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3.Accounting and auditing

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Copyright ОАО «ЦКБ «БИБКОМ» & ООО «Aгентство Kнига-Cервис»
МИНИСТЕРСТВО ОБРАЗОВАНИЯ И НАУКИ РФ
ФЕДЕРАЛЬНОЕ ГОСУДАРСТВЕННОЕ
БЮДЖЕТНОЕ ОБРАЗОВАТЕЛЬНОЕ УЧРЕЖДЕНИЕ
ВЫСШЕГО ПРОФЕССИОНАЛЬНОГО ОБРАЗОВАНИЯ
«ВОРОНЕЖСКИЙ ГОСУДАРСТВЕННЫЙ
УНИВЕРСИТЕТ»
ACCOUNTING AND AUDITING
Учебно-методическое пособие
Составитель
Е.В. Ушакова
Воронеж
Издательский Дом ВГУ
2014
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Утверждено научно-методическим советом факультета романо-германской
филологии 23 сентября 2014 г., протокол № 7
Рецензент: профессор, заведующий кафедрой английского языка гуманитарных факультетов Воронежского государственного университета А.П.
Бабушкин
Учебно-методическое пособие подготовлено на кафедре английского языка
гуманитарных факультетов факультета романо-германской филологии.
Рекомендовано студентам 1-го курса магистратуры (заочное отделение)
экономического факультета.
Для направлений: 080100 – Экономика,
080200 – Менеджмент,
080300 – Финансы и кредит
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Содержание
Unit 1. Accounting ................................................................................................ 4
Unit 2. Foreign trade ............................................................................................. 8
Unit 3. Project finance......................................................................................... 12
Unit 4. An Introduction to Internal Auditing in Banking ................................... 17
Unit 5. Fraud ....................................................................................................... 20
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UNIT 1. Accounting
LEAD IN
1. Discuss these questions.
1. Why do you need the accounting information?
2. What accounting documents do you know?
1. General definition of accounting
Today, it is impossible to manage a business operation without accurate
and timely accounting information. Managers and employees, lenders, suppliers,
stockholders, and government agencies all rely on the information contained in
two financial statements. These two reports — the balance sheet and the income
statement – are summaries of a firm's activities during a specific time period.
They represent the results of perhaps tens of thousands of transactions that have
occurred during the accounting period.
Accounting is the process of systematically collecting, analyzing and reporting financial information. The basic product that an accounting firm sells is
information needed for the clients.
Many people confuse accounting with bookkeeping. Bookkeeping is a necessary part of accounting. Bookkeepers are responsible for recording (or keeping) the financial data that the accounting system processes. The primary users of
accounting information are managers. The firm's accounting system provides the
information dealing with revenues, costs, accounts receivables, amounts borrowed and owed, profits, return on investment, and the like. This information can
be compiled for the entire firm; for each product; for each sales territory, store, or
individual salesperson; for each division or department; and generally in any way
that will help those who manage the organization. Accounting information helps
managers plan and set goals, organize, motivate, and control. Lenders and suppliers need this accounting information to evaluate credit risks.
Stockholders and potential investors need the information to evaluate
soundness of investments, and government agencies need it to confirm tax liabilities, confirm payroll deductions, and approve new issues of stocks and bonds.
The firm's accounting system must be able to provide all this information, in the
required form.
2. The basis for the accounting process
The basis for the accounting process is the accounting equation. It shows
the relationship among the firm's assets, liabilities, and owner's equity. Assets are
the items of value that a firm owns — cash, inventories, land, equipment, buildings, patents, and the like. Liabilities are the firm's debts and obligations — what
it owes to others.
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Owner's equity is the difference between a firm's assets and its liabilities —
what would be left over for the firm's owners if its assets were used to pay off its
liabilities. The relationship among these three terms is the following:
Owners' equity = assets — liabilities (The owners' equity is equal to the assets minus the liabilities).
