Solicitors work in progress
Under new rules that came into effect on 30 April 2010 the majority of personal injury claims (specifically Road Traffic Accidents) are now treated under the Fixed Cost scheme. How have people valued work in progress for a Law Firm under this basis and in compliance with UITF40? I imagine there must be a lot of 31.3.2011 year-ends where this has now had to be valued. Historically many accountants have relied upon the unknown outcome and valued WIP as £nil, however under the new scheme I cannot see how this can continue.
If a Law Firm has say 1,000 cases. The following situations will arise:
- A % of these cases will fail at any early stage due to bad claims/negligence etc and therefore WIP will be £nil (?)
- A % of these cases will fall outside the scheme, e.g. where liability is not admitted by the defendant insurer. WIP can therefore be valued as £nil if the outcome cannot reasonably be valued or known until settlement of the matter. A nominal value under FRS5 could be attributed based upon wage cost for example.
- A % of cases will be prior to Stage 1 completion (the defendant insurer is considering the claim) and therefore £nil WIP as liability is unknown?
- A % of cases will be prior to Stage 2 completion (the defendant insurer has admitted liability and the claim is being valued by the claimant)
- A % of cases will be prior to Stage 3 completion (the claim has been valued but there is some negotiation as to final quantum)
- A % of cases will have completed Stage 3, the judge has determined the claim, either by paper or oral hearing
Throughout this process, interim payments may have been paid to the claimant solicitor (e.g. £400 for Stage 1, £800 for Stage 2) which would reduce WIP by the corresponding amount.
On the expense side.........the firm has paid a referal fee in advance to obtain the case, lets say £750. Normally this would be prepaid over the length of the case, historically say 7 months so that WIP is matched with the expense. The treatment of prepaid referral fees would have to match the treatment of WIP as detailed above!
From any accounting perspective this seems incredibly complicated.
Any suggestions or thoughts would be appreciated !
- How to Value a Business 369 7
- Preparing a consolidated TB 109 2
- Company Pension Contributions 118 2
- Company Pension Contributions 2013/14 1,030 19
- Buying Microsoft's Surface Pro 3 80 2
- Fastest Software 496 7
- HMRC Penalties - are they enforceable? 2,536 68
- Vat threshold issues 1,342 12
- Charging for book-keeping on a 'per transaction' basis 753 19
- How much did you pay for your website 382 12
- Simple Ltd company accounts service 320 8
- On line petition re HMRC grabbing money from taxpayer bank accounts 751 14
- Sage Payroll & NIC 335 7
- Does anybody still use a Filofax? 1,285 32
- CCJ and Shareholder/ Director ramifications 227 1
- Tax Allowance on University Course 1,341 6
- Time recording software 273 3
- Importing data into CCH AP 75 1
- Self employment trap - pension 251 2
- Mixed partnerships - new rules 242 3
- DTR : TIOPA 2010 Section 42 583
- CTA study material 580
- Anyone have clients that use Pay4Later to offer customers credit? 347
- Taxation of partners in an LLP following new rules 279
- Employment related securities question 217
- Foreign Business setting up in UK 186
- ATED Penalties 181
- AIM Stocks and IHT 166
- Foreign Premium Distributions 138
- Tax Relief for overseas employees 119