The latest financial results from Perth-based debt collection company Repcol have highlighted the dramatic impact of new accounting standards on reported profits.
Repcol’s accounts for the half-year to December 2005 disclosed a 3 per cent fall in revenue to $16.6 million and an 80 per cent increase in net profit to $4.9 million.
The company said the results reflected several factors, including the establishment of a joint venture company Transpacific Debt Purchase to handle its debt purchasing activities.
It subsequently released additional information to clarify the impact of new international accounting standards.
Under traditional Australian accounting standards, its revenue would have increased by 31 per cent to $22.4 million but its net profit would have declined by 19 per cent to $2.2 million.
One of the key differences was that, under the new accounting standards, goodwill was no longer amortised, but subject to annual impairment testing.
Consequently, the company did not have to account for a $9.9 million amortisation expense that would have occurred under the old standards.
Second, the recognition of revenue from company-owned debt ledgers was dramatically reduced under international accounting standards because Repcol provided a performance guarantee to Transpacific. Reported revenue from this source was $11.8 million, but under the old accounting standards it would have been $18.8 million.
Third, the company has classified its purchased debt ledgers as financial assets at fair value through the income statement. Hence, its revenue included a $1.2 million revaluation of its debt ledgers, which previously would not have occurred.
Apart from the issue of accounting standards, Repcol said it was adversely affected by an industry-wide contraction in the agency collections market.
The company said this was disappointing, but its impact had been mitigated to some extent by cost reductions.