For a sole proprietorship or partnership, the owners' equity is shown as the
difference between assets and liabilities. In a partnership, each partner's share of
the ownership is reported separately by each owner's name. For a corporation, the
owners' equity is usually referred to as stockholders' equity or shareholders' equity. It is shown as the total value of its stock, plus retained earnings that have accumulated to date. By moving the above three terms algebraically, we obtain the
standard form of the accounting equation:
Assets = liabilities + owners' equity (The assets are equal to the liabilities
plus the owners' equity).
3. A balance sheet
A balance sheet (or statement of financial position), is a summary of a
firm's assets, liabilities, and owners' equity accounts at a particular time, showing
the various money amounts that enter into the accounting equation. The balance
sheet must demonstrate that the accounting equation does indeed balance. That is,
it must show that the firm's assets are equal to its liabilities plus its owners' equity. The balance sheet is prepared at least once a year. Most firms also have balance-sheets prepared semiannually, quarterly, or monthly.
4. An income statement
An income statement is a summary of a firm's revenues and expenses during a specified accounting period. The income statement is sometimes called the
statement of income and expenses. It may be prepared monthly, quarterly, semiannually, or annually. An income statement covering the previous year must be
included in a corporation's annual report to its stockholders.
5. The importance of the above two statements
The information contained in these two financial statements becomes more
important when it is compared with corresponding information for previous
years, for competitors, and for the industry in which the firm operates. A number
of financial ratios can also be computed from this information. These ratios provide a picture of the firm's profitability, its short-term financial position, its activity in the area of accounts receivables and inventory, and its long-term debt financing. Like the information on the firm's financial statements, the ratios can
and should be compared with those of past accounting periods, those of competitors, and those representing the average of the industry as a whole.
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COMPREHENSION
I. Answer the questions
1. What is accounting? Give a short definition.
2. Is it possible to manage a business operation without accurate and timely accounting information?
3. Who needs accounting information? Explain why.
1. What is the basis for accounting process?
2. State the standard form of the accounting equation.
3. What is a balance sheet? Give a short definition.
4. What must a balance sheet show?
5. What is an income statement?
9. What can be computed from the information contained in a balance sheet and
an income statement?
10. Do the ratios computed from this information provide a picture of a firm's
profitability and its financial position?
11. Is this information for competitors?
LANGUAGE PRACTICE
1. Insert the necessary word or word combination.
2. Managers, lenders, suppliers and government agencies relay on the information
contained in two ....
3. These two reports — the balance sheet and ... —are summaries of a firm's activities during a specific time period.
4. The basis for the accounting process is ... .
5. Assets are the ... that a firm owns.
6. Liabilities are the firm's debts and ....
7. Owners' equity is the difference between a firm's ... and its liabilities.
8. A balance sheet is ... of a firm's assets, liabilities, and owners' equity accounts
at a particular time.
9. A balance sheet must demonstrate that the accounting ... does indeed balance.
10. An income statement is a summary of a firm's revenues and... during a specific accounting period.
11. The information in these two financial statements becomes more important
when it is ... with corresponding information for previous years or past ... periods.
2. Match the word with the right definition.
1. accounting
2. revenue
3. asset
4. stockholder
5. balance sheet
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a) the activity of keeping detailed record of the amounts of money a business
receives and spends.
b) a written statement of the amount of money and property a company has.
c) the things the company own.
d) a person who owns shares in a company.
e) money that a company receives from people.
3. Refer the sentences into English
1. Бухгалтерский учет — это процесс систематического сбора и сообщения
финансовой информации.
2. Балансовый отчет и отчет о доходах являются основой процесса бухучета.
3. Балансовый отчет (или отчет о финансовом положении)- это обобщенный
отчет об активах фирмы, пассивах и собственном акционерном капитале.
4. Отчет о доходах — это обобщенный отчет о доходах и расходах за (during) конкретный отчетный период.
5. Основой процесса бухгалтерского учета является бухучетное уравнение.
6. Согласно (according to) бухучетному уравнению, активы равны пассивам
(денежным обязательствам) плюс собственный акционерный капитал.
7. Собственный акционерный капитал — это разность между активами и
пассивами.
