Accountancy in a free-market economy

Russian: What is the role of accountancy in a free-market economy?

American: Well, in a free-market environment, accounting provides sort of a vehicle for transmitting information⁴ about the performance of enterprises to those with an interest in it.

R.: Would it be correct, in that case, to sum up the basic functions of accounting in a market economy as measuring economic activity of an enterprise and its profit, showing changes in its financial position and ensuring that a fair report of the economic status and performance is made available to all those concerned.⁵

Am.: Yes, you are right. I'd like to add that these functions are performed at two different levels.

R.: We know that your accountants communicate financial information to many people. What users need financial information?

Am.: I'm coming to the point. One branch of accounting, called managerial accounting, provides information that managers use in making decisions within the firm. Other accountants prepare financial reports for outside users. This branch of accounting is known as financial accounting.

R.: Financial accounting is only making its first steps in our country and we are having lots of teething problems. How does your accounting meet the needs of the users?

Am.: Our accounting standards and objectives of financial statements fully meet the users' needs for useful information.

R.: What basic principles ensure the provision of such information in the manner the market requires?

Am.: First of all, accounts must be prepared on a going-concern basis.

R.: What exactly does it mean?

Am.: It means accounting is based on the assumption that the business in question⁶ will continue to operate. Besides, accounts must reflect the economic substance of the situation rather than simply its legal form.

R.: What other characteristics make information useful for the users?

Am.: First of all, I'd single out relevance, timeliness, prudence, reliability, materiality, consistency, and comparability.

R.: As far as I know, these concepts are recognized internationally. But users of information often fail to get a true and fair view of business operations.

Am.: That depends on a number of factors. But I personally believe that in the present conditions, we all need to work harder to harmonize national accounting systems so as to make it easier for users to assess financial information.

R.: I can't agree more, particularly taking into account growth of transnational corporations and increasing interdependence of financial markets.

C. DIALOGUE

PUBLIC AND PRIVATE ACCOUNTANTS

Russian: I'm sure you know that we are engaged in developing the accounting profession in our country at the moment. In this context we would like to know how the members of the accounting profession are classified in your country.

American: They can be classified by the type of organization they work for. The accounting profession in market economy consists of public and private accountants. Public accountants are independent professionals who provide services for a fee. Accountants who are employed by business firms are known as private accountants.

R.: The changes in our economy along market lines have given a boost to the creation of public accounting firms. What forms of business organization seem preferable to your public accountants?

Am.: Well, some practise alone. Many have formed partnerships with other accountants, and a few have formed professional corporations. I'd say that partnerships are the main form of business organization in the accounting profession.

R.: What explains the popularity of the form, from your point of view?

Am.: The answer, surprisingly, is very simple. Public accountants try to avoid limited liability because they believe that professionals should take full responsibility for their judgements.

R.: What does the title certified public accountant imply?

Am.: Тhе title refers to the holder of a license to practise public accounting.

R.: We are introducing a similar practice into our life, too. In this connection I'd like to know what bodies in your country are authorized to grant licenses.

Am.: The license is granted by a state government. But I'd like to stress that the license is granted to people who meet educational and experience requirements and pass an examination. All American certified public accountants are expected to keep their knowledge up to date and to maintain the highest standards of integrity, professional independence and confidentiality. I hope you also try and do your best to keep up high professional standards.

R.: Certainly. For many years our accountants were held in very low esteem in our country, now the situation is changing for the better.

Am.: I'm glad to hear that. What services do your public accountants offer? I think we have much in common here.

R.: Yes, sure. The main service is auditing. Besides, public accounting firms offer consulting services, some accountants are also active in tax planning and preparation of tax returns. And what about your private accountants? Their work must differ greatly from what our accountants employed by business firms do.

Am.: No wonder, you are only entering a market economy. Accountants who work for US business firms have wide responsibilities. Their duties include cost accounting, capital budgeting, budgeting for current operations, tax planning, they must know how to design financial information systems, and do many other things.

R.: Isee, we'll have to go a long way before we create a strong and respected professional body of accountants in Russia.

Am.: But it's worth while the effort.⁷

Notes

¹ in the true sense of the word – в истинном смысле слова

² at a point of time – в определенный период времени

³ ... will hold at all times –... остается всегда справедливым

⁴ ... sort of a vehicle for transmitting information – некое средство передачи информации

⁵ all those concerned – все заинтересованные лица

⁶ the business in question – фирма, о которой идет речь; (зд.) данная фирма

⁷ It's worth while the effort. – Это стоит затрачиваемых усилий.

