Auditing

1. Read the following words and word combinations and learn their meanings by heart:

аudit	аудит
auditing	аудит
an auditor	аудитор
an evaluation	оцінка
to appoint	призначати
confidence	впевненість
a presentation	представлення
internal	внутрішній
complete	повний, закінчений
exact	точний
reliable	надійний
a departure	відхід, відхилення, відступ
to judge	судити
fair	справедливий
to approve	затверджувати
to underline	підкреслювати
to link	пов’язувати
a joint-stock company	акціонерний капітал
a running	управління
to run	управляти
to entrust	довіряти
a staff	персонал
an assurance	гарантія
prevention	запобігання
a fraud	шахрайство
an investigation	розслідування, дослідження
an error	помилка, огріх
to err	помилятися

2. Read and translate the following text.

Auditing is closely connected with Accounting. The traditional definition of auditing is a review and an evaluation of financial records by a second set of accountants.

There is another more modern definition. “An audit is the independent examination of, and expression of opinion on, the financial statements of an enterprise by an appointed auditor in compliance with statutory obligation.” (David Choppy).

The main purpose of the audit is to give user of the financial statements confidence that they give a true presentation of the position of the company at a certain date. There are the two types of audit.

An internal audit. It is a control by a company’s own accountants. They check for complete, exact and reliable data. Internal auditors also look for departures from the methods for recording business transactions which are established by a company.

An independent audit is a review of financial statements and records by an accountant not belonging to the company. Such auditors have to judge if the accounts present a true and fair view of the company’s financial position. In the USA they use the term “a fair presentation” which means the same what British term “a true and fair view” means.

Who appoints auditors? Senior executives and advisors of the company do it. Then the candidates are to be approved by the owners of the share capital at the company’s assembly (meeting).

Auditors write an audit report. They also may write a “management letter” to directors. They may underline some weak points and recommend to improve operating procedures.

The creation of the audit function is linked to the growth of the joint-stock company. Shareholders are often not involved in the day-to-day running of a company. They entrust this role to the directors. The directors, in their turn, need to account to the members of the company during each financial period.

The role of the financial statements is to show the way the company was run during this period. Therefore, the report of the auditor is addressed to the members of the company.

The auditor tries to ensure that the accounts give a true picture of the position. To achieve this the auditor needs to go beyond the accounting function within the company.

The auditor often looks at the way in which the other parts of the business work. It is common for the auditor to discuss the activities with the members of staff working in different departments of the company, not only in the accounting or finance departments. The understanding of the business as a whole is very important for auditing.

It is also important to keep in mind such two points.

First, the auditor gives his opinion in the report. The latter gives some level of assurance. But this assurance is never considered to be absolute.

Second, the auditor has no duty relating to the prevention of fraud or other errors.

On the other hand, if the auditor does find any fraud he must make further investigations.

Exercise 1. Find English equivalents of the following words from

the text and memorize them:

оцінка фінансових записів; сучасне визначення; призначений; відповідність; впевненість; внутрішній; точні та надійні дані; відхилення; судити; справедливий; затверджувати; аудиторський звіт; акціонерне товариство; управляти; гарантувати; перевищувати аудиторську функцію; запобігання шахрайства; помилки; подальше дослідження.

Exercise 2. Complete the sentences from the text.

1. Auditing is closely connected with … . 2. The traditional definition of auditing is … . 3. The main purpose of the audit is to give … . 4. An internal audit. It is a control by … . 5. An independent audit is … . 6. Auditors write … . 7. They may underline … and recommend … . 8. The directors, in their turn, need to account to … . 9. The role of the financial statements is to show … . 10. The auditor tries to ensure that … . 11. It is common for the auditor to discuss the activities with … . 12. First, the auditor gives his opinion in … . 13. Second, the auditor has no duty relating to … .

Exercise 3. Answer the questions:

1. What subject is audit closely connected with?

2. Can you give a definition of audit (auditing)?

3. What is the main purpose of auditing?

4. How many types of audit do you know?

5. What is the difference between internal and external auditors?

6. Can you explain the difference between the terms “a fair presentation” and “a true and fair view”?

7. Who appoints auditors”

8. Who approves the candidates?

9. Who writes “a management letter” to directors?

10. Do you see any difference between an audit report and a management letter? If you do, explain it.

11. Are shareholders involved in the day-to-day running of a company?

12. What is the role of the financial statements?

13. What does the auditor tries to ensure?

14. Is it common for the auditor to discuss the activities with the members of the staff?

15. What two points should the auditor keep in mind?

Exercise 4. Speak on the topics:

- auditing;

- the role of the auditor for a company.