8. Балансовый отчет должен показывать, что бухучетное уравнение балансируется.
9. Результаты (results) балансового отчета должны сравниваться (be compared) с результатами за (for) прошлый отчетный период.
10. Эта информация дает картину доходности фирмы, ее финансового положения и ее деятельности в области (area) дебиторской задолженности, товарных запасов и долгового финансирования.
FOLLOW UP
1. Speak about the role of accounting in business.
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UNIT 2. Foreign trade
LEAD IN
1. Discuss these questions.
1. What are some of the risks involved in trading internationally?
2. What payment methods do you know that are used when exporting or importing goods?
3. What is the role of the banks in international trade?
Open Account
The goods, and relevant documents, are sent by the exporter directly to the
overseas buyer, who will have agreed to remit payment of the invoice back to the
exporter upon arrival of the documents or within a certain period after the invoice
date. The exporter loses all control of the goods, trusting that 5 payments will be
made by the importer in accordance with the original sales contract.
Documentary Credit
Documentary Credit is often referred to as a Letter of Credit. This is an undertaking issued by an overseas bank to a UK exporter through a bank in the UK,
to pay for the goods provided that the exporter complies fully with the conditions
established by the Documentary Credit.
Additional security can be obtained by obtaining the 'confirmation' of a UK
bank to the transaction, thereby transferring the responsibility from the importer's
bank overseas to a more familiar bank in the country of the exporter.
Very few risks arise for the exporter because the potential problem areas of
the buyer risk and country risk can be eliminated. However, the exporter must
present the correct documents and comply fully with the terms and conditions of the
credit. Failure to do so could result in the exporter losing the protection of the credit.
Bills for Collection
Trade collections are initiated when an exporter draws a bill of exchange
on an overseas buyer. This is forwarded by the exporter's bank in the importer's
country.
Such collections may be either “documentary” or “clean”. A documentary
collection is one in which the commercial documents and, if appropriate, the documents of title to the goods are enclosed with the bill of exchange. These are sent by
the exporter's bank to a bank in the importer's country together with instructions to
release the documentation against either payment or acceptance of the bill.
The risks that the exporter has to face are that the importer fails to accept
the bill of exchange or dishonours an accepted bill upon maturity. This means
that the exporter may have to consider shipping the goods back to the UK, finding an alternative buyer or even abandoning the consignment, all of which could
be expensive.
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In many areas of the world it is common practice to defer presentation4,
payment or acceptance until arrival of the carrying vessel. Collection and remittance charges can also be relatively high.
If the exporter retains control over the goods by remitting a full set of Bills
of Lading through the intermediary of the banking system, control of the goods
will be handed over to the importer only against payment or acceptance of the bill
by the importer. If the documents are released against the importer's acceptance
of the bill, control of the goods is lost and the accepted bill of exchange may be
dishonoured at maturity.
Advance Payment
Exporters receive payment from an overseas buyer in full, or in part, before
the goods are dispatched. This means that the exporter has no risks associated
with non-payment.
COMPREHENSION
1. Read the text about payment methods for exporters and write the four
methods in the correct positions according to their risks for the exporter.
Least secure
Most secure
Payment method:
1. Open account .........
2. ………………………
3. ………………………
4. ………………………
2. Mark these statements T (true) or F (false) according to the information in
the text. Find the part of the text that gives the correct information.
Open account
1. The importer pays for the goods after receiving the documents. T
2. There is no contract involved.
3. The exporter must be able to trust the buyer.
Documentary credit
4. If a letter of credit is issued, the importer's bank agrees to pay for the goods
without conditions.
5. If a letter of credit is confirmed, the exporter's bank takes responsibility for
payment.
Bills for collection
6. Commercial documents and the document of title are always enclosed with a
bill of exchange.
7. Importers may not accept the bill of exchange until the goods arrive.
8. Exporters can keep control of goods by sending bills of lading through the
banking system.
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9. Exporters reduce risk if documents are released against acceptance of the bill
rather than payment.
