Hi PattybarkIf we just assume that the fee agreement between...

Hi Pattybark

If we just assume that the fee agreement between Shine Justice and the participants of the class action was written in a way that permits Shine to on charge interest on their debtor funding facility then purely from an accounting perspective Shine has correctly reported the interest on the financial statements.

If the court rules that they cannot charge interest then the liability payable for the interest will remain with Shine but instead of Shine being able to bill their clients for the interest Shine will have to then expense the interest as a cost in the profit and loss. This would not mean they have incorrectly reported the financial statements in previous years as this adjustment would be as a result of a judge altering the terms of the agreement after the fact.

I believe the reporter from Michael West has made a mistake publishing the article the way that he has and is potentially exposing himself to a potential legal claim from Shine. The AASB 123 standard that he himself quotes in the article outlines that you are permitted to capitalise borrowing costs against the asset on the balance sheet if it is a "qualifying asset". The same standard on paragraphs 5 and 7 outline what a qualifying asset is (note that the reporter quoted paragraph 8 so he either read the below paragraphs and ignored them or he scrolled right past them)

5 This Standard uses the following terms with the meanings specified:
Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of
funds.

A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its
intended use or sale.

6 Borrowing costs may include:
(a) interest expense calculated using the effective interest method as described in AASB 9;

7 Depending on the circumstances, any of the following may be qualifying assets:
(a) inventories
(b) manufacturing plants
(c) power generation facilities
(d) intangible assets
(e) investment properties
(f) bearer plants.

The above is a copy and paste of the relevant paragraphs from AASB 123. Its clear to me that the unbilled disbursement meets the definition of a qualifying asset being that it is both an intangible and it will take a substantial amount of time to convert the asset into a sale.