Accounting

Question 1

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

Answer 1

balance sheet, income statement, cash flow statement

Question 2

What is an asset / liability? with example

Answer 2

Assets are the items your company owns that can provide future economic benefit. e.g. cash or building

Liabilities are what you owe other parties e.g. debt

Question 3

What is the difference between financial and management accounts?

Answer 3

financial accounting looks backward to report on performance, while management accounting looks forward to influence future strategy

Question 4

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

Answer 4

set of generally accepted accounting principles widely used in the U.S. for financial reporting by corporations and government entities.

At the core of the GAAP rules are 10 main principles that aim to standardize, define, and regulate the reporting of an organization’s financial information. These include Regularity, Consistency, Sincerity etc

Question 5

How do companies know which reporting framework to comply with?

Answer 5

mandatory legal requirements, investor demands, industry norms, and the geographic scope of their operations.

Question 6

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

Answer 6

IFRS

Question 7

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

Answer 7

reviewing at least three to five years of financial statements (Income Statement, Balance Sheet, and Cash Flow Statement) to identify trends,

Question 8

Can you tell me about a common financial measure?

Answer 8

Net Profit Margin - percentage that shows how much actual profit a business keeps from every dollar of revenue (sales) it generates.

Net income divided by revenue

Question 9

What is revenue?

Answer 9

Revenue is the total money a company earns from selling its goods or services before any costs or expenses are subtracted

Question 10

What is net income/net profit?

Answer 10

Net income is the total profit remaining for a business or individual after subtracting all expenses, taxes, interest, and operating cost

Question 11

What is an Acid Test?

Answer 11

a stringent financial metric measuring a company’s ability to cover short-term liabilities with its most liquid assets.

Question 12

What is ROCE?

Answer 12

(Return on Capital Employed)

is a key financial ratio measuring a company’s profitability and efficiency in using its capital (both debt and equity) to generate profits

Question 13

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

Answer 13

Is an independent professional who examines an organization’s financial records, operational procedures, and internal controls to ensure they are accurate, efficient, and compliant with laws and regulations.

Question 14

When are audited accounts needed and why?

Answer 14

least 2 of the following:

an annual turnover of no more than £15 million

assets worth no more than £7.5 million

50 or fewer employees on average

They are needed to ensure financial reliability, enhance credibility for stakeholders, and meet legal requirements.

Question 15

how do public limited company accounts differ for auditors

Answer 15

Require a more rigorous, mandatory audit compared to private firms, adhering strictly to IFRS or UK GAA

Question 16

Tell me something you understand from the Companies Act 2006.

Answer 16

directors must “promote the success of the company,” meaning that they must act in a way that benefits shareholders.

Question 17

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

Answer 17

IAS 1 sets out overall requirements for the presentation of financial statements,

Question 18

What is the difference between UK GAAP and IFRS?

Answer 18

GAAP tends to be more rules-based, while IFRS tends to be more principles-based. Under GAAP, companies may have industry-specific rules and guidelines to follow, while IFRS has principles that require judgment and interpretation to determine how they are to be applied in a given situation.

Question 19

What are the International Financial Reporting Standards?

Answer 19

The International Financial Reporting Standards (IFRS) are a set of accounting rules for public companies with the goal of making company financial statements consistent, transparent, and easily comparable around the world. This helps for auditing, tax purposes, and investing.

Question 20

What IFRS Principles need to be followed?

Answer 20

IFRS insists on four key principles for preparing financial statements: clarity, relevance, reliability, and comparability. Clarity means making financial statements easy to read and understand.

Question 21

What is the UK General Accepted Accounting Practice?

Answer 21

Generally Accepted Accounting Practice in the UK (UK GAAP) is the body of accounting standards published by the UK’s Financial Reporting Council (FRC).

Question 22

What GAAP principles need to be followed?

Answer 22

At the core of the GAAP rules are 10 main principles that aim to standardize, define, and regulate the reporting of an organization’s financial information. These include Regularity, Consistency, Sincerity etc

Question 23

Which takes precedence IFRS or GAAP?

