Embargo.

[duncanjwitham]

6 minutes ago, Spanish said:

DC2 is an odd read.  The best I can surmise is the breach is the impermissible use of resale values in amortisation calculations.   I am not sure how we can put in restated accounts which include an element of this if that is the case 

To me, DC2 reads very much to me like they know the LAP are wrong, but they just can't do anything about it. 

I suppose it's telling that DC2 doesn't seem to specify how we restate the accounts, only that we have to (and they must be FRS102 compliant). You could argue that if they had decided that straight-line was the only acceptable way, they would have mandated it in the ruling.

[angieram]

2 minutes ago, kevinhectoring said:

‘The other way’? Isn’t it, ANother way?

All the LAP said is our method does not work. I don’t think they said amortisation has to be on a straight line basis. 

We were required to deliver accounts in accordance with the judgement.  So maybe Mel has produced a set of accounts that does not use straight line. But which use a third method, one which suits us better than straight line. 
 

I wonder whether we might end up with two sets of accounts ...

Why not? The EFL seems to have two sets of rules. One for everyone else and one for Derby County! ?

[atherstoneram]

Just now, RoyMac5 said:

You appear to be practicing pedantry, no doubt to gain an advantage. Must get David to change the forum rules re pedants.

Not at all, i am not seeking to gain any advantage,why would i? The devil is in the detail as they say,if you choose to ignore certain parts of the detail that is your prerogative so to say i am practicing pedantry is quite frankly an insult.Just because people see things in a different light to yourself and offer differing opinions. I am too long in the tooth to lower myself to such behaviour.

[Spanish]

6 minutes ago, duncanjwitham said:

I'm not actually sure of the exact process, but my take on it was basically they read the written reasons and pointed to the bits where they thought the DC had screwed up and that's pretty much it. It certainly wasn't a full hearing with witnesses, and definitely with no new evidence. I think the club and EFL may have made submissions too, but I'm not even sure if they were present for the hearing, or just submitted in writing.  The only thing they had to go on to judge Pope's credibility was what was documented at the time - in the written reasons, and I suppose possibly in other notes etc (not sure on that bit).

And yeah, the lack of our own expert witness was mentioned both in DC1 and the LAP, IIRC.  Maybe hindsight's a wonderful thing, but it certainly seems like a massive mistake, of our own making, now.

that and this from DC1, damned with your own evidence

Mr Pearce and Mr Delve described the Notes in the Club’s financial statements as (1) Being ‘… arguably ambiguous and could lead a reader to interpret the Club’s policy in an incorrect way’ (Mr Delve), and (2) Using ‘possibly slightly misleading terminology …’ (Mr Pearce)

[RadioactiveWaste]

5 minutes ago, kevinhectoring said:

‘The other way’? Isn’t it, ANother way?

All the LAP said is our method does not work. I don’t think they said amortisation has to be on a straight line basis. 

We were required to deliver accounts in accordance with the judgement.  So maybe Mel has produced a set of accounts that does not use straight line. But which use a third method, one which suits us better than straight line. 
 

I wonder whether we might end up with two sets of accounts ...

I'd take a bet on us having done something like that.

[Spanish]

9 minutes ago, angieram said:

 

Now there's nothing in the rules to stop us using our method of amortisation either. So the EFL relied on at appeal an interpretation of the rules by an 'expert' who isn't an accountant but who they had brought in to specifically question the ruling of the first panel, which disagreed with the EFL's view of something which they didn't even know about until it was pointed out to them! 

I suppose I am not being right minded but ah well;

Peter F. Pope is Professor of Accounting at Università Bocconi and Emeritus Professor at the London School of Economics and Political Science. His research focuses on capital markets and international equity valuation, with particular reference to the role of fundamentals in pricing and the analysis of securities risk. He has published extensively in leading journals including The Journal of Finance, Journal of Banking and Finance, The Accounting Review, Journal of Accounting Research, Review of Accounting Studies and Contemporary Accounting Research, and in many other international accounting and finance journals. His main teaching interests lie at the interface between accounting and finance. He has served as the Academic Coordinator of the Institute of Quantitative Investment Research since 1991 and is a consultant to a number of firms in the investment management industry. He holds PhD and MA degrees awarded by Lancaster University and a BSc from Liverpool University; he is also a qualified accountant (FCMA).