Advance payment
10. This means that the importer has to pay before any goods are dispatched.
LANGUAGE PRACTICE
1. Match the risks (a–g) with the payment methods.
1. Open account
2. Documentary credit
3. Bills for collection
4. Advance payment
a)
b)
c)
d)
e)
f)
g)
Exporters must comply with the conditions of the credit documents.
Importers may delay payment.
Importers may not pay at all.
It takes a long time to process payment in some countries.
Importers may not accept the bill of exchange.
Bank charges may be high.
Exporters must take care to present the correct documents.
2. Match these terms with their definitions.
1. invoice
2. clean collection
3. documentary collection
4. bill of exchange
5. bill of lading
6. document of title
7. issuing bank
8. collecting bank
9. confirming bank
10. letter of credit
a) document that shows details of goods being transported; it entitles the receiver
to collect the goods on arrival
b) list of goods sold as a request for payment
c) bank that issues a letter of credit (i.e. the importer's bank)
d) bank that receives payment of bills, etc. for their customer's account (i.e. the
exporter's bank)
e) document allowing someone to claim ownership of goods
f) payment by bill of exchange to which documents are not attached
g) signed document that orders a person or organisation to pay a fixed sum of
money on demand or on a specified date
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h) bank that confirms they will pay the exporter on evidence of shipment of
goods
i) method of financing overseas trade where payment is made by a bank in return
for delivery of commercial documents, provided that the terms and conditions of
the contract are met
j) payment by bill of exchange to which commercial documents (and sometimes a
document of title) are attached
3. Find a word or phrase in the text that has a similar meaning.
1. promise or guarantee given to or by a bank
u……………………………………………
2. load of goods sent to customers
c………………………………………
3. person or company that acts as a middleman in a transaction
i……………………………………….
4. date when a bill of exchange is due for payment
m ………………………………………………..
4. Use an appropriate form of the words to complete the sentences which describe the procedure for documentary collection.
draw accept dishonour release remit forward dispatch present
1. The first step the exporter takes is to ask his bank to ...draw a bill of exchange
on the overseas buyer.
2. The exporter's bank .......................... the bill of exchange, together with the
commercial documents, to the importer's bank.
3. At the same time, the exporter ..................... the goods.
4. The exporter must take care to ...................... the correct documents to the bank.
5. When the importer...........................the bill of exchange, the bank will ...... the
documents of title to the goods.
6. If the importer ........................... the bill, the exporter may have to find an alternative buyer or ship the goods back again.
7. In some parts of the world, banks may be slow to .............. payment to the
exporter's bank.
FOLLOW UP
1 . The text in this unit describes the risks of each payment method from the
exporter's point of view. What are the risks for the importer? Which methods will be secure and why?
2 . Imagine you are a banker talking to one of your customers who has never
exported before. Explain how documentary credit works.
Prepare a list of recommendations for either exporters or importers.
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UNIT 3. Project finance
LEAD IN
1. Discuss these questions.
a) How are large projects, such as the construction of roads or bridges, usually
financed?
b) What role does the World Bank play in project financing?
2. Match these terms with their definitions.
1. consortium
2. syndicated loan
3. bridging finance
4. government subsidies
5. development bank
6. libor
a) short-term loan made by banks to cover the time between when money is first
needed and when other funding becomes available
b) combination of two or more large international companies, formed for a special purpose for a limited period
c) bank which strengthens developing economies by supporting large projects
such as infrastructure projects
d) money provided from the nation's current account to enable a company (or
other recipient) to operate without loss
e) loan arranged for a large organisation or government by a lead bank with other
banks participating
f) rate of interest at which funds are offered on loan on the interbank market,
which may be used as the bank's base rate.
Text A
POWER DEVELOPMENT RIVAL SCHEMES PUT FORWARD TO END
CHRONIC ELECTRICITY SHORTAGES
Uganda “close to big hydroelectric deal”
By Mark Turner in Nairobi
AES, the US independent power company, says it is about to sign a deal to
construct a $500m 250MW hydroelectric dam at Uganda's Bujagali Falls, a
project that would double the country's power supply.
