CA ANZ Core 5 flashcards

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

Conceptual framework asset definition

A present economic resource controlled by the entity as a result of past events, from which future economic benefits are expected to flow to the entity.

IFRS 15 five-step model

Identify the contract, identify performance obligations, determine the transaction price, allocate it to obligations, and recognise revenue when each obligation is satisfied.

Goodwill impairment testing

Goodwill is not amortised; it is tested annually for impairment by comparing the carrying amount of the cash-generating unit, including goodwill, with its recoverable amount.

Break-even point formula

Break-even units equal total fixed costs divided by contribution margin per unit, where contribution margin per unit is selling price less variable cost per unit.

Relevant cost characteristics

A relevant cost is a future, incremental cash flow that differs between alternatives; sunk costs and allocated common fixed costs are excluded from the decision.

Residual income formula

Residual income equals divisional profit less the required rate of return multiplied by invested capital; a positive result indicates the division earns above its capital charge.

Audit risk model

Audit risk equals inherent risk multiplied by control risk multiplied by detection risk; the auditor reduces detection risk by varying the nature, timing and extent of procedures.

Qualified audit opinion

Issued when misstatements are material but not pervasive, or sufficient appropriate evidence cannot be obtained and the possible effects are material but not pervasive.

Performance materiality purpose

An amount set below overall materiality to reduce to an appropriately low level the probability that uncorrected and undetected misstatements together exceed financial statement materiality.

Taxable income calculation

Taxable income equals assessable income, comprising ordinary and statutory income, less allowable deductions, comprising general and specific deductions, for the income year.

CGT 50% discount

Individuals and certain trusts holding a CGT asset for at least twelve months may include only half of the capital gain in assessable income.

GST input tax credit

A registered entity claims a credit for GST paid on a creditable acquisition made for a creditable purpose, offsetting GST collected on taxable supplies.

Weighted average cost of capital

WACC equals the market value weight of equity times cost of equity plus the weight of debt times after-tax cost of debt, using market values.

CAPM cost of equity

Cost of equity equals the risk-free rate plus beta multiplied by the market risk premium, where beta measures the sensitivity of returns to market movements.

Cash conversion cycle

Inventory days plus receivable days minus payable days; it measures how long cash is tied up between paying suppliers and collecting from customers.

Porter five forces

Competitive intensity is shaped by rivalry, new entrants, substitutes, buyer power and supplier power; these forces determine industry profitability and attractiveness.

Ansoff growth matrix

Four growth options ranked by risk: market penetration, product development, market development and diversification, combining existing or new products with existing or new markets.

Porter generic strategies

Cost leadership, differentiation and focus; firms pursuing neither cost nor differentiation advantage are stuck in the middle and typically earn below-average returns.

ASX if-not-why approach

Listed entities report against each corporate governance recommendation, stating whether they follow it and, if not, explaining why and what alternative governance practice is used.

Risk treatment options

Avoid, reduce, transfer or accept; residual risk is the exposure remaining after controls are applied and is compared against the entity's risk appetite.

Three lines model

Management owns risk in the first line, risk and compliance monitor and advise in the second, and internal audit provides independent assurance in the third.

Business judgment rule

A director who makes an informed judgment in good faith, without material personal interest, and rationally believing it serves the company, is protected from liability for that judgment.

APES 110 fundamental principles

Integrity, objectivity, professional competence and due care, confidentiality and professional behaviour; compliance with these principles is mandatory for members.

Insider trading prohibition

A person must not deal in securities while possessing inside information not generally available and which a reasonable person would expect to materially affect the price.

Contract formation elements

Offer, acceptance, consideration, intention to create legal relations and capacity; absence of any element prevents formation of an enforceable contract.

IT general controls

Controls over access management, change management, IT operations and program development that support the reliable functioning of application controls and financial reporting systems.

Segregation of duties principle

No single person should control authorisation, custody, recording and reconciliation of a transaction; incompatible duties are separated to reduce fraud and error risk.

Descriptive versus predictive analytics

Descriptive analytics explains what happened using historical data; predictive analytics uses models and patterns to estimate future outcomes or likely behaviour.

CAATs definition

Computer-assisted audit techniques such as data extraction, re-performance and exception reporting that allow auditors to test entire populations rather than samples.

Materiality in audit planning

The amount of misstatement that could influence the economic decisions of users of the financial statements, set at overall and performance levels during planning.

Absorption versus variable costing

Absorption costing includes fixed production overhead in product cost; variable costing expenses it in the period, creating profit differences equal to the inventory change times the overhead rate.

Transaction versus translation exposure

Transaction exposure affects specific foreign currency cash flows from known commitments; translation exposure affects reported results when foreign subsidiary financial statements are translated.