A recent IFRS 15 engagement showed why the most valuable part of financial advisory work is often the hardest to see.
A recent engagement reminded me exactly why I moved into advisory work.
A client approached me with a revenue recognition issue under IFRS 15. Their calculations were producing unusually large contract liabilities, far larger than the business reality suggested. They had rechecked the numbers thoroughly, and every check confirmed the same result.
That was the clue. When a calculation keeps producing the same wrong answer, the problem usually isn't the arithmetic. It's an assumption.
What the model was doing
Under IFRS 15, revenue on certain contracts is recognised as work progresses. A common way to measure progress is to compare the costs incurred so far with the total estimated costs of the project. If 60% of the expected costs have been spent, the project is treated as roughly 60% complete, and revenue is recognised on that basis.
It's a sensible, widely used approach. But it depends on one assumption: that the cost estimate is a reliable guide to how far along the work actually is.
Where the assumption broke down
Some of the projects the model was being applied to were already finished. On those projects, actual costs had come in well below the original estimates.
So the model kept reporting them as partially complete. The work was done and the obligations to the customer had been fully met, but because spending hadn't reached the estimate, the formula concluded the job was still in progress. Revenue that should have been recognised stayed deferred, inflating the contract liabilities.
Stepping back from the calculations, I asked a simple question: why are we estimating progress on something we already know is finished?
Once the issue was clear, I adjusted the model to reflect each project's actual status. The work was delivered within a day.
Technical expertise vs professional judgement
Technical expertise tells you how a model works. Professional judgement helps you recognise when its assumptions no longer fit the circumstances.
That judgement relies on discernment: the ability to connect evidence, notice inconsistencies and ask the right questions. It's what allows an adviser to look past a spreadsheet that is internally correct and see that it no longer describes what is actually happening in the business.
What this means for business owners
Most financial models, budgets and calculations in a business were built for a particular set of circumstances. Circumstances change: projects finish early, costs shift, the business grows. The model doesn't know that unless someone checks.
A few signs that an assumption, rather than a number, may be the problem:
- The result looks wrong, but every recalculation confirms it. - A figure has moved sharply without a clear operational reason. - The model was built some time ago and hasn't been revisited. - Different people in the business would describe the same situation differently from what the numbers show.
When this happens, more checking rarely helps. A different question usually does.
Paying for outcomes, not hours
This part of advisory work can be difficult to capture in a proposal. It's why I explain to clients that they are not paying for my time; they are paying for an outcome.
For this client, the work took far less time than expected. The value lay in resolving an outstanding issue so their audit could be concluded on time.
Why I built LLM
This is what I wanted to do when I founded LLM Management Consultants: to apply professional judgement alongside the technical expertise I have spent years developing, and to help decision makers work through difficult questions and reach conclusions they can act on with confidence.
If your numbers are telling you something that doesn't match what you see in your business, I'd welcome a conversation.
