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RICS official definition

This competency must be achieved at least to level 1.

At level 1
Demonstrate knowledge and understanding of accounting concepts and the format and
preparation of management and company accounts, including profit and loss statements, cash
flow statements and balance sheets.

At level 2
Provide evidence of interpretation of company accounts and balance sheets in your area of
practice and application of appropriate accounting and regulatory standards.

At level 3
Provide evidence of reasoned advice given to clients with regard to profit and loss statements
and balance sheets.

isurv recommended reading and services

- Practice Management Guidelines (RICS guidance)

Practical guidance

You will undoubtedly be able to gain some experience - practical or theoretical - of these
concepts in the course of your work. If there is one particular aspect that is unlikely to arise in
your everyday work, consider how your training might be arranged so that this is covered.

You may also like to read a textbook on the subject, or attend an appropriate training course or
CPD lecture.

It should be noted that some candidates might quite easily reach levels 2 and 3 in this
competency, if this subject is part of your job. For example, a rural practice candidate working
for an estate would deal with these types of issues regularly. Candidates working in
commercial property and dealing, perhaps, with the leisure and entertainments industry, might
also easily attain level 2 or 3 through practical experience, particularly where accounts are
used for valuation purposes.

If you are not able to gain direct experience for this competency in your job, then consider
arranging to spend some time with an accountant either within your company or outside.

Testing areas of knowledge

Key areas of knowledge include:

- profit and loss accounts;

- balance sheets
- cash flows;
- purposes of accounts;
- management accounts and financial accounts;
- accounting ratios; and
- why accounts are important to your pathway.

Consider the following questions and what should be included in answering them.

What are the key financial statements that all companies must

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provide?
Profit and loss account, balance sheet and cash flow.

What is the difference between management and financial accounts?

Management accounts are for the 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?
A profit and loss account shows the income, expenditure and profit or loss of the company and
the balance sheet shows what a company owns (assets) and what it owes (liabilities) at a
given point in time.

What are the main types of ratio analysis used to assess a company’s
financial strength?
- Liquidity – the ability of the company to pay its way (solvency). More companies fail
due to cash flow than any other reason.
- Investment/shareholders – information to enable decisions to be made on the extent
of the risk and the earning potential of a business investment.
- Gearing – information on the relationship between the exposure of the business to
loans as opposed to share capital.
- Profitability – how effective the company is at generating profits given sales and/or
its capital assets.
- Financial – the rate at which the company sells its stock and the efficiency with
which it uses its assets.

Why do chartered surveyors in your pathway need to understand and

be able to interpret company accounts?
Answers will vary depending upon your pathway but you should consider the following:

- For your own business accounts.

- For assessing the covenant strength of potential tenants and landlords.
- For assessing the financial strength of contractors and those tendering for contracts.

- For profits-method valuations (for leisure properties).

- For assessing competition.

When have you used company accounts in your work or when do you
think you may in the future?
Answers will vary depending upon your pathway. Consider the suggestions given to the
question above.

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