GIÁO TRÌNH CHÍNH THỨC E4FA 2019 CANTHO UNIVERSITY SCHOOL OF ECONOMICS ENGLISH FOR FINANCE AND ACCOUNTING CANTHO 2021 (For internal circulation only) 1 CONTENTS Accounting and Finance in A Changing Wo.
International Financial Reporting Standards 7
This unit looks at the set of international accounting and reporting rules which is being adopted by a large number of countries
1 Has your country adopted the International Financial Reporting Standards, or is it in the process of doing so? Briefly describe the main aim of this set of standards
Transitioning to the new set of standards can be a complex process for companies, often presenting various challenges Many organizations may struggle with understanding the new requirements, leading to potential compliance issues Additionally, the need for employee training and adjustments in operational procedures can create further difficulties Companies may also face resistance to change from staff or stakeholders, complicating the implementation process Overall, while the transition is essential for aligning with updated regulations, it can be fraught with obstacles that require careful management and strategic planning.
To determine the accuracy of the statements provided, read the article on the opposite page carefully Mark each statement as true (T) or false (F) For any statements marked false, provide the correct information and specify the section of the article that contains this information This will ensure a comprehensive understanding of the content and enhance your critical reading skills.
1 The European changeover to International Financial Reporting Standards went as expected
2 CEOs need to fully understand how these accounting and reporting changes could affect the way their financial results look to outsiders
3 The changeover to IFRS only involved changing a few numbers in the accounts of the companies concerned
4 Once companies had understood which accounting policies they had to change, the major problems were over
5 The changeover experience was the same for each of the companies involved
6 Many European countries' old reporting standards had been designed mainly with their respective tax authorities in mind
Read the article again and answer these questions
1 There is a pun in the title Can you explain it?
2 Which expression describes a negative effect on the final accounting report which can occur if a company does not make the necessary changes throughout the whole organisation?
3 How did senior executives at Tomkins have to handle these changes in terms of the outside world?
4 Shortly after the changeover to IFRS, what evidence was there that analysts and investors might not have fully understood the new method of reporting and reacted negatively?
5 Find the phrase in paragraph E which shows that the changes had simply been regarded as a minor technical accounting change
6 Who was the new reporting system aimed at?
7 In Europe, which type of company generally found the changeover process more difficult?
Find words or phrases in the article which fit these meanings
The highest-ranking manager responsible for the daily operations of a company is the Chief Executive Officer (CEO) Individuals tasked with maintaining official financial records for all transactions within a business are known as bookkeepers The person overseeing the external financial reporting of a company is referred to as the Director of External Reporting.
3 the documents that are produced for investors at the end of the accounting process (paragraph C) a r … a … b f f s …
4 a synonym for the 'main methods of accounting' (paragraph C): k a … p
5 things which do not 'fit' in a company's accounts (paragraph C): a …
6 rules which force companies to publish a specific piece of information in their accounts (paragraph D): d r…
7 companies can get extra funds by selling shares here (paragraph G): c m
Complete the chart with different words and expressions to describe change
Use words and phrases from Exercises A and B to complete these sentences
1 The ……… to the new set of accounting rules by many European companies was much more complicated than they originally thought it would be
2 Companies had to assess how they would have to ……… their accounting and reporting processes
3 They had to start by adjusting their ………
4 The ……… of ……… has responsibility for how the company presents its accounts to the public
5 The public will use the ……… to get a picture of the company's financial performance
6 Companies need to fulfill all of the ……… in their reported accounts in order to comply with IFRS
7 They must be careful not to publish any ……… in their accounts
Changing over to IFRS involves several critical steps First, organizations must adjust their accounting practices to align with the new standards It is essential to alter existing financial reporting processes and educate staff about the implications of IFRS Preparing comprehensive training programs will help ensure that employees understand the changes required Additionally, companies should keep up to date with ongoing developments in IFRS to maintain compliance Finally, organizations need to produce accurate financial statements that reflect these adjustments and retrain their teams as necessary to adapt to the new framework.
2 the impact of IFRS on the view of the company's performance from the outside world
Directors of External Reporting have to
7 the new style of accounts
8 the market about the new style of reporting
9 analysts and investors for any significant changes
Choose the best explanation for each phrase from the article
1 ‘ has forced many Chief Executive Officers to roll up their sleeves.’ (lines 13-15) a start fighting b work very hard
2 ‘ when they have reached the first milestone .’ (lines 15-16) a put in place the main parts of the new reporting system b experienced their first problems with the new reporting system
3 ‘ but that is, in fact, a big deal .’ (lines 60-61) a very significant b a big business contract
4 ‘ the extent of the change depends on the complexity of the company.’(lines 66-
1 Go to www.IASB.co.uk for an update on accounting standards changes around the world Discuss how they might affect your country
2 Make a list of the advantages to companies around the world of sharing a common set of accounting and reporting standards
3 Go to www.IFRS.co.uk for further information on the process of changeover to IFRS and how it has affected companies involved Give a short presentation about a
A Listen to the conversation between the Managing Director (Charles) and the Financial Director (Sally) Answer these questions (TRACK 3 + 4)
1 Do Charles and Sally agree that their company has a debt problem?
2 What are the consequences of the debt problem?
3 Why do they need a solution to the problem soon?
4 How does Charles suggest they deal with it?
5 Has Charles made a final decision about what to do?
6 Do we know whether Sally agrees with Charles’s suggestion?
B Fill in the gaps in the extracts from the conversation (TRACK 3 + 4)
Charles is experiencing growing anxiety, and the market is reacting negatively to our current level of uncertainty We are increasingly receiving inquiries regarding our ability to manage our debt sustainably in the long term.
Attracting new customers is increasingly challenging, prompting us to explore effective strategies We are making a significant investment in our new factory in Germany, which underscores the urgency of finding a solution promptly The establishment of this factory is crucial for our growth, and we are considering leasing the necessary equipment to enhance our operations.
Sally You’re thinking that if we lease the assets, we can exclude these (8)
Auditors will scrutinize these transactions closely, highlighting the importance of proper accounting practices Finance leases must be disclosed, as they indicate that we effectively own these assets, leaving us with no choice in the matter.
Annual Financial Statements 12
This unit looks at a consolidated income (profit-and-loss) statement and balance sheet of HSBC Holdings PLC
1 What are the main items on a bank's a) income statement, b) balance sheet?
2 What do the bank's shareholders mainly look for when reading them?
Review HSBC's 2007 and 2008 income statements to determine the accuracy of the provided statements, marking them as true (T) or false (F) For any false statements, correct them and reference the specific line(s) that support your conclusions.
1 In 2008, the total operating income increased slightly on the previous year
2 Interest expenses fell by a larger amount than the fall in interest from savers' accounts, so the net figure actually went up on the previous year
3 Trading income rose significantly on the previous year
4 Employee salaries and bonuses are deducted from the operating profit
5 The banking group sold off some German regional banks in 2008,
6 The bank's tax bill in 2008 was lower than in the previous year
7 Earnings per share were significantly reduced on the previous year
Match these words and phrases from the income statement (1-6) with their meanings (a-f)
Operating expenses refer to the costs associated with a company's regular activities of providing goods or services These expenses are crucial for understanding a company's profitability, as they impact the profit generated from normal operations before tax deductions Additionally, operating expenses do not include exceptional items and are essential for calculating the earnings distributed to shareholders for each share they own Moreover, they reflect the company's overall value, which can extend beyond tangible assets to include intangible factors like customer reputation.
