ACCA SBR flashcards

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

Fundamental qualitative characteristics

Relevance and faithful representation. Information must be capable of making a difference in decisions and must be complete, neutral and free from material error.

Materiality per Conceptual Framework

Entity-specific aspect of relevance: information is material if omitting or misstating it could influence primary users' decisions based on the financial statements.

Asset definition (2018 Framework)

A present economic resource controlled by the entity as a result of past events; an economic resource is a right with potential to produce economic benefits.

Prudence and neutrality

Prudence is the exercise of caution under uncertainty so assets and income are not overstated and liabilities and expenses not understated; it supports, not contradicts, neutrality.

Agency theory

Separation of ownership from control creates information asymmetry between shareholders and managers, generating demand for audited general purpose financial statements and monitoring mechanisms.

Legitimacy theory

Entities seek to operate within the bounds and norms of society; voluntary sustainability and social disclosures are used to maintain a social licence to operate.

Fair value definition (IFRS 13)

The price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, an exit price.

Current value measurement bases

Fair value, value in use (assets) or fulfilment value (liabilities), and current cost. Historical cost is the alternative measurement basis under the Conceptual Framework.

Positive accounting theory

Predicts accounting policy choices from contracting and political cost incentives, including bonus plans, debt covenants and size-related political exposure, rather than prescribing ideal practice.

Goodwill calculation (IFRS 3)

Consideration transferred plus non-controlling interest plus fair value of previously held interest, less fair value of net identifiable assets acquired, measured at acquisition date.

Full versus partial goodwill

NCI at fair value produces full goodwill including the NCI share; NCI at proportionate net assets produces partial goodwill. The choice is made per business combination.

Control under IFRS 10

Investor controls an investee when it has power over relevant activities, exposure to variable returns, and the ability to use its power to affect those returns.

Significant increase in credit risk

IFRS 9 trigger moving loss allowance from 12-month expected credit losses to lifetime expected credit losses; assessed using quantitative and qualitative, forward-looking information.

IFRS 15 performance obligation

A promise to transfer a distinct good or service, or a series of distinct goods substantially the same with the same pattern of transfer, to the customer.

Transaction price allocation

Allocate the transaction price to performance obligations on relative stand-alone selling prices; use adjusted market assessment or expected cost plus margin if prices are unobservable.

Right-of-use asset measurement

Initial amount equals the lease liability plus initial direct costs, prepaid lease payments and estimated restoration costs, less lease incentives received from the lessor.

Defined benefit remeasurements

Actuarial gains and losses, return on plan assets excluding interest, and asset ceiling effects are recognised in other comprehensive income and never recycled to profit or loss.

Deferred tax liability method

Measure deferred tax at rates expected to apply when the temporary difference reverses, based on enacted or substantively enacted tax rates at the reporting date.

Held for sale measurement

Classify as held for sale when sale is highly probable and available for immediate sale; measure at lower of carrying amount and fair value less costs to sell and cease depreciation.

Discontinued operation disclosure

A component disposed of or held for sale representing a separate major line or geographic area; present a single profit or loss amount separately from continuing operations.

Bargain purchase gain

If the fair value of net identifiable assets acquired exceeds total consideration plus NCI, recognise the excess in profit or loss after reassessing the measurement of identifiable assets.

Consolidation elimination entries

Remove parent's investment against subsidiary equity, eliminate intragroup balances, income, expenses and dividends, and recognise goodwill and non-controlling interest at acquisition.

ROCE decomposition

Return on capital employed equals operating profit divided by capital employed; it equals operating margin multiplied by asset turnover, isolating profitability and efficiency drivers.

DuPont analysis

Return on equity decomposed as net profit margin times asset turnover times financial leverage, showing whether returns arise from operations, efficiency or borrowing.

Interest cover

Operating profit divided by finance costs; a low or falling ratio indicates reduced capacity to service debt and constrains dividends and further borrowing.

Cash conversion ratio

Operating cash flow divided by EBITDA or operating profit; a persistent value below one suggests aggressive revenue recognition or weak working capital management.

Ratio analysis limitations

Comparability is impaired by differing accounting policies, one-off items, creative window dressing, absence of industry benchmarks and the effect of inflation on historical cost figures.

IFRS S1 core objective

Requires disclosure of sustainability-related risks and opportunities that could reasonably be expected to affect the entity's prospects, cash flows, access to finance or cost of capital.

Scope 1, 2 and 3 emissions

Scope 1 covers direct emissions, Scope 2 purchased energy, and Scope 3 all other value chain emissions, as required by IFRS S2 using the GHG Protocol.

TCFD four pillars

Governance, strategy, risk management, and metrics and targets structure climate-related disclosures and are incorporated into IFRS S1 and IFRS S2 requirements.

Six capitals in integrated reporting

Financial, manufactured, intellectual, human, social and relationship, and natural capital; the framework emphasises connectivity between financial and sustainability information.