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Minimising risk of insolvency

What impact do accounting rules and regulations have in minimising insolvency in the construction organisation?
© Coventry University. CC BY-NC 4.0 Image © Getty Images

Looking back at Week 1, think about the question we asked:

Why are construction companies often linked with insolvency?

A business becomes insolvent when it is unable to pay its debts on time, or if it doesn’t have sufficient assets to cover its debts. This can happen over a period of weeks, months and years. With accountants and project managers keeping an eye on the performance and cash flow of the business, they can get advance warning of any impending problems, taking steps to tackle potential issues.

A business account shows how money is spent and earned in the form of financial statements. These statements give investors key information, enabling them to make informed decisions about whether or not to invest, giving them details of the debt the company carries and the income the business generates.

Without accounting rules and regulations, it would be difficult to present and interpret the financial information of a business effectively. Accounting rules are essentially guidelines that an accountant should follow when recording and reporting accounting transactions.

The accountant is looked upon to provide analysis of assets, financial stability, financial performance, record-keeping and more, of a business. To provide accurate and reliable information, the accountant requires rules and regulations on how to report information.

Thorough knowledge of accounting rules and regulations helps to understand what accountants do and why they do it.

© Coventry University. CC BY-NC 4.0 Image © Getty Images
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An Introduction to Financial Management in Construction

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