Financial Statements And Their Elements

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Financial Statements And Their Elements



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 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 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.




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).




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 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 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.



I. Choose the correct answer:

  1. Accounting can be divided into such phases:

a) capture and recording of financial information;

b) processing and communication information;

c) capture, communication and processing of the financial information.


  1. The left hand-side of the double entry system is called:

a) the debit side;

b) the credit side.

The right hand-side of the double entry system is called:

a) the debit side;

b) the credit side.


  1. The principle of double-entry bookkeeping was made:

a) in France;

b) in England;

c) in Northern Italy;

d) in South Italy;


4. Balance sheet is drawn :

a) annually;

b) half-yearly;

c) quarterly;

d) monthly;

e) all are right.


II. Match what statements are true and what are false. Results write to the table:


1.The accounting system is determined to a significant extent by the level and direction of the economic system’s development.

2.Accounting is used to describe the transactions entered into by only one kind of organization.

3.Accounting can show the managers or owners of a business whether or not the business is operating at a profit.

4.Accounting equation states that a firm’s assets must equal its liability plus its owners’ equity.

5.Accounting is divided into two phases: capturing and processing of financial information.

6.The balance sheet shows a lot of useful financial information, but it does not show everything.




ì Unit 12



1. Stress the first syllable:

auditing, auditor, records, accuracy, supervisory, agency, indepth, manifold, judgement, accurate, proper, legal, evidence, ultimate, totals, magnitude, qualify, certify, circumstances, relevant.


2. Stress the second syllable:

examine, opinion, preliminary, review, assumption, complete, record, omission, inherent, approval, integrity, accompanying, conduct, compliance.


3. Stress the third syllable:

credibility, deviation, reliability


4. Read the text:


Auditing is a process in which an independent accountant-auditor examines a firm’s accounting records and financial statements and offers an opinion on their accuracy and reliability.

There are different types of audits, for example, financial statements audits, income tax audits, “value for money: audits, environmental audits, administrative audits, financial management audits, etc.

The accountancy profession has built up a significant amount of expertise in performing financial statement audits.

Accounts audits were established as an instrument to protect third parties, the users of accounts, since the auditor’s opinion helps establish credibility of financial statements.

Special bodies of users, such as supervisory boards, employee representatives, government agencies may sometimes need an indepth audit report, which is usually confidential.

It should be stressed that auditors do not monitor, they offer an opinion, and the audit process and audit procedures are complicated and manifold. The auditor’s opinion is gradually being built up from a mass of detailed work to the final judgement through the planning and testing stages. The auditor normally starts with a study of the business environment the audited company is working in and performs a preliminary analytical review.

Then he should direct his attention to the financial statements. Interestingly enough, however, the auditor’s attention is not directed towards the financial statements’ elements as such, but towards the correctness of various assumptions made by the management for their preparation. For instance, the auditor needs to know if figures are complete and accurate and reflect what they should reflect, if income and expenses and recorded in the proper periods and if the legal position is reflected adequately.

The auditor should focus on any misstatement whether it is intentional or unintentional1. The management is responsible for the reliability of financial information. If the management is not prepared to take the responsibility it may be hard to complete the audit. In such situations the auditor should seek his own evidence by means of independent audit procedures.

Although the financial statements are the ultimate objectives of an audit, normally such audits cannot be completed without a proper study and evaluation of the accounting system and assessment of the internal accounting controls.

Defining the audit strategy the auditor has to decide whether to rely on internal controls or to resort to substantive testing applying analytical review procedures, such as tests in totals, comparison with budgets or even statistical analysis of figures.

In the planning stage as well as during the performance of audit procedures and, finally, in forming conclusions, “materiality: and “audit risk” are critical elements in the auditor’s judgement. “Materiality” refers to the magnitude or nature of a misstatement (including an omission) of financial information.

“Audit risk” (including three different components – inherent risk, control risk, detection risk) is the risk that an auditor may give an inappropriate opinion on financial information that is materially misstated.

The natural finalization of the audit process is the auditor’s report, reflecting the auditor’s opinion on the financial statements. Unfortunately, audits do not always end up in an approval of the financial statements. Any deviation from the unqualified opinion should be explained in the auditor’s report, including the uncertainly or the disagreement that caused the auditor to qualify his opinion2.

In order to protect the public interests and the profession’s integrity an individual must be sufficiently educated and adequately trained before being certified to act as an auditor.

