EFL appeal

[JfR]

If anyone is interested about FRS 102, here's all 404 pages of it:
https://www.frc.org.uk/getattachment/69f7d814-c806-4ccc-b451-aba50d6e8de2/FRS-102-FRS-applicable-in-the-UK-and-Republic-of-Ireland-(March-2018).pdf

Have fun!

[RadioactiveWaste]

7 minutes ago, JfR said:

If anyone is interested about FRS 102, here's all 404 pages of it:
https://www.frc.org.uk/getattachment/69f7d814-c806-4ccc-b451-aba50d6e8de2/FRS-102-FRS-applicable-in-the-UK-and-Republic-of-Ireland-(March-2018).pdf

Have fun!

Insomnia cured!

[DCFC27]

2 hours ago, Ken Tram said:

How does that encourage the owners of football clubs to pump cash into the system?

The idea is to stop clubs going bust, there needs to be a massive overhaul of the system as at the moment the championship are trying to compete with premier league wages and transfer fees without the income.
Clubs should spend what they generate, but if an owner wishes to spend more they need to be accountable and affordability needs to be assessed before they commit the club to such fees.
Fortunately for Derby, when it all went wrong and Mel realised he’d messed up, he has paid for it. But had Mel walked away in 2016 or 17 the club would be massively in debt due to the massive wage bill. 
There is not easy fix but owners need to be more accountable. Alonso might well put £35 milllion in an account tomorrow, the EFL approve him, he buys Derby and he could take it back out and walk away the day after. Just look at Wigan for that example. 
Real time oversight and independent regulation on club activities is the only way to enforce this. Furthermore no more penalties for financial hardship further aggravating the situation.  
Instead a fund should also be set up to catch any clubs that fail and do slip into administration in the form on a levy on all clubs turnover. 

[LE_Ram]

44 minutes ago, Ghost of Clough said:

The extension method is similar to the normal one (value amortisation over the original contract), except adjusted if a contract extension is signed.

Wait until someone mentions impairment ?

Ah yes, based on some of the performances this season I’d say most of the squad have a pretty low value in use…

[RandomAccessMemory]

1 hour ago, Spanish said:

You are right and 2.e charge was found against us by the tribunal.  The auditors?  Easy to manipulate from my experience, allegedly, according to a friend

What about the auditors regulator?

Quote

d) The fact that Smith Cooper’s audit file for a financial year since the change in amortisation policy has occurred has been picked for review by the ICAEW and approved as compliant.

That quote is from the original decision.

I find it astonishing that the club, its auditors, their regulators and the original IDC (which included an actual accountant - imagine that!) can be under the impression it's all fine and dandy, totally in line with FRS 102. But a new panel, none of which are accountants, can apparently say it's not, and their decision is final...

Unbelievable, absolutely unbelievable.

[SamUltraRam]

In the midst of all the effort the EFL have used to investigate us, what have they actually done that's useful to protect the 72 member clubs during the pandemic ?

 

I am astonished that we've reached the end of the season with none of the members going bust & that's no thanks to the EFL

Edited May 11, 2021 by SamUltraRam

[LE_Ram]

37 minutes ago, RandomAccessMemory said:

What about the auditors regulator?

That quote is from the original decision.

I find it astonishing that the club, its auditors, their regulators and the original IDC (which included an actual accountant - imagine that!) can be under the impression it's all fine and dandy, totally in line with FRS 102. But a new panel, none of which are accountants, can apparently say it's not, and their decision is final...

Unbelievable, absolutely unbelievable.

