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5.3. Using the information in the text and in the table above, decide if these statements about Paradigm's liabilities are true or false:

1. The creditors item includes debts that will have to be paid in two or three years.

2. Overdrafts are a form of long-term loan.

3. In the coming year, Paradigm will have to pay more tax than it pays out in interest on its loans.

4. Paradigm has borrowed more in the form of bonds than in the form of bank loans.

5. Share capital of £100,000 is the current value of Para-digm's shares on the stock market.

6. Retained earnings is the total of all the dividends that have been paid out to shareholders over the years.

6. ACCOUNTING STANDARDS

Text 6

Read the text and memorize the words and words combina-tions in bold type:

a) Accounting standards

Every company appoints auditors, specialist external ac-countants who audit its accounts. The auditors approve them if they think they give a true and fair view of the company's situa-tion. If not, they specify the qualifications they have about the accounts. If auditors do this, it certainly gets investors worried!

But auditors complain that there may be an expectation gap between what they are required by law to do and what cli-ents and investors sometimes expect them to do — auditors say that they should not be expected to pick up every problem.

Following the scandal of Enron and other corporate col-lapses in the US, investors are increasingly worried about ac-counting irregularities, and they are demanding that auditors should be more strictly regulated — the authorities should su-pervise them more closely.

Regulators — government agencies checking that the law is applied — are demanding more transparency: they say audits should ensure that the company's accounts give a clear picture of its true financial situation.

04

They are particularly concerned with:

auditor rotation: the principle that companies should be obliged to change their auditors regularly

conflict of interests: some say that a company's auditors should not be allowed to do its consultancy work, for example giving tax advice or doing management consultancy.

b) International standards

In the UK, the way accounts are presented is governed by regulators such as the Financial Reporting Council (FRC).

In the US, they have the Generally Accepted Accounting Principles (GAAP), promoted by the Financial Accounting Stand-ards Board (FASB).

People and institutions invest in companies worldwide. Therefore it's important for financial reporting to be in a form that means the same thing to people all over the world. That's why accountants worldwide are moving towards International Financial Reporting Standards (IFRS).

These standards will eventually be accepted by the Interna-tional Organization of Securities Commissions (IOSCO) repre-senting stock markets all over the world, including the all-important Securities and Exchange Commission (SEC) in the US. This will facilitate investment by allowing investors from every continent to understand the accounts of companies, and to trust them, wherever they are based.

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