How to Record Investor Due Diligence and Legal Costs During a Fundraising Process
Recording legal and accounting fees incurred during a fundraising round — expensed if the raise fails, offset against proceeds if it succeeds.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| G&A Expense — Legal / Advisory | Expense (+) | 15,000.00 | - |
| Cash / Accounts Payable | Asset/Liability (-) | - | 15,000.00 |
💡 Accountant's Note
Due diligence costs incurred before a successful raise are expensed as G&A. If directly attributable to a completed equity raise, they may be offset against the proceeds (deducted from APIC).
Practitioner & Systems Framework
💻 ERP Architecture
Track all fundraising-related costs in a dedicated project code during the raise. If the raise closes, reclassify the directly attributable costs as a deduction from APIC (not P&L) per IAS 32. Costs that are not directly attributable (e.g., general legal advice, due diligence on acquirees rather than the raise itself) remain in G&A Expense. If the raise fails, all costs remain in G&A.
⚠️ Audit Flags
Auditors will test whether costs deducted from APIC are genuinely directly attributable to the equity issuance. Legal fees for negotiating the investment agreement are attributable; general corporate governance fees are not. Incorrectly deducting non-attributable costs from APIC understates G&A expense and overstates APIC.
📄 Required Documentation
Invoices from legal counsel and accountants, description of services on each invoice, round closing confirmation, APIC deduction calculation for attributable costs, and G&A expense posting for non-attributable costs.
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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.