Finance - Investment

Investment jargon - 'A'

Accountant - An individual who has passed the accountancy examinations of one of several recognised accountancy bodies in the UK and abroad and has completed the required work experience to offer financial advice. For the purposes of doing a deal or raising finance most entrepreneurs would probably approach a member of the Chartered Institute of Management Accountants, the Institute of Charted Accountants for England and Wales, the Institute of Charted Accountants in Ireland and the Institute of Charted Accountants of Scotland.

Accounting - The method of communicating, labelling, measuring and recording economic transactions. Transactions are usually measured in monetary terms, and records are prepared in the form of financial statements. The discipline is divided into financial and management accounting. The former is concerned with legal issues and reporting to people outside an organisation. Management accounting is concerned mainly with providing support to business managers. Accounting activities include book-keeping, calculating taxation, conducting audits and playing golf.

Accounting manual - A document that details the accounting policies and procedures of a business. It normally contains a list of account codes or chart of accounts. A company's treatment of depreciation is an example of an accounting policy*.

Accounting period - The period for which a company prepares its accounts. Management accounts may be produced internally on a monthly or quarterly basis, whilst financial accounts will be made for a period of one year. An accounting period starts when a company begins trading and ends either: a) One year after starting to trade b) At the end of the period of account c) Start of a winding-up of operations or d) When the company leaves the country!

Accounting policies - The accounting bases deemed appropriate in the fair representation of a company's financial results. These bases will be consistently adhered to in the preparation of financial statements. Companies are required to reveal their accounting policies in the annual accounts; policies will deal with areas such as R&D costs, foreign exchange, goodwill and pension schemes.

Accounting standard - A definitive standard for reporting and financial accounting in the form of an SSAP (Statement of Standard Accounting Practice) issued by the Accounting Standards Committee. The standard may, since 1990, also take the form of the FRS (Financial Reporting Standard) issued by the UK Accounting Standards Board.

Acquisition accounting - The accounting codes of practice followed in the event of one company being taken over by another. For the purpose of financial statements, the fair value of the consideration should be placed between the underlying net tangible and intangible assets, apart from goodwill. Goodwill is calculated as being the difference between the fair value of the consideration and the aggregate of the fair values of the separate net assets. These assets include intangibles that can be identified such as patents and trademarks. The results of the acquired company are brought into the profit and loss account from the date of acquisition.

Acquisition - A term used to describe a company that has been, or is in the process of being taken over*.

Acquisition finance - Bank debt raised to fund an acquisition alongside equity for a buy-out.

Administration - Occurs when things are going horribly wrong! An 'administrator' is brought in to keep the company trading in an attempt to protect the interests of the shareholders. An administrator is unlikely to close down the firm and may instead choose to sell-off certain assets. If the administrator is unable to save the company then a receiver may be brought in, who then may choose to liquidate all company assets.

Agreed bid - A bid for the takeover of a company that is given the support of the directors. This is in contrast to a hostile bid, which is not given the directors' blessing.

Alternative Investment Market - Wisely considered to be the baby brother of the London Stock Exchange. Companies are able to float on the AIM without the need for a three year trading record. Companies can trade shares without the burden or expense of a full market listing.

Annual General Meeting - A meeting of the shareholders of a company that must be held every year not be more than 15 months apart. An AGM would normally include the presentation of audited accounts, recommendations for the payment of dividends, fixing of remuneration and the appointment of directors and auditors. Notice of the AGM must be given to the shareholders at least 21 days prior to the meeting.

Annual report & accounts - Annual financial statements of a company, required by law to be published and filed at Companies House. Some SME's will only be required to submit abbreviated accounts that may not have been audited. An annual account will consist of the following; profit and loss account, balance sheet, cash-flow statement, statement of recognised gains and losses, directors' and auditors' report. Partnerships and Non-incorporated bodies are not legally required to produce accounts.

Articles of association - A company's Bible, this document details and dictates the running of a company. The voting rights of shareholders and managements' power is detailed along with the conduct of shareholders' and directors' meetings. The articles contained in the Companies Regulations are a contract between the company and its members, and as such are only applicable to shareholders and not company directors or solicitors in the enforcement of their rights. The articles will be submitted when application is made for incorporation, with the memorandum of association.

Asset - Put simply, any object that is of value to its owner which can be turned into cash. Most accounting organisations refer to an asset as something of future economic benefit obtained as a result of previous transactions. Assets may be divided into tangible and intangible. A tangible asset could be land and buildings, fixtures and fittings, whereas an intangible asset could include goodwill, patents and copyrights. An asset for the purposes of capital gains tax is defined as property in the UK or abroad for which a value can be established. Some assets, however, are exempt from capital gains tax.

Asset-backed fund - A fund, where the money is invested in tangible or corporate assets, such as property or shares. An asset-backed fund has an advantage over savings loaned to a bank in that the money can be expected to increase at the rate of inflation.

Asset value - This figure represents the total value of the assets of an organisation (not including liabilities) divided by the number of shares in issue.

Asset valuation - Represents the value of company assets that is recorded on the balance sheet. The assets included in the valuation will normally be fixed assets, and professional advice may be required to re-evaluate land and buildings.

Audit - An examination of the financial statements of an organisation. The auditor will express an opinion of the statements based on compliance and substantive tests (control and detail tests) that are performed. It is a legal requirement for companies to undergo audits by an external auditor (i.e. someone outside the organisation). Internal audits may also be performed by company audit departments to make sure that internal controls are functioning correctly.

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