KASNEB CA26 cheat sheet

Accounting equation: Assets = Liabilities + Equity; every transaction must keep this identity intact because double entry records equal debits and credits.

Debit entries increase assets and expenses; credit entries increase liabilities, equity and income; the treatment reverses on the opposite side of the ledger.

IAS 1 requires financial statements on the going concern and accrual bases, with consistency of presentation and comparative prior-period figures.

Straight-line depreciation = (Cost − Residual value) ÷ Useful life; reducing-balance depreciation = Net book value × rate.

IAS 2 measures inventory at the lower of cost and net realisable value; FIFO and weighted average cost are permitted, LIFO is prohibited under IFRS.

IFRS 15 five steps: identify the contract, identify performance obligations, determine transaction price, allocate price to obligations, recognise revenue when each obligation is satisfied.

Errors not revealed by a trial balance include error of principle, error of omission, compensating errors and original entry errors because debits still equal credits.

Current ratio = Current assets ÷ Current liabilities; quick ratio = (Current assets − Inventory) ÷ Current liabilities.

Bank reconciliation adjusts the cash book for bank charges, interest and standing orders, and adjusts the bank statement for unpresented cheques and uncredited deposits.

Future value = PV × (1 + r)^n; present value = FV ÷ (1 + r)^n, where r is the periodic discount rate and n the number of periods.

NPV decision rule: accept a project when NPV at the cost of capital is positive; IRR rule: accept when IRR exceeds the required rate of return.

WACC = (E ÷ V) × Ke + (D ÷ V) × Kd × (1 − t), where V = E + D and t is the corporate tax rate.

CAPM: Ke = Rf + β × (Rm − Rf); beta measures systematic risk, and unsystematic risk is assumed diversifiable.

Gordon growth model: P0 = D1 ÷ (Ke − g), and with constant growth Ke = D1 ÷ P0 + g.

Cash conversion cycle = Inventory days + Receivable days − Payable days; a longer cycle increases working capital funding needs.

Bond prices move inversely with market yields; if the coupon rate is below the yield to maturity the bond trades at a discount.

Degree of operating leverage = %ΔEBIT ÷ %Δsales; degree of financial leverage = %ΔEPS ÷ %ΔEBIT.

Payback period ignores the time value of money, whereas discounted payback and NPV do not.

Five Cs of credit: character, capacity, capital, collateral and conditions - willingness and ability to repay are assessed together.

Expected loss = Probability of default × Loss given default × Exposure at default; provisions are built from this product.

Loan-to-value = Loan amount ÷ Collateral value; higher LTV means a thinner collateral cushion and higher loss given default.

Debt service coverage ratio = Net operating income ÷ Total debt service; lenders commonly require a ratio comfortably above 1.0.

Interest cover = EBIT ÷ Interest expense; a falling ratio signals weakening capacity to service fixed finance costs.

Credit scoring assigns points to borrower attributes; a cut-off score separates accept from decline decisions, and a higher score implies lower default probability.

Ageing analysis classifies receivables by days past due (for example 30/60/90); migration into older buckets precedes impairment.

Concentration risk is controlled by single-obligor and sector limits expressed as a percentage of the capital base.

The agency problem arises from separation of ownership and control; mitigants include independent boards, equity-based incentives, disclosure and external audit.

Three lines model: management owns risk (first line), risk and compliance oversee (second line), internal audit gives independent assurance (third line).

OECD governance principles cover shareholder rights, equitable treatment of shareholders, disclosure and transparency, and board responsibilities.

Management functions: planning, organising, leading and controlling; control compares actual performance with standards and takes corrective action.

Segregation of duties separates authorisation, custody, recording and reconciliation so that no single person can conceal error or fraud.

Risk treatment options are avoid, reduce, transfer and accept, selected against the entity's stated risk appetite.

Span of control is the number of subordinates reporting to one manager; narrow spans allow closer supervision, wide spans require greater delegation.

King IV applies an apply-and-explain approach: entities apply all principles and explain how each has been applied.

CIA triad: confidentiality, integrity and availability are the three security objectives used to classify information assets and design controls.

Access control follows least privilege and need-to-know; authentication verifies identity, authorisation determines permitted actions.

3-2-1 backup rule: at least three copies of data, on two different media, with one copy offsite or offline.

RTO is the maximum tolerable downtime after a disruption; RPO is the maximum tolerable data loss measured in time.

Symmetric encryption uses one shared key (for example AES); asymmetric encryption uses a public-private key pair (for example RSA).

COBIT governs enterprise IT, while ITIL addresses IT service management processes such as incident and change management.

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

Input controls include field format checks, range checks, validity checks, batch totals and authorisation of source documents.