KASNEB CPA Intermediate key terms

The principle that a registered company is a legal person distinct from its shareholders and directors, so it can own property, contract, sue and be sued in its own name.

A shareholder's exposure to company debts is capped at the amount unpaid on their shares, protecting personal assets from business failure.

A court's disregard of a company's separate personality to hold members or directors personally responsible, typically where the company is used as a sham or fraud.

An act beyond the powers conferred on a company or public body by its constitution or statute, and therefore invalid or unenforceable.

The statutory and fiduciary obligations of directors, including acting in good faith, with skill and care, avoiding conflicts of interest and not misusing company property.

A legal obligation to act in another party's best interests rather than one's own, owed by directors and trustees to the company or beneficiaries.

A legal arrangement where one person (the agent) is authorised to act on behalf of another (the principal) and bind the principal in dealings with third parties.

A business relationship between two or more persons carrying on a business in common with a view to profit, generally without separate legal personality in common-law jurisdictions.

The money or other consideration contributed by shareholders in exchange for shares, divided into nominal (stated) value and any premium above it.

A distribution of part of a company's distributable profits to shareholders, usually declared by the directors and approved according to the constitution.

A constitutional document that states a company's name, registered office, objects and the liability of its members, forming the basis of its legal capacity.

The internal rulebook of a company governing the rights of members, the conduct of meetings and the powers of directors.

The principle that a sum of money available today is worth more than the same sum in the future because it can be invested to earn a return.

The difference between the present value of a project's expected cash inflows and the present value of its cash outflows; a positive result signals value creation.

The discount rate at which a project's net present value equals zero, representing the effective annual return the investment is expected to earn.

The minimum required return on invested funds, being the weighted average cost of a firm's debt and equity finance.

A blended required return calculated by weighting the after-tax cost of each source of finance by its proportion in the firm's capital structure.

The mix of debt and equity a firm uses to finance its assets, which affects its cost of capital and financial risk.

The proportion of a firm's capital provided by fixed-charge debt, indicating how sensitive returns to shareholders are to changes in operating profit.

The funds tied up in day-to-day operations, measured as current assets less current liabilities, and managed to balance liquidity against profitability.

The average number of days between paying suppliers for inventory and collecting cash from customers, used to assess working capital efficiency.

The process of converting future cash flows into their present value by applying a discount rate that reflects the time value of money and risk.

Accounting that recognises income and expenses when they are earned or incurred, regardless of when cash changes hands.

The rule that expenses incurred in generating revenue are recognised in the same reporting period as the related revenue.

The criteria and timing for recording income from contracts with customers, generally when control of goods or services passes to the buyer.

The systematic allocation of an asset's depreciable amount over its useful life to reflect consumption of economic benefits.

The amount at which an asset or liability is recognised in the statement of financial position, being cost or revalued amount less accumulated depreciation and impairment.

A reduction in an asset's recoverable amount below its carrying amount, requiring a write-down and recognition of a loss.

A measure such as the current or quick ratio that indicates a firm's ability to meet short-term obligations as they fall due.

Cumulative profits of a company that have not been distributed as dividends, forming part of shareholders' equity.

The risk that the auditor expresses an inappropriate opinion on financial statements that are materially misstated.

The threshold at which omissions or misstatements could influence the economic decisions of users, guiding the nature and extent of audit work.

The information gathered by the auditor through inspection, observation, enquiry, confirmation and analytical procedures to support the audit opinion.

The policies and procedures designed by management to safeguard assets, ensure reliable reporting and promote compliance with laws.

An internal control that separates authorisation, custody and record-keeping tasks so no single person can both perpetrate and conceal an error or fraud.

The auditor's conclusion that financial statements are free from material misstatement and present the entity's position and performance faithfully.

Sales revenue less variable costs, representing the amount available to cover fixed costs and generate profit.

The level of sales at which total revenue equals total costs, so the business makes neither profit nor loss.

The excess of budgeted or actual sales over break-even sales, expressed in units, revenue or percentage, indicating the cushion before losses arise.

A costing method that charges only variable production costs to units, treating fixed costs as period costs charged against contribution.

A costing method that assigns both variable and fixed production overheads to units produced, valuing inventory at full production cost.

A predetermined rate used to allocate indirect production costs to units, based on a measure such as labour hours or machine hours.

A system that sets predetermined costs for materials, labour and overheads, then compares actual results against them to analyse variances.

The process of comparing actual performance with budgeted or standard performance and explaining the causes of differences.

A budget adjusted to the actual level of activity achieved, allowing fair comparison of actual costs with what they should have been.

The study of government revenue, expenditure and borrowing, and how these are managed to achieve economic and social objectives.

Government use of taxation and public spending to influence aggregate demand, economic growth, employment and price stability.

The total stock of money owed by government through domestic and external borrowing, serviced from future revenue.

The final distribution of a tax burden between buyers and sellers, which depends on the relative elasticity of demand and supply.

An indirect tax levied on the value added at each stage of production and distribution, ultimately borne by the final consumer.