I just started at this privately held company. They have begun accruing for a trade show in November (so over 10 months). I have always (at a publicly traded company) booked the liability in the month of the event - i.e. November. Any insight?
Can I accrue for a future trade show?
Answers
I think there are valid arguments to spread out the one time trade show expense and place it in accrual. Size of the company could be one. Some companies prepare or live for that once a year trade shows the whole year.
You said that you have always booked the "liability" on the month of the event (public co)....you did not mention about the expense side. Your publicly listed company may have the revenue size to charge the expense and liability all in one month. The privately held company just chose to spread the expense.
The client I just finished accrued the expense and expensed it in the month the show took place. The logic was the matching principle.
In my experience as Controller for a media company, all revenues and direct ( ie event related) expenses are held on the balance sheet ( deferred revenue and prepaid expenses) until the date of the event. Then the balance sheet accounts are zeroed out to the p&l on the event date. Indirect expenses ( ie fulltime staff salaries ) are expenses as incurred.
For GAAP reporting, the trade show would be expensed in the period when it occurs - i.e., November. For internal management reporting, if you want to spread the cost over several periods, that is entirely your choice.
As a Controller of a privately held company all of my 40 years as a CPA, accruing the cost of a major event is very common. Where the only real consumers of the financial statement are management and the bank, spreading an expense WITHIN the fiscal year makes keeps the year end reports according to GAAP and the cashflow planning is simpler. As long as the Balance Sheet is clean according to GAAP at year end when financial statements are "published" or an audit is performed, management has a lot of discretion of reporting the expenses that best reflects their planning process.
GAAP is fairly clear. If the event hasn't yet occurred, is there a liability and expense? If not, why are you accruing rather than budgeting the event when it occurs. It's like a retailer saying "I am going to accrue revenue as I know I am going to get it come holiday time so I'd rather accrue it now to smooth my P&L."
Private companies take liberties where they hope to be GAAP compliant by year end for audits, but this doesn't make accruing expenses right for events that haven't occurred yet, but who it impacts and exposure is more limited. Bank loan representations however are incorrect during interim periods if you still claim to be GAAP compliant. Public companies do not/should not have has much room for reinterpreting GAAP during interim periods.