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 !
- Can interest received be netted against interest paid in this scenario? 130 2
- Film Actors - Averaging? 335 9
- Paying Harvest casuals and casual beaters 216 3
- FreeAgent question 113 2
- Retrospectively change VAT scheme? 141 2
- CIS monthly returns 192 2
- Goodie bag 1,562 52
- Husband Wife let property 354 9
- Partnership Tax Return £100 penalty-was a tax return due in this case? 504 12
- Output tax for retailer 319 8
- Footballers Testimonials Taxable? 289 3
- 13-14 Payroll return needs to be filed 142 2
- Payroll Software & Auto Enrolement 139 1
- CT600 Advice 147 1
- Fair Value Accounting 83 1
- Client incurring expenses on company car 163 4
- can I approach clients ? 420 8
- Companies House Penalties 156 2
- Apostille documents 123 2
- Budget 2015 predictions 552 13
- Possible Partnership? 645
- Tax and accounting treatment on long lease granted from freehold 521
- New Fangled Penalties 450
- Fuming! 384
- Purchase of property freehold - capitalisation of costs 319
- Charity dissolution and newly merged charity 260
- Outsource Data Entry 243
- Lenovo – Superfish & Komodia – is your PC vulnerable 238
- Moving away from CCH software 231
- Do I need a US Tax Identification Number to complete W-8BEN-E? 178