CPA Financial Reporting key terms

A body of interrelated objectives and concepts that the IASB uses to develop standards and that preparers use to make consistent judgements when no standard directly addresses a transaction.

The entity whose financial statements are being prepared, identified as a circumscribed area of economic activity rather than necessarily a single legal entity or a group of legal entities.

Existing and potential investors, lenders and other creditors who rely on general purpose financial reports to make decisions about providing resources to the entity.

A fundamental qualitative characteristic whereby information can make a difference to decisions by helping users evaluate past, present or future events, or confirm or correct earlier expectations.

A fundamental qualitative characteristic requiring information to be complete, neutral and free from error, depicting the substance of the economic phenomenon rather than merely its legal form.

An entity-specific judgement of whether omitting or misstating an item could influence decisions that primary users make from the financial statements, considering both quantitative size and qualitative nature.

The exercise of caution when making judgements under conditions of uncertainty, so that assets and income are not overstated and liabilities and expenses are not understated, while remaining neutral.

The assumption that the entity will continue in operation for the foreseeable future, with neither the intention nor the need to liquidate or curtail materially the scale of its operations.

The method used to quantify a recognised item in the financial statements, such as historical cost, current cost, fair value, value in use or fulfilment value.

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The market with the greatest volume and level of activity for the asset or liability that the reporting entity can access, and the default market used for fair value measurement.

For a non-financial asset, the use by market participants that maximises the value of the asset or of the group of assets and liabilities in which it would be used.

A three-level ranking of the inputs used to measure fair value, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable inputs.

Income and expenses recognised outside profit or loss for the period as required or permitted by other standards, such as revaluation surpluses and remeasurements of defined benefit plans.

A promise in a contract with a customer to transfer a distinct good or service, which is the unit of account for recognising revenue as control passes to the customer.

The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services, excluding amounts collected on behalf of third parties.

Consideration in a contract that can vary because of discounts, rebates, refunds, credits, incentives, penalties or similar items, estimated using expected value or the most likely amount and constrained.

An entity's right to consideration in exchange for goods or services transferred where that right is conditional on something other than the passage of time, such as future performance.

The estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

The smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets, used as the level for impairment testing.

The higher of an asset's or cash-generating unit's fair value less costs of disposal and its value in use, being the amount above which an impairment loss is recognised.

A measurement approach under which an item of property, plant and equipment is carried at fair value at the revaluation date less subsequent depreciation and impairment, with increases recognised in other comprehensive income.

Expenditure on applying research findings to a plan or design for new or substantially improved products or processes, capitalised as an intangible only when all specified criteria are met.

The period over which an asset is expected to be available for use by an entity, or the number of production or similar units expected to be obtained from it.

A liability of uncertain timing or amount that is recognised only when a present obligation from a past event is probable and the amount can be reliably estimated.

A possible obligation arising from past events whose existence will be confirmed only by uncertain future events, or a present obligation that fails the recognition criteria and is therefore only disclosed.

A contract in which the unavoidable costs of meeting the obligations under it exceed the economic benefits expected to be received, for which the present obligation is recognised as a provision.

An asset representing a lessee's right to use an underlying asset for the lease term, measured initially at the lease liability plus initial direct costs, prepayments and any restoration obligations.

The rate of interest a lessee would have to pay to borrow over a similar term, with similar security, the funds necessary to obtain an asset of similar value in a similar economic environment.

The present value of expected future payments required to settle employee benefit obligations under defined benefit plans, before deducting the fair value of any plan assets.

The probability-weighted estimate of credit losses over the expected life of a financial asset, reflecting cash shortfalls discounted at the effective interest rate.

A method of calculating the amortised cost of a financial asset or liability and allocating interest income or expense over the relevant period using the rate that exactly discounts estimated future cash flows.

The situation where an investor is exposed to, or has rights to, variable returns from its involvement with an investee and can affect those returns through its power over the investee.

An asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised, measured as the excess of consideration over net identifiable assets.

The equity in a subsidiary not attributable, directly or indirectly, to the parent, presented within consolidated equity separately from the equity of the owners of the parent.

The approach to accounting for business combinations under which the acquirer identifies the acquired business, measures identifiable assets acquired and liabilities assumed at fair value, and recognises goodwill or a gain.

The gain recognised in profit or loss when the fair value of net identifiable assets acquired exceeds the consideration transferred plus any previously held interest, after reassessing the measurement.

A person or entity related to the reporting entity through control, joint control, significant influence, key management personnel or close family membership, whose transactions with the entity must be disclosed.