Can Consulting Fees Be Capitalized Under IFRS?

Under International Financial Reporting Standards (IFRS), companies can capitalize on any cost directly attributable to bringing an asset to the location and condition necessary for it to be able to do its job. This process generally applies to fixed assets, but can also cover other areas. I am an independent consultant with 15 years of experience in corporate reporting and technical accounting, and I will explain how this process works. The legal fees for a banking service, such as a loan requested to finance an acquisition, cannot be capitalized directly. Instead, they must be treated as part of the cost of interest according to the effective interest method, as specified by IAS 23.Expenses incurred in the development phase of a project can be capitalized as soon as the company can demonstrate all of the criteria set out in IFRS.

If you hire a consultant and agree to pay for their travel expenses, it is best to negotiate a higher price that includes all of their expenses. Training costs should not be capitalized, but if you are in a different situation, you should consider specific IFRS standards to determine if you should capitalize on a cost. Capitalized costs depreciate or amortize over a certain number of years, so their effect on the company's income statement is not immediate. The reduction of the discount is recognized as an expense, unless the borrowing cost capitalization criteria set out in IAS 23 are met.

If your contract states that the commission depends on whether the credit can be used (for example, if a company buys a machine or building), then the cost should be capitalized as a fixed asset on the balance sheet. The fees you paid to the consultant to determine the amount of credit are operating expenses and should be recorded as such. If a company requests funds to build an asset and incurs interest expenses, it is allowed to capitalize on the cost of financing. If 50% of the fee has been deferred in terms of payment, you can record the expense when you actually pay it.

To capitalize on costs, a company must derive economic benefits from assets beyond the current year and use them in its normal operations.

Dylan Nemecek
Dylan Nemecek

Typical social media ninja. Professional pop culture nerd. Unapologetic bacon advocate. Proud pop culture guru. Incurable social media nerd.

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