CIMA P2 cheat sheet

Relevant cost rule: a cost is relevant only if it is a future cash flow that differs between alternatives; sunk costs and committed costs are excluded.

Throughput accounting: throughput contribution = sales revenue minus direct material cost; TA ratio = throughput contribution per bottleneck hour divided by conversion cost per bottleneck hour.

Limiting factor (single constraint): rank products by contribution per unit of the scarce resource, then allocate the scarce resource in rank order.

Linear programming: objective is maximise total contribution; constraints are resource limits; the optimal solution lies at a vertex of the feasible region unless slack exists on all but one constraint.

Shadow price = increase in total contribution from one extra unit of a binding constraint, valid only within the range over which that constraint stays binding.

Learning curve (cumulative average time model): y = ax^b where b = log(learning rate)/log 2; a 90% curve gives b = -0.152.

Overhead absorption: predetermined rate = budgeted overhead / budgeted activity; under/over absorption = absorbed overhead minus actual overhead.

Transfer pricing rule: minimum transfer price = variable cost plus opportunity cost of the transferred unit; if spare capacity exists, opportunity cost is zero.

Variance analysis: material price variance = (standard price - actual price) x actual quantity purchased; usage variance = (standard quantity - actual quantity) x standard price.

Audit risk model: audit risk = inherent risk x control risk x detection risk; detection risk is the only component the auditor controls directly.

Materiality: overall materiality is often set at 0.5%-1% of revenue or 5% of profit before tax; performance materiality is set lower to cover undetected misstatements.

Assertions tested: occurrence, completeness, accuracy, cut-off, classification (transactions); existence, rights and obligations, completeness, valuation, presentation (balances).

Completeness is tested by selecting from source records outward to the accounting records; existence is tested by vouching from records back to source evidence.

Independence: an auditor must not hold a financial interest in the client, and a five-year cooling-off period typically applies to a former engagement partner becoming a client director.

Going concern: the auditor evaluates management's assessment covering at least 12 months from the reporting date and considers whether a material uncertainty exists.

Opinion types: unmodified, qualified (material but not pervasive), adverse (material and pervasive misstatement), and disclaimer (inability to obtain evidence, material and pervasive).

Fraud risk: the auditor is required to presume a risk of fraud in revenue recognition and to presume management override of controls unless rebutted.

Taxable profit is accounting profit adjusted for disallowable expenses, non-taxable income, and capital allowances replacing accounting depreciation.

Tax base of an asset = amount deductible for tax purposes in future periods; a temporary difference arises when carrying amount differs from tax base.

Deferred tax liability arises on taxable temporary differences (asset carrying amount > tax base); deferred tax asset arises on deductible temporary differences, recognised only if recovery is probable.

Deferred tax is measured at the tax rates expected to apply when the temporary difference reverses, based on rates enacted or substantively enacted by the reporting date.

Tax losses carried forward create a deferred tax asset only where future taxable profit is probable; unused losses with no probable recovery are disclosed, not recognised.

VAT is excluded from revenue and from expense; irrecoverable input VAT becomes part of the cost of the related item.

Transfer pricing rules require intra-group transactions to be priced on an arm's length basis; penalties typically apply to understatement of taxable profit.

Capital allowances reduce the tax base rather than accounting profit directly, so they affect cash tax and deferred tax, not the depreciation charge.

Cloud shared responsibility: the provider secures the infrastructure, the customer secures data, access management, and configuration of the services used.

RPA (robotic process automation) suits high-volume, rule-based, repetitive tasks with structured digital inputs; it fails on unstructured judgement-based work.

Data analytics in audit: full population testing replaces sampling; anomalies are flagged by exception rules, but completeness of the source data must first be verified.

Segregation of duties in ERP: the same user must not be able to both create a vendor and approve payment; access conflicts are detected by role-matrix analysis.

Big data characteristics (the Vs): volume, velocity, variety, veracity, and value; veracity concerns data quality and reliability.

A digital dashboard supports management by exception: variances outside tolerance thresholds are escalated rather than all data being reviewed.

Cybersecurity control layers: preventive (firewalls, access control), detective (logging, intrusion detection), corrective (backup restoration, incident response).

Predictive analytics uses historical data and statistical models to forecast outcomes; prescriptive analytics goes further and recommends an action.