Accounting Principles & Procedures

Question 1

What are the contents of a set public limited company accounts?

Answer 1

1. Chairman’s statement
2. Independent auditor’s report
3. Income statement (profit and loss account)
4. Statement of financial position (balance sheet)
5. Corporate Governance Report
6. Remuneration report (money paid for work or a service)
7. Other statutory information

Question 2

What is a balance sheet? (statement of financial position)

Answer 2

A statement of the business’s financial position showing its assets and liabilities at a given date, usually at the end of a financial year

Assets can include cash, property, debtors and other investments held

Liabilities can include borrowings, overdrafts, loans and creditors

Question 3

What is a Profit and Loss Account? (Income Statement)

Answer 3

A summary of the business’s income and expenditure transactions, prepared usually on an annual basis
‘ measures the profitability of the business’

Question 4

What are management accounts?

Answer 4

They are prepared for internal use by a business and are not audited e.g. Cash Flow Statements

They show current performance allowing management to make decisions and future planning.

Question 5

Who are audited accounts prepared by?

Answer 5

A Chartered or Certified Accountant

Question 6

What are consolidated set of accounts?

Answer 6

Compromises a number of individual subsidiary accounts for a company within a single set of accounts

Question 7

What is a cash flow statement?

Answer 7

Financial statement that shows how much cash entered and left a business during a reporting period.

It details all the cash inflows and outflows from the company’s operations, investment and debts

Question 8

How must occupiers now regard their property liabilities?

Answer 8

The full cost of leases have to be accounted for on the balance sheet.

An occupier’s obligation to pay rent has to be recognised as a liability, though service charge payments would be accounted for separately.

Exemptions exists for leases of 12 months or shorter.

Question 9

What are included statutory accounts?

Answer 9

They include:
- Balance Sheet
- Profit and Loss Account
- Notes about the accounts
- Directors Report

Question 10

What is the primary reason for producing statutory accounts?

Answer 10

To share annual financial information with shareholders, HMRC and companies house

Question 11

What is IFRS 16?

Answer 11

• A requirement to include a lease that is longer than 12 months as a liability on a balance sheet
• It is the lease accounting standard which all companies have to comply when using the International Financial Reporting Standard.
• Accounting change which impacted how occupiers regard their property liabilities

Question 12

Are there any exemptions to IFRS 16?

Answer 12

Exemptions exist for leases of 12 months or shorter.

Question 13

What is a Limited Liability Partnership?

Answer 13

The individual partners have limited liability

Question 14

Challenges of IFRS 16?

Answer 14

Collating all relevant lease documentation, e.g. from archives or solicitors, from all entities within a Group company

Question 15

When was IFRS introduced?

Answer 15

Issued in January 2016 and is effective for annual reporting periods starting on or after 1 January 2019.

Question 16

Differences between GAAP and IFRS?

Answer 16

Most UK companies will use UK GAAP FRS 102 to prepare all financial statements as they are less complex and demanding than international standards

So it is less time and cost

However UK companies who are part of a wider international group may choose to apply IFRS standards for consistency

Question 17

What are the impacts of IFRS 16?

Answer 17

Increased global comparability of accounts

Question 18

What is UK GAAP?

Answer 18

Generally Accepted Accounting Principles

Question 19

What does UK GAAP do?

Answer 19

Provides a framework for the preparation of company accounts in the UK

It is the body of accounting standards published by the Financial Reporting Council (FRC)

Question 20

Who does IFRS 16 apply to?

Answer 20

All companies who rent or lease assets for business purposes.

12 + months

Question 21

Purpose of 16 IFRS?

Answer 21

To report accurate information which reflects lease transactions

To allow accurate analysis of cash flows (e.g. amount, timing and uncertainty) relating to leases

Question 22

When was the new GAAP effective from?

Answer 22

1 Jan 15

Question 23

What is an asset?

Answer 23

Assets can include cash, property, debtors and other investments held

Question 24

What is a liability?

Answer 24

Liabilities can include borrowings, overdrafts, loans and creditors

Question 25

How often do client accounts need to be audited?

Answer 25

Client accounts have to be audited yearly - then have to be audited every 3 years by an RICS approved auditor

Question 26

What is an audit?

Answer 26

An official expert verifying the accuracy company’s financial statements

Question 27

What legislation covers company law?

Answer 27

Companies Act 2006

Question 28

What is EBITDA?

Answer 28

Earnings before interest tax depreciation and amortization

Question 29

What is an set of accounts?

Answer 29

• Balance Sheet
• Profit and loss

Question 30

What is considered a good margin for EBITDA?

Answer 30

Depends on company but 10% is considered good

Question 31

What is the difference between management accounts and audited accounts?

Answer 31

Managed accounts are for internal purposes only where audited accounts are undertaken by a chartered accountant

Question 32

What is RICS guidance to handle clients money?

Answer 32

• Kept separate and clearly identifiable
• Word client on the bank account and cheque book
• Client must be able to have their monies on demand
• Payment of interest is agreed with client and account must be kept in credit
• Accurate records kept with a running balance available
• Annual audit and reporting obligations by certified accountant employed by RICS
• If cash receipts are used to settle transactions make sure records show cash transactions
• Signatories must be agreed with authorised staff and two signatories should be required
• Discrete account is for a single named client account only
• RICS regulatory review visits can be undertaken by RICS usually on a routine 3 yearly basis
• Firms handling client money need to display their procedure on website

Question 33

Is service charge counted as a liability under IFRS 16?

Answer 33

No, service charge payments are accounted for separately

Question 34

What are non-current assets?

Answer 34

Are long-term and have a useful life of more than a year

e.g. Long-terms

Question 35

What are current assets?

Answer 35

A company’s short-term assets

e.g. cash

Question 36

Can you tell me what the role of an auditor is?

Answer 36

• Auditors responsibility is to express an independent, objective opinion on the financial statements of a company
• Ensure validity and legality of their financial records.

Question 37

What is revenue (profit and loss account)?

Answer 37

Income the business receives from its business activities

Question 38

What is depreciation?

Answer 38

What happens when a business asset loses value over time