Accounting principles and procedures Flashcards
What are the three main financial statements you have been exposed to in your role as a Quantity Surveyor?
Balance sheets, profit and loss statements, and cash flow statements.
How do balance sheets help in assessing an organisation’s financial position?
They show the company’s assets, liabilities, and equity at a specific point in time.
What is the importance of profit and loss statements in your role?
They show a company’s profitability by detailing its revenues and expenses, which is crucial for vetting financial stability.
Why is the cash flow statement important when assessing a supplier’s financial stability?
It reveals the company’s liquidity and ability to meet short-term obligations.
How do financial statements help manage a client’s risk exposure?
They help assess a contractors financial stability, thereby reducing the risk of failure impacting the client.
What are financial reporting standards, and why must companies adhere to them?
They are guidelines ensuring consistent and comparable financial statements.
How does the Companies Act 2006 influence financial reporting?
It requires companies to submit annual accounts, ensuring legal compliance and transparency.
What financial aspects do you focus on when interpreting balance sheets and profit and loss statements?
Liquidity, profitability, assets, liabilities, and overall stability.
In what ways can interpreting financial statements impact decision-making in quantity surveying?
It helps manage risks by assessing contractors’ and suppliers’ financial health.
Why is it important to assess a supplier’s financial stability before entering into a contract?
It reduces the risk of project delays or supplier insolvency.
What financial reporting requirements does the Companies Act 2006 impose on companies?
The Act requires companies to submit annual financial accounts, including balance sheets and profit and loss statements, to ensure transparency and legal compliance.
How does the Companies Act 2006 impact the auditing of financial statements?
The Act mandates that companies with over £5.1 million in assets or more than 250 employees must appoint an auditor to audit their annual accounts
What are the thresholds for companies to be subject to mandatory auditing under the Companies Act 2006?
A company must meet two of the following criteria: turnover exceeding £10.2 million, a balance sheet total exceeding £5.1 million, or more than 50 employees, to be subject to mandatory auditing.
What are the penalties for non-compliance with the Companies Act 2006 in relation to financial reporting?
Depending on severity, this can include:
Civil penalties: The company may be liable to a civil penalty of up to £1,000 per month for each month the accounts are late.
Criminal prosecution: The company directors may be prosecuted for failing to file the accounts. If convicted, they could face a fine of up to £5,000 or imprisonment for up to two years.
Dissolution of the company: If the company fails to file its accounts for two consecutive years, it may be struck off the Companies House register. This means that the company will cease to exist.
