IAI CAFB - Certificate in Accounting, Finance and Business cheat sheet

Accounting equation: Assets = Liabilities + Equity; every transaction preserves this equality, so debits always equal credits in the trial balance.

Accrual basis recognises revenue when performance obligations are satisfied and expenses when incurred, not when cash moves; cash basis recognises on cash receipt or payment only.

Double-entry rules: debits increase assets and expenses and decrease liabilities, equity and income; credits do the reverse.

Depreciation methods: straight-line = (cost − residual value) ÷ useful life; reducing balance applies a fixed percentage to carrying amount each period; units-of-production allocates by usage.

Inventory cost formulas permitted under IAS 2: FIFO and weighted average cost; LIFO is prohibited under IFRS. Lower of cost and net realisable value applies to write-downs.

Revenue under IFRS 15 follows five steps: identify the contract, identify performance obligations, determine transaction price, allocate the price, recognise revenue on satisfaction.

Closing process transfers income and expense balances to retained earnings via the income summary; temporary accounts zero out, permanent accounts carry forward.

Statement of cash flows (IAS 7) splits operating, investing and financing activities; interest and dividends paid may be classified as operating or financing if applied consistently.

Key ratios: current ratio = current assets ÷ current liabilities; gross margin = gross profit ÷ revenue; return on equity = net income ÷ average equity.

Cost classification by behaviour: fixed costs are constant in total within the relevant range; variable costs are constant per unit; mixed costs contain both elements.

High-low method: variable cost per unit = (highest cost − lowest cost) ÷ (highest activity − lowest activity); fixed cost = total cost − (variable rate × activity).

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

Target profit in units = (fixed costs + target profit) ÷ contribution per unit; margin of safety = (actual sales − break-even sales) ÷ actual sales.

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

Overhead allocation: predetermined rate = budgeted overhead ÷ budgeted activity base; under- or over-absorption = actual overhead − absorbed overhead.

Standard costing variances: material price = (standard price − actual price) × actual quantity; labour efficiency = (standard hours − actual hours) × standard rate.

Relevant costs for decisions are future and differential; sunk costs and allocated common fixed costs are irrelevant. Opportunity cost is the contribution forgone.

Throughput and bottleneck rules: maximise throughput contribution per unit of the constrained resource; process improvement targets the binding constraint first.

Time value: future value = present value × (1 + r)^n; present value = future value ÷ (1 + r)^n; annuity present value factor = [1 − (1 + r)^−n] ÷ r.

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

Weighted average cost of capital = (E ÷ V) × Ke + (D ÷ V) × Kd × (1 − tax rate), using market values where available.

Capital asset pricing model: Ke = risk-free rate + beta × (market return − risk-free rate); beta measures systematic risk only.

Dividend growth model: Ke = (D1 ÷ P0) + g; D1 = D0 × (1 + g).

Working capital cycle = inventory days + receivable days − payable days; a shorter cycle releases cash.

Operating gearing is the proportion of fixed to variable costs; financial gearing is debt relative to equity. Higher gearing raises volatility of returns to shareholders.

Dividend policy irrelevance (Modigliani–Miller) holds in perfect markets; in practice, taxes, signalling and clientele effects make policy relevant.

Payback ignores cash flows after the cutoff and the time value of money; discounted payback corrects the latter but not the former.

A valid contract requires offer, acceptance, consideration, intention to create legal relations and capacity; absence of any element defeats enforceability.

Invitation to treat versus offer: advertisements, price lists and displays are generally invitations to treat; acceptance must be communicated and mirror the offer.

Consideration must be sufficient but need not be adequate; past consideration is generally not valid consideration.

Separate legal personality means a company contracts, owns property and sues in its own name; shareholders' liability is limited to unpaid capital.

Directors' duties typically include acting within powers, promoting the success of the company, exercising independent judgement, avoiding conflicts and not accepting benefits from third parties.

Agency: the principal is bound by acts of an agent with actual or apparent authority; ratification can validate unauthorised acts.

Corporate governance codes separate the roles of chair and chief executive, require independent non-executive directors and mandate audit committee oversight of external audit.

Insolvency tests: cash-flow test (ability to pay debts as they fall due) and balance-sheet test (assets exceed liabilities). Wrongful trading arises when directors continue trading when insolvency is unavoidable.