Below you will find a sample of an auditor’s opinion:


To the Shareholders of … Ltd.:

We have audited the accompanying balance sheet of … Ltd. as of 31 December … and the related statement of income for the year then ended.

Our audit was conducted in accordance with generally accepted auditing standards and, accordingly, included such test of the accounting records and such other auditing procedures as we considered necessary in the circumstances to establish whether the balance sheet and related statement complied with Ukrainian regulations and were in agreement with the underluing accounting records.

In our opinion, the balance sheet and related statement of income of … Ltd. referred to above have been prepared in compliance with the relevant Ukrainian regulations and are in agreement with the underlying accounting records.


24 March …


[1] should focus on any misstatement whether it is intentional or unintentional – слід звертати увагу на будь-яке подання невірних даних незалежно від того, чи є воно навмисним чи ненавмисним

2 …that caused the auditor to qualify his opinion – ті, що змусили аудитора внести доповнення у свій висновок (виразити особливу думку)

¤ Vocabulary list:

auditing – аудит

auditor – аудитор

examine – перевіряти, проводити ревізію

accounting records – документи обліку

financial statements – фінансова звітність

to offer an opinion – робити висновок (за результатами аудиторської перевірки)

accuracy – точність

reliability – достовірність, надійність

audit – аудит, аудиторська перевірка

build up – нарощувати, накопичувати

account(s) audit – аудит рахунків

auditor’s opinion – висновок аудитора

credibility – вірогідність

supervisory board – наглядова рада

government agency – відомство, урядова організація

indepth audit report – детальний аудиторський звіт

audit process – процес проведення аудиторської перевірки

audit procedures – методика проведення ревізії

manifold – різноманітний, багатосторонній

judgement – судження, оцінка

planning stage – стадія планування

audited company – компанія, що перевіряється

preliminary analytical review – попередній аналіз фінансово-господарської діяльності

assumption – припущення, передумова

complete figures – повні дані

accurate figures – точні дані

record – реєструвати, записувати, відображати

proper period – належний період

legal position – юридичне положення, юридичний статус

misstatement – повідомлення неправильних даних

(un)intentional – (не)навмисний

to take the responsibility – брати (на себе) відповідність

to complete the audit – завершити аудиторську перевірку

to seek evidence – шукати докази

ultimate objective – кінцева мета

evaluation – оцінка

substantive test(ing)– незалежна перевірка

tests in totals – перевірка підсумкових чисел

to form a conclusion – зробити висновок

materiality – „істотність”

audit risk – ризик неякісного контролю

critical – вирішальний

magnitude – величина, розмір

omission – пропуск

inherent risk – притаманний (виду діяльності) ризик

control risk – ризик контролю

detection risk – ризик (не)виявлення

approval of the financial statements – підтвердження фінансової звітності

deviation – відхилення

unqualified opinion – безумовна думка (оцінка, висновок)

to qualify the opinion – дати аудиторський висновок з застереженнями

integrity – професійна чесність

certify – видавати свідоцтво

audit – проводити аудиторську перевірку

accompanying – прикладений

balance sheet – балансовий звіт

the related statement of income – відповідний звіт про прибутки та витрати

to conduct an audit – проводити аудиторську перевірку

generally accepted auditing standards – загальноприйняті стандарти аудиту

accordingly – відповідно

in the circumstances – у даних обставинах

to comply with regulations – відповідати вимогам

in agreement with – у відповідності з

underlying – що лежить в основі

in compliance with – у відповідності з

relevant – слушний, що відноситься до справи



Ex.1. Find equivalents:

  1. to build up;
  2. audit procedures;
  3. auditor’s opinion;
  4. account(s) audit;
  5. complete figures;
  6. accurate figures;
  7. control risk;
  8. detection risk;
  9. tests in totals;
  10. to conduct an audit;
  11. to offer an opinion;
  12. unqualified opinion;
  13. in agreement with
a) аудит рахунків; b) повні дані; c) ризик контролю; d) у відповідності з; e) ризик (не)виявлення; f) висновок аудитора; g) точні дані; h) нарощувати, накопичувати; i) методика проведення ревізії; j) перевірка підсумкових чисел; k) методика проведення ревізії; l) проводити аудиторську перевірку; m) робити висновок (за результатами аудиторської перевірки); n) безумовна думка, оцінка  


