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@extrader (and Lydia), I know you've mentioned these derecognition provisions in ias39 before. It's actually a red herring. IAS39 (now replaced by ifrs9) only applies to financial instruments. Here client company is proposing to derecognise inventory which is not a financial asset. So it is ifrs15 which is relevant. But there aren't any planned changes to the relevant guidance within that standard either. Illustrative example 62 case A is, and will remain, relevant.
@seadoc. Thanks. I had not realised that due to new EU legislation any losses on these Spreadex or CFD accounts was now restricted to the account value. I was always afraid of gapping on short positions on very volatile stocks and the unlimited loss potential.
The CFDs seem to have tighter spreads than spread betting. Do you prefer the latter to avoid CGT?
The reference to 2 of the big 4 is of little relevance. The fact that a couple of audit partners have not yet twigged that the accounting is not appropriate means nothing. Any accountant will tell you that the main audit fieldwork is not done until the end of the accounting year - i.e up to another year away. Especially for smaller clients. It's actually surprising that the 30 or so clients involved in the first monetisation does not encompass all of the big 4. Perhaps due to the clients being pretty small?
@fb, this company couldn't even get its own accounting in it's prospectus correct. Hence the £226m correction in its interim accounts. Don't forget that this is a very small team of perhaps a dozen people. And the prospectus states that the amount to develop the business was about £1m (from memory) - i.e next to nothing.
@cahoodle, the client of Syme has the option but not the obligation to repurchase the good (from stockco). The illustrative example I quoted is that exact same situation where there is only an option to repurchase. And it clearly explains that control does not transfer. This is very logical, because if the company can, at its own choice, call the product back then the other party does not have control.
One of the things I am surprised about is the feeling that if the accounting rules don't work they should changed so that the company's business model does work. As if this company is somehow benefitting society. I don't think it is. It is encouraging companies to produce goods before a real customer wants those goods. That is not a good thing. It is a waste of resource which quite rightly should, and will, lead to higher prices.
@cahoodle, IFRS 15 b74 is where the customer (i.e stockco) has a put option - effectively a right of return. In Syme's case it has a call option - which is what illustrative example 62 (case A) is all about. A right of return (put option) gives the customer control since it is they who have the power to exercise. A call option gives syme control since it is them who are able to exercise. It's not that complicated. However I do give you a lot of credit for doing some real research. You're way ahead of most others on this BB.
You guys and your conspiracy theories.
Ifrs15 illustrative example 62. "Control of the asset does not transfer to the customer on 1 January because the entity has the right to repurchase the asset and therefore ....".
Done. In black and white. Derecognition does not occur.
If you guys spent anywhere near as much time doing real research as in thinking up conspiracy theories you would be much better investors.
@microfocusmoran, it's IFRS 15 not 16. You really only need to look at illustrative example 62. There's no easy fix to this. It's pretty unbelievable that syme is trying to fix this now by getting in one of the big4. I think I know how this is going to end....
Yes - that would make more sense. Thanks. Stock is sold to stockco at a discount to its cost. That would not initially be good for margin (either % or in £) but would stop the platform being abused.
@wolf, your arguement that this is no more irrational than the Tesla valuation hardly gives you much comfort does it? Is Tesla now the norm to compare new business valuations against?
@wolf, do you think there's a risk that companies having sold to this platform will then just decide to walk away and not repurchase the stock? Why would they reverse a profitable transaction? They would surely just produce more product. Their margin (in % terms) may be less by using the platform but net they would be quids in? Makes you wonder how much a funder would want to be compensated for this risk.
I looked at the prospectus to see if there was any explanation of this. I couldn't find any - but I have found another nugget on page 37 of the prospectus. It states that the investment in syme to develop the company was 1.5m euros! Of course this was as at date of the prospectus. And the company now has a market cap of £125m - but is yet to make a sale!
@xerxes, I think that it is generally very hard to get borrow on penny stocks. No-one wants to commit to longer time periods. It may also be due to demand. With a short position your upside is limited but your downside risk is unlimited (the reverse of a long position). And the market can stay irrational for much longer than you can stay solvent. So it takes a very brave soul to short a volatile penny stock.
@dickie, I think anyone with any sense can work out this stock is being heavily ramped (rather than deramped) after reading a few of the comments on this BB. It is also my understanding that it is very difficult to borrow any of this stock in order to go short - so not sure what the incentive would be to deramp. But whatever helps you sleep at night I suppose.
@wolf, the big4 feeding into the debate with the iasb (an independent standard setter) in developing new standards is very different from them collaborating with a single company in helping it develop a product that relies upon a certain accounting interpretation.
I wouldn't rule out this response from syme being real. What they seem to be willing to say to individual investors is pretty remarkable.