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Hello, and welcome back to Business English Pod for today's lesson, the first in a two-part series on financial English for discussing an audit.
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Financial audits have a way of increasing stress within a company.
Suddenly everyone's paying attention as reports get checked, numbers are reviewed, and details that seemed minor yesterday become urgent today.
Audits can feel intense, but they are a critical part of good business practice. like many other financial processes, the world of audits has its own language or vocabulary, and much of this language comes in the form of collocations.
Collocations are words that go together naturally.
They are combinations of words that we learn as a group rather than individually.
For example, a minute ago I said everyone suddenly pays attention.
We always use that verb pay with the noun attention.
It's a strong collocation. That expression includes a verb and a noun, but collocations can feature any word forms.
For example is a collocation that has a preposition and a noun.
For example, In today's dialogue, we'll hear a conversation between Ray and Marcia.
Ray is the chief financial officer for an international company.
Marcia is an auditor with an accounting firm hired to do an audit of Ray's company.
During their conversation about the upcoming audit, Ray and Marcia used many English collocations.
We'll explain these collocations later in the debrief.
As you listen to the dialogue, try to answer the following questions.
1. What does Ray hope to do in the week following the 15th of the month?
2. What does Marsha want to walk through or review with Ray?
Three, Ray asks about something that is a hot topic in Marsha's opinion.
What does he ask about? So, do you already have a sense of your internal timeline? we're hoping to close the books by the 15th and we'd like to submit all documentation by the following week is that realistic from your end That works.
Just make sure we've got access to the core financial statements, trial balances, and any schedules supporting significant transactions from Q3 and Q4.
Noted, we flagged a few deals from Q4 that may need a bit of extra context.
They were clean from a compliance point of view. but they're material in size.
Okay, let's keep those on the radar. And related, have you finalized your materiality levels for this year? almost, aiming to be consistent with last year, but we've seen some volatility in pricing, so there might be some tweaks.
I'll get you the final figures early next week.
Good. And we'll also want to walk through your internal controls.
Any changes in how you're handling cash or procurement processes?
Yeah, we've tightened things up, especially around vendor approvals.
We had a small issue flagged in Q2, not a red flag I guess, but enough to prompt a policy update.
Got it. That's the kind of corrective action we like to see.
On another note, are you seeing any increased focus on asset valuation?
We've got a few sites up for reappraisal.
Yes, that's been a hot topic lately, especially with commodity prices fluctuating.
We'll need documentation supporting the fair value estimates, especially if anything's changed since last year.
Will do. And what about contingent liabilities?
We've got a legal claim that's been dragging on for months. and we're not sure how, or if, it should be disclosed.
Well, let's review the most recent legal correspondence together.
If it's likely and estimable, it needs to be in the financial disclosure.
Otherwise, we might just include a note.
Makes sense. I'll loop in legal and get their assessment.
Now let's go through the dialogue again and look at the language and collocations Marcia and Ray used in their conversation.
We join them as they're discussing the timeline for the audit.
So, do you already have a sense of your internal timeline? we're hoping to close the books by the 15th and we'd like to submit all documentation by the following week is that realistic from your end?
Two activities on the timeline are closing the books and submitting all documentation.
To close the books means to finalize the accounting for a particular period, like a month or a year.
This must be done before you submit documentation for an audit.
Documentation simply refers to all papers, files and documents.
When you submit documentation, you are simply giving it to those who need it.
In this case, that's the auditor. What are some other ways we can talk about submitting documentation?
Let's run through some more examples. All suppliers are required to submit documentation before production begins.
Please submit documentation for all capital purchases made in the last quarter.
Ray was curious if his suggested timeline was acceptable.
Let's hear how Marsha responds. That works.
Just make sure we've got access to the core financial statements, trial balances, and any schedules supporting significant transactions from Q3 and Q4.
It sounds like the timeline works for Marcia, and she uses a couple of important collocations in her explanation.
The first is financial statements. These are the official reports of a company's finances, including the balance sheet, revenue statement, and cash flow statement.