VOCABULARY LIST

A. accounting n бухгалтерский учет

to a significant extent в значительной степени

phase n стадия, фаза

capture n (зд.) получение (информации)

processing n обработка (информации)

communication n передача (информации)

recording n запись (информации)

book-keeping n счетоводство

record n запись; v записывать, отражать в отчетности

at a profit с прибылью

to meet one's commitments выполнять обязательства

to fall due наступать (об обязательствах); подлежать оплате, подлежать выполнению

accounting equation бухгалтерское равенство

assets n активы

equal v равняться, быть равным

inabilities n пассивы, обязательства

owners' equity собственный (акционерный) капитал компании

financial statements финансовая отчетность

balance sheet балансовый отчет, баланс

income statement отчет о прибылях и убытках

profit and loss account счет прибылей и убытков

double-entry bookkeeping бухгалтерский учет по методу двойной записи

entry n запись, проводка

account n счет

cash basis метод записи доходов и издержек на счетах только при их поступлении и выплате; кассовая база

accrual basis метод начислений при учете доходов и издержек на счетах; запись доходов и издержек в момент завершения операции

debit n дебет

debit side левая сторона баланса, дебет счета

credit n кредит

credit side правая сторона баланса, кредит счета

B. accountancy n бухгалтерский учет

performance n показатели деятельности, результаты работы

fair adj (зд.) честный, правильный, справедливый

economic status экономическое положение

user n пользователь

managerial accounting управленческий учет

outside user внешний пользователь

financial accounting финансовый учет

teething problems проблемы, возникающие на этапе становления (начальном этапе)

going-concern basis принцип работающего предприятия

assumption n посыл, предположение, допущение

economic substance экономическая сущность

characteristics of information характеристика информации

relevance n релевантность

timeliness n своевременность

prudence n благоразумие, предусмотрительность

reliability надежность

materiality n материальность, существенность

consistency n неизменность, преемственность

comparability n сравнимость, сопоставимость

true and fair view правильное представление (о чём-л.)

harmonize v гармонизировать, сближать

C. public accountant (дипломированный) частнопрактикующий бухгалтер

private accountant бухгалтер, действующий в пределах одной фирмы

practise v (зд.) иметь частную практику

judgement n мнение, суждение

certified public accountant дипломированный частнопрактикующий бухгалтер

holder of a license владелец/держатель лицензии

be authorized иметь право, быть уполномоченным

to grant a license предоставлять лицензию

state government (зд.) правительство штата

to pass an examination сдать экзамен

to keep knowledge up to date поддерживать знания на современном уровне

integrity n (зд.) высокая профессиональная репутация

confidentiality n конфиденциальность

to be held in low esteem не пользоваться уважением

to have much in common иметь много общего

auditing n аудит

consulting services консультационные услуги

tax planning планирование налогообложения

cost accounting производственный учет

capital budgeting составление смет капитальных расходов

budgeting for current operations составление смет текущих расходов

financial information system финансовая информационная система

professional body профессиональная организация

EXERCISES

Ex. 1. Answer these questions:

 

A. 1. What role does an accounting system play in an economy?

2. Into what phases is accounting broken down?

3. What is an accounting equation?

4. What is the most widely practised principle of bookkeeping?

5. What does the balance sheet list?

6. What is shown in the income statement?

B. 1. What is the role and functions of accountancy in a free-market economy?

2. Who uses financial information?

3. What are the major objectives of financial statements?

4. What is "useful" information for users?

C. 1. What are public accountants?

2. What are private accountants?

3. How do public accountants organize their activities?

4. Who can get a license to practise public accounting?

5. What services do Russian public accountants provide?

Ex. 2. Give derivatives of:

 

account n performance n record n manager n

statement n transaction n debit n credit n

measure n available adj relevance n prudence n

reliability n materiality n substance n consistency n

comparability n independent adj practice n license n

confidential adj consult v

Ex. 3. Find English equivalents for the following Russian phrases from the main text and the dialogues:

 

A. ключевой элемент экономической системы; финансовые результаты хозяйственной деятельности хозяйствующего субъекта; сделки, в которые вступают различные организации; получение, обработка и передача информации; отражение информации в финансовой отчетности; работать с прибылью; выполнять свои обязательства; бухгалтерское равенство; активы должны быть равны пассивам; в балансе отражаются...; учет по принципу двойной записи; отражать в балансе, составлять баланс; счет прибылей и убытков;

B. передавать информацию; измерять; изменения в финансовом положении предприятия; финансовый учет; управленческий учет; проблемы начального периода; цели финансовой отчетности; принцип работающего предприятия; экономическая сущность; давать истинное представление о деятельности фирмы; сближать принципы учета;

C. заниматься чём-л.; предоставлять услуги на платной основе; дать толчок созданию...; быть предпочтительным; организовать товарищество; избегать ограниченной ответственности; брать на себя ответственность за свои решения; иметь право выдавать лицензию; удовлетворять требованиям в отношении уровня образования и опыта работы; сдать экзамен; профессиональная репутация; конфиденциальность; поддерживать высокие профессиональные стандарты; аудит; иметь много общего; отличаться в значительной степени; производственный учет; составление смет капитальных расходов; составление смет текущих расходов.