Yes, I for one will be extremely interested to see whether the EFL publish the justification of their assertion that the accounting treatment is non-compliant

[DCFC1388]

51 minutes ago, DCFC27 said:

The idea is to stop clubs going bust, there needs to be a massive overhaul of the system as at the moment the championship are trying to compete with premier league wages and transfer fees without the income.
Clubs should spend what they generate, but if an owner wishes to spend more they need to be accountable and affordability needs to be assessed before they commit the club to such fees.
Fortunately for Derby, when it all went wrong and Mel realised he’d messed up, he has paid for it. But had Mel walked away in 2016 or 17 the club would be massively in debt due to the massive wage bill. 
There is not easy fix but owners need to be more accountable. Alonso might well put £35 milllion in an account tomorrow, the EFL approve him, he buys Derby and he could take it back out and walk away the day after. Just look at Wigan for that example. 
Real time oversight and independent regulation on club activities is the only way to enforce this. Furthermore no more penalties for financial hardship further aggravating the situation.  
Instead a fund should also be set up to catch any clubs that fail and do slip into administration in the form on a levy on all clubs turnover. 

Ive never really thought of this but you're right, there should be a fund in this scenario. At the end of the day the final safety net is the EFL running their tests properly, if they do not and a club enters administration because of this it is surely the EFLs fault too so how is it fair to punish the club, like in Wigans case with a 12 point deduction. Had the EFL done their tests properly that owner would/should never have passed in the first place so the EFL should have a contingency plan to help these clubs out.

[JfR]

Having looked over the original decision again, it seems that the appeal relates to the original panel's decisions as laid out in sections 250-254. This relates to what the term "future economic benefits" means in relation to an intangible asset. The original panel found that this consisted of both the "use" of an asset and it's "disposal" i.e. how much the club expected to sell a player for. The EFL believed, and (rightly or wrongly) in the second panel's opinion were right to believe, that "future economic benefits" referred only to the benefits a club received while the club made "use" of a player's registration, and that his potential future resale value could not be included. 

https://www.dcfc.co.uk/media/get/EFL Derby County Decision Document.pdf

I find this interesting. The original decision does not go into detail as to how the club decides upon the "consumption of future economic benefits" of a player, but do mention they do so "reliably" under the panel's assumption that this refers to both the "use" and "disposal" of an asset. Is it therefore potentially the case that the club could still "reliably" determine the "consumption of future economic benefits" purely based upon the player's "use" even if their "disposal" is not considered? If so, could the club still use a non-straight line method of amortisation under these circumstances?

[RandomAccessMemory]

20 minutes ago, JfR said:

Having looked over the original decision again, it seems that the appeal relates to the original panel's decisions as laid out in sections 250-254. This relates to what the term "future economic benefits" means in relation to an intangible asset. The original panel found that this consisted of both the "use" of an asset and it's "disposal" i.e. how much the club expected to sell a player for. The EFL believed, and (rightly or wrongly) in the second panel's opinion were right to believe, that "future economic benefits" referred only to the benefits a club received while the club made "use" of a player's registration, and that his potential future resale value could not be included. 

https://www.dcfc.co.uk/media/get/EFL Derby County Decision Document.pdf

I find this interesting. The original decision does not go into detail as to how the club decides upon the "consumption of future economic benefits" of a player, but do mention they do so "reliably" under the panel's assumption that this refers to both the "use" and "disposal" of an asset. Is it therefore potentially the case that the club could still "reliably" determine the "consumption of future economic benefits" purely based upon the player's "use" even if their "disposal" is not considered? If so, could the club still use a non-straight line method of amortisation under these circumstances?

Just spotted this tweet from Alan Nixon, it appears he has a copy of the decision report. I wonder how he has that as they've not released it yet?

So, it appears it was the second particular, and that ONLY which the EFL won on appeal.