Evaluate the balance sheet provided and determine the accuracy of the statements as true (T) or false (F) For any false statements, please correct them and reference the specific line(s) that support your conclusion.
1 The bank more than doubled its cash deposits in 2008
2 Customers had more money in savings than in the previous year
3 The bank lent a lot more money to customers and other banks compared to the previous year
4 The bank's derivatives increased dramatically in 2008
5 The bank's pension liabilities went up significantly in 2008
6 Shareholders' equity grew significantly on the previous year
7 The value of the bank's intangible assets decreased in 2008
8 The bank's balance sheet grew in 2008 However, the bank's ‘other reserves’ ended the year as a negative figure
Find words in the balance sheet which fit these meanings
1 things which belong to a business which have the value or power to create money, such as machinery: a
2 amounts of money owed by a business to a supplier or lender: l
3 money which is lent or borrowed: l
4 money set aside for a future expense (such as debts which a company's customers fail to pay): p
5 shares which have been issued and for which the company is demanding payment: c -u s c
6 the capital that a company has from shares rather than from loans: e
7 less than half a company's shares, or fewer shares than the largest shareholder: m i
8 the part of a company's profits from previous years which have not been paid to investors: r
In 2008, HSBC Holdings PLC experienced a decline in profitability compared to 2007, largely due to the economic and banking crisis; however, other British banking groups faced even harsher consequences Notably, banks such as Royal Bank of Scotland (RBS) and Lloyds Banking Group were among the hardest hit, with RBS requiring a significant government bailout after reporting substantial losses Additionally, Northern Rock struggled severely, leading to its nationalization Overall, while HSBC weathered the storm relatively better, the crisis profoundly impacted several key players in the British banking sector.
2 Write an email to invite your business guest to an AGM of your company (Page 54)
A Choose the best way to say these numbers and equations (Sometimes more than one way is possible.)
1 23.56 a twenty-three comma fifty-six b twenty-three point fifty-six c twenty-three point five six d two three point five six
2 10,001 a one thousand and one b ten thousand one c ten thousand and one d one triple oh one
3 £63.30 a sixty-three pound and thirty pence b sixty-three pounds and thirty pence c sixty-three pounds and thirteen pence d sixty-three pounds thirty
The number 5,400,342 can be expressed in words as five million, four hundred thousand, three hundred and forty-two.
The correct way to express the amount of €45,638 in words is "forty-five thousand, six hundred and thirty-eight euro." Other variations, such as "forty-five thousand, six hundred and eighty-three euro," "forty-five thousand, six hundred and three eight euro," and "forty-five, sixty-three, eight euro," are incorrect and should be avoided for clarity and accuracy.
6 1999 a nineteen ninety-nine b nineteen hundred ninety-nine c nineteen nine nine d one nine nine nine
7 2003 a two thousand three b two double oh three c two thousand and three d twenty oh three
Now listen and check your answers (TRACK 5)
B Write definitions for the following terms
Now listen to an accountant explaining ratio analysis to some managers in her company and check your answers (TRACK 6)
C Listen to what these people say about financial statements and fill in the gaps (TRACK 7)
Financial statements are crucial documents produced by a company, as they are reviewed by investors, banks, and customers alike These accounts provide insights into a company's financial health, demonstrating how effectively it manages its money and its level of risk Additionally, they can reveal potential warning signs for the future The success of our financial planning relies on accurately prepared accounts.
Trader: I agree that the accounts of the companies have a lot of information, but it’s very hard to understand it all In my job, I need to know the (4) ………
……… of a company People interested in stock exchanges (5) ………
……… experts like me But there are also many other (6) ……… of information As for the accounting rules, they don’t interest me, or anyone else, at all That’s (7) ……… for the accountants
Investor: All those numbers, and I haven’t (8) ………
Understanding financial statements can be challenging, as they often consist of numerous estimates and can be interpreted in various ways This raises the question of what to do when accountants disagree on how to present the figures To make informed decisions, most individuals require a deeper understanding of a company's financial health beyond what is provided in standard accounts.
Layman: Is it all ready that hard? Can’t we look at the profit or loss of the company to (12) ……… ……… how it’s doing? I don’t see all the (13)
Accountants are responsible for analyzing and reporting financial data, making it seem straightforward to summarize all financial activities.
The Managing Director acknowledges the issue at hand, noting that there are various methods to manipulate figures for a more favorable outcome Some colleagues have been known to engage in such practices, highlighting the need for accountants and auditors to maintain integrity in their reporting.
……… ……… for the way that numbers are reported Accountants and their work are extremely important, they just need to make it all a little easier to understand
Which comments do you agree with? How would you respond to the people you don’t agree with?
Accounting for Banks 18
This unit looks at how an accounting standard for European banks was changed in 2008 in response to the global banking crisis
1 What sort of problems can arise if the amount of money that banks are allowed to lend to their private and business customers suddenly becomes restricted?
2 Briefly describe the crisis in the international banking system which began in 2007
Read the article on the opposite page and say whether these statements are true (T) or false (F) Identify the part of the article that gives this information
1 The European banks changed the way they valued certain types of asset in late 2008
2 In Sir David Tweedie's opinion, this weakened banking accounting practices
3 He said that the overruling of the IASB by politicians posed no particular threat to the gradual move towards a global set of accounting rules
4 The change had the effect of increasing the book valuation of certain bank assets
5 European banks originally used the amortised cost system of accounting to value their assets
6 These changes came about after a sharp upturn in the economy
7 In Sir David Tweedie's opinion, a change in the way regulators calculated a bank's lending ability would have been better than a change in banking accounting and reporting practice
Read the article again and answer these questions
1 Which institution was Sir David Tweedie representing?
2 Which institution imposed the new accounting rules?
3 In one week alone, by how much were the troubled European banks able to increase their asset values?
4 In that week, how much in losses did they save?
5 Which country's regulators had been moving closer to using the IASB accounting rules before the change?
6 What did the new amortised cost valuation rules require banks to do?
7 What was the banks' criticism of the old rules?
C How the text is organized
What do these words refer to in the article?
Match these accounting terms (1-2) with their meanings (a-b) Then match them with the correct charts (i-ii)
Amortised cost asset valuation disregards an asset's market value at any given moment, assuming a steady increase in value throughout its lifespan Instead, the valuation focuses on the potential monetary return that could be realized if the asset were sold at that specific time.