[Spanish]

8 minutes ago, duncanjwitham said:

To me, DC2 reads very much to me like they know the LAP are wrong, but they just can't do anything about it. 

I suppose it's telling that DC2 doesn't seem to specify how we restate the accounts, only that we have to (and they must be FRS102 compliant). You could argue that if they had decided that straight-line was the only acceptable way, they would have mandated it in the ruling.

they have very much said that they only want to review the charges not the result of any proven charges, hence the demand to restate.  I presume that don't want to get into they matter of what is compliant if they don't have to.  We will see but I suspect that this will not end up back with DC.  

[Leeds Ram]

15 minutes ago, RadioactiveWaste said:

In terms of the ammortisation it absolutly does, the £6m over 4 years ends up at £0 at the end of the 4 years weather you write down £1.5m each year or £0.5m, then £1m, then £2m then £2.5m (hypothetically) or hypothetically you sold the player after year 2 for £4m if you'd written down the value in a straight line, you've made £1m over the value you had him listed at, if you'd only written down £1m of the value you'd have made a loss of £1m against his book value.

It's all about manipulating things into different accounting years - so yes you might manipulate things to your advantage in one year (and personally I'm pretty damn sure that's why we did it) but that will mean a bigger hit in a later year.

I'm not an accountant but amortisation isn't the whole picture it's part of the pie of a company's financial status right? So, if you're really wanting as a club to make a big fist of it in two seasons the goal is to minimise losses now  so you can spend more. Then you may have a higher depreciation of assets in 4 years but in 4 years you may have a number of revenue strategies to mitigate this so you can maintain spending. For instance a strong academy creating assets to sell on, changing the revenue structure of tv deals, or selling the stadium to yourself in order to cancel out the depreciation. Therefore, the advantage creeps in by buying time then attempting all sorts of ways to mitigate the natural asset loss that you've delayed so you can spend more in the short period you're wanting to hence the unfair advantage.  

Again, I'm not an accountant or anything like it so I may be completely wrong but it strikes me as pretty obvious we used this method to gain a distinct advantage over others that's now come back to bite us. Logically, if everyone is using the same system but you're using a different system it's because you think it's better for some reason and why would we think it's better if it didn't gain us an advantage in some way?

Edited September 9, 2021 by Leeds Ram

[EnigmaRam]

Sooooo does anyone actually know what the potential points deductions are for?

[duncanjwitham]

4 minutes ago, Spanish said:

that and this from DC1, damned with your own evidence

Mr Pearce and Mr Delve described the Notes in the Club’s financial statements as (1) Being ‘… arguably ambiguous and could lead a reader to interpret the Club’s policy in an incorrect way’ (Mr Delve), and (2) Using ‘possibly slightly misleading terminology …’ (Mr Pearce)

But to counterbalance that, from DC2:

It carries on further but you get the idea. So the description was misleading, but it's not like it was utterly incorrect.  The big picture was right, it was the details that were ambiguous.  We weren't trying to claim we were using straight-line when we weren't or anything remotely like that.

But certainly there have been massive mistakes made by us, the lack of documentary evidence for calculating the player values being another one. And that's what makes it so frustrating.  If we had just kept better records and found an accountant to say what were doing is fine, this mess would probably have ended months ago.

