Accounting for Income and Expenses in Legal Practice: Ukrainian and Global Approaches

The absence of a clear methodology in Ukrainian legislation for accounting for the income and expenses of legal practice increases tax risks and complicates the management analysis of case profitability. At the same time, Ukraine’s European integration trajectory necessitates aligning domestic accounting practices with international standards—specifically, IFRS 15 “Revenue from Contracts with Customers” and Accounting Standards Codification (ASC) 606—making the study of foreign experience in this area highly relevant. The article aims to comprehensively examine the methodology for accounting for the income and expenses of legal practice; this involves analyzing the requirements of National Accounting Standards (NAS) and the Tax Code of Ukraine, identifying practical contradictions arising from the application of these regulations, and conducting a comparative analysis of approaches used in leading Western countries to formulate proposals for improving domestic methodological frameworks. The research methodology is based on a systems analysis of NAS 15, NAS 16, and Article 178 of the Tax Code of Ukraine. A comparative legal method was employed to contrast domestic approaches with foreign practices. Using inductive and deductive methods, the authors systematized fee structures and proposed corresponding accounting entries. Expenses were systematized through grouping and classification techniques. The article provides an in-depth analysis of five key issues in accounting for income and expenses in legal practice and proposes solutions to them. The research findings indicate that the methodology for accounting for a lawyer’s income under NAS 15 is based on the accrual principle and the service completion stage method. However, various fee structures (fixed, hourly, retainer, success fee) require significantly different approaches regarding the timing and method of revenue recognition; in the absence of industry-specific guidance, this leads to substantial inconsistencies in practice. In contrast, the US (ASC 606) and the UK (FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland) employ a much more detailed five-step revenue recognition model that accounts for the specific nature of multi-element contracts and variable consideration. A key advantage of this model is a clear constraint mechanism for contingent fees, which imposes discipline on the recognition of conditional revenue. Government authorities, the Ukrainian National Bar Association, and law firms can use the proposals presented in this article to improve accounting practices, mitigate tax risks, and enhance the quality of management analysis regarding the profitability of legal practice.