Find words or phrases in the article which mean the same as these words and phrases
5 cash and easily liquidated assets that a bank must hold to satisfy stock-exchange regulations (paragraph H) c n
Find words or phrases in the article which have the opposite meaning to these words
1 improved (paragraph A) 5 to keep secret (paragraph E) d to d
2 healthy (paragraph B) 6 to mark up (paragraph E) t to w d
3 market stability (paragraph C) 7 rose sharply (paragraph E) m v p
4 increased market value (paragraph C) 8 an upturn (paragraph G) r m v a d
Use words and phrases from Exercises A-C in the correct form to complete these sentences
1 The banks prefer the ……… method to the fair-value method of accounting for certain assets
2 ……… monitor the banks to make sure that they have enough capital to lend money to customers
3 The banks' problems emerged as international stock markets started to
4 The amortised cost accounting system is considered to be particularly useful during a period of ………
5 The specific amount of capital a bank must hold in order to lend a specific amount to customers is known as its ………
6 Under the old system of accounting, banks were forced to ……… their assets by very large amounts if asset prices fell
Choose the best explanation for each phrase from the article
1 ‘ relaxing of fair-value accounting’ (article title) a making stricter b making easier
2 ‘ over the lifetime of the financial instrument.’ (lines 25-26) a an investment such as a bond or share b an order to buy shares
3 ‘ a move that would effectively "cement" the use .' (lines 36-37) a stick b formalise
4 ‘ in order to create a level playing field for the international banking sector .' (lines 40-41) a a situation where the conditions are equal for everyone b a reduction in the volatility of the market
5 ‘ forced regulators and executives to face the problems head on .' (lines 52-54) a ignore the problems b deal with the problems openly
6 ‘ that fair-value accounting was pro-cyclical .' (lines 65-66) a followed the economic cycle b moved in the opposite direction to the economic cycle
7 ‘ by giving in to political pressure .' (lines 85-86) a doing something due to political pressure b putting political pressure on someone
8 ‘ the IASB had permanently damaged its credibility.' (lines 88-89) a the extent to which someone can be believed or trusted b the amount of credit someone is allowed to have
In light of recent global economic crises, the question arises whether politicians should have the authority to abruptly alter accounting rules established by the International Accounting Standards Board (IASB), the leading global accounting standard-setting entity This intervention raises concerns about the integrity and credibility of the IASB, as such changes may undermine the consistency and reliability of financial reporting The episode highlights the delicate balance between political influence and the independence of accounting standards, suggesting that any sudden modifications could potentially damage the trust stakeholders place in these standards Ultimately, maintaining the IASB's credibility is essential for ensuring transparent and accountable financial practices worldwide.
2 Do an Internet search to research further developments in the banking accounting rules or any subsequent banking and accounting crises
A A manager has asked his accountant to explain depreciation Listen and answer the questions (TRACK 8)
1 What happens to fixed assets?
2 How do accountants do this?
3 What are the five methods of depreciation the accountant mentions? a s……… l……… b d……… b……… c s………-of-the-y………-d……… d u……… of p……… e h……… of u………
B Now look at the accountant’s list of definitions Match them to the methods of depreciation she mentioned above
The asset undergoes straight-line depreciation, where a fixed amount is deducted annually To determine the annual depreciation expense, the salvage value is subtracted from the acquisition cost, and the resulting figure is divided by the asset's useful life.
Depreciation expense is determined by subtracting the salvage value from the acquisition cost, and then multiplying the difference by a fractional amount derived from the total of the asset's useful life figures.
The accelerated depreciation method results in higher expense deductions in the initial years of an asset's life While the salvage value is not considered in the depreciation calculations, it ensures that the asset's value will not fall below this predetermined amount.
4 _: The expected usage of the asset is taken into account in determining the rate of depreciation
C An accountant explains the taxation expenses disclosure requirement to a CEO Listen to the dialogue and answer the questions (TRACK 9)
1 How does the accountant calculate the profit before tax figure?
2 Why is the taxation amount only an estimate?
3 Do they file the interim tax return?
Taxation expense is determined by subtracting tax deductions from the total revenue This calculation provides us with an estimate that we utilize to prepare financial statements We require this estimate to justify our tax obligations In cases where there is a discrepancy between profit before tax and taxable income, we must address the differences accordingly.
D Listen to the following conversation and take notes all expressions used to ask for clarification (TRACK 10)
Uta Meier, an accountant from a Swiss parent company, contacts the U.S Internal Revenue Service (IRS) to clarify the treatment of specific costs The discussion ultimately provides her with the necessary guidance on how to appropriately categorize these expenses for compliance with U.S tax regulations.
Listen again and take notes all phrases and expressions called ‘polite language’ used to soften their statements.
Overseas Investment 24
This unit looks at corporate investment into and out of China.
1 Why are global companies keen to expand to China? Do you know any companies that have opened subsidiaries in China? Which industrial sectors do they operate in?
2 Make a list of reasons why Chinese companies might be keen to invest in Western companies
Read the article on the opposite page and answer these questions
1 Over the past few years, which three main factors have driven the increase in global corporate investment in China?
2 Which industrial sectors have been particularly open to outside investors?
3 More recently in China, which type of investment has become more common - inward or outward?
4 What are the three main things that China has acquired through overseas mergers and acquisitions?
5 What sort of difficulties has China sometimes encountered in its attempts to buy up overseas companies?
6 Which global business sector is most likely to benefit from investment opportunities in China in the near future?
7 In this article, what do the terms inbound, outbound and domestic refer to?
Read the article again and say whether these statements are true (T) or false (F) Correct the false ones Identify the part of the article that gives this information
1 The next major wave of Chinese mergers and acquisition activity will be internal
2 Many Chinese retail firms are too small to be interesting to overseas firms, from an investment perspective
3 China has tried to control its manufacturing costs through outbound acquisition
4 China's overseas investment will only be made by state-funded firms in the future
5 Overseas investment by Chinese firms is likely to involve moving production sites to China in order to reduce costs
6 China is low on financial reserves
7 A few years ago, Chinese banks had very little spare cash
8 Overseas banks have provided China with risk-management expertise in the past
C How the text is organized
What do these words refer to in the article?
Ina: • erate rus or t e entrance by Rod Newing
A Corporate financiers are viewing China as one of the next big investment opportunities Over the past few years, regulatory reform, economic growth
The opening of China, particularly after its entry into the World Trade Organization, has created new opportunities for foreign investors, especially in the financial services sector.
10 a key arena for global investment banks, keen to advise dynamic Chinese companies on mainland expansion opportunities
B A few years ago , regulatory barriers
15 to foreign investment started to
II How the text is organised come down in sectors such as chemi- cals and automotive parts Thi s led to so me inbound mergers and acquisitions (M&A) activity by
C More recently, however, the invest- ment banking trend started to focus on advising Chinese companies on their overseas mergers and acquisitions
25 strategy rather than on helping foreign companies do inbound M&A deals There are a number of reasons for this
D Firstly, many privately owned Chi-
Thirty Nese companies are led by young entrepreneurs committed to maintaining independence from foreign investors These innovators are confident in their ability to grow their businesses over the coming years, particularly in specific sectors.
35 such as retail , existing Chinese companies are generally very small scale This tends to make them less attractive to large foreign multination- als, who prefer to grow their Chinese
E The size and type of outbound M&A deals in those years increased dramati- cally China needed to sustain its breakneck economic growth, so it
China has made significant investments in overseas iron ore, steel, and coal mines, recognizing the strategic importance of foreign acquisitions in various sectors These investments are aimed at gaining access to essential skills and resources that can bolster China's economic growth and enhance its global competitiveness.
50 drive reform across many of its state organisations
F In the future , private Chinese com- panies are likely to go for global brands, relocating production to lower-
55 cost mainland factories, as Lenovo did in 2004 when it acquired IBM's personal computing business Outbound M&A does face its own challenges,
What do these words refer to in the article?
6 it (line 91) however In June 2005, for example,
60 an $18.5bn hostile bid for Unocal of the US by CNOOC, the state-backed energy giant, failed due to national security concerns in Washington
G Today, China has a high level of
Chinese lenders now possess significant liquidity, enabling them to be selective about their clients and the sectors they engage with This contrasts sharply with several years ago when many of these financial institutions faced severe financial difficulties.
