Accounting Principles and Procedures

Question 1

What did the CPD course you attended cover, and what were the learning outcomes?

Answer 1

I furthered my understanding on financial reporting mechanics, IFRS compared to US GAAP and how to analyse real estate investment trusts.

Question 2

What are some accounting concepts?

Answer 2

1) Business identity
2) Going concern
3) Monetary period
4) Accounting period
5) Accrual

Question 3

How would you interpret company accounts and what is included?

Answer 3

• Chairman’s Statement
• Independent auditor’s report
• Profit and Loss account
• Balance sheet
• Corporate governance report
• Remuneration report
• Other statutory information

Question 4

What are constraints of GAAP?

Answer 4

• Complexity: Can be intricate and extensive, making it challenging to understand and apply consistently
• Lack of flexibility: May not always accommodate diverse business transactions and industries due to its rigid standards
• Subjectivity: Involves judgement and estimates, leading to varying interpretations and potentially misleading financial statements
• Historical cost basis: Relies on historical costs, which may not reflect current market values accurately
• Non-comparability: Differences in accounting policies hider comparability across companies and industries
• Complexity of transactions: May not address emerging business practices adequately, leading to uncertainty in accounting treatment

Question 5

What are management accounts and financial accounts?

Answer 5

Management Accounts: For internal use only, not audited. Used for decision making and planning for future and forecasting.

Financial Accounts: Ensure financial statements are correct, regulatory requirements and specific rules apply. For external stakeholders. Mandatory for all PLCs to send audited financial accounts (profit and loss) to HMRC.

Question 6

How would you identify the nature of a business transaction?

Answer 6

• Operational
• Investing
• Financing

Question 7

What is a balance sheet? What are assets and what are liabilities?

Answer 7

A statement of financial position illustrating a business’s financial position with asset and liabilities at a given time (usually at the end of a financial year).

Assets include Cash, property, debtors, and other investments.

Liabilities include Borrowings, overdrafts, loans, and creditors.

Question 8

What is a cash flow statement?

Answer 8

A financial report that tracks the flow of money in and out of a business or investment over a specific period of time. This is typically quarterly or at the end of a fiscal year.

Question 9

What is GAAP and the IFRS?

Answer 9

GAAP – Generally accepted accounting principles: Rules based. Standard accounting rules that accountants must follow when compiling financial statements. Generally used by small to medium sized businesses.

IFRS – International Financial Reporting Standards

Question 10

What is IFRS 16?

Answer 10

Provides guidance on accounting for leases including their recognition, measurement, presentation, and disclosure.