Accounting Principles and Procedures Flashcards
1
Q
What is included in a public limited company’s account?
A
- Chairman’s Statement
- Independent Auditor Report
- Income Statement (profit & loss statement)
- balance sheet
- Corporate Governance Report
- Remuneration report
- Other Statutory information
2
Q
What are the three types of financial statement you may come across relating to a company?
A
- Balance Sheet
- Income Statement (profit and loss account)
- Cash Flow Statement
3
Q
What is a balance sheet?
A
- A statement of the business’s financial position showing its assets and liabilities at a given date, usually the end of a financial year.
4
Q
What is an asset?
A
- Assets can include cash, property, debtors and other investments held
5
Q
What are liabilities?
A
- Liabilities can include borrowings, overdrafts, loans and creditors.
6
Q
What is a profit and loss account?
A
- A summary of a business’s income and expenditure transactions usually prepared on an annual basis.
7
Q
What the difference between a management account and statutory accounts?
A
- Management accounts are prepared for internal use by a business and are not audited. Statutory accounts are audited and have to be submitted
8
Q
Who prepares accounts that are to be audited?
A
- Audited accounts are prepared by a Chartered or Certified Accountant.
9
Q
Can you tell me what the role of an auditor is? / When are audited accounts needed and why?
A
- To make sure that accounts have been recorded correctly
- Audited accounts are needed for all accounts unless exempt
- Exemptions include: if the company is too small
10
Q
- What is a cash flow statement?
A
- A cash flow statement shows all the actual receipts and expenditure to include VAT.
11
Q
- What are the main bodies and standards for account that are used in the UK?
A
- The Financial Reporting Standards (FRS)
- UK GAAP is generally accepted
12
Q
- What do you understand by the term Generally Accepted Accounting Principles (GAAP)?
A
GAAP consists of a common set of accounting rules, requirements, and practices issued by the Financial Accounting Standards Board (FASB)
13
Q
- What is IFRS?
A
International Financial Reporting Standards
14
Q
- What is the difference between FRS and GAAP?
A
- FRS is more comprehensive/detailed
- GAAP is more detailed and prescriptive while IFRS is more high-level and flexible. GAAP requires more disclosures while IFRS requires fewer disclosures
15
Q
- Which reporting framework do public limited companies have to comply with?
A
IFRS
16
Q
- How are leases treated under IFRS 16?
A
- Full cost of leases have to be accounted for on the balance sheet. An occupiers obligation to pay rent has to be recognised as a liability (service charge payments would be accounted for separately).
17
Q
- Who is exempt from IFRS16?
A
- Leases of 12 months or shorter.
18
Q
- What is an accrual?
A
- Accounting for a payment on the issue of a bill/invoice rather than when the fee is actually paid.
19
Q
- How would you assess the financial strength of an entity, e.g. for a valuation.
A
- 3 years audited accounts
- Profits test
- External credit rating eg. Dunn & Bradstreet
- References
20
Q
- Why do you need to assess covenant strength?
A
- Risk of tenant defaulting affects security of income
- Affects capital value of the property
21
Q
- What does D&B show?
A
- Commercial database containing business records
- Runs credit checks and assesses business risk
- 2 numbers:
o First - signifies financial strength determined by a company’s net worth, based on latest filed accounts
o Second – risk indicator of 1-4 indicates minimum to high risk
22
Q
- What are the limitations of D&B?
A
- Relies on the tenant’s accounts being up to date
- Therefore score could be incorrect or outdated
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