KASNEB CPA Foundation cheat sheet

Accounting equation: Assets = Liabilities + Capital; every transaction preserves this equality after recording.

Double-entry rule: each transaction has equal total debits and credits; debits increase assets and expenses, while credits increase liabilities, capital and income.

Opportunity cost is the value of the next best alternative forgone; it is an economic cost even when no cash payment occurs.

Price elasticity of demand = percentage change in quantity demanded divided by percentage change in price; absolute values above 1 indicate elastic demand.

Essentials of a valid contract: offer, acceptance, consideration, intention to create legal relations, capacity and legality.

An invitation to treat is not an offer; displays of goods, auctions and tenders are generally invitations to treat.

Business entity concept: the business is separate from its owners for accounting purposes, so owner withdrawals are drawings, not business expenses.

Trial balance: lists ledger balances; equal debit and credit totals show arithmetic consistency but do not prove the ledger is error-free.

Working capital = current assets - current liabilities; it measures short-term liquidity available for day-to-day operations.

IFRS 15 five steps: identify the contract, identify performance obligations, determine transaction price, allocate price, and recognise revenue when obligations are satisfied.

Audit risk = inherent risk × control risk × detection risk; auditors assess inherent and control risk and plan procedures to reduce detection risk.

Materiality is the amount of misstatement that could influence users' economic decisions; it guides planning, procedure design and evaluation of misstatements.

Material price variance = (standard price - actual price) × actual quantity; material usage variance = (standard quantity - actual quantity) × standard price.

Contribution = sales - variable costs; contribution-to-sales ratio = contribution ÷ sales.

IFRS 16 lessee accounting recognises a right-of-use asset and a lease liability at the present value of lease payments, with limited exceptions.

Deferred tax arises from temporary differences between the carrying amount of an asset or liability and its tax base.

Going concern assumes the entity will continue operating for the foreseeable future; doubt requires disclosure or a different reporting basis.

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

IFRS 10 control requires power over relevant activities, exposure to variable returns, and ability to use power to affect those returns.

Consolidated goodwill = consideration transferred + non-controlling interest + fair value of previously held interest - fair value of net identifiable assets acquired.

Basic earnings per share = profit attributable to ordinary shareholders ÷ weighted average number of ordinary shares outstanding.

Key audit matters are matters most significant in the audit of current-period financial statements, selected from communications with those charged with governance.

The arm's length principle requires related-party transactions to be priced as if independent parties dealt on commercial terms.

Amortised cost measurement uses the effective interest method, adjusted for principal repayments and cumulative impairment for financial assets.

Corporate governance principles include accountability, transparency, fairness and responsibility in directing and controlling entities.

Audit sampling applies procedures to less than 100% of a population so each sampling unit has a chance of selection, enabling conclusions about the population.

Capital gains tax in Kenya is charged at 15% of the net gain on transfer of property, subject to exemptions and statutory adjustments.

Accounting equation links assets, liabilities and capital and is the basis for the statement of financial position.

Double entry keeps debits and credits equal and supports preparation of a trial balance.

Opportunity cost is relevant to decision-making even when it is not recorded in the accounting records.

Elasticity classification depends on the absolute value of the coefficient, not its sign.

Contract validity depends on offer, acceptance, consideration, intention, capacity and legality.

Invitations to treat include most advertisements, catalogues, auctions and tenders.

Business entity and capital versus revenue distinctions affect reported profit and asset values.

Working capital and break-even analysis support short-term liquidity and profit planning.

Revenue recognition focuses on transfer of control of goods or services to the customer.

Audit risk components are assessed separately but combine multiplicatively.

Materiality is both a planning and an evaluation concept.

Variances are classified as favourable or adverse depending on their effect on profit.

Contribution analysis separates variable costs from fixed costs for decision-making.

Lessee accounting under IFRS 16 brings most leases onto the statement of financial position.

Deferred tax accounting matches tax effects to accounting periods.

Going concern assessment underpins preparation of financial statements.

Internal control monitoring is an ongoing process, not a one-time review.

Consolidation starts with identifying control under IFRS 10.