Answer 23

To ensure compliance, listed companies use UK GAAP, while non-listed companies use International Financial Reporting Standards (IFRS). If your company is listed on a stock exchange, it is required to follow International Financial Reporting Standards (IFRS) according to EU regulations.

Question 24

What is the basis of valuation under IFRS 13?

Answer 24

fair value

Question 25

What is fair value?

Answer 25

the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

Question 26

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

Answer 26

that distinction for lessee accounting and requires that virtually all leases are now accounted for 'on balance sheet. Happened in 2019

Question 27

What is FRS 102?

Answer 27

setting out mandatory rules for preparing "true and fair" financial statements for most entities

Question 28

What are statutory accounts?

Answer 28

Statutory accounts, also known as annual accounts or financial statements, are a set of financial reports that companies prepare at the end of each financial year to report various financial measures and related disclosures for filing with Companies House.

Question 29

Explain how statutory accounts are set up?

Answer 29

Statutory accounts must include a balance sheet, a profit and loss account, cashflow statement, notes to the accounts and a director’s report, together with a cover, contents and company information pages

Question 30

Why is good financial record keeping important to you?

Answer 30

Performance tracking, helps decision making, aware of cash forcast

Question 31

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

Answer 31

RICS Guidance on handling client money. - not hold office money. - all client money in a account clearly labelled -ensure that money held in a client account is immediately available

Question 32

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

Answer 32

anti-fraud measure where the recipient (customer) of construction services accounts for VAT directly to HMRC rather than paying it to the supplier

Question 33

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

Answer 33

no

Question 34

How do you account for the impact of inflation when reporting to clients?

Answer 34

inflation-adjusted values for building cost, indexation for CIL and S106

Question 35

What is a balance sheet?

Answer 35

A balance sheet shows the value of everything the company owns, owes and is owed on the last day of the financial year

Question 36

What is a P&L account?

Answer 36

A profit and loss account shows the company’s sales, running costs and the profit or loss it has made over the financial year.

Question 37

How does IFRS16 impact tenants?

Answer 37

Operating leases that were kept of balance sheets should now be disclosed on the balance sheet thereby increasing total asset sand liabilities.

Question 38

Explain the differences between Statutory and In-House Accounts

Answer 38

Statutory account reports provide an overview of all finances while management accounts get into gritty details. Statutory, from a technical accounting point of view, allows the business owner to see exactly what the end result of their efforts actually is, as all information is adjusted for tax purposes. Management accounts, on the other hand, allow for greater levels of focus and a more in-depth analysis of your business

Question 39

How would you manage your own businesses’ accounting?

Answer 39

Appoint a suitably qualified accountant.

Question 40

What components make up Statutory Accounts?

Answer 40

a ‘balance sheet’, which shows the value of everything the company owns, owes and is owed on the last day of the financial year a ‘profit and loss account’, which shows the company’s sales, running costs and the profit or loss it has made over the financial year notes about the accounts a director’s report an auditor’s report

Question 41

What are in house accounts used for?

Answer 41

Management accounts form a financial report used by business owners and management for day-to-day and strategic decision making.

Question 42

What is the purpose of a cash flow forecast?

Answer 42

A cash flow forecast shows your projected cash based on income and expenses and is an important tool when it comes to making decisions about activities such as funding, capital expenditure and investments.

Question 43

If you had to do a credit check, how would you go about this

Answer 43

In my current company, this is a service that can be provided by the accounting team.

Question 44

What are the roles of Internal and External Auditors?

Answer 44

Internal auditors are company employees, while external auditors work for an outside audit firm. Internal auditors are responsible to management, while external auditors are responsible to the shareholders. Internal auditors can issue their findings in any type of report format, while external auditors must use specific formats for their audit opinions and management letters. Internal audit reports are used by management, while external audit reports are used by stakeholders, such as investors, creditors, and lenders.

Question 45

What are the key financial statements that all companies must provide?

Answer 45

Independent auditor’s report Profit and loss account Balance statement

Question 46

Why would you analyse companies’ accounts?

Answer 46

To assess a company’s performance over a period of time against similar companies. To verify the solvency and financial suitability of potential contractors.