Exercise 5. Act out the dialogue on the basis of the following

assignment:

Your friend is interested in auditing. He is going to study it. Speak about auditing.

Text 5

Financial reports

2. Read the following words and word combinations and learn their meanings by heart:

a profit and loss account	рахунок доходів та витрат
a balance sheet	баланс
a computation	обчислення
to charge	стягувати, призначати (ціну)
to deduct	віднімати
a gross profit	валовий прибуток
to consume	споживати
a net profit	чистий прибуток
a solvency	платоспроможність
fixed assets	основні засоби
to retain	утримувати, зберігати
vehicles	транспорт
current assets	обіговий капітал
a stock	основний капітал
current liabilities	поточні зобов’язання
a bank overdraft	перевищення кредиту в банку
long-term liabilities	довгострокові зобов’язання

2. Read and translate the following text.

Financial reports give a picture in monetary terms of the operating of the business. The two primary types of financial reports or statements are the profit and loss account and the balance sheet.

The profit and loss account sets out a summary of business income and expenditure over a period:

Profit = Income – Expenditure (costs)

Income is recorded whenever a sale is made, irrespective of when the cash is received. For example, if a hotel sells £250 of accommodation to a customer in August but does not receive payment until October, the sale of £250 is August income, and the financial records at the end of August will show that the customer is owing the hotel £250.

Costs are incurred in achieving sales (income) but bills may be paid some time later. Expenditure is shown in the profit and loss account according to when the goods or services purchased were used not when they are paid.

For external financial reporting, costs are usually identified as:

- those incurred in bringing the product to its saleable state and location (i.e. cost of sales – cost of goods sold);

- those incurred in the general running of the business (i.e. expenses – such as rent).

The computation of cost of sales follows the principle of charging costs when they are used rather than when payment is made.

All items are valued at buying-in price (cost) and the cost of sales is deducted from sales (the goods sold valued at selling price) to give a gross profit.

The expenses consumed during the period are deducted from the gross profit to give the net profit.

The balance sheet shows what a business owns and what it owes at a given point in time:

resources = claims against these resources (external and internal);

assets = liabilities + capital.

The balance sheet shows where the money in the business has come from and the use to which it is being put. It indicates the strength of solvency of the business as at the balance sheet date.

The fact that the figures in the balance sheet balance confirms the arithmetical accuracy of the bookkeeping process.

Items in any balance sheet fall into one of the five main categories:

1. Fixed assets are assets acquired with the intention of retaining them for use throughout their normal life (for example buildings, vehicles). They are the basic tools which a business owns and uses in its operation.

2. Current assets are assets created or acquired for the purpose of turning them into cash, plus cash itself (for example stock, debtors).

3. Current liabilities are amounts payable by business within one year of the balance sheet date (for example creditors, bank overdraft).

4. Long-term liabilities are amounts due by the business but not payable until after one year from the balance sheet date (for example mortgages).

5. Capital is the money or its equivalent put into the business by the owner(s) and is shown on the balance sheet as owing by the business to the owner(s).

Note:

costs are incurred – затрати, понесені

Exercise 1. Find English equivalents of the following words from

the text and memorize them:

грошові терміни; рахунок доходів та витрат; баланс; сума доходу та витрат за період; незалежно коли готівка отримана; затрати, понесені; обчислення; призначати ціну; віднімати; валовий прибуток; споживати; чистий прибуток; платоспроможність; утримувати основні засоби; транспорт; обіговий капітал; основний капітал; поточні зобов’язання; перевищення кредиту в банку; довгострокові зобов’язання.

Exercise 2. Complete the sentences from the text.

