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According to Reuters, the ‘British IT outsourcing and consultancy services provider’ said that its turnover for the first half of its year had ‘more than doubled’. But the Financial Times suggests that the firm is closer to being a law firm than a consultancy as the legal/medical division ‘is predicted to be 62 per cent [of total turnover] this year and next’. The FT then says that the ‘law firm is forecast to be wildly profitable’ and continues by adding ‘we wonder why Quindell continues to describe itself primarily as a software company and outsourcer’.
Aggression
But the FT is particularly concerned about the ‘aggression of revenue recognition at Quindell’, highlighting the revenue recognition policy in the accounts. This policy dictates to what degree contingency fees are included before the business knows if it has won the cases or not. If a contingency case is lost then Quindell will not earn fees from it. However, Quindell appears to bring such income into its accounts at an earlier stage than other legal businesses. Quindell is also shifting from road traffic accident to deafness cases, aiming to handle some 6,000 cases a month.
An area of risk
The Financial Times warns: ‘The point here is not to say that the company has got its assumptions wrong, rather it is to highlight an area of risk: if cases turn out to take longer than expected, or are less successful than anticipated, projections for rapid growth will be missed and Quindell may have to revisit the way it recognises revenues associated with that business.’ And the FT concludes: ‘Appreciating those risks requires recognising the extent to which Quindell is now a law firm’.Source: Reuters and Financial Times
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