IV. Answer the following questions

1. What is an accounting policy?

2. What are the accepted methods of valuation and measurements in the world?

3. What are technical rules or conventions?

4. What does the word “consistent” mean?

5. What is depreciation?

6. What does the historical cost principle mean?

V. Match the two parts of the sentences.

Companies’ managers, investors, creditors and the tax authorities all There are different ways of doing accounting but companies have to be consistent Companies have to disclose or make known The historical cost principle is that the price paid to buy assets A going concern usually doesn’t

and not their current value, is recorded in accounts need to know the current market value of its assets need to know about the size of profits or losses which accounting methods they are using which means regularly using the same methods

VI. Are the following statements true or false? Find reasons for your answers in the text

1. Companies are told which accounting policies to use.

2. Companies can change their accounting policies whenever they like , as long as they disclose this in their Annual Report.

3. Companies could produce several profit figures, depending on how they depreciated their assets, valued their inventory, etc.

4. There is only one correct interpretation of a company’s financial position, and company accounts must show this.

5. In a lot of countries, companies do not record the current value of their assets.

6. In countries with high inflation, companies value their assets at their current replacement cost.

VII. Complete the table with words from the text and related forms. Put a stress mark in front of the stressed syllable in each word. The first one has been done for you

Verb	Noun (s)	Adjective
	Calcu`lation	-
-		consistent
-		conventional
measure		-
present		-
		valuable

VIII. Think it over and write a report

Which are the most important accounting standards or rules in our country – GAAP, IFRS, IAS or something else?

IX. Test your English

The following extracts are taken from Notes to the Accounts. Give a more formal word or phrase for the words given in brackets. Choose from the words in the box at the start of each section

adjustments applicable compliance convention stating

Basis of preparation of accounts

The accounts have been prepared under the historic cost (normal practice) (1) convention , as modified by the revaluation of certain fixed assets, in(agreement) (2)________ with the provisions of the Companies Act 1985 and (fitting) (3)_________to UK Accounting Standards. The group accounts are the result of the consolidation of the accounts of the company and its subsidiaries, with appropriate (changes) (4)________.

Rationalization and closure costs

Continued rationalization costs are charged before (giving) (5) __________the trading profit. Closure costs of major sites are treated as an extraordinary item.

arising estimated excess is incurred per annum

Depreciation

Deprecation on the freehold buildings and leaseholds with more than 50 years unexpired is provided on a straight-line basis at 3 % ( each year) (6)______ .

No depreciation is provided on freehold land. Computers and other equipment are depreciated on a straight-line basis over their (guessed) (7) __________ lives of between four and ten years.

Goodwill

Goodwill (existing) (8)__________ on acquisitions, being the (extra) (9)_________of cost over the fair value of the net assets acquired, is charged against reserves in the year of acquisition .

Research and development expenditure

All revenue expenditure is charged against profits in the year in which it (happens) (10) ________.

considered exiting in respect of projected ruling

Foreign currencies

Assets and liabilities in foreign currencies are expressed in sterling at exchange rates (given) (11) ____________at the balance sheet date.

Pensions

Contributions are made to pension schemes to provide for retirement benefits related to (forecast) (12) __________ final salaries in respect of (today’s)(13)__________staff, and for post retirement increases in pensions, and are charged to the profit and loss account as incurred.

Deferred taxation

Deferred taxation arises (for) (14) ____________items where there is a timing

difference between their treatment for accounting purposes and their treatment for taxation purposes. Provisions are made at the appropriate rates for deferred taxation to the extent that it is (thought) (15)______________the liability or asset will arise in the foreseeable future.

Key: 40 Accounting policy