The investment – East Africa's biggest - would show confidence in Uganda, at a time of concern at corruption and the potential cost of the military involvement in the Democratic Republic of Congo.
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Uganda suffers from severe power shortages, which a recent World
Bank study cited as a major impediment to investment. The government estimates that shortages reduce GDP growth by 2 per cent a year.
The country's current energy source, the hydroelectric dam at Owen
Falls, generates only 180MW, 100MW below demand.
But the picture is clouded by 25 another project, a Norwegian-proposed facility at Karuma Falls, which would have a maximum capacity of 200MW.
Uganda-based Norpak Power says the Karuma Falls project would be cheaper,
more flexible and have less impact on the environment. AES has been criticised
in the local press over environmental concerns.
Jim Adams, the World Bank country director for Uganda said the Bank had
been invited to provide a report on the two projects.
The analysis will include an environmental assessment, and an analysis of
price and future demand. Initial estimates suggest that Uganda could not accommodate both projects, and Mr. Adams said the World Bank would not consider
any situations which would later require government subsidies. Potential financiers are watching developments closely.
(Financial times. – 2009. – 24 Sep.)
Text B
BANKS AGREE FINANCE FOR BALKAN ROAD LINKS
Consortium to fund Croatian motorways
By Kevin Done East Europe Correspondent
A consortium of international and domestic banks has agreed to provide
bridging finance for Croatia's ambitious motorway construction programme to
close the gaps in the highway network between the Adriatic port of Rijeka and
central and east Europe. The loans, totalling €68.8m 10 ($77.7m), open the
way for work to begin on new sections of the €614m project to complete the
148km motorway between Rijeka, the main deepwater port, and the capital, Zagreb The new highway will also play an important role in accelerating the recovery of tourism along Croatia's Adriatic coast, which suffered badly during the
years of war in former Yugoslavia.
The loans have been made to Autocesta Rijeka-Zagreb (ARZ), the stateowned company responsible for constructing the toll motorway.
A consortium led by Deutsche Bank is providing a €43.3 million syndicated loan to act as bridging finance until the first stage of project finance totalling between 200 and €300m is completed during the first quarter of next
year. An additional four year medium-term loan for DM50m has been
agreed with Kreditanstalt fur Wiederaufbau, the German development bank.
The syndicated loan has been provided at 80 basis points (0.8) over LIBOR
(London Interbank Offered Rate) and for up to 12 months. The terms of the loan
demonstrate the increasing readiness of commercial banks to return to lending in
central Europe following the crisis in emerging market financing last year.
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The project expects to attract funding from the World Bank and the European Bank for Reconstruction and Development.
(Financial times. – 2009. – 24 Sep.)
COMPREHENSION
1. Mark these statements T (true) or F (false) according to the information in
the texts. Find the part of the text that gives the correct information.
Uganda hydroelectric deal
1. If AES builds the new dam at Bujagali Falls, the country's power supply will
increase to 250MW. F
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.
Croatian motorways
7. The bridging loan for this project will amount to €68.8m.
8. Construction of the new motorway cannot start until financing for the whole
project has been found.
9. Domestic banks are leading the consortium that will provide bridging finance.
10. The rate for the syndicated loan is above the London Interbank rate.
11. There have been problems persuading banks to lend to central Europe in the
past.
2. Look quickly at the texts and answer these questions.
1. In which project is a state-owned company involved in the construction? Croation motorways
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?
LANGUAGE PRACTICE
1. Replace the underlined items with words and phrases from the texts that
have a similar meaning.
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1. With the new dam, the country's power supply will be twice as much. (Text A)
double
2. A study referred to power shortages as the main reason for slow economic
growth. (Text A)
3. The press made negative comments about the AES project, saying that it would
damage the environment. (Text A)
4. There will be an evaluation of the environmental impact of the project. (Text A)
5. Estimates that were made at the start of the analysis suggest that only one
project can be supported. (Text A)
6. Organisations that could be interested in financing the project are waiting for
the World Bank's report. (Text A)
7. The new road will help to promote an upturn in the tourism industry. (Text B)
8. The loan will be provided for a maximum of twelve months. (Text B)
9. Investors are showing greater willingness to invest in central Europe. (Text B)
2. Study the words
suffer
This word is used in both the texts. What or who suffered in each case?