1. Financial reports give a picture in … . 2. The two primary types of financial reports or statements are … . 3. The profit and loss account sets out … . 4. Income is recorded whenever … . 5. Costs are incurred in … . 6. Expenditure is shown in the profit and loss account according to when … . 7. The computation of cost of sales follows the principle of … . 8. The expenses consumed during the period are deducted from … . 9. The balance sheet shows … . 10. The balance sheet shows where the money in the business … . 11. Fixed assets are assets acquired with … . 12. Current assets are assets created or acquired for the purpose of … . 13. Current liabilities are amounts payable by business within … . 14. Long-term liabilities are amounts due by … . 15. Capital is the money or its equivalent put into … .

Exercise 3. Answer the questions:

1. What picture do financial reports give?

2. What are two primary types of financial reports?

3. What does the profit and loss account set out?

4. When is income recorded?

5. How is expenditure shown in the profit and loss account?

6. How are costs usually identified for external financial

reporting?

7. What principle does the computation of cost of sales

follow?

8. What does the balance sheet show?

9. What are fixed assets?

10. What are current assets?

11. What are current liabilities?

12. What are long-term liabilities?

13. What is capital?

Exercise 4. Speak on the topics:

- the profit and loss account;

- the balance sheet.

Exercise 5. Act out the dialogue on the basis of the following

assignment:

Your friend heard about financial reports. He wants to know more about them. Speak about the primary types of financial reports.

Text 6

Fixed assets

1. Read the following words and word combinations and

learn their meanings by heart:

revenue	дохід
disposal	позбавлення (речей)
value	вартість
depreciation	амортизація, знос
consumption	споживання
obsolescence	застарілість
residual value	залишкова вартість
to allocate	розподіляти
initial cost	початкова вартість
to scrap	викидати
nominal ledger	номінальна книга
accumulated depreciation	нарахований знос
to proceed	продовжувати

2. Read and translate the following text.

Fixed assets are bought for long-term use in a business to produce revenue. They are not purchased for resale in the normal course of trade.

There are three stages in accounting for fixed assets: purchase, use, disposal.

Purchase. For a transaction to be analyzed as a purchase of a fixed asset, it must be clear that the item involved will be used over a number of accounting periods (i.e. over its useful life).

Use. Over a period of use, an asset will fall in value. The accounting term for this loss through use is depreciation. Depreciation is defined as “the measure wearing out, consumption or other loss of value of a fixed asset whether arising from use, passing if time or obsolescence through technology and market change”.

The three factors in determining the measurement of depreciation of fixed assets are: cost, expected useful life and residual value.

If an asset cost £100,000 and had a second-hand value after 10 years of £10,000, then the total depreciation of the asset would be £90,000 (i.e. £100,000-£10,000). As the asset is in use for ten years and contributing to earnings over that period, then a satisfactory method must be adopted to match the loss in value through use (depreciation) with the annual earnings. The two main methods of depreciation are: straight-line (this provides for an equal amount to be allocated as depreciation each year over the life of the asset) and reducing balance (the annual/periodic amount for depreciation is calculated by applying fixed percentage to the balance of cost remaining after previous period’s depreciation has been deducted from the initial cost; this allows for a higher charge in the earlier years of use).

At the end of an accounting period/financial year, an adjustment is required to charge depreciation to the profit and loss account.

Disposal. Disposal occurs when a fixed asset is sold or scrapped and at that point in time, the asset must be written out of the books of the business. This is done by opening a “disposal” account in the nominal ledger for the item sold or scrapped and transferring to that account the:

-original cost of the asset;

-accumulated depreciation written-off to date from asset;

- proceeds of disposal.

Note:

to be allocated – який розподіляється

Exercise 1. Find English equivalents of the following words from

the text and memorize them:

основні засоби; виробляти дохід; перепродаж; продаж (позбавлення); вартість; знос (амортизація); вимірювати знос; споживання; застарілість; залишкова вартість; розподіляти; початкова вартість; викидати; номінальна книга; нарахований знос; продовження використання.

Exercise 2. Complete the sentences from the text.

1. Fixed assets are bought for long-term use in ... . 2. There are three stages in accounting for fixed assets: ... . 3. Purchase. For a transaction to be analyzed as a purchase of a fixed asset, it must be clear that ... . 4. Use. Over a period of use, an asset will fall in ... . 5. Depreciation is defined as ... . 6. The three factors in determining the measurement of depreciation of fixed assets are: ... . 7. As the asset is in use for ten years and contributing to earnings over that period, then a satisfactory method must be adopted to ... . 8. The two main methods of depreciation are: ... . 9. At the end of an accounting period/financial year, an adjustment is required to ... . 10. Disposal occurs when a fixed asset is sold or scrapped and at that point in time, the asset must be ... . 11. This is done by opening a “disposal” account in the nominal ledger for the item sold or scrapped and transferring to that account the: ... .

