In 2007, Slater & Gordon (S&G) became the world’s first law firm listed on a stock exchange. S&G is headquartered in Melbourne, where William Slater and Hugh Gordon founded it in 1935. Progressively, S&G has become one of the industry’s most recognised brands, developing a reputation for defending the underdog and being regarded as “anti-globalist, anti-capitalist, pro-worker, pro-environment and pro-indigenous peoples”

Since listing, net fee revenue grew by over 10% per year and the share price rose from a $1 to $8.07, prior to crashing in 2015. This collapse started from the 2014 acquisition of Quindell PLC, a UK law firm. The acquisition cost GBP637million (about AUD1.3billion), funded by an AUD890million share issue and a AUD375million bank loan. Approximately AUD1billion of the acquisition price was recognised as goodwill. By the time S&G released its 2016 annual report, it had recorded about AUD787million of ‘badwill’ (impairment losses on goodwill).

Questions:

(a) Explain the company’s “No Win- No Fee” business policy.

(b) What are the implications of this policy for the amount of revenue recognised by S&G in their financial statements?