CPA Financial Reporting flashcards

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

Fundamental qualitative characteristics

Relevance and faithful representation make financial information useful; relevance includes predictive value, confirmatory value and materiality, while faithful representation requires completeness, neutrality and freedom from error.

Asset definition

A present economic resource controlled by the entity as a result of past events, where an economic resource is a right that has the potential to produce economic benefits.

Materiality

Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that primary users make from the general purpose financial statements of the entity.

Historical cost

Measurement basis under which an asset is recorded at the consideration paid or resources given at acquisition, adjusted over time for depreciation, impairment and accruals.

Recognition criteria

An item is recognised when doing so provides relevant information and a faithful representation, and the benefits of the information exceed the cost of providing it.

Going concern

Financial statements are prepared on the basis that the entity will continue in operation for the foreseeable future, unless liquidation, cessation of trading or a forced wind-up is intended or unavoidable.

Complete set of financial statements

A statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity, a statement of cash flows and notes, including comparative information.

Current liability classification

A liability is current when it is held primarily for trading, is due within twelve months after the reporting period, or the entity has no unconditional right to defer settlement beyond that period.

Fair value

The price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; it is an exit price.

Level 1 fair value inputs

Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date, applied without adjustment to the quoted price.

Highest and best use

The use of a non-financial asset by market participants that maximises its value, considering uses that are physically possible, legally permissible and financially feasible.

Items presented in other comprehensive income

Examples include revaluation surpluses, defined benefit remeasurements, effective portions of cash flow hedges, foreign currency translation differences and fair value changes of equity investments designated at FVOCI.

Five-step revenue model

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

Performance obligation

A promise to transfer a distinct good or service to a customer; a good or service is distinct if the customer can benefit from it and it is separately identifiable within the contract.

Revenue recognised over time

Recognition occurs when the customer controls the asset as it is created, or the asset has no alternative use and the entity holds an enforceable right to payment for performance to date.

Lower of cost and net realisable value

Inventory is measured at the lower of cost and net realisable value, the latter being estimated selling price less costs of completion and costs necessary to make the sale.

Revaluation model

Property, plant and equipment carried at fair value at the revaluation date less subsequent depreciation and impairment; increases go to other comprehensive income unless they reverse a prior expense.

Development cost capitalisation

Capitalise only when technical feasibility, intention and ability to complete, probable future economic benefits, adequate resources and reliable measurement of expenditure are all demonstrated; research is always expensed.

Recoverable amount

The higher of an asset's fair value less costs of disposal and its value in use; an impairment loss arises when the carrying amount exceeds the recoverable amount.

Provision recognition criteria

Recognise a provision when a present legal or constructive obligation arises from a past event, an outflow of resources is probable, and the amount can be reliably estimated.

Onerous contract

A contract in which the unavoidable costs of meeting the obligations exceed the economic benefits expected; the provision is the lower of the cost of fulfilling it and any compensation or penalty.

Right-of-use asset

A lessee asset measured initially at the amount of the lease liability plus initial direct costs, prepayments and estimated restoration costs, less lease incentives received.

Short-term lease exemption

A lessee may expense payments for leases with a term of twelve months or less that contain no purchase option, on a straight-line or other systematic basis.

Defined benefit remeasurements

Actuarial gains and losses, return on plan assets excluding interest, and asset ceiling effects, recognised in other comprehensive income and never reclassified to profit or loss.

Amortised cost classification

A financial asset is measured at amortised cost when it is held in a hold-to-collect business model and its contractual cash flows are solely payments of principal and interest.

Expected credit loss model

Impairment is recognised as the present value of expected shortfalls in contractual cash flows using forward-looking information, without waiting for evidence of actual default.

Goodwill acquired

Consideration transferred plus non-controlling interest plus fair value of any previously held interest, less the fair value of identifiable net assets acquired, measured at the acquisition date.

Control under IFRS 10

An investor controls an investee when it has power over the relevant activities, exposure to variable returns, and the ability to use its power to affect those returns.

Non-controlling interest

The equity in a subsidiary not attributable to the parent, presented within equity separately from the equity attributable to owners of the parent in the consolidated statement of financial position.

Bargain purchase gain

When the fair value of net identifiable assets acquired exceeds the consideration after reassessing the transaction, the excess is recognised as a gain in profit or loss.

Basic earnings per share

Profit or loss attributable to ordinary shareholders of the parent divided by the weighted average number of ordinary shares outstanding during the reporting period.

Adjusting subsequent events

Events occurring after the reporting period that provide evidence of conditions existing at the end of that period, requiring the amounts recognised in the financial statements to be adjusted.