Accounting principles & procedures

Question 1

What are the three types of financial statement you may come across relating to a company?

Question 2

What is an asset / liability?

Question 3

Can you give me an example of each?

Question 4

What is the difference between financial and management accounts?

Question 5

What do you understand by the term Generally Accepted Accounting Principles (GAAP)?

Question 6

How do companies know which reporting framework to comply with?

Question 7

Which reporting framework do public limited companies have to comply with?

Question 8

How would you assess the financial strength of an entity, e.g. for a valuation?

Question 9

Can you tell me about a common financial measure?

Question 10

What is the acid test / ROCE / working capital ratio / gearing ratio / net assets per share?

Question 11

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

Question 12

When are audited accounts needed and why?

Question 13

How do public limited company accounts differ?

Question 14

Tell me something you understand from the Companies Act 2006.

Question 15

Tell me what it means to prepare accounts in accordance with IFRS.

Question 16

What is the difference between UK GAAP and IFRS?

Question 17

What is the basis of valuation under IFRS 13?

Question 18

What is fair value?

Question 19

What has changed in relation to lease accounting / IFRS 16?

Question 20

When did the change come into effect?

Question 21

What is FRS 102?

Question 22

What changes have been made to it?

Question 23

How has this impacted upon investment property?

Question 24

What are statutory accounts?

Question 25

Why is good financial record keeping important to you?

Question 26

Tell me three ways you ensure that clients’ money is handled properly.

Question 27

What RICS guidance or Schemes do you adhere to in doing so?

Question 28

Explain your understanding of the VAT domestic reverse charge for building and construction services.

Question 29

When do changes to the reverse charge apply from?

Question 30

What is the impact of the reverse charge on VAT accounting?

Question 31

Is VAT included in a balance sheet or a profit & loss account?

Question 32

What regulations have to be complied with when preparing and checking charity accounts?

Question 33

How are accounts from public bodies audited in Scotland?

Question 34

Who is required under Companies Act 2006 to publish accounts?

Summary of Experience - Level 1 - Green

Answer 34

All private and public limited companies

Question 35

Can you explain all the financial statements?

Summary of Experience - Level 1 - Green

Answer 35

• Profit & loss account shows how profitable a company is. It shows a company’s sales, running cost and profit/loss. It can be used to monitor/measure profit/loss, compare past performances and forecast future performances
• Cashflow statement shows the amount of cash or cash equivalents entering or leaving the firm
• Balance sheets show the value of everything a company owns, owes is or is owed. It represents a specific point in time as opposed to a certain period

Question 36

What is UK GAAP?

Summary of Experience - Level 1 - Green

Answer 36

• UK Generally Accepted Accounting Procedures is a set of accouting standards published by the Financial Reporting Council
• All non-listed companies in the UK can choose between UK GAAP and IFRS
• The set of standards is known as FRS 102 and the most recent version is 2022 but updated in 2023

Question 37

Other than UK GAAP, what reporting standard is there?

Summary of Experience - Level 1 - Green

Answer 37

IFRS

Question 38

Can you explain account audits?

Summary of Experience - Level 1 - Green

Answer 38

• Audits are an official inspection of an organisations accounts by an independent body
• They aim to establish whether or not a company’s accounts from a true representation and are compliant with standards

Question 39

When would a company require an audit?

Summary of Experience - Level 1 - Green

Answer 39

• Most limited companies will require if they meet any two of the following criteria. This criteria is annual turnover no greater than £10.2m, balance sheet total must not be more than £5.1m and average employees must not be more than 50
• Some companies, even if they meet an exemption, must have their accounts audited. These are companies involved in banking, public companies, an authorised insurance company

Question 41

Explain Fixed Assets and Fixed Costs (overheads).

Question 42

What is a cash flow statement?

Question 43

What is difference between Gross and Net Profit?

Question 44

What do you understand by profit and loss account?

Question 45

What is a Balance Sheet?

Question 46

Explain role of Auditor.

Question 47

When is a P and L produced?

Question 48

What does a P and L tell you?

Question 49

What does a BS tell you?

Question 50

What governs the production of accounts in the UK?

Question 51

Do all firms have to produce accounts?

Question 52

Why do you need a client account?

Question 53

What does a P and L tell you about a firm’s liquidity/solvency?

Question 54

What external sources are there in relation to determining a firm’s credit worthiness?

Question 55

Why is a LLP used by professional firms?