Sri Lanka Accountants' Service Exam cheat sheet

LKAS 1 requires a statement of financial position, statement of profit or loss and OCI, statement of changes in equity, statement of cash flows and notes; comparatives for the prior period are mandatory.

LKAS 16: depreciable amount = cost − residual value; depreciation is allocated over useful life. Revaluation surplus goes to OCI and is not recycled to profit or loss on derecognition.

LKAS 36: an impairment loss is recognised when carrying amount exceeds recoverable amount, where recoverable amount is the higher of fair value less costs of disposal and value in use.

LKAS 37: recognise a provision only when a present obligation exists, an outflow is probable, and the amount can be reliably estimated; a mere future operating loss is not a provision.

SLFRS 15 five-step model: identify the contract, identify performance obligations, determine transaction price, allocate the price, and recognise revenue when each obligation is satisfied.

SLFRS 9 classifies financial assets by business model and contractual cash flow characteristics into amortised cost, FVOCI, or FVTPL; expected credit losses apply to amortised-cost assets.

LKAS 21: monetary items are retranslated at closing rate with differences in profit or loss; non-monetary items at fair value use the rate at the fair value date.

LKAS 7: interest paid may be classified as operating or financing but must be applied consistently; cash equivalents are short-term, highly liquid investments with original maturity of three months or less.

LKAS 10: adjusting events provide evidence of conditions existing at the reporting date; non-adjusting events are disclosed if material and do not change recognised amounts.

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

Margin of safety (%) = (budgeted sales − break-even sales) ÷ budgeted sales × 100.

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

Under absorption costing, fixed production overhead is absorbed into product cost; under marginal costing it is treated as a period cost, so profit differences equal the change in inventory × overhead absorption rate per unit.

Overhead absorption rate = budgeted overhead ÷ budgeted absorption base (labour hours, machine hours, or direct labour cost).

Standard costing variances: material price = (standard price − actual price) × actual quantity; material usage = (standard quantity − actual quantity) × standard price.

Labour rate variance = (standard rate − actual rate) × actual hours paid; labour efficiency variance = (standard hours for actual output − actual hours worked) × standard rate.

Relevant cost rules for decisions: ignore sunk costs and allocated fixed overhead; include opportunity cost and incremental cash flows.

A limiting factor is ranked by contribution per unit of the scarce resource; the product with the highest contribution per limiting factor is prioritised.

Audit risk = inherent risk × control risk × detection risk. Detection risk is controlled by the auditor through the nature, timing and extent of procedures.

ISA 700 requires an opinion on whether financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.

ISA 705 modified opinions: qualified (material but not pervasive misstatement or limitation), adverse (material and pervasive misstatement), and disclaimer (material and pervasive limitation of scope).

ISA 315 requires the auditor to identify and assess risks of material misstatement at both financial statement and assertion levels, including significant risks.

ISA 500: audit evidence must be sufficient and appropriate; external confirmations and inspection of original documents rank higher than internally generated copies.

ISA 570 going concern: if material uncertainty exists but disclosure is adequate, the auditor includes an emphasis of matter paragraph; if disclosure is inadequate, a qualified or adverse opinion follows.

ISA 240 treats revenue recognition as a presumed fraud risk; management override of controls is a mandatory significant risk.

Independence under the IESBA Code: no direct financial interest in the audit client, and no close family member in a position to influence the client's accounting records.

ISA 530 sampling: sampling risk is the risk that the auditor's conclusion based on a sample differs from the conclusion from the whole population; non-sampling risk is all other causes of incorrect conclusion.

Income tax on companies is administered under the Inland Revenue Act No. 24 of 2017 as amended; the standard corporate rate is 30%, with a 14% concessionary rate for specified qualifying sectors and a 15% rate for certain listed companies.

Resident companies are taxed on worldwide income; non-resident companies are taxed only on Sri Lankan-source income.

Qualifying payments (interest, royalties, rent, and service fees) to non-residents attract a final withholding tax; interest is withheld at 5% and royalties at 14% where a double tax treaty does not reduce the rate.

Capital gains on the realisation of investment assets are taxed at 10% for companies and individuals; gains on the disposal of quoted shares are exempt.

VAT standard rate is 18% with effect from 1 January 2024; VAT registration is compulsory when taxable supplies exceed the prescribed threshold, currently LKR 60 million per annum.

Gains from the realisation of land by individuals are taxed at a concessionary rate where the land is used for residential purposes, subject to statutory conditions.