Ex.2. Enter correct correspondences in English or in Ukrainian:


accounting records  
  фінансова звітність
audit process  
  стадія планування
  компанія, що перевіряється
to complete the audit  
  зробити висновок
to qualify the opinion  
  проводити аудиторську перевірку
  балансовий звіт



Ex.3. Find English equivalents for the following Ukrainian phrases:


перевіряти звітну документацію; давати висновок щодо точності та достовірності фінансової звітності; аудит фінансової звітності; ревізія правильності нарахування прибуткового податку; аудит оптимального використання грошових засобів; аудит заходів щодо захисту навколишнього середовища; ревізія правильності дій керівництва; фахівці накопичили значний досвід в ...; висновок аудитора робить фінансову звітність надійною; аудитори не контролюють, вони дають висновок у відношенні точності та достовірності фінансової звітності; ділове середовище, в якій працює компанія, що перевіряється; аудитори звертають увагу на точність попередніх розрахунків, зроблених керівництвом; навмисне чи ненавмисне подання невірних даних; брати на себе відповідальність за ...; процедура проведення аудиторської перевірки; оцінка системи внутрішнього контролю; удаватися до незалежних перевірок; аналіз фінансово-господарської діяльності; підтвердити фінансову звітність; безумовний висновок; аудиторська перевірка була проведена у відповідності із загальноприйнятими стандартами аудита; балансовий звіт відповідає українському законодавству.


Ex.4. Fill in the blanks with prepositions, pronouns or conjunctions if necessary:


1. Auditing is a process ... ... an independent accountant-auditor examines a firm’s accounting records ... financial statements.

2. Accounts audits were established ... an instrument ... protect third parties, the users ... accounts.

3. Special bodies ... users, ... ... supervisory boards, employee representatives, government agencies may sometimes need an indepth audit report, ... is usually confidential.

4. The auditor’s opinion is gradually being built up … a mass … detailed work … the final judgement … the planning and testing stages.

5. The auditor’s opinion is gradually being built up ... a mass of detailed work ... the final judgement ... the planning ... testing stages.

6. The auditor’s attention is directed towards the correctness … various assumptions made … the management … the financial statements preparation.

7. The auditor should focus ... any misstatement ... it is intentional ... unintentional.

8. Тhe auditor has to decide ... to rely ... internal controls ... to resort … substantive testing .

9. “Audit risk” is the risk … an auditor may give an inappropriate opinion … financial information … is materially misstated.

10. The natural finalization … the audit process is the auditor’s report, reflecting … the auditor’s opinion … the financial statements.

11. In order … protect the public interests … the profession’s integrity an individual must be sufficiently educated … adequately trained … being certified to act … an auditor.


Ex.5. Complete the following sentences:


1. Auditing is a process in which … .

2. The accountancy profession has built up … .

3. Accounts audits were established … .

4. Special bodies of users, such as … may sometimes need … .

5. Auditors do notmonitor, they offer … .

6. The auditor normally starts with … .

7. The auditor needs to know if …, if … and if … .

8. Financial statements are … .

9. The auditor has to decide … .

10. “Audit risk” is the … .

11. The natural finalization of the audit process is … .

12. An individual must be … to act as an auditor.

Ex.6. Answer the following questions:

1. What is auditing?

2. What audits are practiced nowadays?

3. What does the auditor’s opinion help establish?

4. How is an audit planned?

5. What do auditors normally start with?

6. What do auditors direct their attention to when they analyse financial statements?

7. What responsibilities do managers (directors) undertake with regard to the audit?

8. What are the responsibilities of auditors?

9. Do auditors study and evaluate the accounting system and the internal accounting control during the audit? Do they rely on internal controls?

10. What are the most critical elements in the auditor’s judgement?

11. Do all audits end up in the approval of the financial statements?

12. Who has the right to act as an auditor?

13. What were the auditors responsible for?


Ex.7. Translate into English:


1. Існують різні види аудиту, такі як, перевірка фінансової звітності, ревізія правильності нарахування прибуткового податку, аудит оптимального використання грошових засобів та інші.

2. Фахівці бухгалтерського обліку накопичили значний досвід у проведенні перевірок фінансової звітності.

3. Аудит рахунків є інструментом захисту інтересів користувачів фінансової звітності.

4. Наглядовим радам та відомствам іноді необхідні глибокі аудиторські звіти, які, як правило, є конфіденційними.