Goodwill is a residual measured after recognising identifiable net assets at fair value.

EPS uses profit attributable to ordinary shareholders and weighted average shares.

Key audit matters enhance communication of significant audit judgements.

Transfer pricing documentation supports arm's length pricing.

Financial assets measured at amortised cost use the effective interest method.

Governance codes emphasise accountability, transparency, fairness and responsibility.

Sampling risk and non-sampling risk affect conclusions drawn from audit samples.

Capital gains tax applies to net gains on transfer of property subject to statutory exemptions.

The statement of financial position reports assets, liabilities and capital at a reporting date.

The statement of profit or loss reports income and expenses for a period.

Bookkeeping records transactions; accounting summarises and interprets them.

Bank reconciliation explains differences between the cash book and bank statement.

Depreciation allocates the cost of a non-current asset over its useful life.

A contract is enforceable only if the essential elements are present.

Demand and supply shifts affect equilibrium price and quantity in markets.

ICT controls protect confidentiality, integrity and availability of information.

IFRS 15 requires allocation of transaction price based on relative stand-alone selling prices.

Audit evidence must be sufficient and appropriate to support the audit opinion.

Standard costing compares standard costs with actual results to identify variances.

Cost-volume-profit analysis uses contribution to assess profit behaviour.

IFRS 16 exceptions cover short-term leases and low-value asset leases.

Deferred tax assets require assessment of recoverability.

Going concern doubt may lead to disclosure or a modified audit opinion.

Internal control deficiencies are communicated to management and those charged with governance.

Analytical procedures compare financial and non-financial data to identify unusual relationships.

Non-controlling interest may be measured at fair value or proportionate share of net assets.

Goodwill is not amortised under IFRS but is tested annually for impairment.

Diluted EPS adjusts profit and shares for dilutive potential ordinary shares.

Key audit matters are not a substitute for a modified audit opinion.

Transfer pricing methods include comparable uncontrolled price, resale price and cost plus.

Effective interest method allocates interest over the expected life of the financial instrument.

Governance structures separate direction, management and oversight.

Audit sampling can be statistical or non-statistical.

Tax planning must comply with tax law and anti-avoidance rules.

Accounting records include books of original entry and ledgers.

Accruals and prepayments match income and expenses to the correct period.

Capital expenditure affects non-current assets; revenue expenditure affects profit.

Consideration is something of value exchanged between contracting parties.

Capacity to contract may be limited by age, insanity or intoxication.

Market equilibrium occurs where demand equals supply.

Entrepreneurship involves identifying opportunities and organising resources.

ICT systems require physical and logical access controls.

Revenue is recognised over time if the customer receives and consumes benefits as performance occurs.

Audit planning considers risk, materiality and the nature of the entity.

Variance analysis identifies price, usage, efficiency and expenditure differences.

Break-even units = fixed costs ÷ contribution per unit.

Lease liability is subsequently measured using the effective interest method.

Temporary differences reverse over time and affect deferred tax.

Going concern assessment covers at least twelve months from the reporting date.

Tests of controls evaluate operating effectiveness of controls.

Substantive analytical procedures are used when relationships are predictable.

Control of an investee may exist with less than 50% voting rights through other rights.

Goodwill impairment loss is recognised in profit or loss.

EPS denominators adjust for bonus issues and share splits retrospectively.

Key audit matters are described in the auditor's report.

Comparability analysis is central to transfer pricing.

Amortised cost applies when the business model is hold to collect and cash flows are solely principal and interest.

Governance codes require independent oversight and effective risk management.

Sampling units and populations must be defined before selecting samples.

Capital gains tax is computed on net gain after allowable costs and exemptions.

Assets are resources controlled by the entity from which future economic benefits are expected.

Liabilities are present obligations expected to result in outflow of resources.

Capital is the owner's residual interest in the assets after deducting liabilities.

Income increases economic benefits; expenses decrease them.

Contract law distinguishes void, voidable and unenforceable agreements.

Elasticity can be price, income or cross-price elasticity.

Working capital management covers inventory, receivables and payables.

Information systems convert data into useful information.

