Unit 20 Reading Activities Plus Questions

Read the following text and then complete the activities that follow.


{In the offices of a small accounting practice}

Mark (supervisor): Morning James.

James: Morning boss

Mark: How is it going with the tax return for KPL?

James: I have almost finished, but most of the supporting documents were PBC, so they really need to be double-checked before we can submit the return.

Mark: I don't know why they bother with those reports. Each year I tell them that it would be easier if we prepared them ourselves. I mean they have no idea on what they are doing with them!.

James: Yes, trying to understand their workings is like herding cats. Although, this year they do at least seem to be in the ballpark with their forecasts and budgets.

Mark: Maybe they are getting better then. Anyway, we can hold fire on that for a moment. I have a new client who needs advice on an investment by the close of play and I would like your input.

James: Of course, I'll have a look at it now.

One hour later...

James: Well the investment looks sound the shares seem to be increasing steadily, the company is due to launch their new medicine next year, and we are in a bull market so it should pay off.

Mark: That's what I thought at first, but did you notice their budgeted investment figures?

James: Yes, they seem to have blown the investment budget completely. I just assumed it was an error. Do you know what happened?

Mark: Not exactly, the client claimed that their last accountant had cooked the books, and in fact they haven't spent any of the investment budget yet.

James: Sounds like he was trying to exploit the loophole on tax exemption for investments.

Mark: Exactly, which means we can't really trust the accounts which were prepared so we will need to drill down on their records before we can be sure of their actual situation.

James: There is no way we can do that by the end of the day. Do you have any idea on their liquidity?

Mark: Yes, after the downsizing last year the firm became reasonably profitable and the owners are very well-off.

James: So even if we don't know the exact state of play, we can assume that the meat-and-potatoes sales of the company are increasing steadily, which means they should have enough revenue to cover the investment.

Mark: They should, but ever since the sister company went bust their owner is very cautious and he wants a guarantee that the investment will pay off.

James: I can imagine, but the truth of the matter is there is never a guarantee with that type of investment. If he wants to do more than just make ends meet, he needs to accept the risk.

Mark: That's true. Ok, so I'll let him know that we believe the investment is profitable. Can you make a copy of these documents so we have them on file.

James: Sorry, the photocopier is on the fritz again. The repairman should be here sometime tomorrow.

Mark: We paid a fortune for that machine and it's always broken. What a rip-off! So, in that case I will ask the client to leave the papers with us for the time being.

James: Do you think he will stay with us when he realizes that we won't use backdoor accounting methods for him?

Mark: Yes, when I found out about his previous accountant I was very clear that if he wanted to use our services, everything would have to be above board.

James: And he agreed?

Mark: Well he called me a 'dam bean counter' and started laughing.

Quiz: Reading Questions

1. When documents are PBC, understanding them is like herding cats and the client is not always in the ballpark with forecasts and budgets, not to mention that sometimes accountants hold fire for missing documents.
2. Cooking the books, using loopholes, and preparing everything above board and in the back door are good accounting practices.
3. “Blowing an investment budget by the close of play thinking it was a bull market” means investing all your money before the end of the day because the market is on the rise.
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