5. Аудиторський висновок забезпечує надійність фінансової звітності.

6. Процес проведення аудиторської перевірки та методика проведення ревізії – складні та різноманітні.

7. Увага аудитора спрямована на точність (правильність) попередніх розрахунків, зроблених керівництвом.

8. Аудитор повинен звертати увагу на будь-яке подання невірних даних незалежно від того, чи є воно навмисним чи ненавмисним.

9. Визначаючи стратегію перевірки, аудитор повинен вирішити, чи покладатися на внутрішню систему контролю чи застосовувати незалежну перевірку.

10. „Матеріальність” та „ризик неякісного контролю” є виключно суттєвими факторами при формуванні висновку аудитора.

11. Звичайним завершенням процесу аудиторської перевірки є аудиторський звіт, який відображає аудиторські висновки щодо фінансової звітності.

Ex.8. Match each term in Column A with its definition in Column B:

a) a rule or a restriction made by an authority; b) a person with authority who matches others work to make sure a job is done properly; c) a written or printed paper issued by an authority as proof of something; d) a professionally trained person who examines the accounts of an organization to check that they are true and correct; e) an official document showing that official permission has been given to own, do or use something;
  1. auditor;
  2. supervisor;
  3. certificate;
  4. regulation;
  5. licence
Column A Column B


Ex 9. Write several paragraphs on the following using given words and word combinations:

a) auditing process:

a process; accountant-auditor; to examine; accounting records; financial statements; to offer; an opinion; accuracy and reliability.


b) types of audits:

different types; financial statements; income tax; “value for money”, environmental, administrative; financial management.


c) auditor’s opinion:

to monitor; to offer an opinion; audit process; audit procedures; to complicated; to manifold; detailed work; final judgement; planning stage; testing stages. business environment preliminary; analytical review.


d) audit strategy:

to decide; to rely; internal controls; to resort; substantive testing; to apply; analytical review; procedures; tests in totals; comparison; statistical analysis.


e) audit risk:

to include; inherent risk; control risk; detection risk; an auditor; to give; an inappropriate opinion; financial information.



1. Read and translate the dialogue in pairs:



Englishman: In most industrialized countries audit is a statutory requirement applying to limited companies. Are there any similar regulations in force in Ukraine?

Ukrainian: The transition to a market economy has led to the establishment of new market mechanisms and creation of new institutions. Under the legislation in force, joint ventures are required to submit their annual financial statements, audited by an auditing organization, to the local financial authority.

Englishman: As far as I know, you didn’t use to have auditing firms in the past. Are there any auditors now?

Ukrainian: Yes, there are. This profession is developing very fast. There are hundreds of auditing firms in every big city now.

Englishman: In the UK the auditor is responsible for ensuring that the accounts show a “true and fair” view of the business’s financial position and performance? What is auditing in your country?

Ukrainian: As elsewhere, auditing in our country is a process in which an independent accountant examines a firm’s records, analyses financial statements and offers an opinion on their accuracy and reliability.

Englishman: I see, we have much in common here. Our auditors, as a rule, are chartered public accountants, too. Besides, our auditors are very active in consultancy.

Ukrainian: Due to the specific business environment, auditors in our country render a very wide range of consultancy services.

Englishman: I suppose they help their clients to prepare tax returns and give advice on the maintenance of accounting and organization of internal control.

Ukrainian: Not only. Our auditors also give advice on how to set up businesses, how to improve an enterprise management, explain to their clients rules for performing foreign trade transactions and foreign currency operations.



statutory requirement – вимога, встановлена законом

in force – діючий

“true and fair” view of the business’s financial position – точне відображення фінансового стану компанії

chartered public accountant – дипломований приватно практикуючий бухгалтер

consultancy – надання консультаційних послуг

to render a wide range of services – надавати широкий перелік послуг

tax return – податкова декларація

maintenance of accounting – ведення системи бухгалтерського обліку

enterprise management – управління підприємством

foreign trade transaction – позаторгова угода

foreign currency operation – операція з іноземною валютою


2. Read the dialogue, translate the Ukrainian remarks into English and act it out:


Foreigner: As far as I know, you are Ukrainian’s leading provider of accounting and consulting services. The history of your firm mirrors the changes that have taken place in Ukraine over the recent years.

Ukrainian: Так, ви праві. Наша фірма була заснована ще в 1989 році. Всі ці роки нам довелось наполегливо працювати, оскільки ми розпочинали майже з нуля.

