Home' Slater and Gordon Annual Report : Slater and Gordon AR 2015 Contents 86
Annual Report 2015
Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Slater and Gordon Limited
Note 2: Critical Accounting Estimates and Judgements
In preparing these consolidated financial statements, management has made judgements, estimates and assumptions
that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised
prospectively. The areas involving significant estimates or judgements are:
(a) Impairment of goodwill
Goodwill is allocated to cash generating units (“CGU’s”) according to applicable business operations. CGUs for the
purposes of impairment testing are:
Australia – Personal Injury Law (“AUS – PIL”)
Australia – General Law (“AUS – GL”)
UK – Personal Injury Law (“UK – PIL”)
UK – General Law (“UK – GL”)
Slater Gordon Solutions (“SGS”)
During the current financial year the Group acquired several new entities within Australia and the UK, as a result of the
significant geographical expansion of the Group and expansion of business activities; additional CGUs have been
identified and the Group now allocates the UK subsidiaries into two CGUs being UK - PIL and UK - GL. SGS has been
identified as its own CGU due to the different revenue streams and independent cash flows.
Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units to which
goodwill has been allocated. The value in use calculation requires management to estimate the future cash flows
expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Where
the actual future cash flows are less than expected, a material impairment loss may arise. Refer to Note 13.
(b) Work in progress (“WIP”)
WIP is the balance of cases not yet billed at the end of the reporting period. The Group measures WIP based on the
estimated fees likely to be rendered to the client multiplied by the percentage stage of completion at the reporting date
adjusted for the probability of success. To determine the probability of success of a case the Group takes into account
past history of similar cases and a level of judgement is required based on experience and historical performance of
similar matters. Refer to Note 10.
The stage of completion valuation methodology incorporates best estimates of expected revenue and the percentage of
total services completed to date. The expected revenue is based on the expected fee for the nature of the legal service
provided with reference to internal and external (where available) historical and forecast fee levels. The percentage of
completion and probability of success is made with reference to internal and external (where available) information and
experience, and having regard to where a file is in its life cycle.
The Group conducts detailed reviews of all case files on a half-yearly basis and revises calculations based on estimates
of revenue and stage of completion as necessary. While the Group remains satisfied that the valuation methodology
applied to work in progress is robust and supported by historical trends, it acknowledges that the actual amount billed
may vary from the estimated amounts previously recognised. However, the Group does not anticipate any material
variation in the amounts recognised.
In addition, when new businesses are acquired, there is a transition period during which time the Group’s practices and
procedures are embedded into the operations of the new business. Therefore the valuation of work in progress acquired
in a business combination may be adjusted during the period of provisional accounting for the acquisition.
(c) Provisional accounting
Provisional accounting is applied by the Group to account for business combinations when the initial accounting is
incomplete at the end of the reporting period. By its nature provisional accounting involves estimates and judgements
based on the information available to the Group at the end of the reporting period, while it continues to seek information
about facts and circumstances that existed as of the acquisition date.
(d) Income tax
Deferred tax assets and liabilities are based on the assumption that no adverse change will occur in the income tax
legislation both in Australian and the UK and the anticipation that the Group will derive sufficient future assessable
income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.
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