LCM has a conservative, cash-based accounting policy. Litigation contracts are recognised at historical cost and we do not adopt fair value accounting in our reporting and never have done.
The accounting treatment for litigation projects varies in the industry, with some approaches more reliant on subjective judgment by management teams than others.
LCM’s accounting policy is an important and positive differentiator compared to its peers in the sector. The key features of this are:
a. Fair value accounting for litigation projects in our portfolio and pipeline is not used, instead, LCM recognises litigation projects at historical cost.
b. Historically LCM accounted for its litigation projects under AASB 138 Intangible Assets. With effect from 1 July 2018, LCM will adopt IFRS 15 Revenue from contracts with customers.
c. The retrospective application of IFRS 15 does not have a material effect on LCM’s net profitability or investment performance.
d. Carrying value includes the capitalisation of external costs of funding the litigation, such as solicitors’ fees, barristers fees, experts’ fees and internal direct wages. No other overheads are capitalised.
e. Litigation contract assets are derecognised when a successful judgement or settlement has been determined, at which point the revenue is recognised, and litigation costs derecognised, in the Statement of Profit & Loss and Other Comprehensive Income.
f. Cash outflows relating to the litigation projects are reflected under Investing Activities on the cash flow statement.
LCM operates its business with strong processes and values that underpin our robust and diligent approach to risk management. We are committed to providing investors with the disclosure and transparency needed to assess the underlying basis of LCM’s returns and performance.