Bribery and corruption controls rely on risk assessment, due diligence on third parties, proportionate procedures, top-level commitment, communication and monitoring.

Price elasticity of demand = percentage change in quantity demanded ÷ percentage change in price; demand is elastic when the absolute value exceeds 1.

Income elasticity: positive for normal goods, negative for inferior goods; cross elasticity is positive for substitutes and negative for complements.

A profit-maximising firm sets output where marginal revenue = marginal cost; in perfect competition price equals marginal cost in long-run equilibrium.

Demand-pull inflation arises from aggregate demand growth; cost-push inflation arises from rising input costs or supply shocks.

Monetary policy transmission: central banks change policy rates to influence market rates, credit, asset prices and exchange rates, affecting output and inflation with a lag.

Fiscal multiplier = change in national income ÷ change in government spending; its size falls with higher marginal propensity to import and tax rates.

Comparative advantage: specialisation raises total output when opportunity costs differ between countries, even if one country is absolutely more efficient in everything.

Exchange rate movements: appreciation makes exports dearer and imports cheaper; depreciation does the reverse and raises import cost inflation.

Business cycle phases (expansion, peak, contraction, trough) shift demand, pricing power and unemployment, which drive budgeting and investment assumptions.

Porter's five forces: rivalry, threat of new entrants, threat of substitutes, bargaining power of buyers and of suppliers; a strong force compresses industry profitability.

PESTLE analysis scans political, economic, social, technological, legal and environmental factors affecting strategy.

Ansoff matrix: market penetration, product development, market development and diversification, ordered by increasing risk.

BCG matrix classifies business units by market growth and relative market share into stars, cash cows, question marks and dogs.

SWOT links internal strengths and weaknesses to external opportunities and threats; TOWS pairs them into SO, ST, WO and WT strategic options.

Value chain analysis separates primary activities (inbound logistics, operations, outbound logistics, marketing and sales, service) from support activities.

SMART objectives are specific, measurable, achievable, relevant and time-bound; KPIs must be linked to critical success factors.

Mintzberg's emergent strategy: realised strategy combines deliberate intent with patterns that emerge from day-to-day decisions.

Span of control, centralisation and formalisation are structural levers; taller hierarchies raise coordination cost, flatter structures widen spans.

Fundamental principles of professional ethics: integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

The conceptual framework approach: identify threats, evaluate their significance, then apply safeguards or decline the engagement.

Threat categories: self-interest, self-review, advocacy, familiarity and intimidation.

Independence in appearance and in mind applies to audit assurance engagements; safeguards include rotation, independent review and removing the conflicted individual.

Confidentiality persists after the professional relationship ends; permitted disclosures include legal or regulatory requirements and court orders.

A conflict of interest requires disclosure to affected parties and, where necessary, withdrawal from the engagement.

Whistleblowing: internal escalation is tried first; external disclosure is justified where internal channels fail or the matter is serious and urgent.

Ethical decision models (for example, consequences, duties, virtues and fairness tests) provide structured reasoning rather than relying on intuition.

Professional scepticism means questioning evidence and being alert to conditions indicating possible misstatement or fraud, not assuming dishonesty.

Data analytics maturity: descriptive (what happened), diagnostic (why), predictive (what will happen) and prescriptive (what should be done).

Data quality dimensions: completeness, accuracy, timeliness, consistency, validity and uniqueness; poor input quality undermines every downstream report.

Key internal controls in IT: access controls, segregation of duties, change management, backup and recovery, and audit logging.

General controls apply to the IT environment; application controls cover input validation, processing checks and output reconciliation.

Cloud shared-responsibility model: the provider secures the infrastructure; the customer secures data, identity and access configuration.

Data protection principles: lawful and fair processing, purpose limitation, data minimisation, accuracy, storage limitation, integrity and confidentiality, accountability.

A control total reconciles record counts or monetary totals between source and processed files to detect missing or duplicated records.

Benford's law predicts the frequency of leading digits in naturally occurring data; large deviations can signal fabrication or error.

Visualisation choices: bar charts for comparison, line charts for trends over time, scatter plots for correlation; pie charts are weak for many categories.