Have read all the above debate with bemused interest. Have you...

Have read all the above debate with bemused interest. Have you seen the recent documentary film called "Becoming Warren Buffet"? If not I urge you to take a look. Croasian - Not sure how you came to the conclusion he's a terrible human being - he happens to be the single biggest philanthopist in the world - by a LONG way. And very humble about it. And he comments in his most recent investor newsletter that the number one person he thinks about when investing is the small shareholders who put their hard-earned into Berkshire shares. That is, after all, how the company first started.

Anyway, time to get this thread back on track to its intended topic. SHJ and its results / accounting. It is clear to me, as a professional accountant, that there is a very large and disturbing lack of understanding of how SHJ's revenue, expenses, cashflows and WIP accounting works. I won't pretend it's easy to comprehend because it is somewhat difficult given the complexities of the accounting standards and the nature of the business.

I will attempt to explain some of the things that ashleywd and tim8wilson have debated in this thread. If anyone has any specific questions feel free to ask.

Let me first address the question of the cost of "leads". Shine gets new cases two ways - by "buying files" or through advertising to the public. These are treated differently. Marketing costs are expensed to the P&L as they are incurred. They are never capitalised or held in WIP. The cost of buying a file (or even a small firm) is accounted for on the balance sheet, as the acquisition cost of a file is the same as if you had done the work yourself. You are buying someone else's WIP so the entry is naturally Debit WIP, Credit Cash.

A no-win, no-fee personal injury case can take anywhere from 6 months to 6 years to "settle" or be resolved either through court or an out of court settlement with the insurer or defendant. Therefore there is a huge timing difference between when the costs of the business are incurred (advertising, premises rent, payroll costs etc) and when the income of the business is received in cash (ie only at the end of the case, if it is successfully resolved).

When lawyers work on a case file the value of their time is capitalised on the balance sheet as work in progress and in the P&L as revenue (DR WIP, CR Revenue) - this makes sense as the business is effectively selling "time" to its clients. The value of this time is adjusted downwards to its expected recoverable amount (or in AASB 15 speak - the highly probable amount) through provisioning - the provisions are expensed through the P&L, but accumulate over time on the balance sheet as a contra against WIP (DR Provision - BS, CR - WIP provision - P&L). At each reporting date the company reassesses the level of provisions required based on a whole range of factors including actual trends in settlement of cases, amounts written off on successfully billed cases, number, type and value of lost cases etc. This reassessment is what primarily drove the provision adjustment in 2016.

When the lawyers wages are paid the cash outflow is recorded in the P&L (DR Cost of sales, Cr Cash via payroll costs). Other overheads are expensed or accrued as incurred. Some of the differences you have identified between the cash flow and P&L are due to GST ie the cash flow statement is "grossed up" for GST for both receipts and payments. Other differences between the "receipts from customers" and "payments to suppliers and employees" in the cash flow statement vs the equivalent costs on the P&L appear seemingly random from year to year but are simply timing differences in the various working capital balances of the business ie the interaction between when cases were worked on and when they are settled, billed and the cash received. There is a constant movement in timing between debtors, creditors, accrued expenses, payroll periods (fortnightly), WIP etc. The cash received in any year will be made up of cases worked on (and therefore revenue, expenses and profit recognised) in up to 6 previous years. Obviously the bulk will relate to the most recent past years as the average life of a case is around 18mths to 2 yrs.