Performance obligations are distinct if the customer can benefit from the good or service separately.

Audit risk is reduced by increasing the extent or quality of audit procedures.

Materiality may be based on profit, revenue, assets or equity.

Favourable variances increase profit; adverse variances reduce profit.

Margin of safety = actual sales - break-even sales.

IFRS 16 lease term includes non-cancellable period and extension options reasonably certain to be exercised.

Deferred tax is measured using tax rates expected to apply when the temporary difference reverses.

Going concern indicators include liquidity problems, losses and loss of key markets.

Control activities include authorisation, reconciliation, segregation of duties and physical controls.

Consolidation adjusts fair values of identifiable assets and liabilities at acquisition.

Goodwill is tested for impairment at the cash-generating unit level.

Diluted EPS uses the if-converted method for convertible instruments.

Key audit matters are specific to the entity and audit.

Transfer pricing rules counter profit shifting between related entities.

Financial liabilities at amortised cost are adjusted for transaction costs.

Corporate governance addresses board composition, risk and internal control.

Audit sampling risk is the risk that the auditor's conclusion based on a sample differs from the population.

Tax avoidance arrangements may be challenged under general anti-avoidance rules.

The accounting cycle starts with transaction identification and ends with financial statements.

Journal entries record transactions before posting to ledgers.

A suspense account holds differences until errors are located.

Contract discharge may occur by performance, agreement, breach or frustration.

Remedies for breach include damages, specific performance and rescission.

Demand curve slopes downward; supply curve slopes upward in typical markets.

Entrepreneurial ventures require feasibility analysis and business planning.

Data protection and security are key ICT governance concerns.

Contract liabilities arise when consideration is received before revenue recognition.

Audit documentation provides evidence of the auditor's basis for conclusions.

Overhead variances analyse expenditure and efficiency.

CVP analysis assumes fixed costs constant and variable cost per unit constant.

Sale and leaseback transactions require IFRS 16 accounting.

Deferred tax liabilities arise from taxable temporary differences.

Going concern disclosures describe material uncertainties.

Substantive procedures include tests of details and analytical procedures.

Internal control information systems produce reliable financial reports.

Consolidation eliminates intragroup balances and transactions.

Goodwill impairment is not reversed under IFRS.

EPS is presented for each class of ordinary shares.

Key audit matters are selected from matters communicated with those charged with governance.

Transfer pricing methods must be applied consistently and documented.

Financial assets at amortised cost are subject to impairment under expected credit loss model.

Governance reporting often includes board and committee disclosures.

Non-sampling risk arises from human error or inappropriate procedures.

Capital gains tax returns and payment deadlines must be observed.

Financial statements include statement of financial position, profit or loss, changes in equity and cash flows.

Cash flow statements classify cash flows as operating, investing and financing.

A contract requires consensus between parties.

Offer terminates by rejection, revocation, lapse or death.

Market demand is affected by price, income, tastes and related goods.

Entrepreneurship involves risk-taking and innovation.

ICT hardware, software and networks support business operations.

Confidentiality of accounting information is an ethical requirement.

Revenue recognition requires reliable measurement of consideration.

Audit opinions may be unmodified or modified.

Standard costing provides benchmarks for performance evaluation.

Contribution per unit = selling price - variable cost per unit.

Lease payments include fixed payments and variable payments based on an index.

Deferred tax balances are reviewed at each reporting date.

Going concern assessment considers management's plans and available financing.

Tests of controls may reduce substantive testing.

Material misstatements can be factual, judgemental or projected.

Control assessment considers substantive rights and protective rights.

Goodwill is measured at acquisition date and allocated to cash-generating units.

EPS disclosures include reconciliation of numerators and denominators.

Key audit matters do not include matters that caused a modified opinion only.

Transfer pricing documentation should be prepared contemporaneously.

Amortised cost carrying amount is gross carrying amount less impairment.

Governance codes promote ethical leadership and corporate citizenship.

Sampling methods include random, systematic and monetary unit sampling.

Capital gains tax is administered by the Kenya Revenue Authority.

Depreciation methods include straight-line, reducing balance and units of production.