What did they suffer from?
demand
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?
1. an urgent request
2. a request for payment
3. the amount of a commodity that consumers want to buy
4. the willingness of consumers to purchase goods or services
3. Choose the best explanation for each of these words and phrases from the
text.
1. severe power shortages (Text A)
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)
a) something that stops people wanting to invest
b) something that encourages people to invest
3. current energy source (Text A)
a) electrical energy source
b) existing energy source
4. ambitious (Text B)
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a) something that people think can't be done
b) something that requires a special effort
5. accelerating (Text B)
a) speeding up
b) causing
4. A facility that is proposed by a Norwegian company is Norwegianproposed. 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 State-owned
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
twelve years?
FOLLOW UP
1. Imagine you are a potential investor. Decide which of the two projects you
think would be better to invest in. Present your decision, together with your
reasons orally or in writing.
2. Imagine you are a banker at Deutsche Bank. Explain the syndicated loan
for the Croatian project as if talking to someone from a smaller bank which
could be interested in becoming a partner.
3. Either orally or in writing, describe a project in your own country which
has attracted foreign investment
4. Discuss this question: What are some of the problems faced by financiers
who invest in large projects in developing countries?
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UNIT 4. An Introduction to Internal Auditing in Banking
LEAD IN
1. Discuss the question.
1. What do you think a function of an auditor is?
Roles and Responsibilities of Internal Audit
Internal audit is a department, independent of line management, whose
prime responsibility is to review the quality and effectiveness of the controls
within the banks to manage and mitigate risk and protect the assets of the bank.
In performing this work Internal Audit provides recommendations and advice to
management on matters requiring attention.
Internal audit will normally produce an annual plan of work to be performed, concentrating on areas of higher risk. Structured timetables and work
programs (e.g. audit programs) will then be designed for each assignment. At the
end of each review, an audit report will normally be prepared for senior management attention and action. Ad hoc assignments may also be performed at the request of senior management where problems or irregularities require further investigation. Further, there are real advantages in ongoing Internal Audit involvement in major projects, including systems developments. In this way audit concerns can be addressed up-front and action taken before the problem becomes too
entrenched.
To maintain complete independence, Internal Audit is not responsible for
performing or authorizing any of the day-to-day tasks which enable the bank to
operate. Nor is it directly responsible for the implementation of any new initiatives, even where these arise as a result of audit recommendations. Internal Audit
should, however, be prepared to offer advice, cooperation and practical assistance
to line management whenever possible.
The reporting lines for the Internal Audit Department tend to vary from
bank to bank given the disparities in the types of organization structure. As a
general rule, however, the reporting line should be designed to maximize independence whilst permitting the efficient performance of their responsibilities. A
reporting line to the Chairman with, say, a dotted line to Chief Executive would
be acceptable. A reporting line to Chief Executive with dotted line to Chairman is
less advisable but probably workable assuming regular input to the Chairman. An
Audit Committee, comprising non-executive directors, should also exist to complete the topdown reporting structure.
Within the Internal Audit department, the management responsibilities may
be split either on a regional basis or by business area. In some cases a hybrid, matrix structure may be in place. In practice it is advisable for the Internal Audit organization structure to mirror the bank’s own business structure where possible.
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Most Internal Audit departments of banks will also include IT Auditors
who will review the controls and security over the operating systems, networks
and applications as well as providing audit assistance to systems developments.
The Audit Committee is responsible for reviewing and approving the Internal Audit work plans and for ensuring that appropriate action is taken by management on the audit matters raised. It will also review the resource requirements
of internal audit and, at a high level, the quality of work performed. Audit Committees will similarly act as a reporting point for external auditors.
Audit Committees typically comprise around 4 non-executive directors
with a requirement for senior executives to attend as required. The Committee
would normally meet up to 4 times a year, or as needed.