Exercise 3. Answer the questions:

1. What are fixed assets used in a business?

2. What three stages in accounting for fixed assets do you

know?

3. What do you know about purchase of fixed assets?

4. What is depreciation?

5. What are three factors in determining the measurement

of depreciation?

6. What are the two methods of depreciation? How are

they calculated?

7. When does disposal occur?

Exercise 4. Speak on the topics:

- three stages in accounting for fixed assets;

- depreciation.

Exercise 5. Act out the dialogue on the basis of the following

assignment:

Your friend wants to know something about fixed assets. Speak about stages in accounting for fixed assets.

Text 7

Preparation of accounts

1. Read the following words and word combinations and

learn their meanings by heart:

to extract	вилучати
to adjust	пристосовувати
an application	застосування
an assumption	зобов’язання
to underlie	лежати в основі
going concern	праця підприємства
consistency	щільність
to treat	обробляти
prudence	передбачливість
to anticipate	передчувати
inclusion	включення
ultimate	кінцевий
to assess	оцінювати
to assume	приймати

2. Read and translate the following text.

Preparation of financial accounts using the balances extracted from the accounting records involves: the adjusting of balances to incorporate accepted accounting concepts and the application of the accounting policies followed by the business.

Accounting concepts are the broad basic assumptions which underlie the periodic financial accounts of business enterprises:

- the “going concern” concept (the enterprise will continue in business for the foreseeable future);

- the “accruals” concept (revenues and costs are recognised as they are earned or incurred (not as money is received or paid), matched with one another as far as possible and dealt with in the profit and loss account of the period to which they relate);

- the “consistency” concept (like items are treated consistently within each accounting period and from one period to the next);

- the concept of “prudence” (revenue and profits are not anticipated, but are recognised by inclusion in the profit and loss account only when realised in the form either of cash or of other assets, the ultimate cash realisation of which can be assessed with reasonable certainty: provision is made for all known liabilities (expenses and losses) whether the amount of these is known with certainty or is a best estimate in the light of the information available).

These concepts are generally accepted in business accounting; the fact that they have been followed in a particular set of accounts need not be stated, and observance is assumed in the absence of a contrary statement. If the accounts have been prepared on the basis of assumptions which differ from any of the four concepts, however, that fact should be explained.

Accounting bases are the methods which have been developed over the years for applying these concepts to financial transactions and items.

Accounting policies are the specific accounting bases selected and consistently followed by a business enterprise as being appropriate to its circumstances and best suited to present fairly its results and financial position.

Exercise 1. Find English equivalents of the following words from

the text and memorize them:

вилучені з бухгалтерських записів; пристосування балансів; застосування бухгалтерської політики; зобов’язання; лежати в основі; праця підприємства; щільність; передбачливість; передчувати; включення в рахунок; кінцеве отримання готівки; оцінювати; приймати.

Exercise 2. Complete the sentences from the text.

1. Preparation of financial accounts using the balances extracted from the accounting records involves: ... . 2. Accounting concepts are the broad basic assumptions which ... . 3. The “going concern” concept (the enterprise will continue in … 4. The “accruals” concept (revenues and costs are recognised as … . 5. The “consistency” concept (like items are treated consistently within … . 6. The concept of “prudence” (revenue and profits are not anticipated, but are recognised by … . 7. These concepts are generally accepted in business … . 8. Accounting bases are the methods which ... . 9. Accounting policies are the specific accounting bases ... .

Exercise 3. Answer the questions:

1. What does preparation of financial accounts involve?

2. What accounting concepts do you know?

3. What is “going concept”?

4. What is the “accruals concept”?

5. What is the “consistency” concept?

6. What is the concept of “prudence”?

Exercise 4. Speak on the topics:

- accounting concepts for preparation of financial accounts;

- accounting bases and accounting policies.

Exercise 5. Act out the dialogue on the basis of the following

assignment:

Your friend wants to know something about preparation of accounts. Speak about accounting concepts, bases and policies.

Text 8