Foreigner: What services do you provide?

Ukrainian: Ми надаємо широкий перелік послуг: від послуг у сфері бухгалтерського обліку та аудиту до послуг у сфері фінансового менеджменту та оподаткування.

Foreigner: What are your clients?

Ukrainian: Нашими клієнтами є компанії усіх форм організації бізнесу, що працюють в усіх секторах нашої економіки, включаючи транспорт, торгівлю та банківську діяльність.

Foreigner: We in the UK believe that if auditors are to play their role in economy they must be independent. What are your fundamental principles?

Ukrainian: Ми повністю поділяємо вашу точку зору у відношенні незалежності аудиторів, крім того, ми приділяємо значну увагу підвищенню їх професійного рівня.

Foreigner: Thank you for the opportunity to learn something about auditing in Ukraine.


3.Make up dialogues on the following:


  • Imagine that you have a job with an auditing firm (or want to be an auditor), what sort of personal characteristics do you think are most important for auditors? Speak about it with your partner.
  • Compare personal characteristics which are most important for auditors with the personal features necessary for other financial professions.



1. Round-table discussion. The question on agenda “My career in auditing”. Answer following questions:

1. Do auditors perform a useful service to the community?

2. How do auditors conduct audits?

3. Is it difficult to become a practicing auditor? Are professional qualifications high?

4. Are there any international professional organizations of auditors?

2. Discuss with your friends:

a) What is government auditing?

b) What bodies in Ukraine perform government auditing?

3. If you have a job with an auditing firm (or want to be an auditor), what sort of personal characteristics do you think are most important for auditors? Compare them with the personal features necessary for other financial profession.


1. a) Read the texts and do the tasks that follow.

b) Describe the two main functions of auditing. Discuss how public accountants (auditors) and government auditors perform these functions. Explain the importance of internal auditing.


Audit is an examination of the records and reports of an enterprise by accounting specialists other than those responsible for their preparation. Public auditing by independent accountants has acquired professional status and become increasingly common with the rise of large business units and the separation of ownership from control. The public accountant performs tests to determine whether the management's statements were prepared in accordance with acceptable accounting principles and fairly present the firm's financial position and operating results. Such independent evaluations of management reports are of interest to actual and prospective shareholders, bankers, suppliers, lessors, and government agencies. Generally speaking, auditing has two functions: to reveal undesirable practices and, as far as possible, to prevent their recurring in the future. A relatively new type of auditing is internal auditing. It is designed to evaluate the effectiveness of a business's accounting system. Perhaps the most familiar type of auditing is the administrative audit, or pre-audit, in which individual vouchers, invoices or other documents are investigated for accuracy and proper authorization before they are paid or entered in the books.

In English-speaking countries, public auditors are usually certified, and high standards of professional qualification are encouraged.

Most countries have specific agencies or departments charged with the auditing of their public accounts.

Taxpayers in all countries are interested in the sound management of the collected revenue, they also want to know whether or not the executive branch of government is complying with the law, especially in the area of public finance.

Government auditors are working for sound, economical and efficient financial management, addressing the key problems in the field of public sector auditing, like strengthening the institutions that oversee financial management, changes in the scope and methodology of government auditing, ability to conduct performance audits in public enterprises, strengthening internal auditing in spending units, ex-post external audits of government activities, budget efficiency problems, performance of expenditure programmes.

The advantages accruing from an audit are obvious, taking into account the complexity of present-day commerce and business.


2.a) Supply the prepositions where necessary.

b)Say what the auditors checked during the audit in accordance with the instructions given to them.

Auditors’ Report

We have examined the books, accounts and vouchers relating … the six months ended 30th September … (year) which presented … us. We have made extensive enquiries … the system of internal check … force and are satisfied that it is working efficiently. Particular attention was paid to the methods in force for the authorization of accounts for payment and the handling … cash. The cash balances … the 30th September … (year) were counted and found to be in accordance … the cashier’s books. All bank payments have been verified with the bank statements and certificates of the balances on the accounts obtained … the bankers.

We have checked all cash and bank payments … the receipts and have to report that a number of small payments are unsupported … vouchers. It has been possible, however, to obtain other evidence to show that these disbursements were properly made. The cash books have been cast and all postings … the various ledgers checked … detail.