Internal auditors of banks should have a background that is taken from one
of the following areas of expertise;
–- Experience in audit work gained either in an external accounting or internal audit environment;
– Experience in banking gained from line responsibilities in a financial institution;
– IT experience gained either in an audit or technical environment;
Increasingly, in more complex businesses, internal audit departments are
also seeing the benefit of employing staff with mathematical backgrounds to examine the models used to price and risk manage complex financial products.
The role of the external auditors is to express an opinion on the financial
statements of the bank. They are also, increasingly, required to express opinions
to regulators on the quality of critical areas of banks’ risk management processes
and controls. In both of these areas of responsibility, the external auditor will
need to place reliance on the work being performed by internal audit. It is therefore of paramount importance that internal and external audit maintain a regular,
constructive dialogue on all aspects of audit planning, coverage and areas of concern, whilst seeking to avoid duplication of effort.
(Financial times. – 2009. – 14 Jan.)
COMPREHENSION
1. Answer the following question. Then compare your answers with the class.
1. What does Internal Audit do?
2. What does Internal Audit not do?
3. How should Internal Audit be organized?
4. What is the Role of the Audit Committee?
5. What skills does the Internal Auditor need?
6. How does Internal Audit link with External Audit?
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2. Mark these statements T (true) or F (false) according to the information in
the text. Find the part of the text that gives the correct information.
1. Internal Audit provides recommendations and advice to management on matters requiring attention.
2. An audit report will normally be prepared for junior management attention and
action.
3. There are not any advantages in ongoing Internal Audit involvement in major
projects.
4. Internal Audit is responsible for performing or authorizing any of the day-today tasks which enable the bank to operate.
5. The reporting lines for the Internal Audit Department tend to vary from bank to
bank given the disparities in the types of organization structure.
6. Most Internal Audit departments of banks will not include IT Auditors.
7. The Audit Committee is responsible for reviewing and approving the Internal
Audit work plans and for ensuring that appropriate action is taken by management on the audit matters raised.
LANGUAGE PRACTICE
1. Insert the necessary word or word combination.
1. Internal audit will normally produce a (an) …………. of work to be performed.
2. …………………………………….. will then be designed for each assignment.
3. Audit concerns can be addressed ……. and action taken before the problem
becomes too entrenched.
4. Internal Audit is not responsible for performing or authorizing any of …….
tasks which enable the bank to operate.
5. An Audit Committee, comprising non-executive directors, should also exist to
complete the ……….. reporting structure.
6. Audit Committees typically ………..around 4 non-executive directors with a
requirement for senior executives to attend as required.
FOLLOW UP
1. Either orally or in writing, describe Internal Audit responsibilities in your
country.
2. Why do you think it is important to recognize that, like any organization,
banks must exercise effective control over standard functions such as fixed
assets, personnel and payroll, suspense accounting, physical security etc.
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UNIT 5. Fraud
LEAD IN
1. Discuss these questions.
1 How does an investor find out about new and exciting opportunities? How reliable do you think investment advice available in newspapers is?
2 'Money for nothing' and 'get rich quick' schemes are often really confidence
tricks. Has anyone ever suggested that you invest in a particular scheme?
Bre-X Minerals drama continues in the courts
It is now some time since the Busang gold deposit was revealed as a hoax.
Scott Morrison examines the effects on the mining industry and the legal battle
still being fought by investors.
More than three years have passed since Bre-X Minerals' purported 71m
ounce gold deposit in Indonesia was unmasked as nothing more than an elaborate
hoax.
When the dust settled, the Canadian company's C$6bn (US$4.2bn) market
capitalization had been wiped out and Bre-X's worthless shares were de-listed.
The drama, which unfolded first in the jungles of Borneo and later on in stock
markets in North America, is now being played out in courtrooms in Toronto and
in a remote corner of Texas, where lawyers have launched lawsuits seeking billions of dollars in damages.