Financial statements are the foundation of all financial reporting, so let's try some more examples of this collocation.
The auditors reviewed our financial statements before issuing the final report.
We need to prepare the financial statements by Friday for the board meeting.
Marsh's request also includes reports on significant transactions in the third and fourth quarter of the year.
A transaction is any financial activity where money is moved or exchanged.
A transaction is significant only if it involves an amount of money that might affect the overall financial picture.
Spending $20 on paper is not a significant transaction for a large company.
Let's practice more ways of talking about significant transactions related to financial audits.
The audit team will focus on any significant transactions recorded in Q4.
Any significant transactions involving partner companies should be clearly reported.
Now let's get back to the dialogue, as Ray and Marcia discuss an idea related to significant transactions.
Noted. We flagged a few deals from Q4 that may need a bit of extra context.
They were clean from a compliance point of view. but they're material in size.
Okay, let's keep those on the radar. And related, have you finalized your materiality levels for this year?
If you flag something, it means you are noting it for further discussion or action.
Ray mentions that they flagged some transactions that are material in size.
This is the same root word as the materiality levels that Marsha asked about.
You might think of material as a noun, referring to cloth or fabric, But as an adjective, in the world of finance, material means that something is important enough to have an impact.
When a company decides on its materiality levels, it is stating what size of error or issue matters.
If it is under that threshold, the auditors won't pay close attention to it.
Let's run through some more ways of talking about materiality levels.
We adjust materiality levels depending on the size and scope of the business unit.
That error falls below our materiality levels, so no adjustment is needed.
What does Ray say about their materiality levels for this year?
Let's listen. almost, aiming to be consistent with last year, but we've seen some volatility in pricing, so there might be some tweaks.
I'll get you the final figures early next week.
As Ray says, they may tweak or change things slightly, in part because of volatility or rapid changes in the market or prices. so we can see that exact materiality levels depend on the circumstances.
Next, Marcia mentions another fundamental financial concept she wants to review or walk through.
Good. And we'll also want to walk through your internal controls.
Any changes in how you're handling cash or procurement processes?
Internal controls are all the processes and policies we use to manage risks related to money.
That might include things like needing two people to approve large transactions or rules around procurement, as Marcia mentions.
Procurement is the process of buying goods and services from other companies.
What are some other ways of using internal controls when talking about an audit?
Let's try some more examples. Weak internal controls were one reason for the delay in completing the audit.
Good internal controls help prevent errors and reduce the risk of fraud.
So has Ray's company changed any of their internal controls around procurement?
Let's find out. Yeah, we've tightened things up, especially around vendor approvals.
We had a small issue flagged in Q2. Not a red flag, I guess, but enough to prompt a policy update.
As Ray describes, they've tightened up or improved the way they select the specific companies they will buy goods or services from.
In procurement, we call these selling companies vendors.
Ray explains that this improvement was made because of something they flagged in the second quarter.
As we discussed earlier, to flag means to note something for discussion or review.
And if something is a red flag, it means it's a warning of possible trouble.
Obviously, auditors are watching out for red flags when they review a company's books.
Let's try some more ways of using this collocation.
That sudden drop in revenue raised a red flag for the finance team.
Repeated late payments by this client is a red flag worth investigating.
Ray noted that the vendor approval issue was not a red flag, but important enough for them to change a policy.
Let's hear how Marcia responds. Got it.
That's the kind of corrective action we like to see.
One major purpose of an audit is to find ways to improve a company's finances and internal controls.
We can call these improvements corrective actions.
An action, in this case, is anything that someone does.
And actions are corrective if they are meant to correct a mistake.
What are some other ways we can talk about corrective actions?
Let's run through a few more examples. After the audit, we created a corrective action plan to fix reporting delays.
The Finance Director outlines steps for corrective action in the meeting.
Next, Ray wants to ask about one specific issue within financial audits.
Let's listen. On another note, are you seeing any increased focus on asset valuation?
We've got a few sites up for reappraisal.
When a business or part of a business or anything else is up for reappraisal, then it is going to be checked to see if its value has changed.