Quote

(I) The substance of the Second Charge

i) The precise terms of the Second Charge

232) Paragraph 2.5 of the Charge Letter identified 5 respects in which, it was said by the EFL, the Club’s approach to amortisation is contrary to the requirements of FRS 102:

a) First, because the approach ‘assumes non-zero residual values when amortising registration rights and transfer fee levies where residual values cannot be reliably determined’

b) Secondly, because the approach ‘does not amortise on a straight line basis nor does the amortisation schedule reflect the expected pattern of consumption of future economic benefits from the intangible asset’

c) Thirdly, because the approach ‘anticipates an economic benefit that the Club does not fully control arising from the sale of an intangible asset’

d) Fourthly, because the approach ‘reassesses the estimated residual values of intangible assets where the residual values cannot be reliably estimated’

e) Fifthly, because the Club did not ‘adequately disclose in its financial statements the nature and/or the effect of the changes in its residual value estimates’

I don't understand how it can be impermissible to take into account the possible resale value of players when it clearly states in FRS 102, as mentioned in the original decision, that future economic benefits from the intangible asset include use OR disposal?

Quote

2.17 The future economic benefit of an asset is its potential to contribute, directly or indirectly, to the flow of cash and cash equivalents to the entity. Those cash flows may come from using the asset or from disposing of it.

Quote

18.26 An entity shall derecognise an intangible asset, and shall recognise a gain or loss in profit or loss:

(a) on disposal; or

(b) when no future economic benefits are expected from its use or disposal.

Quote

18.22 Amortisation begins when the intangible asset is available for use, ie when it is in the location and condition necessary for it to be usable in the manner intended by management. Amortisation ceases when the asset is derecognised. The entity shall choose an amortisation method that reflects the pattern in which it expects to consume the asset’s future economic benefits. If the entity cannot determine that pattern reliably, it shall use the straight-line method.

Quote

Cost model

18.18A Under the cost model, an entity shall measure its assets at cost less any accumulated amortisation and any accumulated impairment losses. The requirements for amortisation are set out in paragraphs 18.19 to 18.24.

From the original report

Quote

a) Aside from certain possible anomalies in the Audit Findings Report for the year ended 30 June 2019 (which is not a year to which the Second Charge relates) over how the contracts of 3 players with significant net book values (and so presumably positive ERVs) had ended without transfer fees being received, that evidence did not demonstrate

i)that the Club’s approach had proved unreliable, or

ii) that the realities of

(1) when a Club disposed of players’ registrations, and/or

(2) the economic benefits derived by the Club from the disposal of players’ registrations differed markedly from the pattern that the Club had ‘expected’ when setting ERVs, applying its amortisation policy to individual player registrations and so forth

So if it wasn't an unreliable pattern for the years under scrutiny, why do we have to use the straight-line method?

If we don't have to use the straight-line method, given the expected consumption of future economic benefits includes disposal, it shouldn't be impermissible to take into account the resale value, and it being the 'cost model' should make no difference.

[JfR]

30 minutes ago, RandomAccessMemory said:

Just spotted this tweet from Alan Nixon, it appears he has a copy of the decision report. I wonder how he has that as they've not released it yet?

So, it appears it was the second particular, and that ONLY which the EFL won on appeal.

I don't understand how it can be impermissible to take into account the possible resale value of players when it clearly states in FRS 102, as mentioned in the original decision, that future economic benefits from the intangible asset include use OR disposal?

From the original report

So if it wasn't an unreliable pattern for the years under scrutiny, why do we have to use the straight-line method?

If we don't have to use the straight-line method, given the expected consumption of future economic benefits includes disposal, it shouldn't be impermissible to take into account the resale value, and it being the 'cost model' should make no difference.

It's confused me greatly. It's why I'm wondering if the club's method can still be used but only based upon usage and not on resale. I'm not sure what that would look like, though.

Referring to the original panel's conclusions, it seems the second particular will have only been partially ruled in the EFL's favour:
"i) the fact that the Club’s amortisation policy during the relevant financial years did not amortise on straight line basis is not contrary to FRS 102" - Still true. Not using a straight line method is not, in itself, a breach of FRS 102.

"ii) the amortisation schedule does reflect the Club’s expected pattern of consumption of future economic benefits from players’ registrations" - The appeal panel finds this inaccurate, but one would assume that there would be a substantial amount of mitigation in punishment seeing as, like you said, it seems the club, the auditors, the auditor's regulators, and the panel themselves all thought that it did do so.

