Accounting Principles Flashcards
What legislation covers not accepting cash?
Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
No cash payment more than €10,000 to be accepted
Also:
Bribery Act 2010
RICS Professional Statement - Countering bribery, corruption, money laundering and terrorist financing, 2019
Divided into 3 parts:
Mandatory requirements for anti-bribery and corruption and for anti-money laundering and terrorist financing
Guidance setting out supporting good practice for the above
Supplementary guidance on some concepts set out in Parts 1 & 2
Requires firms to have appropriate procedures in place to check, record, monitor and report actual or suspected corruption
Gifts policy and money laundering checking procedures are evidence of attempts to comply with the PS
Make sure you can articulate how to undertake Customer Due Diligence (CDD, i.e. how you would obtain and check information yourself) and when you would escalate this process to Enhanced Due Diligence (EDD). The Professional Statement refers to ‘red flags’ – make sure you know what these might be.
What is UK GAAP?
Generally Accepted Accounting Practice
Overall body of (accounting standards and other guidance) regulation establishing how company accounts must be prepared in the UK
Financial reporting framework
Applicable when preparing valuations of assets for inclusion in financial statements
How do you handle client accounts?
In a separate account with ‘client’ in the account title
What happens to interest in a client’s account and who organises it?
Interest is usually credited to a client account unless the firm retains interest by agreement
Interest on general client accounts that by agreement with the client does not accrue to the client – the bank or building society should be instructed to credit such interest to the office account
What are the applicable accounting standards in the UK?
International Financial Reporting Standards (2015) – EU adopted
Rules of what can and can’t be included in your accounts and how they should be calculated.
FRS 102 The Financial Reporting Standard applicable in the UK and ROI.
A single financial reporting standard that applies to the financial statements of entities that are not applying EU-adopted IFRS. FRS 102 is designed to apply to the general purpose financial statements and financial reporting of entities including those that are not constituted as companies and those that are not profit-oriented.
IFRS16 If I was an occupier the full cost of any leases would have to be accounted for on a balance sheet. Exemptions exists for leases of 12 months or less.
What are the main types of ratio analysis used to assess a company’s financial strength?
Liquidity – the ability of the company to pay its way (solvency). More companies fail by not being able to manage their cash flow than any other reason.
Investment/shareholders – information to enable decisions to be made on the extent of the risk and the earning potential of a business investment.
Gearing – information on the relationship between the exposure of the business to loans vs capital.
Profitability – how effective the company is at generating profits given sales and/or its capital assets.
Financial – the rate at which the company sells its stock and the efficiency with which it uses its assets. (e.g. ROCE or IRR)
What are the underlying principles of accounting?
Transparency and honesty.
What do your company accounts include?
Chairman’s Statement
Income statement (profit and loss account)
Statement of financial position (balance sheet)
Corporate governance report
Independent auditors report
Director’s Remuneration report
Other statutory information
How would you assess a company’s covenant strength?
I understand that I could use the Dun and Bradstreet company check which analyses company accounts and carries out wider investigations into a company’s performance and reputation, similar to a credit check for an individual.
Also, if a prospective tenant has earned at least x3 the proposed rent in profit for the past 3 years.
What are the three financial statements that companies should provide?
Balance sheet (point in time e.g. year end)
Income statement (Profit and loss account – period of time eg Financial Year)
Cash flow (reconciliation of account – period of time eg 12 months)
What are the different purposes of management and financial accounts?
Management accounts are for internal use only, whereas financial accounts are required by law and are audited.
