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For today's lesson, the second in a two-part series on discussing a financial audit.
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Money is the language of business, and audits are one way companies prove they can be trusted with it.
Audits check whether financial records are accurate and reliable.
They help investors, managers and the public see that the numbers tell the truth about the organization's money.
If you've ever been part of a discussion about an audit, you'll know that there's a lot of specialized language in the world of finance.
And some of this language is what we call collocations, or natural combinations of words.
We use collocations all the time.
In fact, we store a collocation in our memory as one unit, rather than individual words.
Maybe you've noticed a few collocations I've already used.
Earlier, I said financial records, which are the documents related to a company's finances.
I also said, to tell the truth, which is a verb plus noun, showing that collocations include combinations of different types of words.
And if you learn these combinations, you can both understand better and sound more fluent.
In today's dialogue we'll hear a conversation between Ray and Elaine, who work for an international company that has just gone through an audit.
Ray is a CFO, or Chief Financial Officer, and Elaine is a CEO.
In their conversation about the audit results, they use many collocations.
We'll explain these collocations later in the debrief.
As you listen to the dialogue, try to answer the following questions.
1.
Ray says that the audit findings revealed a gap.
What financial process is this gap related to?
2.
What question does Elaine ask about reporting?
3.
What does Ray suggest rolling out this quarter to improve procedures?
So I finally had the chance to go through the report last night.
Looks like we're in good shape overall.
At least no major emerging issues, right?
No major issues, but there were two areas flagged in the audit findings, mostly related to documentation.
And, in terms of risk, looks like there's a gap in how we monitor controls in one of the smaller business units.
Same unit as those issues last year?
Does it affect our regulatory compliance status?
Yes, same unit.
And I'm on to them about it.
Doesn't affect our status, but we're on notice to tighten up processes, especially around record-keeping and sign-off procedures.
Honestly, a lot of it is just optics for investors.
Okay.
And what about reporting?
Are we fully compliant?
We are, yes.
The auditors specifically said we're in line with IFRS.
No issues there.
But they did raise a point about transparency in reporting.
We might want to provide more clarity around revenue streams in the MD&A.
Yeah, we've heard that before.
Let's just fix it already.
Got it.
Oh, and another thing they highlighted was a documentation gap around revenue recognition in the Latin America segment.
Nothing material, really, but we'll need to tighten that up next cycle.
Great.
And anything on internal audit procedures?
They suggested we formalize them.
Right now, it's pretty ad hoc outside the core operations team.
So, I'm thinking we should roll out a standardized review cycle this quarter.
Agreed.
Now, I remember seeing something about investor confidence in the summary section.
Was that just boilerplate or...
It was really more of a forward-looking note.
They just emphasized that stronger documentation and disclosure can help build confidence.
Well, we've got the AGM coming up, so this is top priority.
Did they identify any off-balance sheet items we need to disclose?
Oh, and there was one unadjusted misstatement related to depreciation.
Below threshold, but they noted it for the record.
Okay, so overall, this all looks very manageable.
Could be worse for sure.
Now let's go through the dialogue again and look at the language and collocations Ray and Elaine used in their discussion.
As we can hear, Elaine has just reviewed the audit report.
So I finally had the chance to go through the report last night.
Looks like we're in good shape overall.
At least no major emerging issues, right?
The purpose of an audit is to show where a company is doing well and where it may have problems.
Often we refer to problems as issues, and if there are emerging issues, it means that those issues are new or just developing.
Elaine wants Ray to confirm that there are no major or serious emerging issues.
As she says, the audit appears to show the company is healthy or in good shape.
What are some other ways of talking about emerging issues in an audit?
Let's run through some more examples.
The team met to discuss emerging issues affecting next quarter's reporting.
We hold a monthly call to flag any emerging issues in operations or finance.
Can Ray confirm there are no major emerging issues in the report?
Let's listen.
No major issues, but there were two areas flagged in the audit findings, mostly related to documentation.
Ray doesn't see any important problems, but he does say that there are some things worth looking at in the audit findings.
You know the word find is a verb.
So what are findings?
Basically, findings are the conclusions or results of some kind of study or examination.
While the actual document is called a report, the relevant information uncovered by the auditors are their findings.
How else can we use audit findings?
Let's practice some more examples.
We reviewed the audit findings with the finance team earlier this morning.
Based on the audit findings, we'll need to update our procedures.
Ray mentioned a couple of issues related to documentation.
As we can hear, there's also an issue related to risk.
And, in terms of risk, looks like there's a gap in how we monitor controls in one of the smaller business units.
In our last lesson, we learned the collocation internal controls.
You may remember the controls of the systems, rules and processes we use to make sure that things happen correctly.
We have to pay attention to those controls as we try to identify problems or mistakes.