It will be interesting to see if the club are forced to move to a straight line method, or if they'll be allowed to use their current method solely based around "use" and not "disposal."

Edited May 12, 2021 by JfR

[QuitYourJibbaJivin]

5 hours ago, JfR said:

 

"ii) the amortisation schedule does reflect the Club’s expected pattern of consumption of future economic benefits from players’ registrations" - The appeal panel finds this inaccurate, but one would assume that there would be a substantial amount of mitigation in punishment seeing as, like you said, it seems the club, the auditors, the auditor's regulators, and the panel themselves all thought that it did do so.

 

After trying to understand all of this account you jargon. Does the last basically mean very lenient punishment?

[Spanish]

5 hours ago, JfR said:

 

"ii) the amortisation schedule does reflect the Club’s expected pattern of consumption of future economic benefits from players’ registrations" - The appeal panel finds this inaccurate, but one would assume that there would be a substantial amount of mitigation in punishment seeing as, like you said, it seems the club, the auditors, the auditor's regulators, and the panel themselves all thought that it did do so.

 

I also think there has been a lot of signals over the way in which the club has been praised for its honesty etc and that will also mitigate the penalty

[angieram]

6 hours ago, RandomAccessMemory said:

Just spotted this tweet from Alan Nixon, it appears he has a copy of the decision report. I wonder how he has that as they've not released it yet?

So, it appears it was the second particular, and that ONLY which the EFL won on appeal.

I don't understand how it can be impermissible to take into account the possible resale value of players when it clearly states in FRS 102, as mentioned in the original decision, that future economic benefits from the intangible asset include use OR disposal?

From the original report

So if it wasn't an unreliable pattern for the years under scrutiny, why do we have to use the straight-line method?

If we don't have to use the straight-line method, given the expected consumption of future economic benefits includes disposal, it shouldn't be impermissible to take into account the resale value, and it being the 'cost model' should make no difference.

The second report is available, I downloaded a copy yesterday.

It's too big a file to add on here.

[GboroRam]

1 minute ago, angieram said:

The second report is available, I downloaded a copy yesterday.

It's too big a file to add on here.

Just summarise it here for us.

In less than 10 words.

[Brammie Steve]

I remember at the start of the season I suggested that a 12 point deduction could be catastrophic for DCFC.

The comments back said that taking into account our average points tally we could soon recoup those 12 points!

What a difference a year made!

[Indy]

11 minutes ago, GboroRam said:

Just summarise it here for us.

In less than 10 words.

Commission ruled we valued contracted players accurately. Panel disagreed. 

[angieram]

15 minutes ago, GboroRam said:

Just summarise it here for us.

In less than 10 words.

Rules of DC and LAP are unclear but we side with EFL on one issue, that of player resale value.

All seems to be about interpretation,  rather than law. 

That's more than ten words, I know, but there are 59 pages! 

[Ghost of Clough]

6 hours ago, RandomAccessMemory said:

Just spotted this tweet from Alan Nixon, it appears he has a copy of the decision report. I wonder how he has that as they've not released it yet?

So, it appears it was the second particular, and that ONLY which the EFL won on appeal.

I don't understand how it can be impermissible to take into account the possible resale value of players when it clearly states in FRS 102, as mentioned in the original decision, that future economic benefits from the intangible asset include use OR disposal?

From the original report

So if it wasn't an unreliable pattern for the years under scrutiny, why do we have to use the straight-line method?

If we don't have to use the straight-line method, given the expected consumption of future economic benefits includes disposal, it shouldn't be impermissible to take into account the resale value, and it being the 'cost model' should make no difference.

Seems bizarre that a set of lawyers can essentially say we can't use our amortisation method, whereas a set of accountants say we can. Even more bizarre that our accounts now have to do what the lawyers say!

[i-Ram]

22 minutes ago, GboroRam said:

Just summarise it here for us.

In less than 10 words.

Ha. She’s a women don’t you know. The summary will be at least twice the length of the original.