Home' Slater and Gordon Annual Report : Slater and Gordon AR 2016 Contents Notes to the Financial Statements
For the Year Ended 30 June 2016
Slater and Gordon Limited
Note 3: Financial Performance
3.1 Revenue from Contracts with Customers
3.1.1 Accounting Policies
Provision of Legal Services – Personal Injury Law Claims
The personal injury law practice operates on the basis of No Win – No Fee conditional fee arrangements, whereby fees
are earned only in the event of a successful outcome of a customer’s claim. In some cases, fees may be fixed,
depending on the stage at which a matter concludes. For some arrangements (primarily in the UK), fees are fixed as a
specified percentage of damages awarded under a claim.
In personal injury matters, contracts with clients generally comprise a single distinct performance obligation, being the
provision of services in pursuit of the successful settlement of a customer’s claim, and the transaction price is allocated
to this single performance obligation. Some contracts contain multiple deliverables – such as legal services in respect
of a statutory claim and a common law claim, or initial pre-issue work and litigation work. In such circumstances, these
multiple deliverables are considered to represent a single distinct performance obligation, given there is a significant
service of integration performed by the Group in delivering these services. Management considers the methods used
provide a faithful depiction of the transfer of goods or services.
The uncertainty around the fees receivable under a contract is generally only resolved when a matter is concluded. In
recognising revenue in the personal injury practice, where the Group has sufficient historical experience in similar
contracts in order to be able to estimate the expected outcome of a group of existing contracts reliably, revenue from the
fees from contracts is estimated using the expected value method based. The estimate amount of variable consideration
is based on the expected fee for the nature of the legal service with reference to historical fee levels and relative rates of
successful and unsuccessful outcomes. To determine the probability of success of a case, a level of judgement is
required to be applied based on past experience and historical performance of similar matters.
Expected fees are only included in revenue to the extent that it is highly probable that the cumulative amount of revenue
recognised in respect of a contract at the end of a reporting period will not be subject to significant reversal when a
matter is concluded.
Where historical averages are not predictive of the probability of outcomes for a given contract, or where the Group has
limited historical experience with similar contracts, the expected amount of variable consideration is estimated using a
most likely amount approach on a contract by contract basis. In such circumstances, a level of judgement is required to
determine the likelihood of success of a given matter, as well as the estimated amount of fees that will be recovered in
respect of the matter.
Revenue is recognised when control of a service is transferred to the customer. The Group recognises revenue in
respect of personal injury matters “over time” (as opposed to at a “point in time”) . A stage of completion approach is
used to measure progress towards completion of the performance obligation. The stage of completion is determined
using a milestones based approach using prescribed status codes for client matters as the relevant milestones. The
percentage completion is determined either by calculating the average fee received for matters that resolve at a
particular status code as a percentage of the average fee received for matters that resolve at that status and any later
status, or by use of defined completion allocations based on historical performance
Estimates of revenues (including interim billing), costs or extent of progress toward completion are revised if
circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss
in the period in which the circumstances that give rise to the revision become known by management.
The Group has determined that no significant financing component exists in respect of the personal injury revenue
streams. This is because in personal injury matters, a substantial amount of the consideration promised by the customer
is variable subject to the occurrence or non-occurrence of a future event that is not substantially within the control of the
customer or the Group.
A receivable in relation to these services is recognised on settlement of the client matter and when a bill has been
invoiced, as this is the point in time that the consideration is unconditional because only the passage of time is required
before the payment is due.
The Company arranges for the disbursement activities on behalf of the client; however it does not control the output
from those activities. The Company cannot influence the content of the medical reports or court filings, therefore no
profit margin is recognised on the activities and the clients are charged the direct cost incurred by the Company. As
such, the Company acts as an agent for disbursements, which are only recognised when it is assessed that a
reimbursement will be received from the client or on his or her behalf. The disbursements are treated as a separate
asset. The amount recognised for the expected reimbursement does not exceed the relevant costs incurred.
The amount of any expected reimbursement is reduced by an allowance for non-recovery based on past experience.
Slater and Gordon Limited 59
Annual Report 2016
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