While there is little doubt that Bre-X perpetrated a massive scam, lawyers
representing some 2,000 investors say the company and its directors are not the
only ones to be held accountable. The lawsuits also allege that several brokerage
firms issued false and misleading reports about the Busang deposit and profited
from their association with the company. The plaintiffs' arguments, if they are
successful, could set a chilling precedent for the entire brokerage industry.
In Canada, the efforts of investors to seek redress took a significant step
forward in March when a judge ruled that plaintiffs could proceed with a
lawsuit against Bre-X, its officials, engineering firms and brokerage houses.
The defendants have said they will appeal the ruling. The legal actions pit
small investors against nine of the top brokerage houses in North America. The
case alleges that50 brokerages were negligent in issuing misleading statements
proclaiming the company's Busang gold deposits as the largest in the world, and
that they also participated in 'a fraud on the market', a procedural doctrine under
US law.
However, a renowned securities law expert in the US has said that extending responsibility for fraud to 'aiders and abettors' - in this case the brokerages
that recommended Bre-X stock would prove difficult. The US lawsuit also alleges that Barrick, the Canadian gold producer that tried to negotiate a partnership
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with Bre-X, disseminated false statements or con cealed materially adverse facts.
Barrick claim it was prevented from disclosing the results of its due diligence because it signed a confidentiality agreement.
It is far from clear that plaintiff attorneys will succeed in their attempts to
hold brokerages liable for the Bre-X fiasco. If they succeed, it would be the first
time legislation against false advertising was applied to securities. Many observers say they have little choice other than to sue deep-pocketed brokerages that
promoted the stock, because Bre-X itself is bankrupt and company insiders who
profited from the fraud could not cover billions of dollars in claims.
(Financial times. – 2009. – 3 March.)
COMPREHENSION
1. Read the text about a gold mine fraud and answer these questions.
1. How much gold did Bre-X say they had found in Indonesia back in February
1996?
2. What was the market capitalization of Bre-X before the scandal?
3. Where are the courtroom dramas being played out?
4. How many investors are being represented by lawyers against Bre-X?
5. Who do the prosecuting lawyers think should be held accountable for the fiasco?
6. Why is the case so critical to brokerages in the US?
7. Is this case setting a precedent if the investors win?
8. Which firms are accused of being involved in the fraud?
9. What is the Canadian gold producer Barrick accused of doing?
10. Why don't the cheated investors sue Bre-X?
LANGUAGE PRACTICE
2. Match these terms with their definitions.
1. purported
2. unmasked
3. elaborate
4. perpetrate a scam
5. false and misleading reports
6. proclaiming
7. fraud
8. claim
9. fiasco
10. insiders
a) people in a company with access to privileged information
b) said to be true, but really false
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c) crime of deception and deceit
d) say something is true
e) complicated
f) disaster, a failure
g) announcing
h) revealed as false
i) carry out a dishonest scheme to make money
j) inaccurate statements
publicly
3. Match these terms with their definitions.
1. damages
a)people who bring a case to court
2. accountable
b)financial compensation
3. precedent
c) people accused of a crime in a court case
4. seek redress
d) case that sets rules
5. plaintiffs
e) sue to regain losses
6. defendants
f) promise to keep something secret
7. negligent
g) having to explain and justify
8. due diligence
h) legally responsible
9. confidentiality agreement
i) thorough check
10. liable
j) not do a job professionally
4. Find a word or phrase in the text that has a similar meaning.
1. take a bankrupt company's shares off the stock exchange
De-list ...................
2. firms that buy and sell shares on behalf of clients
b……………………………….
3. people who have only modest amounts of money to spend on shares
s………………. ... i ...................
4. when a company deliberately misleads the public
p ............................ in a f ................. on the m ................
5 people who help each other to commit a crime
a…………….. ...... and a..................
6 government bonds, holdings, stocks and shares
s…………………………………….
FOLLOW UP
1 Do you think the small investors will win their case in the gold scam? On
what grounds? Are there other factors to stop small groups winning against
bigger ones?
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Учебное издание
ACCOUNTING AND AUDITING
Учебно-методическое пособие
Составитель:
Ушакова Елена Валентиновна
В авторской редакции
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