IAB Professional Practice flashcards

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

Placement stage

The first money laundering stage, in which illicit cash is introduced into the financial system through deposits, purchases, or cash-intensive businesses, making the funds harder to trace to their origin.

Layering stage

The second laundering stage, using complex series of transfers, conversions, and offshore movements to obscure the audit trail and separate funds from their criminal source.

Integration stage

The final laundering stage, where laundered funds re-enter the legitimate economy as apparently lawful assets, investments, or business income and are difficult to distinguish from clean money.

Risk-based approach

A supervisory and firm-level method that allocates more due diligence and monitoring resources to higher-risk customers, products, and jurisdictions, and less to demonstrably lower-risk ones.

Politically exposed person

An individual entrusted with prominent public functions, plus close family and associates, who presents higher corruption risk and therefore requires enhanced due diligence and senior approval.

Suspicious activity report

A confidential disclosure filed with the national financial intelligence unit when a firm knows, suspects, or has reasonable grounds to suspect that funds are the proceeds of crime.

Tipping off

Disclosing to a customer or third party that a suspicious activity report has been or may be filed, which is a criminal offence because it can prejudice the investigation.

Source of funds

Evidence of where the money used in a specific transaction came from, such as salary, sale proceeds, or savings, verified during enhanced due diligence for higher-risk relationships.

Record retention period

The minimum time customer identification and transaction records must be kept, commonly five years after the relationship ends or the transaction occurs, to support investigations.

Accounting equation

Assets equal liabilities plus equity. Every transaction changes at least two elements while keeping this relationship in balance, forming the basis of all double-entry bookkeeping.

Double-entry principle

Every transaction is recorded with equal total debits and equal total credits, so the ledger remains balanced and errors can be detected through the trial balance.

Debit and credit rules

Increases in assets and expenses are debits; increases in liabilities, equity, and income are credits. Decreases follow the opposite treatment for each category.

Trial balance

A list of all ledger account balances at a date. Unequal debit and credit totals reveal an error, but equal totals do not guarantee the records are free of mistakes.

Accrual basis

Recording income when earned and expenses when incurred, regardless of when cash changes hands, giving a more faithful view of performance than cash accounting.

Bank reconciliation

A monthly comparison of the bank statement with the cash book, adjusting for deposits in transit, outstanding cheques, and bank charges until the two adjusted balances agree.

Straight-line depreciation

A method charging an equal amount each period, calculated as cost minus residual value, divided by the asset's useful life in periods.

Suspense account

A temporary ledger account holding entries whose correct treatment is unknown or where totals do not agree; it must be investigated and cleared before accounts are finalised.

Control account reconciliation

Comparing the receivables or payables control account balance with the sum of individual customer or supplier balances to detect omissions, posting errors, or mispostings.

Gross pay

Total earnings before any deductions, comprising basic salary or wages plus overtime, bonuses, commissions, and the taxable value of benefits provided.

Net pay

The amount actually paid to the employee after deducting income tax withholding, employee social security contributions, pension contributions, and other authorised deductions.

Employer payroll cost

The total cost of employment to the business, being gross pay plus employer social security, employer pension contributions, and any payroll-related taxes or levies.

PAYE withholding

A system where the employer deducts income tax from each payment using the employee's tax code or allowance, and remits it to the tax authority on the employee's behalf.

Payroll reporting deadline

The requirement to submit payroll information to the tax authority on or before each pay date, with amendments filed promptly if an earlier submission was wrong.

Year-end payroll reconciliation

Checking that total pay, tax, and contributions reported for the year agree with the payroll records, and that each employee receives an accurate earnings statement.

Minimum wage compliance

Verifying that each worker's hourly rate meets the statutory minimum for their age band and worker category, calculated over the correct reference period.

Payroll segregation of duties

Separating payroll preparation, approval, and payment so that no single person can create a fictitious employee or alter pay without independent detection.

Gross profit

Revenue minus cost of sales. It measures profit from trading before operating expenses, interest, and tax, and is often expressed as a percentage of revenue.

Net profit

The residual after deducting all operating expenses, interest, and tax from gross profit; it flows into retained earnings within equity on the statement of financial position.

Accrual and prepayment

An accrual is an expense incurred but not yet invoiced; a prepayment is an expense paid in advance. Both align charges with the period they relate to.

Lower of cost and NRV

Inventory is valued at the lower of cost and net realisable value, ensuring assets are not overstated where selling prices have fallen or goods are damaged.

Provision versus contingency

A provision is recognised when a present obligation, probable outflow, and reliable estimate exist; a contingent liability fails one of these tests and is only disclosed.

Current ratio

Current assets divided by current liabilities. It indicates short-term liquidity, showing whether short-term resources cover obligations falling due within twelve months.