Accounting & Business

Question 1

What did you learn in your Accounting (CPD) training?

Answer 1

About IFRS and GAAP

IFRS is more principle based GAAP is more rules based.
NHSPS use IFRS

Question 2

What is a balance sheet?

Answer 2

• Statement of a businesses financial position
• Shows assets and liabilities at a given date (usually end of financial year)
  (Assets – cash, property, debtors, other investments)
  (Liabilities – borrowings, overdraft, loan and creditors)

Question 3

What is a profit and loss account?

Answer 3

• Profit and Loss statement (P+L = I+E) – A summary of the business’s income and expenditure statements (usually annual) - overall profits
• shows whether a company made a profit
• On statutory accounts

Question 4

What is a cashflow statement?

Answer 4

• Cash Flow Statement (CFS = ACE) Statement showing actual receipts and expenditure (including vat)

• Used for budgeting/business plans
• shows whether a company generated cash
• Management accounts
• More detail than P+L

Question 5

What are current and non-current assets?

Answer 5

(Assets – cash, property, debtors, other investments)
Current = to be converted to cash within 1 year, e.g. a property sold soon.
Non-current = not likely to be converted to cash within 1 year e.g. trademarks, property, plant and equipment

Question 6

What are current and non-current liabilities?

Answer 6

(Liabilities – borrowings, overdraft, loan and creditors)
Current = amounts owed within 1 year, e.g. overdrafts, short-term loans
Non-current = long-term financial obligations e.g. deferred payments, long-terms loans

Question 7

What is the difference between Management Accounts and Audited (Company) Accounts?

Answer 7

Management – prepared for internal use by a business and are NOT audited
Audited – prepared by a Chartered Accountant
Statutory – mandatory for limited companies, generically formatted, requested by HMRC

Question 8

What is UKGAAP?

Answer 8

UK Generally Accepted Accounting Principles – valuations for inclusion in financial statements are prepared in accordance with this. CBRE uses USGAAP.

Question 9

What do you know about IFRS 16?

Answer 9

Effective after 1 January 2019.
Brought in as transparency measure.
All leases over £500/12 months now recorded on balance sheet, as NPV of the full lease cashflow.

Question 10

Why is it important to assess the covenant strength?

Answer 10

Affects the perception of risk; particularly in relation to default on leases financial commitments. Knowing a prospective tenant’s covenant strength can help to mitigate risk and help a valuer to comment on suitability for lending.

Question 11

What can you use to assess covenant strength?

Answer 11

A Dun and Bradstreet report or an Experian report.

Question 12

What would you find on a Dun and Bradstreet Report?

Answer 12

The report summarises a companies’ financial position. Gives Rating and maximum credit recommendation.
Gives a D&B Rating – the first part relates to financial strength. The second part is a risk indicator.
Part 1 of Rating:
5A, 4A, 3A, 2A, 1A, B, C, D, N (Negative net worth)
Part 2 of Rating:
1-5: 1 is minimum risk, 5 is maximum risk.
The best Rating is 5A1 and is institutional grade.

Question 13

How do you communicate covenant strength to the client?

Answer 13

Include details of the result of the report it in the valuation report. We do not send the report to the client.
As surveyors we do not comment as to whether the covenant is good or bad in certain terms, but we comments on how the covenant might be perceived in the market that the asset operates in.

Question 14

What would you find on an Experian Report?

Answer 14

DELPHI score 1-100, with traffic light colour system.
1-30 High risk
30-80 Medium risk
80-100 Low risk
Age of company, registered office, latest accounts

Question 15

Where is the Net Profit found in the financial accounts?

Answer 15

On the profit and loss accounts (income statement)

Question 16

What is an Asset?

Answer 16

Asset - is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide a future benefit.

Question 17

What is a liability?

Answer 17

Liability - Liabilities are defined as a company’s legal financial debts or obligations that arise during the course of business operations

Question 18

Can you give me an example of an asset?

Answer 18

cash, property, debtors and other investments held

Question 19

Can you give me an example of a liability?

Answer 19

can include borrowings, overdrafts, loans and creditors, leases

Question 20

Which reporting framework do public limited companies have to comply with?

Answer 20

UK public listed companies adopt IFRS as their financial reporting standard.
IFRS 16 from 1st January 2019

Question 21

What’s the difference between GAAP and IFRS?

Answer 21

Basic accounting fundamentals the same
GAAP is rules based, IFRS principles based.
GAAP much more detailed

Question 22

How would you assess the financial strength of an entity, e.g. for a valuation?

Answer 22

Fair Value

Question 23

Can you tell me about a common financial measure?

Answer 23

Liquidity, solvency, profitability, repayment capacity and financial efficiency

Question 24

What is the acid test / ROCE / working capital ratio / gearing ratio / net assets per share?

Answer 24

Acid Test – compares a company’s most short-term assets to its most short-term liabilities to see if a company has enough cash to pay its immediate liabilities, such as short-term debt. The acid test ratio disregards assets that are difficult to liquidate quickly such as inventory.

Question 25

Can you tell me what the role of an auditor is?

Answer 25

Auditor’s responsibility is to express an independent, objective opinion on the financial statements of a company. Ensure the validity and legality of their financial records.

Question 26

When are audited accounts needed and why?

Answer 26

Under the Companies Act 2006 private limited companies are required to have their accounts independently audited on an annual basis. This is subject to an existing exemption for small businesses

Question 27

What would you expect to find in a set of Public Limited Accounts?

Answer 27

• Chairman’s statement
• Independent auditors report
• Income statement (profit and loss account)
• Statement of financial position (balance sheet)
• Corporate governance report
• Remuneration report
• Other statutory information

Question 28

What is changing in relation to lease accounting / IFRS 16? and when?

Answer 28

• Leases must be accounted for on the balance sheet
• New definitions of financial metrics e.g. Gearing ratio and EBITDA
• 1st January 2019

Question 29

Tell me what you know about UKGAAP.

Answer 29

Generally Accepted Accounting Practice in the UK (UK GAAP) is the body of accounting standards and other guidance published by the UK’s Financial Reporting Council (FRC). The financial reporting framework in the UK is effective from 1 January 2015.

Question 30

Tell me what you know about IFRS.

Answer 30

IFRS is used primarily by businesses reporting their financial results anywhere in the world except the United States. Generally Accepted Accounting Principles, or GAAP, is the accounting framework used in the United States. GAAP is much more rules-based than IFRS. IFRS focuses more on general principles than GAAP, which makes