CIMA P2 flashcards

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

Relevant cost

A future cash flow that differs between alternatives. Sunk costs, committed costs, and non-cash book values are excluded from the decision because they cannot change the choice.

Opportunity cost

The contribution forgone by using a scarce resource for one purpose instead of its next best alternative. It is included in relevant costing even though no cash is paid.

Throughput contribution

Sales revenue minus direct material cost only. All other costs, including labour, are treated as operating expenses in throughput accounting because materials are usually the only truly variable cost.

TA ratio

Throughput contribution per unit of the bottleneck resource divided by conversion cost per unit of the same resource. Products with a higher ratio are prioritised at the bottleneck.

Shadow price

The increase in total contribution from one additional unit of a binding scarce resource. It is valid only while that constraint remains binding and other constraints do not bind.

Learning curve formula

Cumulative average time per unit follows y = ax^b, where a is the time for the first unit and b = log(learning rate)/log 2. A 90% rate gives b of about -0.152.

Transfer price minimum

Variable cost of the transferred unit plus the opportunity cost of the resources used. With spare capacity the opportunity cost is zero, so variable cost is the floor.

Material price variance

(Standard price minus actual price) multiplied by actual quantity purchased. An adverse figure means the actual price paid exceeded the standard price set.

Overhead absorption rate

Budgeted overhead divided by budgeted activity base, such as labour hours or machine hours. It converts indirect costs into a per-unit charge before actual costs are known.

Audit risk model

Audit risk equals inherent risk times control risk times detection risk. The auditor assesses inherent and control risk, then sets detection risk to keep overall audit risk acceptably low.

Detection risk

The risk that audit procedures fail to detect a material misstatement. It is the only component of audit risk the auditor controls, mainly through the nature, timing, and extent of testing.

Performance materiality

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

Completeness assertion

All transactions and balances that should have been recorded have been recorded. It is tested by selecting from source documents outward to the accounting records, not the reverse.

Existence assertion

Assets, liabilities, and equity interests exist at the reporting date. It is tested by vouching from the accounting records back to supporting external evidence.

Qualified opinion

Issued when misstatements or scope limitations are material but not pervasive. The opinion states that the financial statements are fairly presented except for the matter described.

Disclaimer of opinion

Issued when the auditor cannot obtain sufficient appropriate evidence and the possible effects are both material and pervasive, so no opinion on the financial statements can be expressed.

Fraud risk presumption

Auditing standards require the auditor to presume risks of fraud in revenue recognition and in management override of controls, unless the presumption can be rebutted with documented evidence.

Going concern assessment

The auditor evaluates management's assessment of the entity's ability to continue for at least twelve months from the reporting date and considers whether a material uncertainty exists.

Tax base of an asset

The amount deductible for tax purposes against future taxable economic benefits. A temporary difference exists when the carrying amount differs from this tax base.

Taxable temporary difference

A difference that will produce taxable amounts in future periods when the carrying amount is recovered. It gives rise to a deferred tax liability under the balance sheet approach.

Deferred tax asset recognition

Recognised on deductible temporary differences and unused tax losses only to the extent that future taxable profit is probable against which the benefit can be used.

Deferred tax measurement rate

Deferred tax is measured at the rates expected to apply when the temporary difference reverses, using rates enacted or substantively enacted by the reporting date, not the current rate.

Capital allowances

Tax deductions for capital expenditure that replace accounting depreciation in the tax computation. They change cash tax and deferred tax but not the depreciation charge in profit.

Disallowable expense

An accounting expense not deductible for tax, such as certain entertainment or fines. It is added back to accounting profit when computing taxable profit.

Irrecoverable input VAT

Input VAT that cannot be reclaimed from the tax authority, for example on exempt supplies. It is added to the cost of the related asset or expense rather than shown separately.

Arm's length principle

Intra-group transactions must be priced as if between independent parties. Tax authorities can adjust profits and impose penalties where transfer prices understate taxable profit.

Shared responsibility model

In cloud computing the provider secures the physical infrastructure and platform, while the customer secures its data, identity and access management, and service configuration.

Robotic process automation

Software bots that replicate rule-based, repetitive tasks using structured digital inputs. It is unsuitable for unstructured or judgement-heavy work that needs human interpretation.

Full population testing

Analytics applied to every transaction in a population rather than a sample. It can reveal anomalies across the whole dataset, but the completeness of the source data must first be verified.

Segregation of duties conflict

A situation where one user can both initiate and approve a transaction, such as creating a vendor and releasing payment. Role-matrix analysis in the ERP system detects such conflicts.

Veracity

One of the big data characteristics, referring to the quality, accuracy, and reliability of data. Poor veracity undermines any analytics or forecast built on that data.

Predictive analytics

Use of historical data and statistical models to forecast future outcomes. Prescriptive analytics extends this by recommending the action to take based on the prediction.