70 Beijing permitted foreign investors to spend a combined $20bn to acquire stakes in domestic lenders in return for help to improve risk management More recently, , it rejected
75 investment offers from a US equity fund and signalled that it was more interested in the banking sector, which offers skills desperately needed by Chinese banks
H David Chin, a managing director of UBS 's investment bank, says: ' Foreign investors want to buy stakes in Chinese lenders, while Chinese banks want to expand with overseas acquisitions.'
85 Foreign investment banks are seeking to acquire stakes in domestic securities firms, in order to be able to underwrite and trade local stocks
I What next? The Chinese M&A mar-
90 ket has entered a new stage At first, it was mainly inbound, while outbound activity started to gather pace a few years afterwards Now, domestic M&A has woken up Aud the global
95 investment banking community is ready for it
Match these words from the article (1-6) with their meanings (a-f)
1 broke a without buying other businesses
Match these words to make word partnerships from the article
Find words and phrases in the article which fit these meanings
1 an entity that advises companies on how they can grow by joining with, or buying other companies (paragraph A): an i… b
2 when one company joins with another company to create a larger company (paragraph B): a m…
3 when one company buys another company or part of another company (paragraph B): an a
4 when a foreign company buys a company in your country (paragraph B): an i… acquisition
5 somebody who has set up and runs their own company (paragraph D): an e
6 when a company in your country takes over a company in a foreign country (paragraph E): an o … acquisition
Use words and phrases from Exercises A-C to complete these sentences
1 China has become very active in the area of ……… and
……… in the last few years
2 China is keen to acquire ……… It can reduce costs by moving their manufacturing sites to China
3 ……… are excited about their future prospects in China
5 ……… has resulted in a gradual reduction in regulatory barriers to inward investment into China
6 This has allowed the amount of ……… in China to grow over the last decade
7 Some Chinese companies are too small ……… to be interesting acquisition targets for large foreign multinationals
8 These days, Chinese banks have plenty of money, but a few years ago, many of them were nearly ………
9 Unocal in the USA was the subject of an unsuccessful ……… in
Complete these phrases using the prepositions in the box for in in on out to to up
1 to open fresh areas overseas investors
2 to invest heavily overseas iron ore, steel and coal mines
3 to relocate production lower-cost mainland factories
4 to advise Chinese companies their overseas mergers and acquisitions
5 to acquire stakes domestic lenders
1 Do an Internet search to find out about companies which have expanded to China or been completely or partially taken over by a Chinese firm Write a short summary
2 Some multinational companies have opened subsidiaries in China through joint ventures with Chinese companies Write a short report on the potential advantages and disadvantages of doing this
3 Write an investment plan (Page 54)
A A U.S firm is thinking of investing in a European company and you are advising them They have some questions to ask the owners Can you think of three more questions?
1 What is the proportion of debt to equity in the business?
2 At what rate have they depreciated the plant?
B The management team is discussing the investment Listen and list the factors each speaker mentions (TRACK 12)
ANNE 1 Better to invest in an existing business
In a discussion on international accounting practices, the CFO of a European corporation highlights several key differences: first, the taxation system, followed by the treatment of goodwill, then leased products, and next, inventory management He also addresses the handling of financial instruments and concludes with insights on income statements.
D You are going to hear two extracts from a presentation Listen to the first part and answer the questions below (TRACK 14)
1 What do you think the speaker’s job is?
2 What is she talking about?
3 How does she hope to help her audience?
4 How has she divided her talk?
E Now listen to part 2 and fill in the extracts from the presentation (TRACK 15)
1 ‘ has been a for many years now.’
2 ‘All of us have been involved in, or seen, companies across and we have seen some collapse.’
My research indicates that a primary reason for these collapses is the neglect of the crucial cultural factors that impact team members operating in an intercultural environment.
4 ‘I hope my presentation has made you aware of some of the factors which the ability of people from different to work together.’
Project Finance 29
This unit looks at how large projects are financed and the role of the World Bank
1 How are large projects, such as the construction of roads or bridges, usually financed?
2 What role does the World Bank play in project financing?
Read the article and say whether these statements are true (T) or false (F) Correct the false ones Identify the part of the article that gives this information
1 If AES builds the new dam at Bujagali Falls, the country’s power supply will increase to 250 MW
2 Currently, economic growth in Uganda is restricted by inadequate power supplies
3 Foreign investors are worried about Uganda going to war with its neighbours
4 Norpak Power is a company which favours a Norwegian Hydroelectric scheme
5 The Norwegian project would be smaller and less expensive than the American one
6 It is expected that both projects will go ahead
1 The bridging loan for this project will amount to €68.8m
2 Construction of the new motorway cannot start until financing for the whole project has been found
3 Domestic banks are leading the consortium that will provide bridging finance
4 The rate for the syndicated loan is above the London interbank rate
5 There have been problems persuading banks to lend to central Europe in the past
Read the article again and answer these questions
1 In which project is a state-owned company involved in the construction?
2 Which project will help to promote tourism?
3 Which project is going to receive an environmental assessment?
4 In which project will the World Bank … a provide finance? b analyse the situation and prepare a report?
Match these terms (1-6) with their definitions (a-f)
LIBOR, or the London Interbank Offered Rate, serves as a crucial benchmark in the financial industry It reflects the interest rate at which banks lend to one another in the interbank market, often used as a base rate for various loans Short-term loans from banks help cover the gap between immediate funding needs and the availability of other financial resources Additionally, LIBOR plays a role in large-scale financial arrangements, including loans for significant projects that bolster developing economies, such as infrastructure initiatives It also encompasses the collaborative efforts of multiple international companies formed for specific purposes within a limited timeframe, as well as loans facilitated by a lead bank with participation from other financial institutions to support large organizations or governments.
Replace the underlined items with words and phrases from the texts that have similar meanings
1 With the new dam, the country’s power supply will be twice as much (Text A, paragraph 1)
2 A study referred to power shortages as the main reason for slow economic growth (Text A, paragraph 3)
3 The press made negative comments about the AES project, saying that it would damage the environment (Text A, paragraph 5)
4 There will be an evaluation of the environment impact of the project (Text A, paragraph 7)
5 Estimates that there were at the start of the analysis suggest that only one project can be supported (Text A, paragraph 7)
6 Organisations that could be interested in financing the project are waiting for the World Bank’s report (Text A, paragraph 8)
7 The new road will help promote an upturn in the tourism industry (Text B, paragraph 3)
8 The loan will be provided for a maximum of twelve months (Text B, paragraph 6)
9 Investors are showing greater willingness to invest in central Europe (Text B, paragraph 6)
This word is used in both texts What or who suffered in each case? What did they suffer from?
Notice the use of demand in these sentences: a The hydroelectric dam generates only 180MW, 100MW below demand b The World Bank is preparing an analysis of price and future demand
Which of these four possible meanings of demand is meant in these sentences?
3 the amount of a commodity that consumers want to buy
4 the willingness of consumers to purchase goods or services
Choose the best explanation for each of these words and phrases from the text
1 severe power shortages (Text A, line 13) a lack of electric power which is very serious for the country b lack of electric power which doesn’t cause serious problems
2 impediment to investment (Text A, line 16) a something that stops people waiting to invest b something that encourages people to invest
3 current energy source (Text A, line 20) a electrical energy source b existing energy source
4 ambitious (Text B, line 4) a something that people think can’t be done b something that requires a special effort
5 accelerating (Text B, line 17) a speeding up b causing
A facility that is proposed by a Norwegian company is Norwegian-proposed
A company that is based in Uganda is Uganda-based
Produce similar compounds for these ideas:
1 a company that is owned by the state
2 a project that is funded by the government
3 a programme that is backed by the Swiss
4 a company that is registered in Australia
5 a syndicated loan led by German banks
6 If a loan of four years is a medium-term loan, what would you call a loan for 12 years?
As a potential investor, I believe Project A presents a more promising investment opportunity due to its robust market analysis and innovative approach The project demonstrates a clear understanding of current industry trends and consumer demands, which positions it for sustainable growth Additionally, Project A has a well-defined business model and a strong management team, ensuring effective execution and risk mitigation In contrast, Project B lacks a comprehensive strategy and shows potential vulnerabilities that could hinder its success Therefore, I recommend investing in Project A for its higher potential returns and stability in the market.
