I deal with a number of law firms and the main subjective area is of course the valuation of work in progress under UITF40.
The area that causes most problems is conditional fee agreements. I am fully versed in UITF40, and previously SSAP9 and FRS5, and have read the guidance from ICAEW and various other articles. However there seems to be a lot of contradictory opinions.
Where a law firm undertakes thousands of cases, for example PPI or RTA's, it's just not practical to review every case individually in order to identify the date that liability was accepted (the contingent event). Arriving at an average doesn't seem particularly accurate either particularly when fixed fee protocols have been introduced more recently and PPI claims were previously on hold. It is also not clear as to whether afterdate events should even be considered (e.g. afterdate invoices) in providing a basis for valuation, some say it shouldn't be considered at all, others say it should be up to the date of draft preparation of the accounts for approval.
I recently sent an audit file out to a 3rd party reviewer for a cold file review, it was their position that they didn't feel that any firm operating CFA's could be accurately valued and therefore an audit must be qualified in virtually every occasion, the variance of any estimate would most likely result in a material mis-statement.
However, I have reviewed the accounts of a number of medium and large size law firms filed with Companies House who I know undertake similar work and are audited by the Big 4 accountancy firms, the accounting policies are entirely vague but the accounts aren't qualified.
I was previously happy with the policies that were adopted on each client and I've never had an enquiry into any of them but I'm beginning to doubt everything, is there a practical solution? What do you do?
