Are outside counsel - an off balance sheet transaction? 365



  • We utilize several outside legal firms in various transactions. Are there fees which vary from month to month/year to year considered an off balance sheet relation?
    Thanks



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  • What a bizarre question, can you expand?
    Outside legal firms are suppliers.



  • We utilize several outside legal firms for various domestic and international work - and we don’t really know what the charges will be for any given month. With Sarbanes, as I read it, you need to disclose transactions that may materially affect the balance sheet - and since we do not know what the fees will be (i.e. - we recently purchased another firm and are in the process of incorporating their operations into ours)and/or if any potential legal matter may result in some form of further litigation = how do the attorneys legal fees get accounted for in a particular year? quarter?



  • OK. As I read it this isn’t really a SOX issue it is a regular accounting one.
    It is not unusual to have to account for something when you don’t know the exact numbers. Normal accounting practice in your situation is to make an accrual based on your best estimate of what the fees will be. This helps you meet the requirement that income and expenditure should be accounted for in the period to which they relate - rather than when they are invoiced or paid.
    Where you are dealing with lawyers it is not unusual to request that they either bill you for work carried out in the relevant accounting period or to provide you with an estimate of fees ‘on the tab’ at the period end to help you make a good estimate of the required accrual.
    Hope this helps.



  • That it did - just wanted to make sure we weren’t treading in a potential SOX area…


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