Hi Macherry, not sure how closely /how long you've been following SGH and SHJ. The reason we're hung up on AASB15 comes down to what happened with SGH. They adopted AASB15 early as a condition of ending an ASIC investigation. At the same time there was a material restatement of their WIP with adoption of AASB15 being given as the reason/excuse. The reality being that Slater had not been conservative in their assessment of which cases would succeed. You are quite correct that the difference between "probable" and "highly probable" is completely subjective.
I doubt its the accountant who decides the probability of case success (probability of actually receiving revenue) but we have little information on what criteria determine this. Therefore the fact that the same auditor is being used does not imply that both firms are equally conservative in this assessment.
In theory Shine has become more conservative in how it records WIP post the write downs, however their reports since have stated that the company is assessing what the impact of AASB15 will be. The reality is that if Shine is hiding anything then introduction of the new standard can be used as a convenient excuse to perform another writedown. This is all on paper and does not impact actual amount of cash coming in but we would like to have confidence that the recent accounts show a clear picture of the businesses financial health and that we are not being mislead. Especially in light of recent developments with SGH and the fact that Shine has already had write downs.
Unfortunately the predictive/subjective nature of WIP leads to write downs if discipline is not maintained and given the recent history of the sector For investors to gain confidence again in Shine will require a long period of time with no write downs (and for the market's memory of the SGH debacle to fade) which means we need accounting for WIP to remain consistently conservative.
SHJ Price at posting:
69.5¢ Sentiment: Hold Disclosure: Held
(20min delay)
