QP Associate M4 flashcards

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

Command word: explain

Requires a fact plus a supporting reason or mechanism. A bare statement of the fact earns identification credit only; the additional marks come from showing why or how it applies.

Command word: evaluate

Requires criteria to be set out, competing factors compared against those criteria, and a reasoned judgement reached. Listing points without a conclusion does not satisfy the command word.

Error carried forward

A marking convention where an arithmetic slip early in a calculation does not forfeit later marks, provided the method is visible and consistently applied to the wrong figure.

Assumption set in question stem

Stated assumptions define the correct answer space and must be used even if you would personally choose differently. Contradicting a stated assumption loses the associated marks.

Independence in appearance

The test that a reasonable informed third party would not perceive a threat to objectivity. Meeting independence of mind alone is insufficient; both tests must be satisfied.

Conflicts of interest disclosure

A duty to disclose promptly any interest that could bias judgement, then manage it by withdrawal, independent review, or written informed consent depending on severity.

Competence and due care

Accept work only where you hold, or can obtain under supervision, the skill and resources to complete it to the required standard; decline or escalate otherwise.

Whistleblowing escalation order

Internal line management first, then the designated compliance or audit function, then the external regulator where internal routes fail or are themselves compromised.

Gifts and hospitality test

Assessed against a stated threshold plus whether the gift could influence judgement. The appearance of influence is enough to require refusal or disclosure.

Confidentiality disclosure exceptions

Client information may be shared only with consent, where required by law or regulation, or where a legal or professional duty to disclose exists.

Percentage points versus percent

Percentage points give the arithmetic difference between two percentages; percent change gives the relative change. A move from 4% to 6% is 2 percentage points but a 50% increase.

Compound future value formula

FV = PV × (1 + r)^n for discrete annual compounding, and FV = PV × e^(r n) for continuous compounding, where r is the periodic rate and n the number of periods.

Annuity present value formula

PV = PMT × [1 − (1 + r)^(−n)] / r, giving the value today of a level payment stream of n payments discounted at periodic rate r.

NPV decision rule

Accept a project where net present value exceeds zero. Between mutually exclusive projects, choose the highest NPV rather than the highest internal rate of return.

Weighted average cost of capital

WACC = (E/V) × Ke + (D/V) × Kd × (1 − t), where V equals equity plus debt and t is the tax rate applied to debt interest.

Break-even volume formula

Break-even volume equals fixed costs divided by the contribution margin per unit, where contribution margin is unit price minus unit variable cost.

Expected value and variance

Expected value is the probability-weighted sum of outcomes. Variance is the probability-weighted sum of squared deviations from that expected value; standard deviation is its square root.

Correlation coefficient limits

Correlation lies between minus one and plus one, measures linear association only, and is unaffected by linear rescaling. It never establishes causation between the variables.

Preventive versus detective control

Preventive controls stop an event before it occurs, such as authorisation limits. Detective controls identify an event after it occurs, such as reconciliations and exception reports.

Segregation of duties

Authorisation, custody of assets, recording, and reconciliation must sit with different people, so no single individual can both cause and conceal an error.

Inherent versus residual risk

Inherent risk is exposure before controls are applied; residual risk is exposure remaining after controls operate. The difference represents the mitigation achieved.

Three lines model

Operational management owns and manages risk as the first line; a risk or compliance function oversees as the second; internal audit gives independent assurance as the third.

Materiality judgement

Materiality depends on both size and nature. An item below the quantitative threshold can still be material because of its nature, sensitivity, or regulatory context.

Sampling versus non-sampling risk

Sampling risk is the chance a sample-based conclusion differs from the population conclusion. Non-sampling risk covers all other causes, such as flawed procedures or misinterpretation.

Significant deficiency versus material weakness

A deficiency is significant when it could reasonably cause a material misstatement. It becomes a material weakness when the likelihood of material misstatement is reasonable, not remote.

Level of assurance statement

A conclusion must be expressed at the assurance level actually obtained: reasonable, limited, or none. It can never be stronger than the work performed supports.

Qualification content requirement

A qualification must state the matter giving rise to it, its financial or other effect, and why it could not be resolved. Omitting the effect makes it incomplete.

Working paper review standard

A working paper must allow an experienced reviewer with no prior knowledge of the engagement to reach the same conclusion from the documentation alone.

Report structure sequence

Purpose and scope, basis of preparation, findings, conclusion, then limitations or qualifications. Each element appears as a separate headed section in that order.

Clearing findings before publication

Draft findings are shared with the responsible party to confirm factual accuracy before publication, without conceding the auditor's conclusion or independence.

Specific rule prevails

Where two rules conflict, the more specific rule overrides the general one, and the later-issued rule overrides the earlier unless the material states otherwise.

Time allocation by marks

Marks are proportional to minutes available. A four-mark sub-question in a hundred-mark, three-hour paper should consume roughly seven minutes of writing time.