Inventory valuation follows lower of cost and net realisable value.

Bank overdrafts are current liabilities.

A contract may be discharged by frustration if performance becomes impossible.

Elastic demand means quantity responds proportionately more than price.

Business plans include marketing, operations and financial plans.

ICT controls include backup, passwords and access rights.

Professional ethics require integrity and objectivity.

IFRS 15 requires disclosure of disaggregated revenue.

Audit reports include opinion, basis for opinion and key audit matters where applicable.

Variance reports compare actual performance with budgets or standards.

CVP analysis calculates target profit sales.

IFRS 16 requires disclosure of lease liabilities and right-of-use assets.

Deferred tax is presented separately from current tax.

Going concern is a fundamental accounting assumption.

Internal control reviews identify deficiencies and recommend improvements.

Analytical procedures are required in audit planning and final review.

IFRS 10 consolidation applies to all subsidiaries.

Goodwill calculation includes fair value adjustments at acquisition.

EPS denominators adjust for shares issued for consideration.

Key audit matters improve transparency of audit judgements.

Transfer pricing rules apply to cross-border and domestic related-party transactions.

Effective interest rate discounts estimated future cash flows.

Governance frameworks allocate responsibilities among board, management and auditors.

Audit sampling conclusions relate to the population from which the sample is drawn.

Tax compliance includes accurate returns and timely payment.

Accounting standards improve comparability and reliability of financial statements.

Trial balance errors include omission, commission, principle and compensating errors.

Contract terms determine rights and obligations of parties.

Consideration must not be past consideration.

Price ceilings and floors can create shortages or surpluses.

Entrepreneurship requires opportunity recognition and resource mobilisation.

Information systems support transaction processing and management reporting.

Audit and assurance enhance credibility of financial information.

Revenue recognition may be over time or at a point in time.

Audit materiality is revised if circumstances change.

Variance analysis distinguishes controllable and uncontrollable variances.

Break-even sales revenue = fixed costs ÷ contribution-to-sales ratio.

IFRS 16 initial measurement includes initial direct costs.

Deferred tax assets are recognised only if probable taxable profit will be available.

Going concern disclosures are included when material uncertainty exists.

Control environment sets the tone of an organisation.

Audit evidence includes accounting records and other information.

Consolidated financial statements present parent and subsidiaries as a single economic entity.

Goodwill impairment testing compares recoverable amount with carrying amount.

Diluted EPS is calculated for all dilutive potential ordinary shares.

Key audit matters are described in a separate section of the auditor's report.

Transfer pricing methods include profit split and transactional net margin.

Financial liabilities are derecognised when extinguished.

Corporate governance codes require board independence and competence.

Audit sampling does not include selecting all items in a population.

Capital gains tax exemptions include transfers of certain securities and group reorganisations.

The matching concept matches expenses with related income in the same period.

Prudence requires caution under uncertainty.

A contract may be void if illegal or contrary to public policy.

Supply determinants include costs, technology and taxes.

Business finance sources include equity, debt and retained earnings.

ICT risks include cybercrime, data loss and system failure.

Professional competence requires maintaining skills and knowledge.

Financial statements are prepared from the trial balance and adjustments.

IFRS 15 requires estimates of variable consideration.

Audit risk includes risk of material misstatement and detection risk.

Standard costs are set for materials, labour and overheads.

CVP analysis supports decisions on pricing and product mix.

IFRS 16 lease liability is remeasured on lease modification.

Deferred tax is not recognised on initial recognition of goodwill.

Going concern assessment considers subsequent events.

Internal control limitations include collusion and management override.

Audit procedures include inspection, observation, inquiry, confirmation and recalculation.

Consolidation requires uniform accounting policies across group entities.

Goodwill is recognised as an asset only in consolidated financial statements.

EPS is a key performance measure for listed entities.

Key audit matters are not required for all audits.

Transfer pricing requires comparability adjustments.

Amortised cost instruments are measured using the effective interest rate.

Governance reporting includes remuneration and risk disclosures.

Statistical sampling uses probability theory to evaluate sample results.

Tax disputes may be resolved through objection and appeal procedures.

