Law Department Management Blog
Wondering about this, I posted a question to the Law Department Management group on LinkedIn [Reader, join me on LinkedIn!]. Two responses, edited slightly by me, offer insights into an answer: No.
Matt Williams, a lawyer at Safeco, wrote: “It depends on the financial structure of the entity that the law department serves.
If the cost of legal services is somewhat variable by month and if it is a component in the cost structure/pricing of the products sold by the entity, then monthly accrual becomes important to be able to accurately price the product, account for seasonal trends, and react swiftly to market changes.
If those factors are not present, it’s entirely possible that monthly production of accual figures IS a lot of low-value work that someone at one time just thought was a good idea…without understanding the cost of producing those figures…and without understanding the relative benefit (or lack thereof).”
No company that I have known about or consulted to prices its products with any regard to the costs of outside counsel.
Tim Glassett, the former general counsel of Hilton Hotels and Edison Enterprises, added some other thoughts: “If the external users of a company’s financial information only see quarterly results, precise monthly accruals are indeed low value work. One method I have used successfully at three large public companies (with quarterly public financial reporting requirements) is to accrue a fixed amount (based on recent historical averages) on a monthly basis with a quarter end true up.”
Tim, that is a very practical suggestion! Thank you both.