Accounting principles and procedures

Question 1

What are the GAAP?

Answer 1

Refers to the accounting standards and practices utilized by British businesses in the preparation of their financial statements. These principles assure the consistency, openness, and comparability of financial data across organizations.

Question 2

What are the key components of GAAP?

Answer 2

• Statement of Recommended Practice (SORP): SORPs provide guidance on the accounting practices of industry sectors and supplement Financial Reporting Standards (FRS).
• Financial Reporting Standards (FRS): The FRSs detail the requirements for compiling financial statements in accordance with UK GAAP. The most recent standard, FRS 102, is intended to facilitate and enhance financial reporting.
• Other authoritative guidance: This section includes publications from the UK’s Financial Reporting Council (FRC) and other relevant bodies that provide additional guidance on applying UK GAAP.

Question 3

What are the differences between UK GAAP and IFRS?

Answer 3

• Basis of Accounting: Generally, UK GAAP uses an accrual basis of accounting, whereas IFRS uses a hybrid measurement model that combines historical cost and fair value measurements.
• Treatment of Intangible Assets: In accordance with UK GAAP, intangible assets such as goodwill must be depreciated over their useful lives. Instead of amortization, IFRS mandates periodic impairment testing.
• Presentation Requirements: The presentation requirements for financial statements prepared under each framework differ significantly. For instance, the format of the income statement varies considerably between the two sets of standards.

Question 4

What is IFRS 16?

Answer 4

The objective of IFRS 16 is to report information that (a) faithfully represents lease transactions and (b) provides a basis for users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. To meet that objective, a lessee should recognise assets and liabilities arising from a lease.

IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

Question 5

Why should you keep accounts?

Answer 5

Companies keep accounts for a number of reasons:

• To keep track of money coming and money going out so they know they can pay their bills and suppliers etc.
• So they can monitor profit and loss and company performance
• Use the information for future business planning
• Use the information to highlight any problem areas so they can be investigated and solved
• So they can submit annual financial statements to Companies House

In accordance with Company’s Act 1985 limited companies must provide their year-end accounts in accordance with a legal format.

Question 6

What is a cash flow forecast?

Answer 6

View upcoming cash requirements of the company to assist with managing liquidity

Question 7

What is a balance sheet?

Answer 7

Snapshot in time of a company’s assets, liabilities and shareholder equity

Question 8

What is a profit and loss account?

Answer 8

Shows revenues and expenses of a company over a specified time

Question 8

What is the purpose of the RICS Professional Standard on Client Money Handling 2019

Answer 8

Provides clear requirements and advice to firms about:
Client account requirements
Appropriate accounting controls
The information that firms must provide to clients
How to handle client money including rules for managing unidentified funds

Client Money Protection Scheme Rules - Scheme Rules takes precedence

Question 9

How do you assess covenant strength?

Answer 9

I use Creditsafe to assess the risk

Question 10

What is the rule of thumb when checking a prospective tenant could afford to pay the rent?

Answer 10

Annual income should be 30 times the monthly rent / multiply the yearly rent by 2.5

Question 11

What is a client suspense account?

Answer 11

An account where you record unclassified transactions

Question 12

How many types of client accounts are there?

Answer 12

2 - discrete and pooled

Question 13

What is the base rate?

Answer 13

5.25%

Question 14

What is the current rate of inflation?

Answer 14

2.3%