The verb we use in this case is to monitor, meaning to watch carefully.
Ray is saying that there is a small problem with how they monitor controls.
Let's try some more ways of using this collocation to monitor controls.
We've installed new software to monitor controls in purchasing and procurement.
Managers are required to monitor controls more closely during high-volume periods.
The issue with monitoring controls was in one of their smaller business units.
Let's hear what Elaine asks about this issue.
Same unit as those issues last year?
Does it affect our regulatory compliance status?
Elaine is asking about a very important issue here.
Ensuring financial health is not the only purpose of an audit.
We're also trying to make sure that we are following or complying with all the rules and regulations set by governments or other associations that oversee the industry in which we work.
If we don't comply with all the regulations, then we may face fines or lawsuits or other problems.
That's why Elaine is asking about their regulatory compliance status.
She wants to know if they're still in line with all relevant rules and regulations.
The topic of regulatory compliance is very important in financial audits, so let's practice some more ways of using this collocation.
We're reviewing policies to make sure we maintain full regulatory compliance.
The new supplier must meet all local regulatory compliance requirements.
Now let's hear what Ray has to say about how serious the problem with monitoring controls is.
Yes, same unit.
And I'm on to them about it.
Doesn't affect our status, but we're on notice to tighten up processes, especially around record keeping and sign-off procedures.
Honestly, a lot of it is just optics for investors.
As you can hear, their compliance status isn't impacted, but they're on notice or they've been warned that they have to improve several different controls.
Or as Ray says, they need to tighten up these processes.
Now that she's been reassured about the monitoring issues, let's hear what Elaine asks about next.
Okay.
And what about reporting?
Are we fully compliant?
Compliance with rules and regulations isn't just about internal controls.
There are also rules about how companies report on their finances.
In keeping with her focus on the major or important findings of the audit, Elaine wants to know if they are fully compliant.
We already learned that compliance refers to the idea of following rules and regulations.
A related word is compliant, which is the adjective we use to describe a company that is following the rules.
And if the company is fully compliant, then it's meeting all the requirements completely.
What are some other ways of using this collocation fully compliant?
Let's run through a few more examples.
We've been told the new plant is now fully compliant with ISO requirements.
This update will help ensure the app remains fully compliant with new rules.
So is the company fully compliant when it comes to reporting?
Let's hear what Ray has to say.
We are, yes.
The auditors specifically said we're in line with IFRS.
No issues there.
But they did raise a point about transparency in reporting.
We might want to provide more clarity around revenue streams in the MD&A.
According to Ray, they're fully compliant, but that doesn't mean there are no issues at all.
In particular, the auditors mentioned transparency in reporting.
Transparency is a very important topic when it comes to finances, trust, and compliance.
Basically, if a company or person is transparent, then they are open, honest, and accurate.
They make it clear exactly what is happening.
In fact, clear is what transparent really means.
Windows are transparent, meaning we can see through them because they're clear.
In this case, Ray is talking about transparency in reporting.
This is a useful collocation when it comes to audits, so let's run through some more ways to use it.
Improving transparency in reporting can build greater trust with shareholders.
We've updated our disclosures to increase transparency in reporting.
Apparently, this issue of transparency in reporting isn't new, as we can hear in Elaine's response.
Yeah, we've heard that before.
Let's just fix it already.
Got it.
Oh, and another thing they highlighted was a documentation gap around revenue recognition in the Latin America segment.
Nothing material, really, but we'll need to tighten that up next cycle.
Ray is mentioning a small gap in another segment or business unit.
This one is related to revenue recognition.
You probably know that revenue is the money that a company earns through sales of products and services.
In finance, we have to think about when we recognize that revenue and record it as earned.
Revenue recognition isn't as simple as recording the revenue when the money arrives.
We have to consider when the work actually happens.
It gets especially complicated with contracts and prepayment.
Let's run through some more ways of using this collocation revenue recognition when discussing audits.
Changes in our revenue recognition could affect next quarter's numbers.
Let's double-check how we're applying revenue recognition to pre-orders.
Ray assured Elaine that the revenue recognition issue isn't too significant.
So Elaine moves on to another topic.
Great.
And anything on internal audit procedures?
When we say audit, we're usually talking about hiring an outside accounting company to inspect and report on our finances.
But companies routinely do internal audits where they inspect their own finances to make sure all the controls are working.
These processes of inspecting your own finances are called internal audit procedures.
Strong internal audit procedures can make the external or independent audit much more painless.
Let's try some other examples of this collocation, internal audit procedures.
Stronger internal audit procedures help catch issues before they become big problems.
Our internal audit procedures haven't been updated for years.
Now let's hear how Ray describes their internal audit procedures.
They suggested we formalize them.
