ACCA FR flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Relevance

Financial information is relevant when it can make a difference to users' decisions through predictive value, confirmatory value or materiality.

Faithful representation

Faithful representation means information is complete, neutral and free from error, depicting the economic substance of transactions rather than only their legal form.

Going concern assumption

The going concern assumption means financial statements are prepared on the basis that the entity will continue in operation for the foreseeable future.

Accrual basis

Under the accrual basis, transactions and events are recognised when they occur, not when cash is received or paid, and recorded in the periods to which they relate.

Asset definition

An asset is a present economic resource controlled by the entity as a result of past events; control means the ability to direct the use of the resource.

Enhancing qualitative characteristics

The enhancing qualitative characteristics are comparability, verifiability, timeliness and understandability; they increase the usefulness of information that is already relevant and faithfully representative.

Materiality

Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions of primary users of general purpose financial statements.

IAS 2 inventory valuation

IAS 2 requires inventories to be measured at the lower of cost and net realisable value, applied item by item or by groups of similar items.

Net realisable value

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

IFRS 15 five steps

The five steps are identify the contract, identify performance obligations, determine the transaction price, allocate the price to obligations and recognise revenue when each obligation is satisfied.

Lease liability measurement

The lease liability is initially measured at the present value of lease payments not paid at commencement, discounted using the interest rate implicit in the lease or the lessee's incremental borrowing rate.

Research vs development

Research expenditure is expensed as incurred; development expenditure is capitalised only if technical feasibility, intention, ability, future benefits, adequate resources and reliable measurement are all demonstrated.

Provision recognition

A provision is recognised when a present obligation from a past event exists, an outflow of economic benefits is probable and the amount can be reliably estimated.

Deferred tax

Deferred tax is tax attributable to temporary differences between the carrying amount of an asset or liability and its tax base, measured using tax rates expected to apply.

ROCE formula

Return on capital employed equals profit before interest and tax divided by capital employed, where capital employed is total assets less current liabilities or equity plus non-current liabilities.

Current ratio

The current ratio equals current assets divided by current liabilities and indicates the extent to which short-term assets cover short-term obligations.

Inventory holding period

Inventory holding period equals inventory divided by cost of sales, multiplied by 365 days, showing the average number of days inventory is held before sale.

Interest cover

Interest cover equals profit before interest and tax divided by finance costs, indicating how many times operating profit covers interest payable.

Gearing

Gearing may be calculated as debt divided by debt plus equity, or as debt divided by equity, and measures the proportion of financing provided by borrowings.

EPS formula

Earnings per share equals profit after tax less preference dividends, divided by the weighted average number of ordinary shares outstanding during the period.

Ratio limitations

Ratios are limited by historical cost data, inflation, different accounting policies, seasonality, creative accounting and the absence of a suitable benchmark for comparison.

Goodwill on consolidation

Goodwill on consolidation equals consideration transferred plus non-controlling interest plus fair value of previously held interest, less the fair value of identifiable net assets acquired.

NCI measurement

Non-controlling interest at acquisition is measured either at fair value or at the proportionate share of the identifiable net assets acquired; the choice affects goodwill.

Intra-group balances

Intra-group receivables and payables are eliminated in full on consolidation because they represent balances owed within the same economic entity.

Unrealised profit

Unrealised profit arises on intra-group sales when goods remain in inventory at the reporting date; it is eliminated by reducing inventory and the selling company's profit.

Cash flow operating section

Under the indirect method, operating cash flow starts with profit before tax and adjusts for non-cash items, finance costs, and changes in working capital.

Equity method

Under the equity method, the investment in an associate is initially recognised at cost and increased by the group's share of post-acquisition profit, less impairment.

Data validation

Data validation is a spreadsheet control that restricts the type or range of values that can be entered into a cell, reducing input errors.

Big data five Vs

The five Vs of big data are volume, velocity, variety, veracity and value, describing the scale, speed, diversity, reliability and usefulness of data.

Multi-factor authentication

Multi-factor authentication requires two or more independent verification factors, such as a password plus a one-time code, making unauthorised access harder.

RPA

Robotic process automation uses software bots to perform repetitive, rule-based tasks such as invoice processing and reconciliations, with exceptions escalated to humans.

Confidentiality principle

The confidentiality principle requires accountants to respect the confidentiality of information acquired through professional relationships and not disclose it without proper authority or legal obligation.