As a banker at Deutsche Bank, I’d like to discuss the benefits of a syndicated loan for the Croatian project, which presents an excellent opportunity for smaller banks to partner with us A syndicated loan involves multiple lenders pooling resources to provide a single borrower with a substantial loan amount, thereby spreading the risk among all participating banks This collaborative approach not only enhances the financing capacity for the Croatian project but also allows smaller banks to gain exposure to larger-scale investments while benefiting from our expertise and established relationships in the market By joining this syndicate, your bank can participate in a lucrative venture with reduced risk and increased potential for returns.
3 Either orally or in writing, describe a project in your own country which has attracted foreign investment
4 What are some of the problems faced by financiers who invest in large projects in developing countries?
Investment Credit Rating 34
This unit looks at the role of the corporate credit-rating agencies in the global economic crisis, which started in 2007
1 If you wanted to borrow money, what would the lenders do to assure themselves that you would be able to pay it back in the future?
2 If you were going to make an investment in a company or financial product, how would you check whether your investment would be safe?
Read the article and say whether these statements are true (T) or false (F) Correct the false ones Identify the part of the article that gives this information
1 At the time of its failure, Northern Rock was a building society
2 It provided money for borrowers to buy homes and property
3 It suddenly experienced financing problems and had to ask the Bank of England for help
4 Northern Rock's customers feared they would lose their savings and started taking them out of the bank quickly
5 The UK government blamed only Northern Rock for this crisis
6 Corporate credit agencies advise investors on the riskiness of companies and investment products
7 Standard & Poor credit-rating agency admitted that it had never warned the investor community of the danger of these 'securitisation' products
Read the article again and answer these questions
1 Over which period did Northern Rock increase in size very quickly?
2 Which particular financial problem made it difficult for Northern Rock to find money to finance its lending activities?
3 Which three credit-rating agencies dominated the world market at that time?
4 Which rating do they give to the safest investments?
5 Which rating do they give to the riskiest investments?
6 Who pays the credit agencies for their work?
7 What was Jean-Claude Trichet's opinion about the number of credit agencies in the market?
8 Which organisation decided to investigate and improve the credit-agency sector?
A The Northern Rock Building Society converted into a public limited company in 1997
In the next decade, Northern Rock Bank emerged as one of the UK's largest mortgage lenders, utilizing a securitisation strategy that involved repackaging the majority of its originated loans into securities for sale to institutional investors.
In 2007, the US subprime crisis impacted Europe, leading to a shortage of financing Consequently, the bank had to seek emergency funds from the Bank of England Upon learning about this financial assistance, customers reacted by withdrawing their savings, resulting in the first bank run in Britain in approximately 140 years.
Rating the credit agencies by Elaine Moore
In response to the 2007 Northern Rock crisis, the UK Parliamentary Treasury Committee delivered a strong condemnation, with one member stating, "You all failed," highlighting the shortcomings of credit-rating agencies in their oversight.
Admittedly, with predictions for a global econorruc slowdown, politicians were keen to find scapegoats So banks, central banks and regulators aJl faced
10 criticism for their fajlure to foresee the consequences of the US subprime mortgage lending crisis
D One group in particular was heavily criticised The Treasury Comrruttee
15 interrogated representatives of the three largest credit-rating agencies :
20 assess the creditworthiness of bonds and bond issuers They assign different grades to corporate bonds, using their own grading system The highest- ranked 'investment-grade' bonds are
In the bond market, ratings range from triple-A, indicating the highest quality, to C or D, signifying 'junk bond' status for the lowest-rated securities These ratings are crucial for fund managers and investors, as they provide essential insights for making informed investment decisions.
30 to assess the potential return on investment
F Unfortunately, the agencies had given many assets securitised with subprime mortgages triple-A ratings
The global credit squeeze raised serious doubts about the credibility of top-rated assets, prompting questions about whether these investments should have received such high ratings and if investors were adequately warned about the associated risks.
40 earlier? They were accused of reacting too slowly to changing situations and of facing a conflict of interest because they earned a fee from the issuers whose securities they rated
G In 2007, the US Securities and Exchange Commission (SEC) listed seven credit-rating agencies as nation- ally recognised statistical rating organisations Two of these, Japan
50 Credit Rating Agency and Rating and Investment Information , were new additions in June
H However, the much larger S&P, Moody's and Fitch still dominated the
55 market This led Jean-Claude Trichet, the President of the European Central Bank, to complain about the lack of choice between global credit-rating agencies So European Union market
00 watchdogs started questioning the rating agencies about their role in the subprime mortgage crisis , and the International Organisation of Securities Comrrussions (IOSCO), representing
65 more than 100 securities regulators, set up a taskforce to improve their regulation
I In their own defence, the rating agencies maintained that their job
The primary purpose of the ratings provided by 70 is to assess the likelihood of a company defaulting on its debt repayments, rather than evaluating its market performance Furthermore, they emphasized that their ratings should not be utilized for any other purposes.
75 as the sole reason for an investment decision Furthermore, S&P pointed out that it had reported the ' possible risk' for investors of 'creative financing opportunities within the residential
&l mortgage realm' as earl y as Apri I 2005
It seemed, however, that nobody had been listening
Match these phrases from the article (1-8) with their meanings (a-h)
A credit squeeze refers to a restraint or limitation of credit, often implemented by the government to combat inflation through measures like increasing interest rates This situation can impact various financial entities, including banks and companies that provide loans for home purchases, particularly affecting borrowers with poor credit ratings Additionally, it involves the government department responsible for managing tax revenues and expenditures, as well as the official bank of a country, which regulates interest rates and the money supply In the UK, shares of certain companies that facilitate these transactions are traded with a minimum capital requirement, highlighting the interconnectedness of credit markets and economic policy.
Aaa AAA Investment Lowest risk
Aa AA Investment Low risk
Baa BBB Investment Medium risk
Ba, B BB, B Junk High risk
Caa/Ca/C CCC/CC/C Junk Highest risk
When evaluating investment options, it's crucial to understand the varying levels of risk involved Some investments are considered as safe as government bonds, while others can be much riskier than stocks For instance, real estate can be considerably safer than high-yield bonds, yet it remains slightly riskier than traditional savings accounts Additionally, certain startup ventures are the riskiest, often falling into default Ultimately, making informed decisions requires comparing these risks to identify the safest options available.
