1 - Accounting Principles and Procedures Flashcards

1
Q

Can you tell me about the Insolvency Act 1986?

A
  • Sets out the laws governing insolvency and bankruptcy for businesses and individuals respectively.
  • Only approved people/companies allowed to act as insolvency practitioners
  • RICS Surveyors can’t.
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2
Q

Can you tell me about the Companies Act 2006?

A
  • One of the longest pieces of UK Legislation that brings all company based law in to one place.
  • Requires registration with Companies House and appointment of Directors etc.
  • Requires submission of accounts by the Director on a yearly basis to HMRC.
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3
Q

What is GAAP and what is the purpose of it?

A

Generally Accepted Accountancy Principles are a set of principles on how to produce company accounts in terms of presentation, content and process so that they are:

  • Consistently filed
  • Complete
  • Comparable
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4
Q

Who produces the GAAP?

A

UK Financial Reporting Council

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5
Q

What is IAS and what is the purpose of it?

A

International Accounting Standards that are similar to the principles of GAAP, and aim to foster international trade and business through transparency and trust in financial reporting.

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6
Q

What are the key differences between GAAP and IAS in the UK?

A
  • IAS are principles whereas the GAAP for each country are the more specific rules.
  • Under FRS 102 property is revalued each year to fair market value. This is called the Fair Value Model.
  • Under IFRS/IAS, you can also use the Cost Model, where the property is measured at cost less accumulated depreciation.
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7
Q

What is the other name for GAAP in the UK?

A

Financial Reporting Standards 102 or “FRS 102.”

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8
Q

What should be submitted in a Companies’ Annual Accounts?

A
  • Profit and Loss Statement
  • Balance Sheet
  • Notes about the account
  • Director’s Report
  • Auditor’s Report
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9
Q

Why does a Company have to submit Annual Accounts? What is the purpose of it?

A
  • To comply with Companies Act 2006

- To break down and show the financial actions and performance of the company

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10
Q

What is an audit, and what is the role of the auditor?

A
  • An audit is a process to review compliance to governance, process, policy or regulation/law.
  • The auditor is an independent person (usually) who undertakes the audit. In a business/accounts context, this is to review whether the business is complying with the UK GAAP/FRS 102.
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11
Q

Explain the following terms:

  • Overheads
  • Turnover
  • Capital Allowances
A
  • Overheads are the operating costs of running a business, such as rent, heat, light, power.
  • Turnover is the amount of revenue generated by a company over the financial year, through it’s normal business operations.
  • Companies are allowed to deduct the costs of Capital expenditure from their tax return (depending on various accounting specifics) so that there is less overall income to be taxed.
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12
Q

What is financial leverage?

A

Borrowing money to invest in order to secure a greater return than the interest obligation of the credit.

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13
Q

What are the two types of asset?

A

Fixed - Assets that are not expected to be turned in to cash, i.e. property.

Current - Assets that are expected to be turned in to cash within the next 6 months, i.e. stock.

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14
Q

Can you explain the concept of Cashflow and what a Cashflow statement is?

A
  • Cashflow is the movement of cash in and out of a business over a period of time.
  • A Cashflow statement shows this movement and projected forecast to help businesses understand any management actions as required, such as investing (positive) or borrowing (negative).
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15
Q

What is Insolvency and how is it different to Bankruptcy?

A
  • Insolvency is the inability for a business to pay it’s debts.
  • Bankruptcy is the same but for individuals only.
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16
Q

What is Liquidation?

A

The process by which a Company’s assets are liquidated in order to pay creditors, as a result of insolvency.

17
Q

What is Administration?

A

Process of appointing a body to manage the company finances/affairs to try and avoid insolvency and liquidation.

18
Q

What is Receivership?

A

The principle that a party can start proceedings on a particular asset in the event of default. For example the bank when it has a mortgage on your house.

19
Q

What would you advise a Client if the Contractor became insolvent?

A
  • Secure legal advice
  • Secure the site
  • Freeze payments
  • Take stock of assets, what has been done and what’s left to do
  • Start monitoring loss and expense
  • Terminate the contract
  • Start looking at a revised procurement strategy