Sub-Consultant Cost Passed Through to Client (at Cost)
Billing the client exactly the sub-consultant's cost with no markup as a direct recharge.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Accounts Receivable (Sub-Consultant Recharge) | Asset (+) | 8,000.00 | - |
| Sub-Consultant Revenue (Pass-Through) | Revenue (+) | - | 8,000.00 |
💡 Accountant's Note
Where the contract specifies pass-through at cost with no markup, the firm is acting as an agent for the specific sub-service. Under IFRS 15, if the firm is principal (controls the sub's output), gross revenue is recognized. If agent, only the margin is revenue. Pass-through at cost with no markup typically results in agent treatment and zero net margin on this line.
Practitioner & Systems Framework
💻 ERP Architecture
Pass-through billings should be configured as a separate revenue category in the ERP to distinguish them from fee-generating services in management reporting. If the firm is the agent, only the margin (zero in a pure at-cost pass-through) is revenue — but many firms still show the gross recharge as revenue and an equal gross cost for transparency. If this gross presentation is used in management accounts but the firm is the agent, the statutory accounts (IFRS) should present only the net margin. The gross-to-net reconciliation should be clearly documented. Ensure the ERP billing module does not automatically add a margin percentage to sub-consultant costs when generating the pass-through invoice.
⚠️ Audit Flags
(1) Principal vs. agent determination — does the firm control the sub-consultant's service before it is transferred to the client? If control passes directly from the sub to the client without the firm taking any service risk, agent treatment is appropriate. (2) No-markup confirmation — if the contract says at-cost pass-through but the ERP rate card has a default markup, the actual invoices may inadvertently include a margin. Reconcile all pass-through invoices to sub-consultant actual costs. (3) Gross vs. net disclosure — the chosen presentation (gross or net) must be consistent with the principal/agent assessment and disclosed in the accounting policies.
📄 Required Documentation
Engagement letter (pass-through provisions, cost-cap, markup prohibition), sub-consultant invoices, client invoices at exact sub-consultant cost, principal vs. agent analysis, and revenue recognition policy.
Automate this entry with the JEH Accounting Suite
Stop doing manual entry. Our VBA-powered ERP automatically generates your ledgers, Trial Balance, and Financial Statements.
No Subscriptions. Own your data.
Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.