1. ______ banks act as the agents, brokers or intermediaries between the issuer and investors.
2. Banks work with pension funds, mutual funds, _____funds and the investing public to help them maximize returns when trading or investing in securities.
3. For high-net-worth individuals some private banks arrange exclusive wealth _____ and tax planning.
4. The results of the companys work were presented to _____at the annual General meeting.
5. Commercial banks have to _____in offering credits to small businesses.
6. If the sale of the collateral does not raise enough money to pay off the debt, the _____can obtain a deficiency _____against the borrower.
7. Every month I _____5% of my salary in a fund.
Over to you
Explain in writing what investment banks do in their capacity of intermediaries between the issuer of stocks or bonds and investors.
UNIT III
ACCOUNTING WORK
Warm up
1. What do you think was the use of accounting in ancient times?
2. What is the most important document drawn up by accountants?
3. Why does the law make it obligatory to submit accounting reports to government agencies?
Section A
Reading 1
History of Accounting
The history of accounting dates back to ancient times. Accounting records were discovered by archeologists doing research on such diverse civilizations as those which existed in China,Babylonia, Greece, and Egypt. Huge building projects were realized there, so the rulers of those civilizations received regular quantitative reports regarding the incurred expenses in labor and materials.
In the fifteenth century the merchants of city-states of Italy have succeed in impressive development of the art of accounting, servicing the flourishing trade. In 1494 a friend of Leonardo da Vinci, a monk and mathematician Luca Pacioli published the first known description of double-entry bookkeeping.
The pace of development of accounting has fastened during the so called Industrial Revolution as the economies of developed countries focused on the mass production of goods. In the nineteenth century, the growth of corporations, especially those in the railroad and steel industries, has further spurred the progress of accounting. Corporation owners - the stockholders - no longer needed to personally manage the work of their enterprises. That function was more often performed by hired managers, who created diverse accounting systems making it possible to report to the owners on the efficiency of their businesses. Stockholders relied on this information making decisions regarding the development of their businesses. To protect the interests of owners against fraudulent statements of hired managers, the same accounting reports were ordered to be submitted to regulatory authorities, certifying that the companys disclosure of accounting information was in accordance with special rules and regulations set in order to protect the interests of the stakeholders.
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The increased involvement of government in the economic life in the USA and Europe went hand in hand with the diversification of accounting reporting. When the US federal government introduced the income tax, the accounting concept of income was legally defined in every detail. Government and tax authorities needed to make sure that every business is fulfilling their legal duties, and in particular that they are paying enough tax. The financial statements gave a good idea of how much tax the business should be paying over. Strict regulations regarding financial accountability imposed on the business community enabled government bodies at all levels to play more active roles in health, education, labor and economic planning.
Discussion
Answer the following questions:
1. What were the countries where accounting appeared first?
2. Who published the first known description of double-entry bookkeeping?
3. How did Industrial Revolution influence the development of accounting?
4. How did accounting help managers to report to owners on the efficiency of their businesses?
5. What documents help to determine how much tax a business should pay?
Reading 2
The Work of Accountants
Different stages of accounting work involve specialized personnel to perform respective functions. Therefore accounting professions include bookkeepers, accountants, controllers and auditors.
Bookkeepers deal in taxes, cash flow, which includes cash receipts and cash disbursements, sales, purchases and different business transactions of the company. Bookkeepers first record all the appropriate figures in the books of original entry, or Journals. At the end of a period - usually a month - the totals of each book original entry are posted into the proper page of the Ledger. The Ledger shows all the expenditures and all the earning of the company. On the basis of all the totals of each account in the Ledger, the bookkeeper prepares a Trial Balance. Trial Balances are usually drawn up every quarter.
The accountants responsibility is to analyze and interpret the data in the Ledger and the Trial Balance. So managerial decisions regarding the ways in which the business may grow in the future are normally taken with the active participation of companys accountant. His help is needed to prepare new products and advertising campaigns, to plan for expansion or reorganization of the business. The work of accountants is rather sophisticated, but it is not necessary to have a certificate to practice accounting. Junior employees in large companies, for example, often practice accounting for some time and only later take the examination and get a certificate from a specialized school. Certified accountants in England are called chartered accountants. In the USA the certified accountants are called public accountants.
The chief accounting officer of a large company is called the Controller, or Comptroller. Controllers are responsible for measuring the companys performance. They interpret the results of the operations, plan and recommend future action. This position is very close to the top executives of the company.
Every year public companies are required to use the services of a public accountant for the conduct of an audit of their financial statements. This work is done by an auditor, appointed by an incorporated or registered firm, who inspects and verifies the accuracy of a company's operational and financial records. Having examined
the submitted accounting records, he prepares an Auditors report - a document certifying the accounting records and financial position of a firm. This audit report along with the audited financial statements must be filed with the appropriate regulatory authority.
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Discussion
Answer the following questions:
1) What are major accounting professions?
2) What company operations are included into cash flow?
3) What do bookkeepers do with the totals of each book of original entry?
4) What is a Trial Balance based on?
5) What is the accountants responsibility in respect of the Ledger and the Trial Balance?
Reading 3
Accounting Documents
Financial statements represent a formal record of any firms financial activities during a specific period of time accounting period. These are written reports that quantify the financial strength, performance and liquidity of a company. Such accounting reports reflect the effects of business transactions and events on financial situation of the entity.
Among different financial statements the most important are the balance sheet, the income statement and the statement of cash flows.
Balance sheet (or the statement of financial position) details assets, liabilities and equity of the enterprise at a specific point in time. Everything a business owns or controls, such as cash, inventory, factory plant and its machinery are called assets. All the debts of a business to creditors, its bank loans and other obligations are featured among liabilities. The amount of capital that remains in the business after its assets are used to pay off its outstanding liabilities is called equity. Equity therefore represents the difference between the assets and liabilities. It is the net worth of a business. The balance sheet is always drawn up annually, but most companies also require monthly, quarterly and semiannual statements.
Income statement (also known as the profit and loss statement or the statement of income and expenses) is used to evaluate the companys financial performance over a specific accounting period. Therefore an income statement for the previous year must be included in the companys annual report to its shareholders.
The statement is composed of two elements Income and Expenses. Income summarizes what the business has earned over the reported period, its sales and other revenue and profits, dividend income. The Expenses part features salaries and wages, rental charges, other costs and losses of the enterprise. Net profit or loss is determined by deducting expenses from income.
Statement of cash flows specifies the movement of money into and out of the business. It covers its operating, investing and financing activities.
These three reports are central to understanding the financial health of the business and are a key component in making smart business decisions.
Discussion
Answer the following questions:
1) What do financial statements represent?
2) What are the most important reports revealing the financial health of the business?
3) What do assets of a company include?
4) What kind of a companys obligations are called liabilities?
5) How can you calculate equity of a business?
6) Why is the Income statement featured in the companys annual report to its shareholders?
7) How can profit or loss of a business be determined?
Section B
Exercise 6.