1 Moody's Caa rating is … Standard and Poor's CCC rating
2 An A-rated investment is … an Aa- or AA-rated investment
3 An Aaa or AAA rating is…
4 An Aa or AA rating is … a Caa or CCC rating
6 An Aa rating is … an AA rating
7 A B rating is … an AAA rating
Match the verbs (1-6) with the noun phrases (a-f) to make expressions similar to those in the article
1 to assess a different grades to corporate bonds
2 to assign b corporate bonds and bond issuers
3 to default c the creditworthiness of bonds and issuers
4 to rate d on debt repayments
1 Use the words in the box to complete the explanation of securitisation below bank bond borrower interest investor lender repayments securitised
A financial institution, such as a (1) buys a loan from a (2) (such as another bank), who has already lent an amount of money to a
A financial institution gains the right to collect repayments on a borrower's loan, using these expected payments as collateral for issuing a bond to investors In exchange for a specific amount of money, the institution promises to repay the investors later, while utilizing the original borrower's repayments to make regular interest payments to bondholders until the bond matures Both the institution that securitized the loan and the original bank benefit from the capital received, allowing them to enhance their financial standing and extend more loans to additional borrowers This cycle continues as they sell these new loans to other institutions for further securitization.
2 Use the words and phrases in the box to complete the paragraph below bond issuers treasury committee credit-rating highest risk investment-grade securities regulator subprime mortgages
The (1) which led an inquiry into the Northern Rock financial collapse blamed almost every player in the financial sector It particularly pointed the finger at the
Credit rating agencies assigned ratings to bank securities that were ultimately among the worst investments in the market, specifically junk-bond grade assets linked to high-risk borrowers unlikely to repay This situation was exacerbated by the conflict of interest, as these agencies were compensated by the very entities whose corporate bonds they evaluated Consequently, the International Organisation of Securities Commissions (IOSCO) was summoned to enhance regulation in this sector.
After conducting an online search of the credit ratings for selected companies and financial institutions, I found that Company A was rated by Moody's and received an A3 rating due to its strong financial performance and stable revenue streams Company B, rated by Standard & Poor's, received a BBB rating, reflecting its moderate risk profile and solid market position Lastly, Company C was assessed by Fitch Ratings and given a BB+ rating, indicating a higher risk associated with its financial stability These ratings highlight the varying levels of creditworthiness among the companies based on their financial health and market dynamics.
Banking - A Risky Business 39
This unit looks at the circumstances which led to the rescue of a major UK bank by a rival bank, Lloyds TSB, and the UK taxpayer
1 In terms of risk-taking, how would you expect a bank to act?
2 Do you know of any past banking failures, either in your own country or abroad? If so, describe them briefly
Read the article on the opposite page and answer these questions
1 Why were people surprised that Sir James Crosby left HBOS in 2006?
2 What happened to HBOS in 2008?
3 What was Paul Moore's position in the bank before he left in 2005?
4 What did Mr Moore say was wrong with HBOS's growth strategy?
Was the bank taking too many risks, or not enough in his opinion?
5 What type of company is HBOS compared to, in terms of its corporate strategy?
6 Who else was worried about the inadequate risk management at HBOS?
7 Which potential economic situation did they fear would expose the weaknesses in HBOS's attitude to risk?
Read the article again and answer these questions
1 Which position did Sir James Crosby hold at HBOS until2006?
2 Which position did Sir James eventually take up after he left HBOS?
3 Which two banks merged in 2001 to form HBOS?
4 How did the main funding policy of the two banks differ, before they merged?
5 What had happened when Mr Moore had tried to highlight the dangers of the bank's growth strategies in the past?
6 Which two business sectors did analysts feel that HBOS had lent too much money to?
7 What was their specific concern about the UK property market?
The author suggests that Sir James Crosby's early resignation from his position as head of the bank at the age of 50 could be viewed as a timely decision, potentially indicating that it spared him from facing the negative consequences associated with the bank's subsequent challenges.
2 In paragraph G, when Paul Moore told the bank that their sales culture was 'significantly out of balance with their systems and controls', which banking function was he referring to?
The article highlights that HBOS significantly invested in the property market, indicating a substantial financial commitment to UK real estate The use of the term "bet" typically relates to gambling, suggesting that the bank's approach to business involved a high-risk strategy, where they were willing to stake large amounts of money on uncertain outcomes in the property sector This implies a potentially reckless attitude toward financial management and investment decisions.
In 2003, concerns were raised regarding HBOS's aggressive growth strategy, highlighting that the bank was "outpacing its competitors" in terms of expansion.
Evidence triggered Crosby's departure by Jane Croft
A When Sir James Crosby, CEO , left
Halifax Bank of Scotland (HBOS), one of the world 's largest banks, in 2006, many were surprised that he had cho-
5 sen to leave a top job in British banking so young The bank's shares had hit an all-time peak, and its financial results appeared to be excellent
B Today, however, his exit fro m the
At just 50 years old, HBOS appeared to be a victim of unfortunate timing during the 2008 credit crunch, which escalated into a significant recession.
C Paul Moore , Head of Regul atory
Ri sk at HBOS betwee n 2002 and
2005 , made a state ment to UK
Members of Parliament in rnid-Febru-
20 ary 2009 This started the chain of events that ended in Sir James 's resig- nation as Deputy Chairman of the
II Understanding meaning an appointment made by the UK
25 government treasury under Gordon Brown He said that under Sir James's leadership , HBOS was 'going too fast' and was a 'serious ri sk to fin ancial stability'
The aggressive business strategy of the bank traces back to the 2001 merger between Halifax and the Bank of Scotland, which aimed to create a more competitive financial institution by combining their strengths and resources.
The Bank of Scotland, which depended on wholesale funding for over half of its lending, could leverage Halifax's extensive balance sheet and retail deposits to enhance its financial stability and lending capacity.
40 savers) to increase corporate lending
E HBOS adopted Bank of Scotland 's aggressive funding model Halifax , as a former building society, had been around 80-per-cent funded by retail
45 deposits But as the new entity grew, it relied more on wholesale funding than retail deposits to fi nance growth
It grew very speedily on the back of the co nsum er le ndin g boom in the
F Sir James also hired Mr Hornby, a fo rmer supermarket executive, to develop the retail bank , and HBOS beca me an aggressive co mpetitor,
55 offeri ng super market- style ' pile them high, sell them cheap' products, in line with their sales-driven business culture
Mr Moore testified that he advised the board to slow down their operations; however, the Chief Financial Officer obstructed the proper documentation of this recommendation He expressed concerns that their sales culture was significantly misaligned.
65 their systems and controls,' allegations which HBOS denied
H As far back as 2003 , however, some analysts had expressed concerns that HBOS was expanding too quickly and
The group has increased its investment in UK property by engaging in private equity-style transactions, particularly by financing various retail and real estate entrepreneurs However, this strategy raises concerns about taking on excessive risk.
75 hotels and restaurants as the market neared its peak l O ne analyst wrote in 2003 , 'HBOS has grown its [corporate] loan book significantl y faster than other large
HBOS has significant revenue potential, especially in a strong economy, but faces risks during economic slowdowns In 2002, the bank lent £5.5 billion to the commercial property sector, highlighting its active role in financing real estate.
85 than the entire loan exposure to com- mercial property of ri val Lloyds TSB
J Although the crisis in who lesale markets hit all banks , HBOS 's whole- sale funding policy and exposure to
The UK property market has left banks more vulnerable, with Mr Moore's insights shedding light on the factors that nearly led to the bank's collapse in 2008.
The author suggests that Sir James Crosby's resignation from his position as head of the bank at the relatively young age of 50 may have been a strategically advantageous decision, hinting that his departure could be viewed as timely given the circumstances surrounding the banking sector at that time.