All invoices … respect of goods purchased and expenses incurred have been examined with the appropriate analysis of books, the totals of which have been checked. Several minor errors were detected which have now been rectified. The postings to the Creditors’ Ledgers have been test-checked, being far too numerous to do in detail. The balances … the individual Creditors’ accounts have been compared with special audit statements obtained from them and found to be … order. Our instructions did not require us to examine the Sales Ledgers and Day Books: we therefore report that in such work as we have performed we found no evidence of, or opportunity … defalcation or fraud.

Words you may need:

voucher – виправдувальний грошовий документ

authorization of accounts for payment – дозвіл на здійснення платежів з рахунків

handling of cash – використання готівки

cash balance – залишок касової готівки

cashier’s book – журнал касових операцій

bank statement – виписка з рахунка

receipt – квитанція

to obtain evidence – отримати доказ

disbursements – виплати

cash book – касова книга, журнал касових операцій

cast – підраховувати, підсумовувати

posting – проводка

ledger – бухгалтерська книга, бухгалтерський регістр

expenses incurred – понесені витрати

detect – виявляти

rectify – виправляти

Creditors’ Ledger – книга кредиторів

test-check – перевіряти за допомогою тестів

audit statement – аудиторський звіт

Sales Ledger – книга обліку продаж

Day Book – книга операцій робочого дня

defalcation – присвоєння чужих грошей

fraud – обман, шахрайство


3.a) Open the brackets putting the verbs in the correct form.

b) Discuss the content of the article.


Misuse of Public Funds

It is a universally accepted truth in Russia that the heads of many public funds habitually (to divert) trillions of rubles away from the stated purpose into lucrative deals for personal gain.

Over the first 10 month of this year, the Accounts Chamber, a watchdog of the State Duma, (to reveal) that nearly 1.8 trillion rubles, were not used for their designated purposes.

The auditors (to find) that nearly every fund was not using its money as it was supposed to. For instance, the Moscow branch of Russia’s Pension Fund (to buy) a building for about 2 billion rubles, (to spend) 11.5 billion rubles on its renovation and repair, and (to pay) another 6 billion rubles to an intermediary for “selecting the building preparing the necessary documents, and obtaining the consent of the parties concerned.” The Pension Fund (to misuse) more than 660 billion rubles despite the fact that people in some regions were left without pension payments for up to three months.

Many public funds (to set) up their own banks with charter capital running into hundreds of billions of rubles.

In spite of the obvious violations of regulations, all these operations cannot be put down as embezzlement without court rulings, and the violators are unlikely to be sued.

Misappropriations from extrabudgetary funds (to encourage) not only by people with a particular mentality and by a lack of adequate actions on the part of law-enforcement agencies, but also by the very system through which financial resources (to flow) from top to bottom. State extrabudgetary funds (to act) as an intermediary that collects payments and remits them to the recipients. Thus, they (to tempt) to “invest” the money in lucrative fast-yielding deals.

There would probably have been fewer cases of embezzlement and misuse of assets if public funds had initially been granted legal rights to earn money by, for example, transacting in securities and foreign-exchange valuables, and making short-term deposits in banks. So far the funds only (to have) a list of operations barred to them.


Words you may need:

misuse – зловживання

universally accepted – загальноприйнятий

habitually – звичайно

divert – відволікати, відводити

lucrative – прибутковий, вигідний

personal gain – особиста вигода

Accounts Chamber – Рахункова палата

designated purposes – вказані (заплановані) цілі

consent – згода

violation – порушення

embezzlement – розтрата

court ruling – постанова суду

sue – шукати в суді, переслідувати в судовому порядку

misappropriation – незаконне присвоєння, розтрата

remit – переводити (засоби)

recipient – одержувач

fast-yielding deals – угоди, що швидко приносять прибуток

valuables – цінності

bar – забороняти


4.a) Supply the articles where necessary.

b) Write down 3-5 questions about the text.

c) Say what you have learned from the text about government auditing in Sweden.


The Swedish National Audit Office (SNAO) is … independent institution for central government auditing and accounting in … Sweden. The main task of … organization is to audit the effective fulfillment of central government goals and commitments. In line with this, the organization analyses revenues and expenditures of … central government, audits central government activities, examines accounts and performance of all government agencies and … public organizations. The SNAO selects independently … agencies and activities to be audited, … auditing methods to be used, … content of the audit reports, as well as the audit statements. All audits are carried out in accordance with generally accepted auditing standards. The audits principally have … control functions, but substantial efforts are also made to ensure that the results of the audit can be used as … basis for improving efficiency and effectiveness. The SNAO also has … task of improving financial management at all levels of … central government, of fostering high standards of financial management leading to the efficient use of central government funds, efficient cash flows and security of the payment system.