The going concern basis assumes the entity will continue in operation.

Accrual accounting records income when earned and expenses when incurred.

Contract offer must be communicated to the offeree.

Acceptance must be unconditional and communicated.

Elasticity influences pricing and taxation decisions.

Entrepreneurial success requires market research and financial discipline.

ICT governance aligns technology with business objectives.

Ethical behaviour builds trust in the accounting profession.

Revenue recognition requires identification of distinct goods or services.

Audit planning includes understanding the entity and its environment.

Variance analysis investigates significant deviations from standards.

CVP analysis calculates margin of safety and operating leverage.

IFRS 16 requires lessees to recognise depreciation and interest.

Deferred tax is measured at the tax rates expected to apply.

Going concern assessment considers cash flow forecasts.

Control activities include segregation of duties and authorisation.

Audit conclusions are based on sufficient appropriate evidence.

Consolidation requires elimination of parent's investment against subsidiary equity.

Goodwill is allocated to cash-generating units for impairment testing.

EPS denominators adjust for rights issues using a bonus factor.

Key audit matters are entity-specific and audit-specific.

Transfer pricing rules prevent base erosion and profit shifting.

Amortised cost measurement requires estimates of expected cash flows.

Governance codes require effective internal control and risk management.

Sampling risk can be controlled by sample size and selection method.

Capital gains tax is a final tax on gains from property transfers.

Financial accounting focuses on external reporting; management accounting focuses on internal decisions.

Double entry records affect at least two accounts.

A contract is a legally binding agreement.

Breach of contract gives rise to remedies.

Demand and supply analysis explains market prices.

Entrepreneurship involves innovation and risk management.

ICT systems require confidentiality, integrity and availability.

Accounting ethics include integrity, objectivity and confidentiality.

IFRS 15 requires allocation of discounts and variable consideration.

Audit risk assessment is a continuous process.

Materiality is a matter of professional judgement.

Variance analysis uses standard costing data.

CVP analysis assumes linear revenue and cost functions.

IFRS 16 requires disclosure of maturity analysis of lease liabilities.

Deferred tax accounting requires estimation of future taxable profits.

Going concern indicators include breach of loan covenants.

Internal control monitoring can be ongoing or periodic.

Control assessment considers potential voting rights that are substantive.

Goodwill impairment testing uses value in use or fair value less costs of disposal.

Diluted EPS adjusts profit for after-tax interest on convertible debt.

Key audit matters are communicated in the auditor's report.

Transfer pricing documentation supports the chosen method.

Amortised cost financial assets are subject to expected credit loss impairment.

Corporate governance requires board accountability to shareholders.

Audit sampling can use attributes or variables sampling.

Capital gains tax is computed on the net gain after allowable deductions.

Accounting is the process of identifying, recording, classifying and summarising transactions.

The accounting equation is the foundation of double-entry bookkeeping.

Contract law governs formation, performance and discharge of agreements.

Economics studies allocation of scarce resources.

Entrepreneurship creates value through innovation and opportunity.

ICT supports data processing, communication and decision-making.

Professional ethics guide conduct in accounting practice.

Financial statements provide information to stakeholders.

IFRS 15 revenue recognition is based on transfer of control.

Audit risk assessment determines the nature, timing and extent of procedures.

Materiality guides the auditor's evaluation of misstatements.

Standard costing variance analysis supports cost control.

CVP analysis helps determine break-even and target profit.

IFRS 16 lease accounting affects assets, liabilities and profit.

Deferred tax accounting recognises tax consequences of temporary differences.

Going concern assessment is management's responsibility and audited by the auditor.

Internal control components are interrelated.

Consolidation requires identification of subsidiaries and control.

Goodwill is measured as a residual and tested for impairment.

EPS presentation is required for listed entities.

Key audit matters enhance the communicative value of the auditor's report.

Transfer pricing requires arm's length pricing and documentation.

Amortised cost is measured using the effective interest method.

Governance codes promote ethical leadership and sustainability.

Audit sampling provides a basis for conclusions about a population.

Capital gains tax applies to gains on transfer of property in Kenya.