In paragraph G, Paul Moore highlighted that the bank's sales culture was "significantly out of balance with their systems and controls," referring specifically to the risk management function within the banking operations.
3 The article mentions that H BOS lent a lot of money to the prope rty market: It added to the bet on UK property
(paragraph H) What type of activity does the word bet norm a lly relate to ? What does this suggest about the bank's approach to business?
In 2003, several individuals raised concerns regarding HBOS's rapid expansion, highlighting that the bank was growing at an unsustainable pace compared to its competitors.
Match these phrases from the article (1-6) with their meanings (a-f)
Loan exposure refers to the total amount of money that a financial institution has lent to customers, including both private individuals and companies This lending serves as a crucial method for banks to finance their operations, supplementing the funds obtained from savers' deposits Originally, many financial institutions were established to assist individuals in purchasing or building homes using the savings deposited with them.
Without looking back at the article, tick ( P ) the statements which are found in it
1 _ The bank's shares had hit an all-time peak
2 _ The bank's shares had hit an all-time low
3 _ Its financial results were disappointing
4 _ Its financial results appeared to be excellent
6 _ HBOS was on the point of collapse
7 _ HBOS's share price doubled in a week
9 _ HBOS was contracting too quickly
10 _ HBOS was expanding too quickly
Match these words and phrases from the article (1-8) with their meanings (a-h)
Vulnerability in business refers to a state where an entity is at risk and open to danger, often marked by a sudden failure or weakness that can lead to its inability to continue operations This can be exacerbated by a tightening of credit conditions, resulting in reduced availability of loans, which further impacts economic stability Additionally, periods of decreasing demand for products and services can contribute to a decline in a country's GDP, typically lasting for at least two consecutive quarters Conversely, a rapid increase in business activity can indicate a strong and stable environment, but it may also lead to unsustainable peaks in value, such as when a share reaches its highest historical price.
Use words and phrases from Exercises A-C to complete these sentences
1 In 2008, the UK experienced a ……… ……… , which meant that people found it more difficult to get a loan from a bank
2 In 2006, HBOS shares had ……… an all-time
……… By 2008, however, the picture was quite different The bank was on the ……… of ………
3 HBOS had adopted a very aggressive funding model which left it very
……… when the credit crunch hit
4 The bank had relied too heavily on ……… ……… and not enough on
5 Added to that, the bank's sales-driven culture had resulted in the bank having an extremely high ……… ……… It had lent far too much money to customers
6 The economic ……… was over and what was first believed to be a short credit crunch had turned into a more serious ………
Choose the best explanation for each phrase from the article
1 ‘ Sir James's resignation as Deputy Chairman ' (lines 21-22) a when someone leaves their job voluntarily b when someone is fired by their employer
2 ‘ on the back of the consumer lending boom ' (lines 48-49) a as a result of b after
3 ‘ “pile them high, sell them cheap" products ' (lines 55-56) a a few products with a high profit margin b a lot of products with a low profit margin
4 ‘ from having this properly minuted ' (lines 61-62) a time spent on it b written down in the official notes of the meeting
A Clean Report 45
This unit looks at a typical UK company audit report It is a report on Vodafone Group PLC, a UK company, prepared by Deloitte & Touche LLP
Unlike many English texts, audit reports typically use minimal reference words like "it" and "them," opting instead to repeat full names consistently This approach enhances clarity and precision in the report's findings, ensuring that the information is easily understood and accurately attributed The emphasis on full names helps maintain a formal tone and reduces ambiguity, which is crucial in the context of audits.
Read the audit report on the opposite page and say whether these statements are true (T) or false (F) Identify the part of the report that gives this information
1 The profit-and-loss (income) statement for the year ended 31 March 2009 of the parent Company of Vodafone PLC has been audited (paragraph A)
2 The auditors have used their own set of rules (paragraph D)
3 The auditors give their opinion as to whether the parent Company Financial Statements give a 'true and fair' view (paragraph E)
4 They also report as to whether the parent Company Financial Statements have been properly prepared in accordance with the Companies Act 1975 (paragraph E)
5 In addition, the audit report states whether the auditors believe that the Directors' Report reflects the true state of the company's situation (paragraph E)
6 The auditors only need to consider and report on information published in the annual report (paragraph G)
Read the report again and answer these questions
1 Which two financial statements have been reported on separately? (paragraphs A and B)
2 In which part of the annual report are the specific accounting policies, followed by the company in preparing this report, explained? (paragraph A)
3 In which three ways could a company's financial statements seriously misrepresent its true financial situation? (paragraph E)
4 Which three specific issues does the audit firm state it would report on if it were not satisfied with them, according to this report? (paragraph F)
5 Which organisation issued the International Standards on Auditing? (paragraph H)
6 In the auditors' opinion, do these financial statements give a true and fair view of the company's finances? (paragraph J)
7 Do they comply with the Companies Act 1985? (paragraph J)
8 Are the auditors happy with the information contained in the Directors' Report? (paragraph J)
C How the text is organised
In the report, the section titled "Independent auditor's report to the members of Vodafone Group PLC" provides a formal assessment of the company's financial statements The heading "Opinion" relates to the auditor's conclusion regarding the accuracy and reliability of the financial information presented Lastly, the section on "Respective responsibilities of directors and auditors" outlines the specific duties and obligations of both the company’s directors and the auditors in ensuring transparency and accountability in financial reporting.
Audit Report on the Company Financial Statements
A We have audited the parent Company Financial Statements of Vodafone Group Pic for the year ended 31 March 2008, which comprise the balance sheet and the related notes 1 to
10 These parent Company Financial Statements have been
5 prepared under the accounting policies set out therein
B We have reported separately on the Consolidated Financial
Statements of Vodafone Group Pic for the year ended
31 March 2008 and on the information in the directors' remuneration report that is described as having been
C The directors' responsibilities for preparing the Annual
Report and the parent Company Financial Statements in accordance with applicable law and United Kingdom
Accounting Standards (United Kingdom Generally
15 Accepted Accounting Practice) are set out in the Statement of Directors' Responsibilities
D Our responsibility is to audit the parent Company Financial
Statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing
E We report to you our opinion as to whether the parent
Company Financial Statements give a true and fair view and whether the parent Company Financial Statements have been properly prepared in accordance with the Companies
25 Act 1985 We also report to you whether in our opinion the
Directors' Report is consistent with the parent Company
F In addition , we report to you if, in our opinion , the
Company has not kept proper accounting records, if we
30 have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed
G We read the information contained in the Annual Report
35 for the above year as described in the contents section and
The organization of the text should align with the audited parent company financial statements If we identify any apparent misstatements or significant inconsistencies with the parent company, we must consider the potential implications for our report.
40 Company Financial Statements Our responsibility does not extend to any further information outside the annual report
H We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board An audit includes examination , on a test
The article discusses the 45 basis of evidence pertinent to the amounts and disclosures in the parent company financial statements It emphasizes the evaluation of significant estimates and judgments made by the directors during the preparation of these financial statements, as well as the appropriateness of the accounting policies employed.
50 are appropriate to the Company's circumstances, consistently applied and adequately disclosed
I We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to
We provide reasonable assurance that the parent company’s financial statements are free from material misstatements, whether due to fraud, irregularities, or errors In forming our opinion, we also assessed the overall adequacy of the information presentation in the parent company’s financial statements.
