2. Chaos Theory

1. Before listening Chaos theory… sounds great! And what is it about?

PROMPT:

A mathematical concept that explains that it is possible to get random results from normal equations. The main precept behind this theory is the underlying notion of small occurrences significantly affecting the outcomes of seemingly unrelated events.

Also referred to as "non-linear dynamics".

Investopedia says:

Chaos theory has been applied to many different things, from predicting weather patterns to the stock market. Simply put, chaos theory is an attempt to see and understand the underlying order of complex systems that may appear to be without order at first glance. Related to financial markets, proponents of chaos theory believe that price is the very last thing to change for a stock, bond, or some other security. Price changes can be determined through stringent mathematical equations predicting the following factors: 1) A trader's own personal motives, needs, desires, hopes, fears and beliefs are complex and nonlinear. 2) Volume changes. 3) Acceleration of the changes. 4) Momentum behind the changes. Chaos theory is highly controversial and extremely complicated.

2. After listening Answer the following question:

1. How does the chaos theory influence the financial planning?

2. What other spheres of our life can it influence?

3. Interview with an Auditor

1. Before listening Match the terms used in the interview with the definitions.

1) alleged 2) auditor 3) comply (with) 4) depreciation 5) discrepancy 6) kickback 7) offset 8) outgoing 9) provisions 10) sourcing 11) receivables	a) obey a rule or law
	b) bribe or illegal commission (informal)
	c) stated but unproven
	d) balance two opposite effects
	e) loss in value of a tangible asset
	f) money owed to the business by customers
	g) sb who makes an independent assessment of a company’s financial condition
	h) variation
	i) finding supplies such as components and raw materials
	j) money set aside for a specific reason
	k) soon to leave a position of authority

2. Before listening What is the role of an auditor? Match 1—6 with a)—f) to make a list of auditors’ responsibilities.

1. State that financial statements give… 2. Audit the way… 3. Look closely at big fluctuations… 4. Check that the company values… 5. Make sure that internal accounting processes… 6. Check that the amount for provisions...

a) …on the income statement. b) …comply with government regulations. c) …is reasonable. d) …a true picture of the accounts of the business. e) …the figures are collected. f) …its inventory properly.

3. ҉ When listening Now listen to an interview with Claudia, an auditor. Which one of the above does she not mention?

4. ҉ When listening Read the questions below. Try to remember what Claudia said, then listen again to check.

1. Who do auditors now have to interview?

2. Why might a high price from a supplier be suspicious?

3. What is ‘stock taking’?

4. Why do auditors send out letters to customers to ask them how much money they owe the company?

5. Why might a company want to put some of its profit into ‘provisions’?

6. What does the Big Four consist of?

5. ҉ When listening Listen again and make notes on what Claudia says about the following topics (maximum ten words each). When you finish, discuss the general issues with some colleagues.

• the main change to auditors’ responsibilities since the Enron scandal

• how to pay less tax (two ways)

• her proposals for controlling the ‘big four’

6. ҉ When listening Below are Claudia’s answers to the interviewer’s questions. Fill in the gaps in the sentences.

1. The companies we audit are not _____________________.

2. …we had to state officially that they gave a ________________ of the accounts of the business. …and we have to make an official statement that _____________________ is taking place.

3. … one particular supplier has provided a large amount of ____________________ for a suspiciously high price. … The whole question of _____________________ is important to look at here. …to make sure that there are checks in the system — … seeing and ______________________ all the documents.

4. … a ____________________ will eventually show up as a discrepancy in the income statement. A good example is … how do you _____________________ in the books? You might have a top-line sales figure in the ____________________ for one year that doesn’t correspond to the ____________________.

5. The most useful advice is often to change the structure of the company so that you change its _____________________. … There is a ______________________ for the whole group.

6. One big thing for the balance sheet is how to ___________________. …The question of valuing unsold stock is complex: is it valued at ____________________ or at ____________________?

7. ____________________ get a lot of focus during an audit…

8. A big thing with provisions is that it’s a way to __________________.

7. After listening What does the auditor not do?

- approve P&L account;

- report at the AMS;

- prepare financial forecast;

- consult on investment;

- take stock.