Mandatory - Accounting Principles and Procedures

Question 1

What is the key UK legislation governing accounting principles?

Answer 1

Companies Act 2006.

Question 2

Under which accounting standards are financial reports prepared?

Answer 2

GAAP or IFRS

Question 3

What is GAAP?

Answer 3

Generally Accepted Accounting Principles – common rules for financial reporting used by UK based companies.

Question 4

What is IFRS?

Answer 4

International Financial Reporting Standards – internationally recognised set of principles for financial reporting.

Question 5

What is FRS 102 / New GAAP?

Answer 5

Financial Reporting Standards – UK reporting standards which are more in line with IFRS.

Question 6

What is IFRS 16?

Answer 6

It is a recently introduced standard which requires the full cost of leases to be included on the balance sheet (unless <12 months).

Question 7

What is the role of an auditor in validating a company’s financial records?

Answer 7

A qualified independent party who can produce an unbiased report of a company’s financial position.

Question 8

What is the difference between management and company accounts?

Answer 8

Management accounts:
* For internal use
* Not audited
* Used to manage and plan performance

Company accounts:
* Annual reports for external use (HMRC and Companies House)
* Audited by a charted accountant
* Describes the performance of a business over a specific period of time

Question 9

What is included in a public liability company account?

Answer 9

• Chairman’s statement
• Renumeration report
• Income statement (profit & loss)
• Statement of financial position (balance sheet)
• Independent auditor’s report
• Statutory information
• Corporate governance report

Question 10

What would you see in a management account that you would not see in a company account?

Answer 10

Forecasts – used internally to plan for future expenditure.

Question 11

As a business what information would you be required to submit to Companies House?

Answer 11

Balance sheets
Profit and loss account
Cash flow report

Question 12

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

Answer 12

It is a statement of a company’s financial position at a given time, based on a company’s assets and liabilities.

Question 13

What is a profit and loss account (income statement)?

Answer 13

A summary of the business’ income and expenses transactions during a specified period of time.

Question 14

What is a cash flow statement?

Answer 14

A report which shows the net balance of cash moving into and out of a business during a specified period of time.

Question 15

How can you predict cash flow on a project?

Answer 15

Generally follows an ‘S’ curve.

Question 16

What is the difference between profit and loss and cash flow?

Answer 16

Profit and loss indicates the amount of money left after all income and expenses have been paid, cash flow only recognise cash that has actually been received and is at the company’s disposal.

Question 17

What is a Dunn and Bradstreet (D&B) report?

Answer 17

A business credit report to assess the financial strength of a company.

Question 18

How would you assess a contractor’s financial stability?

Answer 18

Review on Constructionline (financial and H&S checks on contractors)
Review Companies House or request a copy of accounts
Request D&B report

Question 19

What is VAT?

Answer 19

Value Added Tax
* Standard = 20%
* Reduced = 5% (installing energy saving materials)
* Zero = 0% (making alterations for disabled access)

Question 20

Are you aware of the recent changes to VAT within construction?

Answer 20

Reverse charge VAT came into effect from 2021. This enabled the customer to pay VAT instead of the supplier, which prevents the supplier from not paying VAT.