• the parent Company Financial Statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the
65 state of the Company's affairs as at 31 March 2008;
• the parent Company Financial Statements have been properly prepared in accordance with the Companies Act 1985; and
• the information given in the Directors' Report is consistent
70 with the parent Company Financial Statements
Read the report again and decide which section (1-4) each of these headings should go with a) Opinion b) Respective responsibilities of directors and auditors d Basis of audit opinion
Find words or phrases in the report which fit these meanings
1 phrase which describes exactly which year's accounts have been audited (paragraph A): f t y e
2 adjective which describes the financial statements which have been prepared for the entire group of companies, rather than just the parent company (paragraph B): c
3 document in which the directors explain how they pay themselves (paragraph B): d r r
4 statement which explains the duties that the directors of a company have to prepare legal and accurate financial statements (paragraph C): s… of D R…
5 when the law requires or states something (paragraph F): s by 1
6 false statements by the directors in the audit report (paragraph G): m
7 significant differences between what the auditors believe to be the company's true financial state and the information given by the directors in the annual report (paragraph G): m i……
Auditors must obtain a comprehensive understanding of a company's financial statements by employing various procedures, as they cannot scrutinize every transaction or calculation in detail This involves assessing the overall financial environment, evaluating internal controls, and performing analytical procedures to identify any significant discrepancies or unusual trends By focusing on these key areas, auditors can form a reliable opinion on the accuracy and fairness of the financial statements.
9 description of the auditors' view on the accuracy of important forecasts made and decisions taken by the directors on the company's behalf (paragraph H): significant e and j
10 what the auditors provide because they can't state with absolute certainty that the company's accounts are totally accurate and fair (paragraph (I): r a
Match these phrases from paragraph H of the report (1-3) with their meanings (a-c)
1 policies are appropriate to the Company's circumstances
2 the Company's circumstances, consistently applied and
The company has consistently adhered to its accounting policies, ensuring they align with its trading and financial circumstances Furthermore, these policies have been transparently communicated, providing investors with a clear understanding of the company's financial practices.
Match each word or phrase from the article (1-6) with one which has a similar meaning (a-f)
1 comprise (line 3) a in force or in effect
2 set out therein (line 5) b consist of
3 in accordance with (line 13) c in agreement with
4 applicable (line 13) d written out in them
5 consistent with (line 26) e conforming to
6 so as to (line 52) f in order to
Use words and phrases from Exercises A-C to complete this extract from an audit report for ABC Group PLC
We have audited the parent Company Financial Statements of ABC Group PLC (1)
……… the ……… 31 March 20XX which (2) ……… the balance sheet and the related notes 1 to 15 These parent Company Financial Statements have been prepared under the accounting policies (3) ……… therein
We express our opinion on whether the parent company’s financial statements provide a true and fair view and have been prepared in accordance with the Companies Act 1985 Additionally, we assess whether the Directors' Report is consistent with the parent company’s financial statements.
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board An audit includes examination, on a (6)
……… of evidence relevant to the amounts and disclosures in the parent Company Financial Statements It also includes an assessment of the significant (7)
……… and ……… made by the directors in the preparation of the parent Company Financial Statements, and of whether the accounting policies are (8)
……… to the Company's circumstances, consistently applied and adequately disclosed
We conducted our audit to gather all necessary information and explanations, ensuring we have sufficient evidence to confirm that the parent company’s financial statements are free from material misstatement, whether due to fraud, irregularity, or error.
A good auditor should possess qualities such as attention to detail, analytical thinking, strong communication skills, and integrity Auditing can be an engaging career for qualified accountants, offering opportunities to work with diverse industries and enhance their expertise Additionally, experienced auditors may explore spin-off career opportunities, including roles in compliance, risk management, or financial consulting, which can further expand their professional horizons.
2 Go to www.youtube.com to find videocasts about accounting and auditing careers
There are several types of auditing, each serving different purposes, including financial, operational, compliance, and information technology audits The audit process typically involves planning, fieldwork, reporting, and follow-up, ensuring a thorough examination of financial statements and internal controls If control systems are inadequate or accounting principles are misapplied, it can lead to significant financial discrepancies, regulatory penalties, and a loss of stakeholder trust.
4 Imagine you are the audit team manager Write a management letter to directors or senior managers explaining what needs to be changed (Page 56)
Janet Hendley, a partner in an audit firm, initiates a call to Claude Bernaud, the Chief Financial Officer of a French company, to discuss a matter of importance The conversation between the two professionals is crucial, as it will determine the accuracy of several statements Listeners are tasked with carefully following the dialogue to make informed decisions on whether the provided statements are true or false.
1 _ Janet wants to talk to Claude about a report
2 _ Janet thinks that capitalization of costs could be expenses in the P&L
3 _ Claude agrees with Janet on this point
4 _ Claude thinks capitalization of costs should be classed under machine upgrades
5 _ Claude’s reasoning is that the upgrades are really investments in the future
6 _ Janet agrees to reconsider her opinion
B Put the letters into the correct orders to make words used in the conversation that have similar meanings to the words on the right
C Which sentence is closest in meaning to the given one?
1 We have to keep up with the competition a We can ignore the competition b We can’t ignore the competition
2 You can’t really justify spending so much money on office equipment a You can’t defend your actions b You can defend your actions
3 This plan is designed to keep us in business a This is a plan to start a business b This is a plan to get a business
4 This was a sizeable investment on our part a We spent very little money on this b We spent a lot of money on this
5 These figures are too material for us to ignore a The figures are very high b The figures are very low
6 I suggest you consider this again a Have another think about it b Forget it
7 I’m sure you’ll find it’s reasonable a You think this is fair b I think this is fair
Janet: Hi Claude It’s Claude Claude: Not too bad Our latest sales figures are quite good so the boss is happy Janet: Good to hear Claude: Listen, Janet I’m just calling to find out if you’ve had a chance to look at the capitalization of costs yet You know – our machine upgrades? Janet: Yes, yes Actually, we had a meeting this morning I was just about to send you an email You’ll be glad to hear that the partners have agreed with your proposal Claude: That’s great It’ll really help Claude: Erm One other thing There are some other things I’d like to go over with you, but I’d prefer to do it in person, not over the phone Could you come by the office next week sometime? Tuesday, say? Janet: Tuesday? No, sorry, I’m afraid I’m busy on Tuesday What about Wednesday morning? At, say, 9 a.m.? Claude: Yes, that sounds good, Wednesday at 9 So, Janet, I’ll see you then Have a good weekend Janet: Glad to be of assistance Janet: Yes, you too Bye Claude: Bye.
E Two colleagues from an auditing firm are discussing the latest financial scandal Listen to part 1 of the dialogue and answer the following questions (TRACK 19) a What is Heidi worried about?
……… c What does Heidi think investors should get?
……… d What example of inaccurate information does she give?
F Now listen to part 2 of the dialogue and complete the gaps (TRACK 20)
Heidi: But we’re expected to find these things That’s what we’re paid to do
Philip emphasizes that their role is to analyze the information given by the company's management, operating under the assumption that they are being truthful, as they are not in a position of authority like police officers.
Philip: Let me finish Look, there are (4) ……… mechanisms to deal with people who commit (5) ……… The auditing profession has its own (6) ……… and investors trust this It’s tried and tested
Investors deserve reliable financial information, and it is our responsibility to provide that assurance Simply having access to data may not suffice, as the evolving trends indicate a growing need for transparency and accuracy in financial reporting.
Philip: I agree that it’s a bit strange that we’re paid by the same people who we (10)
………, but it’s always been this way and I don’t see how that can be changed, do you?