APC Master Questions Flashcards
What are key financial statements that all companies must provide?/ What are company accounts?
- Profit and loss account
- Balance sheet
- Cash flow statement
What is the difference between management and financial accounts?
- Management accounts are for internal use of the management team
- Financial accounts are the company accounts required by law
What is the difference between a profit and loss account and a balance sheet?
- Profit and loss shows incomes and expenditures of a company and the resulting profit and loss
- Balance sheet shows what a company owns (assets) and what it owes (liabilities) at a given point in time
What is a cash flow statement?
- Summary of the actual or anticipated ingoing and outgoing of cash in a firm over the accounting period. It is broken down into operating, investing and financing activities.
- It measures the short term ability of a firm to pay off its bills.
What are capital allowances?
- Tax relief on certain items bought for business (tools, etc.)
What is insolvency?
- Inability to pay debts. Liabilities exceed assets.
What is Companies House?
- An agency that incorporates and dissolves limited companies.
Why do chartered surveyors need to understand and be able to interpret company accounts?
- For own business accounts
- For assessing the financial strength of contractors and those tendering for contracts
- For assessing competition
What is the purpose of a P&L?
- Monitor and measure profit (or loss). Significant problems can arise if the information is inaccurate, either through incompetence or deliberate fraud.
- Compared to its past performance, compared to the budget and compared to other businesses.
- Assist in forecasting future performance (next period’s budget)
- Calculate tax
What is the difference between debtors and creditors?
- Creditors – your firm owes another company money e.g. if you own a subconsultant fees then they are a creditor
- Debtors – a firm who owes your firm money e.g. a client who owes you fees is a debtor.
What are financial statements?
- Forecasts of income and expenditure can be used as an analytical tool to identify potential shortfalls and surpluses.
Why are financial accounts useful to surveyors?
- Track, analyse and assess business accounts and performance
- Assess financial strength of contractors
- Assess market competitors
What is cash flow?
- Summarises the amount of cash or cash equivalents entering and leaving a company.
- Used in CA projects and is shown as an ‘S’ curve
- Small financial outlay at the start, steep increase during and tapers off at the end.
What is an EOT?
- Employee Owned Trust – an indirect form of employee ownership in which a trust holds a controlling stake in a company on behalf of all its employees and provides an incentive for owners to sell a controlling stake in their business.
When have you used company accounts in your work or when do you think you might in the future?
- To assess the financial strength of contractors at tender stages.
How do you carry out a credit check? Give an example.
- I do not carry out credit checks as part of my role. During the procurement process I do, however, check a contractor’s status on Constructionline, which does include basic information on a client’s financial status. When advising my clients, I would confirm whether the contractor had reached gold standard and would flag any concerns, and recommend that their accountants undertake appropriate due diligence on the company’s accounts.
Why would you not recommend the appointment of a contractor with low credit rating?
- Risk of contractor not performing satisfactorily
- Risk of contractor to restrict his resources on site
- Risk of contractor or supply chain insolvency
What measures would you recommend if your client wants to appoint a contractor with low credit rating? How did you deal with a contractor’s cash flow issues?
- Request a bond, such as a performance bond to manage risk. Advance payment bonds, off-site materials bonds or retention bonds can be used to improve cash flow.
- Check that the tender is not excessively front loaded
- Make sure that work is accurately valued at interim valuation
- Consider opening a project bank account.
What is a balance sheet?
- A snapshot of a company’s financial condition.
- Assets, liabilities, and ownership equity are listed of as of a specific date, such as the end of the financial year.
What is a profit and loss statement?
- Income statement
- Shows the company’s revenues and expenses during a particular period and provides the net income.
- Purpose to show managers and investors whether the company has made or lost money during the period being reported.
Why do we need financial reporting?
- To regulate and prevent fraud
- To transmit information on the health of the business to investors
- To help the management to manage the business
What is capital expenditure?
- Expenditures creating future benefits
- Incurred when a business spends money to either buy fixed assets or to add the value of an existing fixed asset.
What is money laundering?
- Practice of engaging in financial transactions to conceal the identity, source, and/or destination of illegally gained money.
What is lock up?
- Sum of unbilled work in progress and debtors (excluding VAT)
- Can have a serious side-effect – affects cash flow.