ICAEW ACA FAR key terms

A body of principles used to develop and apply accounting standards consistently, covering objectives of financial reporting, qualitative characteristics, elements of financial statements, recognition and measurement.

A qualitative characteristic meaning information reflects the economic substance of transactions completely, neutrally and free from material error.

The assumption that an entity will continue operating for the foreseeable future without intention or necessity to liquidate or curtail operations significantly.

Recording income and expenses when they are earned or incurred, not when cash is received or paid, so transactions are matched to the periods they relate to.

Accounting for the economic reality of a transaction rather than its legal or contractual appearance, for example recognising a lease liability where control of the asset transfers.

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 amount by which an asset's carrying amount exceeds its recoverable amount, written off immediately through profit or loss unless a standard requires otherwise.

Systematic allocation of the depreciable amount of a non-current asset over its useful life, reflecting consumption of economic benefits.

The estimated amount an entity would currently obtain from disposing of an asset, net of disposal costs, if the asset were already of the age and condition expected at the end of its useful life.

Cash or consideration received before the related goods or services are delivered, presented as a liability until the performance obligation is satisfied.

A promise in a contract with a customer to transfer a distinct good or service; revenue is recognised when each such obligation is satisfied.

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.

Liabilities of uncertain timing or amount recognised when a present obligation from a past event probably requires an outflow of economic benefits that can be reliably estimated.

A possible obligation whose existence will be confirmed only by uncertain future events, or a present obligation that cannot be reliably measured, so it is disclosed rather than recognised.

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 and prepayments.

The present value of lease payments not yet paid, discounted using the interest rate implicit in the lease or the lessee's incremental borrowing rate.

A transaction in which an acquirer obtains control of one or more businesses, accounted for by applying the acquisition method.

Accounting for a business combination by identifying the acquirer, the acquisition date, recognising identifiable net assets at fair value and recognising goodwill or a gain.

The excess of consideration transferred plus any non-controlling interest over the fair value of identifiable net assets acquired, representing future economic benefits not separately identifiable.

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

The power to govern an investee's financial and operating policies to obtain benefits, normally presumed where the parent holds more than half the voting rights.

Combining the financial statements of a parent and its subsidiaries line by line, eliminating intragroup balances, transactions, income and expenses in full.

An entity over which an investor has significant influence, generally presumed with a holding of 20 per cent or more of voting power, accounted for using the equity method.

Recording an investment at cost and adjusting it thereafter for the investor's share of the investee's post-acquisition profits, other comprehensive income and dividends received.

A joint arrangement in which parties with joint control have rights to the net assets of the arrangement, accounted for using the equity method.

Restating a subsidiary's identifiable assets and liabilities to fair value at acquisition, with the resulting depreciation or amortisation charged to post-acquisition profits.

Profit arising on an intragroup sale of inventory still held at the year end, which must be eliminated against group profits and inventory carrying amount.

A primary statement classifying cash movements into operating, investing and financing activities to show how an entity generated and used cash during the period.

Cash generated from operations after tax and capital expenditure, indicating funds available for servicing finance costs, paying dividends or reducing debt.

A measure of financial risk comparing debt to equity or to total capital, showing the proportion of funding provided by lenders rather than shareholders.

Operating profit divided by finance costs, indicating how many times profit covers interest payments and therefore the margin of safety for lenders.

Operating profit divided by capital employed, measuring the profit generated from long-term funds invested in the business and used to judge operating efficiency.

Revenue divided by capital employed or total assets, showing how efficiently assets generate sales and forming one component of return on capital employed.

A component of an entity whose results are regularly reviewed by the chief operating decision maker, requiring separate disclosure of profit, assets and liabilities.

A person or entity connected to the reporting entity through control, significant influence or key management, whose transactions require disclosure.

Events occurring between the reporting date and the date financial statements are authorised for issue, classified as adjusting or non-adjusting.

An omission or misstatement in previously issued financial statements, corrected retrospectively by restating comparatives and adjusting opening retained earnings.

Tax expected to be payable or recoverable on temporary differences between the carrying amount of assets and liabilities and their tax base.