Page 61 - DWF Annual Report 2017

Notes to the Financial Statements

Year ended 30 April 2017 (continued)

Members’ interests Leases recoverable from clients on unbilled items based
Members’ capital is repayable on retirement of the Rentals under operating leases are charged on on such factors as time spent, the expertise and
Member and is therefore classified as a liability. a straight-line basis over the lease term, even skills provided and expenses incurred. Provision is
Because Members may retire with less than one if the payments are not made on such a basis. made for such factors as historical recoverability
year’s notice and typically have their capital repaid Benefits received and receivable as an incentive rates, contingencies, agreements with clients,
within one year of serving notice, Members’ capital to sign an operating lease are similarly spread on and potential credit earners, finance and clients.
is shown as being due within one year. a straight-line basis over the lease term. In assessing whether unbilled time is recognised
Amounts in ‘Loans and other debts due to as work in progress at cost or as unbilled revenue,
Members’ (other than Members’ capital Provisions management are required to make judgements in
classified as a liability) would rank pari passu Provision is made for the best estimate of determining the point at which the contingency is
with other creditors who are unsecured in expected losses from onerous contracts; in resolved and when the fair value of consideration
the event of a winding up. No restrictions or particular, in respect of surplus property. can be measured reliably.
limitations exist on the ability of the Members to Provisions are recognised when the Group Management are also required to assess the
reduce the amount of Members’ other interests. has a present obligation (legal or constructive) expected net realisable value on certain cases by
as a result of a past event, it is probable reference to the outcomes of previous matters,
Divisible profits and Members’ that the Group will be required to settle that which is also considered to be a key source of
remuneration obligation and a reliable estimate can be made estimation uncertainty.
Members’ monthly drawings on account of financial of the amount of the obligation. The amount
year 2016 - 2017 profits are treated as automatically recognised as a provision is the best estimate of Key source of estimation uncertainty
allocated as drawn and are treated as Members’ the consideration required to settle the present
remuneration charged as an expense to the profit obligation at the balance sheet date, taking into Impairment of goodwill and other receivables
and loss account in arriving at profit available for account the risks and uncertainties surrounding Determining whether goodwill and other
discretionary division among Members. the obligation. Where a provision is measured assets are impaired requires an estimation of
The remainder of profit shares, which have using the cash flows estimated to settle the the value in use of the cash-generating units to
not been allocated until after the balance sheet present obligation, its carrying amount is the which goodwill has been allocated. The value in
date, are treated in these financial statements present value of those cash flows (when the use calculation requires the entity to estimate
as unallocated at the balance sheet date and effect of the time value of money is material). the future cash flows expected to arise from
included within other reserves. the cash-generating unit and a suitable discount
Pension costs rate in order to calculate present value.
Revenue recognition and amounts The Group makes contributions to the personal
recoverable from clients in respect of pension scheme of its employees. The pension Disbursement provisioning
unbilled work performed costs are charged directly to the profit and loss Where possible provisions for irrecoverable
Unbilled fee income is included as unbilled account in the year in which they occur. disbursements are identified by fee earners
revenue within debtors. Provision is made on a case by case basis. However, certain
against unbilled amounts on those engagements Bank borrowings areas require a provision to be calculated on
where the right to receive payment is contingent Interest-bearing bank loans and overdrafts a percentage basis. This is considered to be
on factors outside the control of the Group. are recorded at the proceeds received, a key source of estimation uncertainty due to
Income on such contingent engagements is net of direct issue costs. Finance charges, the materiality of the figures involved.
generally recognised when the contingent event including premiums payable on settlement
is successful. or redemption and direct issue costs, are Trade debtors provision
accounted for on an accrual basis in the profit The valuation of amounts recoverable and
Foreign currency and loss account using the effective interest not recoverable on trade debtors involves
Transactions in foreign currencies are recorded method and are added to the carrying amount significant judgement. The estimation of
at the rate of exchange at the date of the of the instrument to the extent that they are provisions is established based on interactions
transaction. Monetary assets and liabilities not settled in the period in which they arise. between finance, the fee earner and clients,
denominated in foreign currencies at the balance mindful of the specific circumstances of
sheet date are reported at the rates of exchange Critical accounting judgements and key clients and individual matters and invoices, and
prevailing at that date. sources of estimation uncertainty guided by calculation rules applied to the aged
population of all trade debtors (excluding those
The results of overseas operations are translated In the application of the LLP’s accounting already addressed by more specific provision).
at the average rates of exchange during the period policies, the Members are required to make
and their balance sheets at the rates ruling at the judgements, estimates and assumptions about
balance sheet date. Exchange differences arising the carrying amounts of assets and liabilities Intercompany indebtedness and recovery
on translation of the opening net assets and that are not readily apparent from other sources. Management reviews the outlook for each
results of overseas operations are reported in other The estimates and associated assumptions are International office and their current trading
comprehensive income and accumulated in equity. based on historical experience and other factors trajectory to ensure that the loans outstanding
Other exchange differences are recognised in that are considered to be relevant. Actual results can be recovered by the entity.
profit or loss in the period in which they arise may differ from these estimates.
except for: The estimates and underlying assumptions Professional indemnity insurance claims
are reviewed on an ongoing basis. Revisions
• exchange differences arising on gains The valuation of the probable exposure on the
or losses on non-monetary items which to accounting estimates are recognised in the uninsured portion of professional indemnity
are recognised in other comprehensive period in which the estimate is revised if the claims also involves significant judgement.
income; and revision affects only that period, or in the period The valuation takes into account known claims
• in the case of the consolidated financial of the revision and future periods if the revision and circumstances to the extent that the Firm
affects both current and future periods.
statements, exchange differences on monetary will be required to commit its excess. The
items receivable from or payable to a foreign resulting reserves are regularly reviewed but
operation for which settlement is neither planned Unbilled revenue/revenue recognition claims are an area of inherent uncertainty.
nor likely to occur (therefore forming part of the The valuation of unbilled revenue involves
net investment in the foreign operation), which significant judgement, and affects the amount 61
are recognised in other comprehensive income of revenue recognised. The valuation is based
and reported under equity. on an estimate of the amount expected to be