ACA Corporate 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. Information is relevant if it has predictive or confirmatory value and is material; faithful representation requires completeness, neutrality and freedom from error.

Prudence in the Framework

The exercise of caution when making judgements under uncertainty, so that assets and income are not overstated and liabilities and expenses are not understated. It supports neutrality rather than permitting deliberate bias.

Going concern assumption

Financial statements are prepared on the basis that the entity will continue in operation for the foreseeable future. If material uncertainty exists, IAS 1 requires disclosure of that uncertainty and the basis of preparation.

Accrual basis of accounting

Effects of transactions are recognised when they occur, not when cash is received or paid. Items are recorded in the periods to which they relate, giving a more faithful view of performance than cash movements.

IAS 8 retrospective restatement

A material prior-period error is corrected by adjusting opening retained earnings and comparative amounts as if the error never occurred. Impracticability permits prospective application with disclosure of the reason.

Change in accounting estimate

An adjustment to the carrying amount of an asset or liability arising from new information or developments. It is applied prospectively, affecting current and future periods, and disclosed if material.

IAS 1 materiality and aggregation

Each material class of similar items is presented separately. Immaterial items are aggregated, and materiality depends on both the size and nature of the item in the entity's circumstances.

IAS 10 adjusting events

Events after the reporting period that provide evidence of conditions existing at the end date, such as insolvency of a customer or settlement of a court case, require recognition or adjustment in the financial statements.

IAS 10 non-adjusting events

Events arising after the reporting period that concern conditions created afterwards, such as a share issue or a major business combination, are disclosed if material but do not change recognised amounts.

Five-step revenue model

Identify the contract with the customer; identify separate performance obligations; determine the transaction price; allocate it to each obligation; recognise revenue when or as each obligation is satisfied.

Performance obligation satisfied over time

Revenue is recognised over time when the customer simultaneously receives and consumes benefits, the entity creates an asset the customer controls, or the work has no alternative use and payment is enforceable.

Contract asset versus receivable

A contract asset arises when the entity has performed but the right to consideration is conditional on something other than the passage of time. Once only time is required, it becomes a receivable.

Significant financing component

When timing of payment gives customer or entity financing benefit, the promised consideration is adjusted for the time value of money using a discount rate reflecting the credit characteristics of the party receiving finance.

IFRS 16 lease liability measurement

Lease payments not paid at commencement are discounted at the interest rate implicit in the lease, or the lessee's incremental borrowing rate, and include fixed payments, residual guarantees and purchase options reasonably certain.

IFRS 16 right-of-use asset

Measured at the initial lease liability plus payments made at or before commencement, initial direct costs, and estimated restoration costs, less lease incentives received. Depreciated over the lease term or useful life.

IAS 37 recognition criteria

A provision is recognised when a present obligation exists from a past event, an outflow of resources is probable, and the amount can be reliably estimated. Otherwise it is a contingent liability disclosed.

Onerous contract provision

Recognised for the unavoidable costs of meeting the contract, being the lower of the cost of fulfilling it and any compensation for failing to fulfil it. The provision is measured before any impairment of related assets.

IAS 38 development capitalisation

Development costs are capitalised only if technical feasibility, intention and ability to complete and use or sell, probable future benefits, available resources, and reliable measurement of costs are all demonstrated.

IAS 36 value in use

Present value of future cash flows expected from an asset, using pre-tax cash flows, a pre-tax discount rate, and projections over a maximum of five years unless a longer period is justified.

Cash-generating unit

The smallest identifiable group of assets that generates cash inflows largely independent of other assets. Impairment is tested at CGU level when an individual asset does not generate independent cash flows.

IFRS 9 expected credit losses

An impairment allowance measured at the present value of cash shortfalls, using 12-month ECL initially and lifetime ECL when credit risk increases significantly, with simplified approaches permitted for trade receivables.

IFRS 9 business model test

A financial asset is measured at amortised cost only if held within a business model whose objective is to hold assets to collect contractual cash flows, and the cash flows are solely payments of principal and interest.

IAS 7 operating cash flows

Cash flows from principal revenue-producing activities. Interest and dividends received or paid may be classified as operating, investing or financing, provided the choice is applied consistently and disclosed.

Control under IFRS 10

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

Goodwill on acquisition

The excess of consideration transferred plus non-controlling interest plus previously held interest over the fair value of identifiable net assets acquired. Recognised as an asset and tested annually for impairment.

Bargain purchase gain

If the fair value of net assets acquired exceeds total consideration, the acquirer reassesses identification and measurement, then recognises the remaining excess as a gain in profit or loss on the acquisition date.

Consolidation elimination of intragroup

Intragroup balances, transactions, income and expenses are eliminated in full. Unrealised profits are eliminated against the seller's income, with the related tax effect recognised in deferred tax.

Equity method of accounting

The investment is initially at cost and adjusted for the investor's share of post-acquisition profit or loss, OCI and dividends. Goodwill is included in the carrying amount and not separately tested.

IAS 21 closing rate translation

Foreign currency monetary items are retranslated at the closing rate, with exchange differences in profit or loss. Non-monetary items measured at historical cost use the transaction-date rate.

Diluted earnings per share

Earnings and weighted average shares are adjusted for dilutive potential ordinary shares. Potential shares are included in sequence from most to least dilutive, and antidilutive shares are excluded.

IFRS 5 held for sale criteria

The asset must be available for immediate sale in its present condition and the sale must be highly probable, requiring management commitment, an active programme, a reasonable price and completion within one year.

Operating segment under IFRS 8

A component whose operating results are reviewed by the chief operating decision maker, engaged in business activities earning revenue and incurring expenses, and for which discrete financial information is available.