CMA Final Paper 19 cheat sheet

Porter's Five Forces: rivalry, new entrants, substitutes, supplier power, buyer power - a force is strong when it depresses industry profitability below the cost of capital.

SWOT analysis classifies internal factors as Strengths/Weaknesses and external factors as Opportunities/Threats; TOWS converts them into SO, ST, WO, WT strategies.

BCG matrix: question mark = high growth, low share (invest or divest); star = high growth, high share; cash cow = low growth, high share (harvest); dog = low growth, low share (divest).

Value chain: primary activities are inbound logistics, operations, outbound logistics, marketing and sales, and service; support activities are firm infrastructure, HR, technology development, and procurement.

Cost leadership, differentiation, and focus are Porter's generic strategies; being stuck in the middle means no coherent strategy and below-average returns.

Ansoff matrix: market penetration (existing product/market), market development (existing product, new market), product development (new product, existing market), diversification (new product and market).

PESTLE scans political, economic, social, technological, legal, and environmental factors that shape industry attractiveness.

Core competence (Prahalad and Hamel) must be valuable, rare, costly to imitate, and non-substitutable to sustain competitive advantage (VRIN test).

Strategic control uses premise control, implementation control, strategic surveillance, and special alert control; operational control compares actual to budget.

Revenue recognition (IFRS 15) five steps: identify the contract, identify performance obligations, determine the transaction price, allocate it, and recognize revenue when each obligation is satisfied.

Lease accounting (IFRS 16): lessee recognizes a right-of-use asset and a lease liability at the present value of lease payments; short-term and low-value leases may be expensed.

Fair value hierarchy: Level 1 quoted prices in active markets; Level 2 observable inputs other than quoted prices; Level 3 unobservable inputs.

Impairment (IAS 36): an asset is impaired when carrying amount exceeds recoverable amount, which is the higher of fair value less costs of disposal and value in use.

Deferred tax arises from temporary differences between the carrying amount and the tax base; deferred tax liability for taxable temporary differences, asset for deductible ones.

Consolidation: parent controls a subsidiary when it has power over the investee, exposure to variable returns, and the ability to use power to affect returns (IFRS 10).

Goodwill is not amortized under IFRS; it is tested for impairment annually and whenever indicators exist.

Statement of cash flows (IAS 7) classifies cash flows as operating, investing, and financing; interest and dividends paid/received have policy choices but must be disclosed consistently.

Financial instruments (IFRS 9) classify debt assets by business model and contractual cash-flow characteristics into amortized cost, FVOCI, or FVTPL.

Contribution margin = sales − variable costs; contribution margin ratio = contribution margin ÷ sales.

Break-even units = fixed costs ÷ contribution margin per unit; break-even sales = fixed costs ÷ contribution margin ratio.

Target profit units = (fixed costs + target profit) ÷ contribution margin per unit.

Margin of safety = actual (or budgeted) sales − break-even sales; margin of safety ratio = margin of safety ÷ actual sales.

Degree of operating leverage = contribution margin ÷ operating income; it measures the percentage change in operating income for a 1% change in sales.

Absorption costing includes fixed manufacturing overhead in product cost; variable costing expenses it as a period cost, so income differs by the change in inventory × fixed overhead rate.

Standard cost variances: price variance = (standard price − actual price) × actual quantity; quantity variance = (standard quantity − actual quantity) × standard price.

Overhead variances: spending variance = actual overhead − budgeted overhead at actual activity; efficiency variance = (standard hours − actual hours) × standard rate.

Relevant costs are future costs that differ between alternatives; sunk costs and allocated common fixed costs are irrelevant to a decision.

Weighted average cost of capital = (E/V) × cost of equity + (D/V) × after-tax cost of debt, where after-tax cost of debt = pre-tax rate × (1 − tax rate).

CAPM: cost of equity = risk-free rate + beta × market risk premium.

Dividend growth model: cost of equity = (next dividend ÷ current price) + growth rate.

Net present value = present value of cash inflows − initial investment; accept projects with NPV > 0; IRR is the discount rate that makes NPV = 0.

Profitability index = present value of cash inflows ÷ initial investment; accept when PI > 1.

Payback period = initial investment ÷ annual cash inflow (even flows); it ignores the time value of money and cash flows after payback.

WACC is the appropriate discount rate for a project only when the project's risk equals the firm's average risk.

Cash conversion cycle = days inventory outstanding + days sales outstanding − days payables outstanding.

Working capital ratios: current ratio = current assets ÷ current liabilities; quick ratio = (cash + marketable securities + receivables) ÷ current liabilities.

A valid contract requires offer, acceptance, consideration, capacity, and legality; a counteroffer terminates the original offer.

Statute of Frauds requires a writing for contracts that cannot be performed within one year, for the sale of goods over a threshold, for land, and for suretyship.

Agency: actual authority may be express or implied; apparent authority arises from the principal's manifestations to a third party; ratification adopts an unauthorized act.

Corporate veil is pierced for fraud, undercapitalization, or commingling of personal and corporate assets.

Fiduciary duties of directors and officers are the duty of care and the duty of loyalty; the business judgment rule protects informed, good-faith decisions.

Insider trading prohibits trading on material nonpublic information or tipping others who trade; materiality and scienter are key elements.

COSO internal control components: control environment, risk assessment, control activities, information and communication, and monitoring.

Fraud triangle elements are pressure/incentive, opportunity, and rationalization.

IFAC/IESBA Code principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behavior.

COSO ERM and IT governance: segregation of duties separates authorization, custody, and record-keeping to prevent fraud.

General IT controls cover access security, change management, backup and recovery, and IT operations; application controls cover input, processing, and output.

Data analytics types: descriptive (what happened), diagnostic (why), predictive (what will happen), and prescriptive (what to do).

Data quality dimensions include accuracy, completeness, timeliness, consistency, and validity.

Relational database keys: primary key uniquely identifies a row; foreign key references the primary key of another table and enforces referential integrity.

Big data characteristics are volume, velocity, variety, veracity, and value.

Sampling risk is the risk the sample is not representative; nonsampling risk includes human error and inappropriate procedures.

CAAT (computer-assisted audit techniques) include test data, parallel simulation, embedded audit modules, and generalized audit software for extracting and analyzing data.

Encryption protects confidentiality in transit and at rest; hashing verifies integrity; digital signatures provide authentication, integrity, and nonrepudiation.