English_for_Finance_and_Banking
¨ READ AND DISCUSS
1. a) Supply the prepositions where necessary.
b) Explain the objective of Financial Statements and say what ensures usefulness of information disclosed in them to the users.
The objective of financial statements is to provide useful information ... users. Amon? the users are present and potential investors, lenders, suppliers and customers, employees, governments... home and host countries, the public at large, and also those who act... behalf of users.
The objectives of financial statements are defined ... the needs of users. In general, information must be provided about the financial position, performance and changes ... financial position of an enterprise.
Such information is useful to a wide range ... users in making decisions and is necessary to keep management accountable ... the resources entrusted ... it. Financial statements can also provide useful information to governments for making policy decisions, although governments often require special- purpose reports as well. More specifically, a variety of users need to be able to assess the performance of an enterprise and thus are interested, among other things, ... the cash flow of the enterprise. For example, investors must know if they will receive dividends and when they should buy, hold and sell stock. Lenders are interested in determining whether interest and principal ... loans will be paid when due. Suppliers, other creditors and customers must determine whether they will be paid … time or will continue to receive a product or service on which they might depend. Employees are interested in the continuation of their employment and, therefore, in the stability and profitability ... their employment. Members of the public are also interested in the impact of the activities of the enterprise ... the general welfare.
The usefulness of information can be determined ... its relevance to the needs of the users and the extent ... which users can rely ... such information. Other important characteristics of useful information include comparability and understandability. Besides, users benefit more ... information that is available at the time it is required, information provided long after it is needed is ... little relevance.
Financial statements should disclose all items that are material enough to affect evaluations or decisions.
The information published ... reporting enterprises must assist users ... predicting future prospects of the enterprise.
Transactions and events that form the basis of financial statements are sometimes open ... different interpretations. They can be viewed according to their legal form or their economic reality. Enterprises should emphasize the economic substance of transactions and events.
Information must be free ... bias with respect ... various users, it should assist in decision-making but should not influence decisions in a predetermined direction.
Financial statements should be prepared in a comparable way so that the performance of different enterprises, or of the same enterprise over time, can be examined. The comparability of financial statements is enhanced ... the relative stability of accounting policies, which specify the methods by which a reporting enterprise measures, accumulates and summarizes the economic events and data ... its records. Stability means that no change in accounting policies will be made unless it is clearly necessary.
Comparability across enterprises requires that a consistent set of definitions, units of measurement, assumptions, measurement techniques and reporting intervals be applied. If financial statements from enterprises in different countries are to be compared, the users must be aware ... the relative differences among national accounting policies.
Comparability can be enhanced by the harmonization of national standards or the adoption of international standards.
Words you may need:
the public at large – широка публіка
disclose – видавати, розголошувати (інформацію)
reporting enterprise – підприємство, що подає свою звітність
bias – необ’єктивність, упередженість
predetermined – визначений, завчасно вирішений
to be aware of – знати, бути обізнаним
2. a) Read the text and single out the main facts and present them in a short review.
From an international perspective, it is important to remember that while based on similar principles, Russian accounting does not fully meet international accounting standards (IAS). The main differences are as follows:
Sales are usually recorded on a cash basis. The cost of goods/services delivered but not yet paid for remains on the balance sheet until payment is received. Most Russian taxes are sales-based. As a result, companies try to minimize sales in their accounts. When sales are recorded on a cash basis, allowances are not made for bad debt, in spite of the fact that bad debts may represent a considerable share of accounts receivable. Sales figures for Russian companies tend to be understated compared with the accrual sales of Western companies.
Cost of goods sold. Russian companies report the full cost of goods sold, which includes production costs, transportation, depreciation, marketing, and financial expenses. No cost items are disclosed separately. Social costs are not included in the cost of goods sold.
Depreciation. Only straight-line depreciation method allowed. The depreciation rates are fixed by the government and are as a rule significantly lower than in the West. Accelerated straight-line depreciation has been permitted since January 1,1995 but is still rarely used.
Fixed assets. Fixed assets pose the most serious problem. Fixed assets are accounted for at historical cost and cover property, plant and equipment. Land is not treated as a fixed asset and does not appear on the balance sheet at all. Even if depreciation rates are lower than in the West, fixed assets are generally undervalued compared with Western practice.
Accounts receivable. Since most Russian companies record sales when they receive payment, the sales margin is not accrued until that time. Therefore accounts receivable are understated given that the sales margin is not reflected. Overdue accounts receivable are not disclosed separately.
Consolidation of accounts. Russian companies, including holding companies, are not required to submit consolidated reports. No consolidation standards have been established yet. Some of the holding companies prepare aggregated reports, summing up 100% of all subsidiaries and associates without accounting for intragroup transactions and minorities. Consequently, the reported results of Russian holding companies are usually significantly overstated.
