Page 54 - Annual Review 2015-2016

Notes to the Financial Statements

Year ended 30 April 2016 (Continued)

Divisible profits and Leases Management are also required to assess the
Members’ remuneration Rentals under operating leases are charged expected net realisable value on certain cases
Members’ monthly drawings on account of on a straight-line basis over the lease term, by reference to the outcomes of previous
financial year 2015-2016 profits are treated even if the payments are not made on such matters, which is also considered to be a key
as automatically allocated as drawn and are a basis. Benefits received and receivable as source of estimation uncertainty.
treated as Members’ remuneration charged an incentive to sign an operating lease are
as an expense to the profit and loss account similarly spread on a straight-line basis over Key source of estimation uncertainty
in arriving at profit available for discretionary the lease term.
division among Members. Impairment of goodwill and
The remainder of profit shares, which have Provisions other receivables
not been allocated until after the balance Provision is made for the best estimate of Determining whether goodwill and other
sheet date, are treated in these financial expected losses from onerous contracts; in assets are impaired requires an estimation of
statements as unallocated at the balance particular, in respect of surplus property. the value in use of the cash-generating units
sheet date and included within other reserves. to which goodwill has been allocated. The
value in use calculation requires the entity
Pension costs to estimate the future cash flows expected
Revenue recognition and amounts The Group makes contributions to the to arise from the cash-generating unit and
recoverable from clients in respect of personal pension scheme of its employees. a suitable discount rate in order to calculate
unbilled work performed The pension costs are charged directly to the present value.
Unbilled fee income is included as unbilled profit and loss account in the year in which
revenue within debtors. Provision is they occur.
made against unbilled amounts on those Disbursement provisioning
engagements where the right to receive Critical accounting judgements and key Where possible provisions for irrecoverable
payment is contingent on factors outside sources of estimation uncertainty disbursements are identified by fee earners
the control of the Group. Income on such on a case by case basis. However, certain
contingent engagements is generally In the application of the Group accounting areas require a provision to be calculated on
policies, which are described above, the
recognised when the contingent event is Members are required to make judgements, a percentage basis. This is considered to be
successful. estimates and assumptions about the a key source of estimation uncertainty due to
the materiality of the figures involved.
carrying amounts of assets and liabilities that
Foreign currency are not readily apparent from other sources.
Transactions in foreign currencies are The estimates and associated assumptions Trade debtors provision
recorded at the rate of exchange at the date are based on historical experience and other The valuation of amounts recoverable and
of the transaction. Monetary assets and factors that are considered to be relevant. not recoverable on trade debtors involves
liabilities denominated in foreign currencies Actual results may differ from these estimates. significant judgement. The estimation of
at the balance sheet date are reported at the The estimates and underlying assumptions provisions is established based on interactions
rates of exchange prevailing at that date. are reviewed on an ongoing basis. between finance, the fee earner and clients,
The results of overseas operations are Revisions to accounting estimates are mindful of the specific circumstances of
translated at the average rates of exchange recognised in the period in which the clients and individual matters and invoices,
during the period and their balance sheets estimate is revised if the revision affects only and guided by calculation rules applied to the
at the rates ruling at the balance sheet date. that period, or in the period of the revision aged population of all trade debtors (excluding
Exchange differences arising on translation and future periods if the revision affects those already addressed by more specific
of the opening net assets and results of both current and future periods. provision).
overseas operations are reported in other
comprehensive income and accumulated in Unbilled revenue/revenue recognition Intercompany indebtedness and recovery
equity. The valuation of unbilled revenue involves Management reviews the outlook for each
Other exchange differences are recognised in significant judgement, and affects the amount International office and their current trading
profit or loss in the period in which they arise of revenue recognised. The valuation is based trajectory to ensure that the loans outstanding
except for: on an estimate of the amount expected to can be recovered by the entity.
• exchange differences arising on gains or be recoverable from clients on unbilled items
losses on non-monetary items which are based on such factors as time spent, the Professional indemnity insurance claims
recognised in other comprehensive income; expertise and skills provided and expenses The valuation of the probable exposure on the
and incurred. Provision is made for such factors as uninsured portion of professional indemnity
• in the case of the consolidated financial historical recoverability rates, contingencies, claims also involves significant judgement. The
statements, exchange differences on agreements with clients, and potential credit valuation takes into account known claims and
monetary items receivable from or risks, following interactions between fee circumstances to the extent that the firm will
payable to a foreign operation for which earners, finance and clients. be required to commit its excess. The resulting
settlement is neither planned nor likely to In assessing whether unbilled time is reserves are regularly reviewed but claims are
occur (therefore forming part of the net recognised as work in progress at cost or as an area of inherent uncertainty.
investment in the foreign operation), which unbilled revenue, management are required
are recognised in other comprehensive to make judgements in determining the point
income and reported under equity. at which the contingency is resolved and
when the fair value of consideration can be
measured reliably.