IAB Professional Practice cheat sheet

Three-stage model: placement (cash enters financial system), layering (obscuring origin through transfers), integration (funds re-enter as apparently legitimate assets).

Risk-based approach: firms assign customer risk ratings from factors such as country, product, delivery channel, and occupation, then apply due diligence proportional to that rating.

Customer Due Diligence (CDD) triggers: new business relationship, occasional transaction above the prescribed threshold, suspicion of laundering, or doubt about previously obtained identity data.

Enhanced Due Diligence applies to politically exposed persons, correspondent relationships, and higher-risk jurisdictions; it includes source-of-funds and source-of-wealth checks plus senior approval.

Simplified Due Diligence is permitted only for demonstrably lower-risk cases and never where suspicion exists; the firm must still identify and verify the customer.

Record-keeping rule of thumb: retain CDD records and transaction records for at least five years after the end of the relationship or the transaction.

Suspicious activity reporting: report promptly to the national Financial Intelligence Unit; tipping off the customer is a criminal offence.

Supervisory tools: registration or licensing, off-site data requests, on-site inspections, remedial action plans, and administrative or criminal sanctions for breaches.

Money laundering red flags: unusual cash intensity, rapid pass-through of funds, transactions inconsistent with the customer's profile, and reluctance to provide identification.

Accounting equation: Assets = Liabilities + Equity; every transaction keeps it in balance.

Double entry: each transaction has equal debits and credits; total debits must equal total credits in every journal.

Debit rules: increases in assets and expenses are debits; increases in liabilities, equity, and income are credits.

Trial balance: list of ledger balances; if debit and credit totals differ, an error exists, but a balanced trial balance does not prove the books are correct.

Accrual basis: recognise revenue when earned and expenses when incurred, regardless of cash timing; cash basis recognises only on cash movement.

Bank reconciliation: adjusted bank balance = statement balance + deposits in transit - outstanding cheques +/- bank errors; must equal adjusted cash book balance.

Depreciation: straight-line = (cost - residual value) / useful life; reducing balance applies a fixed percentage to the carrying amount each period.

Suspense account holds unresolved differences; it must be cleared before final accounts are prepared.

Control accounts: the receivables ledger control account balance should equal the sum of individual customer balances; differences indicate errors or omissions.

Gross pay = basic pay + overtime + bonuses + taxable benefits; net pay = gross pay - employee deductions - statutory withholdings.

Employer payroll cost = gross pay + employer social contributions + employer pension contributions + payroll taxes.

Pay-as-you-earn (PAYE) withholding is calculated per pay period on taxable pay after applying the employee's tax code or allowance.

Statutory deductions commonly include income tax withholding, employee social security, and pension contributions; each has its own ceiling or threshold rules.

Real-time or periodic reporting: payroll submissions to the tax authority are due on or before each pay date, with corrections filed for earlier errors.

Year-end obligations: issue earnings statements to employees and reconcile total reported pay and tax to the payroll records.

Minimum wage compliance: compare each worker's hourly rate against the statutory rate for the applicable age band and category.

Overtime treatment: hours above the standard week may attract a premium rate; whether overtime is pensionable or taxable depends on the scheme and tax rules.

Payroll controls: segregation of duties between preparing and approving payroll, and independent reconciliation of the payroll to the general ledger.

Income statement: revenue - cost of sales = gross profit; gross profit - operating expenses = operating profit; then interest and tax give net profit.

Statement of financial position: assets and liabilities classified as current (within 12 months) and non-current; equity is the residual interest.

Accruals concept: match expenses to the period they relate to; prepayments are expenses paid in advance, accruals are expenses incurred but not yet invoiced.

Inventory valuation: lower of cost and net realisable value; cost includes purchase price plus directly attributable costs.

Revenue recognition: recognise when control of the goods or services transfers to the customer, in the amount of consideration expected.

Provision is recognised when a present obligation exists, an outflow is probable, and the amount can be reliably estimated; a contingent liability is only disclosed.

Ratio analysis: current ratio = current assets / current liabilities; gross margin = gross profit / revenue; receivables days = receivables / revenue x 365.

Cash flow statement splits cash movements into operating, investing, and financing activities; profit does not equal cash generated.

Materiality: information is material if omitting or misstating it could influence users' economic decisions.