All other aspects of Russian accounting are basically in line with IAS. The Russian government is taking measures to eliminate the most serious divergences.
Words you may need:
bad debts – безнадійні борги
accounts receivable – дебіторська заборгованість
straight-line depreciation method – метод рівномірного нарахування амортизації
accelerated straight-line depreciation method – метод прискореного нарахування амортизації
sales margin – прибуток від продажу
overdue – прострочений
consolidation of accounts – консолідація рахунків
IAS – international accounting standards
divergence – відхилення
3.Read the text that follows to find the answers to the following questions:
= What financial document presents the position of the enterprise?
= What can assets include?
= What can liabilities include?
= What is equity?
= What financial document measures the performance of the enterprise?
Financial Statements And Their Elements. BALANCE SHEET
The position of the enterprise is presented in the balance sheet. That statement shows resources and the claims to or interests in them and provides an indication of the financial strength of the enterprise.
The balance sheet includes the following elements:
ASSETS
Assets include property, plant and equipment, financial leases, investments in subsidiaries and other enterprises; long-term receivables; purchased goodwill, patents, trade marks and similar intangibles; marketable securities; current receivables (or trade debts); inventories; cash and bank balances; and prepaid expenses.
Assets arise from past events, which may be cash or non-cash transactions. Assets may be purchased, exchanged for other assets, self-generated or received as grants or donations.
An asset is recognized when it is reasonably certain that the future economic benefit embodied in it will flow to the enterprise.
In a number of countries, intangible assets such as concessions, patents, licences, trade marks and similar rights and assets may be recognized in the balance sheet only if they were acquired for a valuable consideration. A number of countries allow assets to be carried on the balance sheet only if the reporting enterprise is the legal owner.
LIABILITIES
Liabilities include long-term loans and debentures, short-term loans, and bank overdrafts, payables, pension plans and similar financial obligations. The scope of definition of liabilities covers obligations whose financial amounts can or cannot be established precisely. It therefore covers what is usually described as provisions in some countries. Provisions are liabilities, the amount of which cannot be established precisely, or the occurrence of which is uncertain. In some countries, provisions may not be used to adjust the value of assets. In those countries, value adjustments on debtors are referred to as write-downs. In other countries, write-downs on debtors are commonly referred to as provisions. Provisions should be distinguished from reserves, which are amounts set aside under equity for future use with respect to obligations which may arise from probable or possible events.
A liability is recognized when it is reasonably certain that a future reduction in economic benefit will result from the settlement of the obligation.
EQUITY
Paid-in capital is treated differently in many countries, in some of which all amounts paid in by equity shareholders, are classified as paid-in and are not further categorized. In other countries, paid-in capital is divisible into two types: that relating to the par value of the shares offered for sale and that relating to share premium or additional capital. In consolidated balance sheets, the amount of equity should be given separately for the shareholders of the parent enterprise and for other shareholders.
Equity is a residual arising from the deduction of liabilities from the assets of the reporting enterprise. Equity arises from two sources: that provided by shareholders (for example, paid-in capital) and that generated by the activities of the enterprise (for example, earnings less distributions to shareholders, unrealized surpluses).
В. INCOME STATEMENT/PROFIT AND LOSS STATEMENT
The income statement, or profit and loss statement measures the performance of an enterprise. The bottom line of this statement is the net result of the operations of the enterprise in the reporting period. It reveals the change during the period in the equity of the enterprise resulting from its operations.
Revenues
Revenues are inflows or enhancements of assets (or reductions of liabilities) that arise in the course of the normal activities of the enterprise.
The events that result in revenues and revenues themselves are referred to by a variety of names: including sales, fees, interest, dividends, royalties and rent.
Expenses
Expenses are outflows or depletions of assets (or additions to liabilities) that arise in the course of the enterprise's normal activities.
The events from which expenses arise and expenses themselves are referred to by a variety of names, including cost of sales, wages and depreciation.
An expense is recognized when it is realized that an expenditure does not produce future economic benefits. It is also recognized when a liability is incurred without the recognition of an asset. When it is possible to do so, expenses are recognized in the income statement on the basis of direct association between expenses incurred and the earning of specific items of income. The process is commonly referred to as matching of expenses with revenues.
Gains and losses
Gains are increases in equity that result from transactions that are incidental to the enterprise's activities and from other transactions, events or circumstances affecting the enterprise during a period, except those that result in revenues or equity contributions.
Losses are decreases in equity that result from transactions that are incidental to the enterprise's activities and from other transactions, events or circumstances affecting the enterprise during a period, except those that result in expenses or distributions of equity.
Gains are normally recognized when realized. Losses are normally recognized when realised or when it becomes evident that there is an impairment in the value of the assets, or an increase in the liabilities, to which the losses relate.
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