[Spanish]

1 minute ago, EnigmaRam said:

Sooooo does anyone actually know what the potential points deductions are for?

potentially 

1 for breaching P&S using an acceptable method of amortisation

2 depending on 1, for being underhand

Hopefully a total of 0

[G STAR RAM]

15 minutes ago, i-Ram said:

For an accountant and auditor of 23 years you are being disingenuous with that comment. The change in amortisation policy created extra headroom for spend (and losses) in the P&S calculations for a season or two, at a time when Morris was happy to throw his cash at everything, and am I not right in saying when the club took a big hit at the end of a number of players contracts (Johnson, Anya, Butterfield) thats when the clever Stadium revaluation took place?

Not sure what is disingenuous about it.

The club structured its finances to try to gain a competitive advantage (personally I thought this is what all businesses tried to do) but it has not gained any financial advantage.

Think you are wrong regarding the stadium sale and contract end dates.

[Spanish]

1 minute ago, duncanjwitham said:

But to counterbalance that, from DC2:

It carries on further but you get the idea. So the description was misleading, but it's not like it was utterly incorrect.  The big picture was right, it was the details that were ambiguous.  We weren't trying to claim we were using straight-line when we weren't or anything remotely like that.

But certainly there have been massive mistakes made by us, the lack of documentary evidence for calculating the player values being another one. And that's what makes it so frustrating.  If we had just kept better records and found an accountant to say what were doing is fine, this mess would probably have ended months ago.

I think we got a very fair hearing from DC1 and more supportive than I expected.  They drew no negative conclusions from the lack of evidence retained by he club.  I do wonder why our auditors did not ask to review this material.  Throughout this I have believed they were very culpable and I am surprised that the club is not suing their PI

[i-Ram]

2 minutes ago, Leeds Ram said:

I'm not an accountant but amortisation isn't the whole picture it's part of the pie of a companies financial status right? So, if you're really wanting as a club to make a big fist of it in two seasons the goal is to minimise losses now  so you can spend more. Then you may have a higher depreciation of assets in 4 years but in 4 years you may have a number of revenue strategies to mitigate this. For instance a strong academy creating assets to sell on, changing the revenue structure of tv deals, or selling the stadium to yourself in order to cancel out the depreciation. Therefore, the advantage creeps in by buying time then attempting all sorts of ways to mitigate the natural asset loss that you've delayed so you can spend more in the short period you're wanting to hence the unfair advantage.  

Again, I'm not an accountant or anything like it so I may be completely wrong but it strikes me as pretty obvious we used this method to gain a distinct advantage over others that's now come back to bite us. Logically, if everyone is using the same system but you're using a different system it's because you think it's better for some reason and why would we think it's better if it didn't gain us an advantage in some way?

I am not an accountant either, but if I was I doubt I could have explained the position more clearly. One now imagines that we maximised our losses/limits during 2016/2018'ish using 'our' amortisation policy, but now that we are being asked to restate the position, presumably straight line, we are seen to have breached the limit threshold. Hence why points penalities are probably now under discussion.

[duncanjwitham]

2 minutes ago, Spanish said:

I think we got a very fair hearing from DC1 and more supportive than I expected.  They drew no negative conclusions from the lack of evidence retained by he club.  I do wonder why our auditors did not ask to review this material.  Throughout this I have believed they were very culpable and I am surprised that the club is not suing their PI

I honestly don't know enough about the auditing process to know if that should have come up or not.  And It's probably difficult to judge from outside anyway, given we don't know what else was actually shared with them beyond the published accounts.  They may have seen enough documentation of the process, if not the actual workings for individual players, to think it was fine.

[Leeds Ram]

4 minutes ago, i-Ram said:

I am not an accountant either, but if I was I doubt I could have explained the position more clearly. One now imagines that we maximised our losses/limits during 2016/2018'ish using 'our' amortisation policy, but now that we are being asked to restate the position, presumably straight line, we are seen to have breached the limit threshold. Hence why points penalities are probably now under discussion.

I'm glad it was clear as I'm moving between this thread and work so was worried I'd be talking gibberish ? yeah I would imagine something similar is happening with the efl, tbh I just want this over with asap so the club can move on. 