Right now, it's pretty ad hoc outside the core operations team.
So, I'm thinking we should roll out a standardized review cycle this quarter.
If you do something about a schedule or without much planning, then you are taking an ad hoc approach.
The auditors have suggested moving away from this and making things more regular and formalized.
Ray believes that formalizing their internal audits should include a regular schedule of reviewing the finances.
He calls this a standardized review cycle.
It's standardized because it has a consistent schedule or cycle.
What are some other ways of talking about standardized review cycles?
Let's practice with a few more examples.
We're proposing a standardized review cycle for all high-risk accounts.
Without a standardized review cycle, it's easy to miss small problems.
Now that they've talked about internal audits, what topic does Elaine ask about next?
Agreed.
Now, I remember seeing something about investor confidence in the summary section.
Was that just boilerplate or…?
We've talked about how an audit helps prevent mistakes and ensure we're following all rules and regulations.
Well, another positive outcome of an audit, as Elaine mentions, is investor confidence.
Investors want to feel good about their investment in your company.
They want to feel confident or hopeful and positive that your company is being smart and managing the finance as well.
So an audit and transparency in reporting helps build investor confidence.
Let's try some other ways of using the collocation investor confidence.
Strong reporting practices can boost investor confidence over time.
Transparent communication is key to maintaining investor confidence.
Elaine remembers seeing a note about investor confidence in the audit report.
Let's find out what Ray has to say about that.
It was really more of a forward-looking note.
They just emphasized that stronger documentation and disclosure can help build confidence.
As Ray says, there's nothing too troubling related to investor confidence.
It was just a note from the auditors emphasizing the importance of things like disclosure.
As we learned in our last lesson, financial disclosure is all about accurate and clear reporting.
As we can hear next, Elaine thinks investor confidence is important as they prepare for their annual general meeting, or AGM.
Well, we've got the AGM coming up, so this is top priority.
Did they identify any off-balance sheet items we need to disclose?
One thing in particular that relates to disclosure and investor confidence is off-balance sheet items.
A balance sheet is one of the fundamental financial statements that shows a company's financial position.
The balance sheet shows assets and liabilities.
But there are some things that create liabilities that don't appear on the balance sheet.
This might be things like joint ventures, leases, and guarantees.
These off-balance sheet items are important to make note of so investors have a clear picture.
Let's try a few more examples of using off-balance sheet items.
We need to disclose all off-balance sheet items clearly in the notes.
Make sure we review all leases and other off-balance sheet items.
So were there any off-balance sheet items noted in the audit?
Let's listen.
Just a point about equipment leases.
Nothing unusual, but we'll need to add a footnote.
Oh, and there was one unadjusted misstatement related to depreciation.
Below threshold, but they noted it for the record.
In all of these financial reporting matters, it's important to give a clear and accurate picture of the finances.
But if you remember from our last lesson, mistakes or problems have to be big enough or material to really make a difference.
Sometimes there are mistakes in the accounting that really aren't so big and don't need to be corrected.
If we decide not to correct one of these, then we call it an unadjusted misstatement.
It's a misstatement, because it's a mistake, and it's unadjusted, because we're choosing not to change it.
Let's run through some more ways of using unadjusted misstatement when discussing an audit.
That unadjusted misstatement should still be documented even if no changes are made.
We noted a small, unadjusted misstatement, but it's not really a huge problem.
Ray has been answering a lot of Elaine's questions about the audit, so let's hear how she feels about it overall.
Okay, so overall, this all looks very manageable.
Could be worse, for sure.
If something is manageable, it means it's not too difficult.
All in all, a manageable audit report is a good thing for a company.
It means there isn't anything really major that they need to fix.
Now it's your turn to practice some of the collocations we've looked at in this lesson.
In a moment, you'll hear a series of sentences where the words replace with a beep.
Repeat the whole sentence, including the missing word.
Remember a collocation is two or more words that we commonly use together, so pay close attention to the words before the beep.
For example, if you hear, We're reviewing the audit. with the finance team this afternoon.
You can say, We're reviewing the audit findings with the finance team this afternoon.
After each response, we'll provide the correct answer.
Ready?
Let's give it a go.
That vendor must meet our standards for safety and regulatory... Answer.
That vendor must meet our standards for safety and regulatory compliance.
If we don't meet the deadline, it could damage investor answer.
If we don't meet the deadline, it could damage investor confidence.
We need to check how the new policy affects revenue Answer.
We need to check how the new policy affects revenue recognition for deposits.
Good software is essential in monitoring for the finance team.
Good software is essential in monitoring controls for the finance team.
That's all for this lesson on collocations and vocabulary for talking about audits.
We've learned many useful expressions for discussing the results of an audit and what the findings show.
For more practice.
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Thanks for listening, and see you again soon.
