
If your business needs professional accounting advice for audit costs, please contact us. MAN – Master Accountant NetworkOur team of experts is committed to providing the most reliable and optimal financial solutions for your business's growth.
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Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
Frequently Asked Questions about Accounting for Audit Costs
Are audit fees included in the cost of goods sold?
No. These are administrative expenses, accounted for in account 642 or 6422.
Are voluntary auditing services tax-deductible?
Yes. As long as it serves the purpose of production and business and has all the necessary valid invoices and documents.
What is the VAT amount for audit fees?
Normally it's 10%, except for periods when it's reduced to 8% according to government policy.
Is an audit report required for accounting entries?
This is essential. This report is the final product/service to complete the accounting documentation.
