ACCOUNTING PRINCIPLES AND PROCEDURES - Level 1

Question 1

What should be submitted in a Companies’ Annual Accounts?

Answer 1

• Profit and Loss Statement
• Balance Sheet
• Notes about the account
• Director’s Report
• Auditor’s Report

Question 2

Difference between profit and loss and balance sheet

Answer 2

Balance Sheet - snapshot in time

Profit and Loss - Over a period of time

Question 3

Could you please tell me what accounting actually means in your own words?

Answer 3

Accounting is the process of recording financial transactions within business

Question 4

Why is accounting important in Construction especially?

Answer 4

Ensure companies are stable
Able to pay employees
Understand asset and liabilities

Question 5

What is a cash flow statement

Answer 5

all money going in and out of a business over a period of time

Question 6

cashflow statement what do you see on one?

Answer 6

• Operating - rent / expenses
• Investing – technology/ it equipment
• financing activities – payments of profits/dividends

Question 7

You mention cash flows, what information can you gather from reviewing a cashflow forecast at regular intervals in during the construction phase of a project?

Answer 7

• programme delays

* over valuing works

Question 8

13. How can you validate what’s included in a cash flow?

Answer 8

• Compare against contract PC date / target completion date -
• Monies included in the CSA
• Activities on programme align with amounts predicited on cashflow

Question 9

What is a profit and loss statement?

Answer 9

Companies revenue and expenses over a period of time

Assets , liabilities, Shareholder Equity

Question 10

What is a Balance Sheet?

Answer 10

Companies revenue and expenses at snapshot in time

Question 11

How does a balance sheet balance?

Answer 11

Total Assets = Equity and Liabilities

Question 12

Are there different types of assets?

Answer 12

• Current = quick < 1 year cash

* Fixed longer – 1 year + building etc

Question 13

22. What is a liability?

Answer 13

• Anything owed by a business – loan or debt

Question 14

Are there different types of liabilities?

Answer 14

Short term

Long term

Question 15

24. What do you look for when analysing a fee proposal?

Answer 15

• Errors
• Exclusions
• Have they understood the brief they have been asked too
• Timescales
• Cost
• Insurance levels meets clients request

Question 16

25. Why is it important to have exclusions and assumptions included?

Answer 16

• Makes it clear to clients what is not allowed for in your bid and also areas which were not clear or may require further details

Question 17

26. Why do construction companies typically fail?

Answer 17

• Poor accounting
• Poor management
• Poor organsiation
• Trying to grow to big
• Trying to expand in sectors to fast etc

Question 18

27. What pieces of legislation aims to provide fairer payment in the construction industry?

Answer 18

Housing Grants, Construction and Regeneration Act 1996

Construction Act 1990

Question 19

28. You mention that it is important for clients to analysing a company’s financial status in your summary, why is this?

Answer 19

• Understand if on target to achieve goals
• Assess if corrective measures are required
• Solvency

Question 20

29. What benefit can clients gain from assessing a contractors financial standing before entering into contract and are you aware of what may be considered a red flag to a client doing such checks?

Answer 20

• Insurance claims
• Poor credit ratio
• Extent of liabilities

Question 21

30. Can you explain what information companies house might hold on a business and why you may need this?

Answer 21

• Initial registration info – company type , directors , services etc and any changes, office
• Annual accounts
• Directors report
• Auditors report
To assess amount of corporation tax owed , and to assess financial strength

Question 22

31. Can you talk me through typical payment terms that an appointment for one of your projects may be based on?

Answer 22

• Exhange of Contracts
• Monthly drawdown during agreed contract duration
• Final payment on End of making good defects

• 28 day payment terms – White City

Question 23

In what scenario may you need to request additional fees from one of your client and can you talk me through the process you would go through in order to agree an additional fee with your client.

Answer 23

• Scope creep
• Extended programme
• Hourly rate
• Discuss with line manager and equity partner
• Mechanism in appointments for additional work

Question 24

33. You mention that you are aware of signs that a company may become insolvent, what does the term insolvent mean to you?

Answer 24

• Generic term for the inability to pay off debts which may lead to bankruptcy, liquidation, admistration
• Administration = appointed to deal with companies affairs by creditor
• Liquidation = shutting down of limited company

Question 25

34. Can you give me a couple of examples of such signs that a company may be in financial difficulties?

Answer 25

• Struggle to get materials
• Lack of labour onsite
• Programme delays which are difficult for the contractor to substantiate
• Supply chain issues/ complaints
• Chasing up payments earlier than final date
• Inflated variation costs
• Staff/ management turnover

Question 26

What is GAAP - Generally Accepted Accounting Practice

Answer 26

is the overall body of regulation establishing how company accounts must be prepared in the United Kingdom

Question 27

What is an auditor

Answer 27

specialist who performs inspections and verification of financial accounts