ICAB CL Accounting cheat sheet

Accounting equation: Assets = Liabilities + Equity; every transaction preserves this equality, so debits always equal credits.

Accrual basis: revenue is recognised when performance obligations are satisfied, expenses when incurred - not when cash moves.

IAS 16: depreciable amount = cost − residual value; straight-line charge = depreciable amount ÷ useful life.

Reducing-balance depreciation: charge = carrying amount × rate; carrying amount never falls below residual value.

Inventory (IAS 2): measured at the lower of cost and net realisable value; NRV = estimated selling price − costs to complete and sell.

FIFO leaves closing inventory at recent costs; weighted average smooths price changes; LIFO is prohibited under IFRS.

IAS 37: recognise a provision only when a present obligation exists, outflow is probable, and the amount can be reliably estimated.

Bank reconciliation: adjusted bank balance = statement balance + deposits in transit − unpresented cheques ± bank errors.

Statement of cash flows (IAS 7) classifies flows as operating, investing or financing; interest paid may be operating or financing.

High-low method: variable cost per unit = (cost at high activity − cost at low activity) ÷ (high units − low units).

Contribution margin = sales − variable costs; contribution per unit = selling price − variable cost per unit.

Break-even units = fixed costs ÷ contribution per unit; break-even revenue = fixed costs ÷ contribution-to-sales ratio.

Margin of safety = (budgeted sales − break-even sales) ÷ budgeted sales, expressed as a percentage.

Target profit volume = (fixed costs + target profit) ÷ contribution per unit.

Overhead absorption rate = budgeted overhead ÷ budgeted activity base (labour hours, machine hours or units).

Under-absorption = actual overhead − absorbed overhead; a positive result means overhead was under-recovered.

Process costing: normal loss is valued at scrap value; abnormal gain is debited to the process account and credited to abnormal gain account.

Relevant cost criteria: future, incremental and cash-based; sunk costs and committed fixed costs are excluded from decisions.

ISA 200: reasonable assurance is a high but not absolute level; audit risk = inherent risk × control risk × detection risk.

Audit risk model: detection risk is the only component the auditor controls, through the nature, timing and extent of procedures.

ISA 315: obtain an understanding of the entity, its environment and its internal control to identify and assess risks of material misstatement.

ISA 320: performance materiality is set below overall materiality to reduce the probability that uncorrected misstatements exceed it.

ISA 500: audit evidence must be sufficient (quantity) and appropriate (relevance and reliability); external evidence is more reliable than internal.

ISA 700: the auditor expresses an unmodified opinion when financial statements give a true and fair view in all material respects.

ISA 705: modified opinions are qualified, adverse or disclaimer; a disclaimer is issued when the auditor cannot obtain sufficient evidence.

ISA 570: where a material uncertainty exists, the auditor includes a separate section headed material uncertainty related to going concern.

Independence (IESBA): the auditor must be free of interests that a reasonable third party would see as compromising objectivity.

VAT output tax arises on taxable supplies; input tax is recoverable on business purchases; net VAT payable = output tax − input tax.

VAT is an indirect tax borne by the final consumer; registered businesses act as collection agents for the tax authority.

Capital allowances replace accounting depreciation for tax purposes; the tax base of an asset differs from its carrying amount.

Deferred tax (IAS 12) arises on temporary differences between carrying amounts and tax bases, measured at expected reversal rates.

Companies are separate legal persons: they own property, contract in their own name and sue or be sued independently of members.

Limited liability confines a shareholder's loss to unpaid amounts on shares; the company's debts remain the company's.

Directors owe fiduciary duties: act in good faith, avoid conflicts of interest, and exercise care, skill and diligence.

Dividends are distributable only out of distributable profits; capital must be maintained for the protection of creditors.

Ultra vires acts fall outside the objects of a company and may be unenforceable against the company.

Span of control is the number of subordinates reporting to one manager; a wide span flattens the hierarchy.

Chain of command is the unbroken line of authority from top to bottom; unity of command means one boss per employee.

Maslow's hierarchy: physiological, safety, social, esteem and self-actualisation needs, satisfied in ascending order.

Herzberg: hygiene factors (pay, conditions) prevent dissatisfaction; motivators (achievement, recognition) create satisfaction.

SWOT analyses internal strengths and weaknesses against external opportunities and threats.

Porter's five forces: rivalry, new entrants, substitutes, buyer power and supplier power determine industry attractiveness.

Budgeting as control compares actual against budget; variances are favourable when profit increases and adverse when it falls.

Breakeven and contribution analysis support short-run pricing and make-or-buy decisions within capacity constraints.

IESBA fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.

Self-interest, self-review, advocacy, familiarity and intimidation are the five threat categories in the IESBA Code.

Safeguards must be applied when threats are not at an acceptable level; if no safeguard works, decline or withdraw from the engagement.

Confidentiality persists after the professional relationship ends; disclosure is permitted only when legally required or authorised.

Segregation of duties: no single person should authorise, record and custody the same asset - this deters fraud and error.

General IT controls cover access security, program change management, backup and disaster recovery across systems.

Application controls cover input validation, processing checks and output review within a specific business system.

Audit trail requirements: system logs must be complete, time-stamped and tamper-evident to support evidence gathering.

Data protection principles: collect only what is necessary, use it lawfully, keep it accurate and retain it no longer than required.