The government and … Parliament use the information of the SNAO as a basis for their decisions on … development and transformation of the Swedish public administration. Besides, … government often turns to the SNAO for … comments on measures proposed by different public commissions.

In addition, … SNAO establishes … norms, develops auditing methods, and offers training and advice on issues related to auditing and financial management.

The staff are recruited on … basis of educational qualification and … professional ability. Almost 95 per cent of the professional staff hold high professional qualifications.

Central government appropriations finance some fifty per cent of … organization’s activity and the remaining activities are free-financed. The SNAO is … active member of INTOSAI (the International Organization for Supreme Audit Institutions) and its European equivalent EUROSAI (the European Organization for Supreme Audit Institutions).


Words you may need:

Swedish National Audit Office – Державна ревізійна служба Швеції

foster – сприяти, заохочувати

cash flow – потік готівкових засобів

public administration – управління на державному та місцевому рівнях

appropriation – асигнування

free-financed – на госпрозрахунку

INTOSAI – Міжнародна організація вищих контрольних органів

EUROSAI – Європейська організація вищих контрольних органів



I. Fill in each space with the appropriate words from a, b or c:

  1. The accountancy __________ has built up a significant amount of expertise in performing financial statements audits.

a) circulation;

b) profession;

c) examination.


  1. If the management is not prepared to take ________ it may be hard to complete the audit.

a) responsibility;

b) right;

c) deviation.


  1. Audits cannot be completed without a proper study and evaluation of the __________and assessment of the internal accounting controls.

a) accounting records;

b) accounting system;

c) profit and loss account.


  1. The natural finalization of the audit process is the_________, reflecting the auditor’s opinion on the financial statements.

a) auditor’s report;

b) accounting records;

c) accounts audit.


  1. Defining the audit _________ the auditor has to decide whether to rely on internal controls or to resort to substantive testing applying analytical review procedures,

a) magnitude;

b) deviation;

c) strategy.


II. Which is correct:


  1. Financial statements:


a) аудиторська перевірка;

b) фінансова звітність;

c) попередній аналіз.


  1. Відповідний звіт про прибутки та збитки:


a) the related statement of income;

b) preliminary analytical review;

c) indepth audit report.


  1. Ревізія рахунків:


a) balance sheet;

b) profit and loss account;

c) account(s) audit;


  1. The synonym for the word “to examine” is:


a) to complete;

b) to judge;

c) to audit.


  1. The antonym for the word “accurate” is:


a) precise;

b) exact;

c) erroneous.

III. Match what statements are true and what are false. Results write to the table:


  1. There are different types of audits: statement audits, administrative audits, financial management audits.
  2. Government agencies may sometimes need an indepth audit report, which is usually not confidential.
  3. Auditors do not monitor, they offer an opinion.
  4. The management is not responsible for the reliability of financial information.
  5. Audits cannot be completed without a proper study and evaluation of the accounting system and assessment of the internal accounting controls.
  6. The auditor should not focus on any misstatement whether it is intentional or unintentional.



IV. Fill the tables:




accept verb

1. to take or agree to something that is offered: The unions voted to accept the latest pay offer. I’ll accept ₤ 100 if you give me cash. 2. to agree to undertake (responsibility for) something: The manufactures will not accept responsibility for damage caused by misuse. 3. (banking) to sing a bill of exchange to say that you promise to pay it: The bill of exchange was accepted for payment. 4. (law) to agree to an offer made as part of negotiation in a contract: He accepted my offer. 5. (insurance) to agree to provide insurance payments if a claim for loss, damages, etc is made: Will your insurance company accept the claim?6. to receive someone/something as adequate or suitable: Will you accept a cheque?