We do this from time to time with the company's major assets or things of significant value the company owns.
The word value is used as both a noun and a verb.
When you value something, you determine its value.
And this activity of valuing things is called asset valuation, which is what Ray is asking about.
Let's try some more examples of this collocation, asset valuation.
We've requested an updated asset valuation before finalizing the year-end report.
The audit raised questions about the asset valuation of leased equipment, Now let's find out if Marsha has seen an increased focus on asset valuation in her work.
Yes, that's been a hot topic lately, especially with commodity prices fluctuating.
We'll need documentation supporting the fair value estimates, especially if anything's changed since last year.
According to Marcia, asset valuation has been a hot topic.
In this case, hot means very popular. For this reason, Ray will have to provide fair value estimates for any assets that have changed in value.
An estimate is a statement of approximate value.
We can't know exactly how much people would pay for something without selling it, so we just give an estimate.
Fair value means that the estimate is based on what people would pay for it today, not what the company originally paid for it.
Let's run through some more ways of talking about fair value estimates when discussing an audit.
We need to document the fair value estimates used for the new property purchase.
The auditors asked for evidence supporting our fair value estimates.
There's another thing that Ray isn't sure how to disclose or report in their financial documentation.
Let's hear what it is. Will do. And what about contingent liabilities?
We've got a legal claim that's been dragging on for months. and we're not sure how, or if, it should be disclosed.
A company's liabilities are everything it owes, whether it's loans, rent, payroll, or anything else.
Of course, financial statements will report all liabilities a company is sure about, but there are some possible liabilities that might not get reported.
For example, Ray mentions a legal claim against his company.
This means someone is trying to sue them for money.
They don't know at this point if they will win the court case or not, so it's a contingent liability.
The collocation contingent liabilities is important in audits, so let's try some more examples.
Legal disputes must be reviewed to assess potential contingent liabilities.
Our accountant requested clarification on how we calculated our contingent liabilities.
Remember, Ray wasn't sure how or whether to report their legal situation as a contingent liability.
Let's hear what Marcia thinks. Well, let's review the most recent legal correspondence together.
If it's likely and estimable, it needs to be in the financial disclosure.
Otherwise, we might just include a note.
According to Marcia, reporting on the company's legal claim depends on how probable it is and whether it's estimable.
This is related to that word estimate that we looked at previously.
If something is estimable, it can be estimated.
Obviously, if something can't be estimated, then it's difficult to include it in a financial disclosure, as Marsha says.
This word disclosure is related to the verb to disclose, which was used earlier.
When you disclose something, you reveal or report it.
So financial disclosure is a sharing of financial information with stakeholders or the authorities.
Let's try a couple more ways of talking about financial disclosure.
Investors expect full and timely financial disclosure of any major developments.
We improved our financial disclosure by adding more detail to the quarterly report.
Now let's hear how Ray finishes off the conversation.
Makes sense. I'll loop in legal and get their assessment.
Ray says he's going to include the company's lawyers in the communication on the finances and contingent liabilities.
And it's clear from this conversation that there's a lot of preparation and a lot of people to involve in preparing for a financial audit.
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 with a word replaced 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'll need to... all documentation at the start of the audit.
You can say, We'll need to submit all documentation at the start of the audit.
After each response, we'll provide the correct answer.
Ready? Let's give it a go. The auditors asked for our Q4 Financial to complete the review.
Answer. The auditors asked for our Q4 financial statements to complete the review.
Week internal have been a recurring issue in this department since last year.
Answer. Weak internal controls have been a recurring issue in this department since last year. the team proposed a series of steps as part of their corrective Answer.
The team proposed a series of steps as part of their corrective action.
We need to improve our financial to satisfy investor concerns.
We need to improve our financial disclosure to satisfy investor concerns.
That's all for this lesson on collocations we use when discussing an audit.
We've learned many useful expressions for talking about financial reporting and preparing for an audit.
In our next lesson, we'll hear Ray discuss the results of the audit with his company CEO.
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Thanks for listening, and see you again soon.