[RadioactiveWaste]

13 minutes ago, Leeds Ram said:

I'm not an accountant but amortisation isn't the whole picture it's part of the pie of a company's financial status right? So, if you're really wanting as a club to make a big fist of it in two seasons the goal is to minimise losses now  so you can spend more. Then you may have a higher depreciation of assets in 4 years but in 4 years you may have a number of revenue strategies to mitigate this so you can maintain spending. For instance a strong academy creating assets to sell on, changing the revenue structure of tv deals, or selling the stadium to yourself in order to cancel out the depreciation. Therefore, the advantage creeps in by buying time then attempting all sorts of ways to mitigate the natural asset loss that you've delayed so you can spend more in the short period you're wanting to hence the unfair advantage.  

Again, I'm not an accountant or anything like it so I may be completely wrong but it strikes me as pretty obvious we used this method to gain a distinct advantage over others that's now come back to bite us. Logically, if everyone is using the same system but you're using a different system it's because you think it's better for some reason and why would we think it's better if it didn't gain us an advantage in some way?

You're right in that it's not the whole picture, but the only thing that is in dispute is related to the ammotisation part of the accounts - everything else is just doing uncontroversial business.

[i-Ram]

18 minutes ago, G STAR RAM said:

Not sure what is disingenuous about it.

The club structured its finances to try to gain a competitive advantage (personally I thought this is what all businesses tried to do) but it has not gained any financial advantage.

Think you are wrong regarding the stadium sale and contract end dates.

Its disingenuous in that you were stating two hours earlier that there was no advantage gained by the club to @Wolfie. Now you are agreeing there was competitive advantage from the change of policy.  What do you think a professional football club might most want to be be obtaining - competitive or financial advantage? ?

I may be wrong with the dates, I dont know for certain, and really cant be arsed to look back at dates involving ground sale, and the running down of said players contracts to nil. (It would have been around the same time I guess that Morris was telling fans at group events that they could all do their bit to improve income and make sure we stay within FFP limits, although he had at the time already  completed the stadium transaction).  Anyway, the stadium sale I would suggest was forced upon Morris as the only 'clever' way to cover the big losses that had been deferred on player values.  

 

Edited September 9, 2021 by i-Ram

[Leeds Ram]

2 minutes ago, RadioactiveWaste said:

You're right in that it's not the whole picture, but the only thing that is in dispute is related to the ammotisation part of the accounts - everything else is just doing uncontroversial business.

If the amortisation policy is allowing us to delay losses as I've described then it gives us an advantage in 1 potentially 2 ways. The first one is it allows us to spend more in a short period of time, that's a definite advantage that we had. The second one is contingent upon if we can maximise our revenue streams to mitigate the depreciation, if we managed to do that then we've had a second longer term advantage of potentially excessive spending over a long period of time. It has the potential downside that if we couldn't find the revenue then we'd hit a sticky wicket in the longer term. 

[G STAR RAM]

1 minute ago, i-Ram said:

Its disingenuous in that you were stating two hours earlier that there was no advantage gained by the club to @Wolfie. Now you are agreeing there was competitive advantage from the change of policy.  What do you think a professional football club might most want to be be obtaining - competitive or financial advantage? ?

I may be wrong with the dates, I dont know for certain, and really cant be arsed to look back at dates involving ground sale, and the running down of said players contracts to nil. (t would have been around the same time I guess that Morris was telling fans at group events that they could all do their bit to improve income and make sure we stay within FFP limits, although he had at the time already  completed the stadium transaction).  Anyway, the stadium sale I would suggest was forced upon Morris as the only 'clever' way to cover the big losses that had been deferred on player values.  

Well I apologise as I wasn't aware that a business trying to obtain a competitive advantage over it's competitors was against the rules.

Totally agree on the stadium sale.

Sale and leaseback is a very common practice for businesses trying to raise funds, nothing really clever about it.