Finance English practice: Unit 7 — Accounting Policies and Standards

Biz English

Apr 14, 2016

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Complete the sentences below. Use the key words if necessary.
- Valuation and measurement
  
  key words
  value ○ bondholders ○ accounting policies ○ valuation ○ measurement ○ conventions ○ consistent ○ consistency principle ○ disclosed ○ depreciation ○ provisions ○ a true and fair view
  
  Investors in companies want to know how much the companies are worth, so companies regularly have to publish the of their assets and liabilities. Companies also have to calculate their profits or losses: their managers need this information, and so do shareholders, and the tax authorities.
  
  Companies can choose their — their way of doing their accounts. There are a range of methods of — deciding how much something is worth — and — determining how big something is — that are accepted by law or by official accounting standards. In the USA, there are Generally Accepted Accounting Principles (GAAP). In most of the rest of the world there are International Financial Reporting Standards (IFRS), set by the International Accounting Standards Board. These are technical rules or — accepted ways of doing things that are not written down in a law.
  
  Although businesses can choose among different accounting policies, they have to be , which means using the same methods every year, unless there is a good reason to change a policy: this is known as the . The policies also have to be or revealed to the shareholders: the Annual Report will contain a 'Statement of Accounting Policies' that mentions any changes that have been made. This enables shareholders to compare profits and values with those of previous years.
  
  Areas in which the choice of policies can make a big difference to the final profit figure include — reducing the value of assets in the company's accounts, the valuation of stock or inventory, and the making of — amounts of money deducted from profits — for future pension payments.
  
  As there is always more than one way of presenting accounts, the accounts of British companies have to give of their financial situation — meaning there are various possibilities — rather than the true and fair view — meaning only one is possible.
  
  Historical cost and inflation accounting
  
  key words
  historical cost principle ○ a going concern ○ inflation accounting systems ○ replacement cost accounting ○ current replacement cost
  
  The aim of accounting standards is to provide shareholders with the information that will allow them to make financial decisions. This is one reason why in many countries accounting follows the : companies record the original purchase price of assets, and not their (estimated) current selling price or replacement cost. This is more objective, and the current value is not important if the business is — a successful company that will continue to do business — as its assets are not going to be sold, or do not currently need to be replaced.
  
  However, some countries with regular high inflation (e.g. in South America) use that take account of changing prices. One system used is , which values all assets at their — the amount that would have to be paid to replace them now.
British English or American English?
- depreciation
  - British English
  - American English
- amortization
  - British English
  - American English
- a true and fair view
  - British English
  - American English
- a fair presentation
  - British English
  - American English
Match the two parts of the sentences.
- Companies’ managers, investors, creditors and the tax authorities all . . .
  need to know about the size of profits or losses.
  - need to know the current market value of its assets.
  - and not their current value, is recorded in accounts.
  - need to know about the size of profits or losses.
  - which means regularly using the same methods.
  - which accounting methods they are using.
- There are different ways of doing accounting but companies have to be consistent, . . .
  which means regularly using the same methods.
  - need to know about the size of profits or losses.
  - which means regularly using the same methods.
  - need to know the current market value of its assets.
  - and not their current value, is recorded in accounts.
  - which accounting methods they are using.
- Companies gave to disclose or make known . . .
  which accounting methods they are using.
  - and not their current value, is recorded in accounts.
  - need to know about the size of profits or losses.
  - need to know the current market value of its assets.
  - which accounting methods they are using.
  - which means regularly using the same methods.
- The historical cost principle is that the price paid to buy assets, . . .
  and not their current value, is recorded in accounts.
  - which means regularly using the same methods.
  - need to know the current market value of its assets.
  - which accounting methods they are using.
  - need to know about the size of profits or losses.
  - and not their current value, is recorded in accounts.
- A going concern usually doesn't . . .
  need to know the current market value of its assets.
  - need to know about the size of profits or losses.
  - which means regularly using the same methods.
  - and not their current value, is recorded in accounts.
  - need to know the current market value of its assets.
  - which accounting methods they are using.
Are the following statements true or false?
- Companies are told which accounting policies to use. clue
  — Companies can choose their accounting policies. There are a range of methods of valuation and measurement.
  - true
  - false
- Companies can change their accounting policies whenever they like, as long as they disclose this in their Annual Report. clue
  — Accounting policies have to be consistent, which means using the same methods every year, unless there is a good reason to change a policy.
  - true
  - false
- Companies could produce several profit figures, depending on how they depreciated their assets, valued their inventory, etc. clue
  — Areas in which the choice of policies can make a big difference include depreciation and the valuation of stock or inventory.
  - false
  - true
- There is only one correct interpretation of a company's financial position, and company accounts must show this. clue
  — Companies have to give a true and fair view of their financial situation – meaning there are various possibilities – rather that the true and fair view – meaning only one is possible.
  - false
  - true
- In a lot of countries, companies do not record the current value of their assets. clue
  — In many countries accounting follows the historical cost principle: the original purchase price of assets is recorded in accounts, and not their current selling price.
  - true
  - false
- In countries with high inflation, companies value their assets at their current replacement cost. clue
  — Some countries with regular high inflation use inflation accounting systems that take account of changing prices.
  - false
  - true

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