PCPA cheat sheet

Fundamental equation: Assets = Liabilities + Equity. Every journal entry must keep it in balance; equity rises with owner contributions and revenues, falls with distributions and expenses.

Five-step revenue model: identify the contract with the customer; identify distinct performance obligations; determine the transaction price; allocate the price to obligations; recognize revenue when (or as) each obligation is satisfied.

Inventory is carried at the lower of cost and net realizable value under IFRS, or lower of cost and market under US GAAP for LIFO/retail methods. NRV = estimated selling price less costs to complete and sell.

Impairment: IFRS compares carrying amount with the recoverable amount, defined as the higher of fair value less costs of disposal and value in use. US GAAP uses a recoverability test first, then measures the loss at fair value.

Deferred taxes arise from temporary differences measured at enacted rates: taxable temporary differences give deferred tax liabilities, deductible differences give deferred tax assets recognized only when realization is more likely than not.

Basic EPS = (net income - preferred dividends) / weighted-average common shares. Diluted EPS applies the treasury stock method to options and warrants and the if-converted method to convertible securities; antidilutive items are excluded.

Straight-line depreciation = (cost - residual value) / useful life. Double-declining balance applies twice the straight-line rate to beginning book value and ignores residual value until the final year of the asset's life.

Fair value hierarchy: Level 1 uses quoted prices in active markets for identical items; Level 2 uses observable inputs other than Level 1 quotes; Level 3 uses unobservable inputs and requires sensitivity disclosure.

Lessee accounting places both finance and operating leases on the balance sheet. Finance leases produce separate interest expense and amortization of the right-of-use asset; operating leases produce a single straight-line lease expense.

Audit risk model: AR = IR x CR x DR. Inherent and control risk are assessed by the auditor but not controlled; detection risk is the only lever the auditor sets, so higher assessed risk of material misstatement requires lower detection risk and more substantive work.

Assertions tested: occurrence/existence, completeness, accuracy, cutoff, classification, rights and obligations, valuation and allocation, and presentation and disclosure.

Opinion decision rule: unmodified when statements are fairly presented; qualified when misstatement or scope limitation is material but not pervasive; adverse when misstatement is material and pervasive; disclaimer when evidence is insufficient and the possible effect is material and pervasive.

Materiality levels: overall materiality for the statements as a whole, performance materiality set below it (commonly 50-75 percent of overall) to absorb undetected and uncorrected misstatements, plus a clearly trivial threshold.

Sample size increases as tolerable misstatement falls, expected misstatement rises, and desired assurance rises. Sampling risk is the risk that a sample-based conclusion differs from a conclusion reached by testing the whole population.

Subsequent events: events providing evidence of conditions existing at the reporting date require adjustment; events arising after the reporting date require disclosure when material.

COSO internal control components: control environment, risk assessment, control activities, information and communication, and monitoring activities.

Documentation must let an experienced auditor with no prior connection to the engagement understand the procedures performed, evidence obtained, and conclusions reached; retention periods are set by regulation and professional standards.

Going concern: if substantial doubt exists and disclosure is adequate, an unmodified opinion is issued with a separate going concern paragraph; if disclosure is inadequate, the opinion is qualified or adverse.

Gross income includes all income from whatever source unless specifically excluded by statute; a deduction is allowed only where a provision authorizes it.

Basis of purchased property = cost including acquisition costs, freight, and legal fees. Basis of property acquired by inheritance is generally fair market value at the date of death.

Temporary book-tax differences reverse and create deferred tax assets or liabilities. Permanent differences, such as fines, penalties, and tax-exempt interest, never reverse and therefore do not create deferred taxes.

Assessment periods commonly run three years from filing, six years where gross income omitted exceeds 25 percent of reported gross income, and without limit where the return is fraudulent or never filed.

Quarterly estimated tax payments are required of individuals and corporations; underpayment penalties are avoided only by meeting statutory safe harbors based on current-year or prior-year tax.

VAT/GST is a consumption tax collected at each stage of the supply chain with credit for input tax paid, so the ultimate burden rests on the final consumer and exports are typically zero-rated.

Transfer pricing follows the arm's length standard; recognized methods include comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split.

Common non-deductible items: fines and penalties, political contributions, premiums on policies where the entity is beneficiary, and the disallowed portion of meals and entertainment.

Expenditure approach to GDP: GDP = C + I + G + (X - M). Real GDP removes price effects using a deflator; nominal GDP does not.

Price elasticity of demand = percentage change in quantity demanded / percentage change in price. Absolute value above 1 is elastic; below 1 is inelastic; revenue rises with a price cut only when demand is elastic.

NPV = sum of future cash flows discounted at the required return minus the initial outlay; accept when NPV is positive. IRR is the rate at which NPV equals zero; accept when IRR exceeds the cost of capital.

WACC = (E/V) x Re + (D/V) x Rd x (1 - tax rate), weighted at market values; it is the hurdle rate for projects of average risk.

Break-even units = fixed costs / (price - variable cost per unit). Contribution margin ratio = contribution margin / sales; it converts a target profit into required sales dollars.

Liquidity ratios: current ratio = current assets / current liabilities; quick ratio removes inventory and prepaid items from the numerator.

Perfect competition reaches long-run equilibrium where price equals marginal revenue equals marginal cost; a monopolist sets marginal revenue equal to marginal cost and prices above marginal cost.

Money multiplier = 1 / reserve requirement ratio. Expansionary policy lowers policy rates, purchases securities, or lowers reserve requirements.

Independence threats: self-interest, self-review, advocacy, familiarity, and intimidation. Each threat must be evaluated and either eliminated or reduced to an acceptable level.

Safeguards include rotating engagement partners, independent quality control review, removing financial interests, and declining or withdrawing from the engagement when no safeguard is sufficient.

Integrity and objectivity require freedom from bias, conflict of interest, and undue influence of others; judgment must not be subordinated to the interests of the client or the firm.

Confidentiality survives the end of the engagement; permitted disclosures include those required by law, authorized by the client, or made in response to a regulatory or disciplinary inquiry.

Contingent fees create a self-interest threat and are prohibited for audit and other assurance engagements; for non-assurance work they are permitted only where the threat can be reduced to an acceptable level.

Due care requires the competence, diligence, and timeliness needed to apply current professional standards and technical knowledge to each engagement.

Corporate governance best practice: an independent board, separation of chair and chief executive, and an audit committee of independent directors overseeing external audit and internal control.

The agency problem arises because managers may pursue personal interests over shareholders' interests; it is mitigated by incentive alignment, independent monitoring, and transparent disclosure.

Responding to identified or suspected non-compliance with laws and regulations requires escalation within the entity, assessment of the effect on the engagement, and consideration of reporting obligations.