1.(finance) a statement of money paid or owed for goods or services: Have you kept an account of expenses? 2. (banking) an arrangement with a bank or firm that allows credit for financial and commercial payments: open an account with the bank 3.(commerce) a trader, esp the owner or manager of a shop, who has an arrangement to buy from a particular supplier: the salesman was visiting one of his most important accounts. 4. a spoken or written report: Please give me a detailed account of the meeting. 5. (stock exchange) the period (usually two weeks) during which trading takes place on the stock exchange.

account verb

to explain or give a reason for something: account for all expenses on a business trip.

accounting noun

the work of keeping or checking accounts; accountancy: She works in accounting.

accrual noun

(finance) a gradual and/or automatic increase: the accrual of interest. 2. (accounting) accrued charge.

accumulate verb

to grow through regular additions: My savings are accumulating interest.

active capital noun

(finance) money or items of value (assets) that can be easily converted to money: calculate the amount of active capital.


(finance) money paid before it is due, or for work only partially completed; a loan: I asked for an advance on my wages.

advance verb

1. to increase; to move forward: Shares advanced today. 2. to pay something before it is due: Can you advance me ₤100?

adjustment noun

the settlement between an insurance company and the person insured over the amount of a claim: Adjustment has been reached on our claim. 2. the actual amount due to the person insured: The insurance company has paid the adjustment.

allocate verb

to set something aside for a particular purpose; to share or give something: to allocate money for the advertising budget. We have allocated costs equally among all members of the department.

allocation noun

1. the setting aside of money, materials, etc for a particular purpose: plan the most efficient allocation of resources. 2. the amount set aside: We’ve already spent our allocation for the year.

amount noun

a sum or quantity of something: charge the maximum amount of something; repay the money at a fixed monthly amount.


1. (a) setting aside an amount of money for a particular purpose in the company accounts: Appropriation for advertising has been increased. (b) an instance of this. 2. the money set aside: An appropriation of ₤5 000 has been made for staff training. 3. taking legal possession of money or property, usually if it is not claimed by the owner: The bank had the right to appropriation in the case of unclaimed deposits.


the buying and selling of shares, goods, currencies, etc in two different markets at almost the same time to make a profit from price differences: The difference in prices between the two markets was reduced by arbitrage.

asset noun

an item of value belonging to a person or a company, such as a share, a piece of land, a building or a machine, esp if it can be sold to pay a debt: The factory is the most valuable asset.

assignment noun

1. (management) a task or duty that is given to someone: I was sent overseas on a special assignment. 2. (law) the transfer of a legal right to someone: The deed of assignment has been signed. 3. the transfer of the whole or part of the terms of a lease to someone: assignment of a lease to a new tenant.

audit noun

a detailed inspection, usually once a year, of the accounts of an organization by a professionally trained person: carry out an annual audit of the company accounts.

audit verb

to examine the accounts of an organization to check that they are true and correct: The accounts have not yet been audited.

auditor noun

a professionally trained person who examines the accounts of an organization to check that they are true and correct: The auditors were called in to inspect the accounts.


1. an amount calculated by adding by adding together several figures and dividing by the number of figures added: Add up these prices and find the average. 2. something that is standard or usual: Her qualifications were above average. 3. (insurance/shipping) (a) a loss or damage arising from an event at sea: The ship-owners paid the average. (b) the way that the cost of replacing a ship or cargo damaged at sea is shared between owners and insurers: All marine insurance policies are subject to average.


to do or amount to something as an average: The pay rises averaged 10% over all.



a situation that may exist on the futures market when prices for goods that will be delivered in the future are lower than prices for goods that will be delivered immediately.


1. (accounting/banking) the difference between the totals of money coming into (credits) and money going out of (debts) an account; the amount needed to make these totals correspond: My bank statement shows a balance of £150. 2. (accounting/banking) the amount of money still owed after some has been paid: We have received your deposit, please send us the balance by the end of the month. 3. (commerce) the remainder of something after part of it has been used or taken: The balance of your order will be supplied when we have new stock.


1. to compare the totals of money coming into (credits) and money going out of (debits) an account and calculate the amount needed to make them equal: She spent hours trying to balance the company’s accounts.2. to show that the difference between the total credits and total debits is the same as the real amount that remains or is lost: Do the books balance?

balanced economynoun

The control of money supply in which the total income is equal to the total expenditure: The government was blamed for not achieving a balanced economy.

balance of payments noun

the difference between the amount of money coming into a country from the goods and services it exports, and the amount of money going out for the goods and services it imports: Britain’s balance of payments is up this month because of increased exports.

balance sheet noun

a document that shows the totals of money received and money paid out by a company and the difference between them: The company’s balance sheet for the end of the year showed a sharp rise in borrowings.

bank account noun

An arrangementwith a bank that allows the customer

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