CPA Advanced Financial Accounting key terms

An omission or misstatement in prior-period financial statements arising from information that was available when those statements were authorised for issue and could have been obtained and considered. It is corrected retrospectively unless impracticable.

An adjustment to the carrying amount of an asset or liability, or to the amount of periodic consumption, that results from new information or new developments. It is applied prospectively without restating prior periods.

An amount reclassified to profit or loss in the current period that was previously recognised in other comprehensive income, presented separately so that total comprehensive income does not double-count the same gain or loss.

The change in equity of an entity during a period from transactions and other events other than those with owners in their capacity as owners; it comprises profit or loss plus other comprehensive income.

Under IFRS 1, an amount used as a substitute for cost or depreciated cost at the date of transition to IFRS, such as fair value or a previous GAAP revaluation, avoiding a full retrospective reconstruction of historical cost.

Events, favourable or unfavourable, that occur between the end of the reporting period and the date the financial statements are authorised for issue. Adjusting events update amounts recognised; non-adjusting events are disclosed where material.

The power to govern the financial and operating policies of an investee so as to obtain benefits from its activities. IFRS 10 requires power over relevant activities, exposure to variable returns and ability to use power to affect those returns.

The equity in a subsidiary not attributable, directly or indirectly, to the parent. It is presented within consolidated equity separately from the equity attributable to owners of the parent.

An asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised. It is measured as the excess of consideration transferred over the net identifiable assets acquired.

The excess of the acquirer's interest in the fair value of net identifiable assets acquired over the consideration transferred plus any previously held interest. It is recognised immediately in profit or loss after reassessing the measurements.

A method of accounting whereby an investment is initially recognised at cost and subsequently adjusted for the investor's share of the investee's profit or loss, other comprehensive income and other equity movements.

The power to participate in the financial and operating policy decisions of an investee but not control or joint control over those policies. A holding of 20 per cent or more creates a presumption, rebuttable in either direction.

The IFRS 3 approach requiring the acquirer to identify itself, determine the acquisition date, recognise and measure identifiable assets, liabilities and any non-controlling interest, and recognise goodwill or a bargain purchase gain.

The measurement of a financial asset or liability at its initial recognition amount less principal repayments, adjusted for cumulative amortisation using the effective interest method and, for assets, a loss allowance.

The rate that exactly discounts estimated future cash payments or receipts through the expected life of a financial instrument to the gross carrying amount, so that interest is allocated over the relevant period on a constant-yield basis.

A probability-weighted estimate of credit losses over an instrument's expected life, reflecting present value of cash shortfalls discounted at the effective interest rate. It is recognised whether or not a default has yet occurred.

The contractual cash flow characteristics assessment in IFRS 9, asking whether cash flows are solely payments of principal and interest on the principal amount outstanding. Failure forces measurement at fair value through profit or loss.

A non-derivative instrument containing both a financial liability and an equity component, such as a convertible bond. The components are separated at issuance and each is accounted for under its own classification rules.

Conditions that determine whether an entity receives the services that entitle a counterparty to a share-based payment. They comprise service conditions and performance conditions, and they affect the amount and timing recognised.

A transaction in which the entity acquires goods or services by incurring a liability to transfer cash or other assets based on the price of its equity instruments, remeasured to fair value at each reporting date until settled.

A promise to transfer to a customer a good or service that is distinct, or a series of distinct goods or services that are substantially the same and transferred to the customer in the same pattern.

The portion of the transaction price that is not fixed, such as discounts, rebates, refunds, incentives or penalties. It is estimated and included only to the extent a significant reversal is not highly probable.

An entity's obligation to transfer goods or services to a customer for which consideration has been received, or is due, from the customer. It is presented separately from receivables arising from the same contract.

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 lease payments made at or before commencement, less incentives received.

The difference between the carrying amount of an asset or liability in the statement of financial position and its tax base. It gives rise to a deferred tax asset or liability when the difference will reverse in future periods.

The higher of an asset's fair value less costs of disposal and its value in use. An impairment loss is recognised when the carrying amount exceeds this amount.

The present value of the future cash flows expected to be derived from an asset or cash-generating unit, including its terminal value, discounted at a pre-tax rate reflecting current market assessments of time value and risk.

The currency of the primary economic environment in which an entity operates, determined mainly by the currency influencing sales prices and costs. Foreign currency transactions are translated into it before presentation in another currency.

To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

A qualitative characteristic whereby information is capable of making a difference in users' decisions because it has predictive value, confirmatory value, or both. Materiality is the entity-specific aspect of relevance.

A qualitative characteristic whereby information faithfully depicts the economic phenomena it purports to represent. A faithful depiction is complete, neutral and free from material error, with any uncertainty clearly explained.

The exercise of caution when making judgements under conditions of uncertainty, so that assets and income are not overstated and liabilities and expenses are not understated. It does not permit deliberate bias or hidden reserves.

The principle that transactions and other events are accounted for and presented in accordance with their substance and economic reality, not merely their legal form or the label attached to them.

The right, group of rights or obligation to which recognition and measurement criteria are applied. It determines the level at which an item is aggregated or disaggregated for accounting and disclosure purposes.

A technique expressing each line of a financial statement as a percentage of a common base, such as revenue in the income statement or total assets in the statement of financial position, to enable comparison across periods and entities.

A framework that decomposes return on equity into net profit margin, asset turnover and financial leverage, revealing whether returns are driven by profitability, operating efficiency or borrowing.

The IFRS 13 ranking of inputs used to measure fair value into three levels: unadjusted quoted prices in active markets, observable inputs other than quoted prices, and unobservable inputs based on entity assumptions.

A person or entity connected to the reporting entity through control, joint control, significant influence, key management personnel or close family membership. Transactions with such parties require specific disclosure even when priced on normal terms.

A body appointed by the IFRS Foundation trustees that reviews accounting issues arising in practice and issues interpretations, which carry the same authority as IFRS Standards and apply to the issues addressed.

The degree to which reported profit reflects underlying economic performance and is likely to persist. It is assessed through accrual levels, cash conversion, accounting policy choices and the volatility of components.