Terminal benefits paid to employees on retirement are exempt up to the statutory threshold, currently LKR 10 million, with the balance taxed as employment income.

Advance personal income tax on employment income is deducted monthly by the employer under the PAYE scheme using the statutory tax-free threshold and progressive rates.

The tax year for income tax is the year of assessment commencing 1 April and ending 31 March; returns are generally due by 30 November following the year of assessment.

The Public Finance Act No. 38 of 2021 governs public financial management, replacing the Fiscal Management (Responsibility) Act No. 3 of 2003 framework.

Appropriation Act authorises expenditure from the Consolidated Fund for each financial year; expenditure without such authorisation is ultra vires.

The Consolidated Fund receives all government revenue; the Annual Estimates are presented to Parliament and debated before the Appropriation Bill is passed.

Article 154 of the Constitution provides for the Auditor General, who audits the accounts of all government departments, public corporations and local authorities.

Government accounting is predominantly cash-based modified accrual; the financial statements comprise the statement of financial position, statement of financial performance, and cash flow statement.

Commitment accounting records obligations before cash payment and is used to control expenditure against the authorised warrant limits.

Internal audit in the public sector operates under the Internal Audit Circular and reports to the Accounting Officer, providing independent assurance on internal controls.

The Public Accounts Committee of Parliament examines the Auditor General's reports and the appropriation accounts to ensure accountability.

Fiscal rules under the Public Finance Act require the government to maintain a fiscal strategy statement and report on fiscal performance against targets.

Companies Act No. 7 of 2007 governs incorporation, directors' duties, and company meetings; a private company may have a single member and a single director.

A director owes fiduciary duties of good faith, care and skill, and must avoid conflicts of interest; breach may result in personal liability.

The Partnership Act No. 21 of 2018 provides for limited liability partnerships; partners remain liable for their own wrongful acts but not for other partners' obligations beyond their contribution.

A contract requires offer, acceptance, consideration, intention to create legal relations, and capacity; consideration must be sufficient but need not be adequate.

The Prevention of Frauds Ordinance requires certain contracts, including those relating to land, to be in writing and signed.

The Sale of Goods Ordinance implies conditions as to title, description, fitness for purpose and merchantable quality into contracts for the sale of goods.

The Industrial Disputes Act and Termination of Employment of Workmen Act No. 45 of 1971 govern termination of employment; termination without valid reason may attract compensation.

The Intellectual Property Act No. 36 of 2003 protects patents, trademarks, industrial designs and copyright in Sri Lanka.

The IESBA Code of Ethics rests on five fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.

A self-interest threat arises from financial or other interests; a self-review threat arises when the professional reviews their own work; advocacy and familiarity threats are managed by safeguards or refusal.

Confidentiality continues after the professional relationship ends; disclosure is permitted only where required by law or authorised by the client.

The Personal Data Protection Act No. 9 of 2022 regulates the processing of personal data in Sri Lanka and requires lawful basis, purpose limitation, and data subject rights.

The Computer Crimes Act No. 24 of 2007 criminalises unauthorised access to computers and data, and offences relating to data interference.

Segregation of duties in information systems separates authorisation, custody and record-keeping to reduce fraud risk; access controls enforce least privilege.

A general IT control covers the environment (change management, backup, access), while an application control operates on transaction processing such as input validation and reconciliation.

An audit trail must be tamper-evident; system-generated logs should be retained for the period required by the entity's retention policy and applicable law.

Professional scepticism requires the auditor to question information and not accept evidence at face value, particularly where incentives or related-party transactions exist.

LKAS 1 requires a statement of financial position, statement of profit or loss and OCI, statement of changes in equity, statement of cash flows and notes; comparatives for the prior period are mandatory.

LKAS 16: depreciable amount = cost − residual value; depreciation is allocated over useful life. Revaluation surplus goes to OCI and is not recycled to profit or loss on derecognition.

LKAS 36: an impairment loss is recognised when carrying amount exceeds recoverable amount, where recoverable amount is the higher of fair value less costs of disposal and value in use.

LKAS 37: recognise a provision only when a present obligation exists, an outflow is probable, and the amount can be reliably estimated; a mere future operating loss is not a provision.

SLFRS 15 five-step model: identify the contract, identify performance obligations, determine transaction price, allocate the price, and recognise revenue when each obligation is satisfied.

SLFRS 9 classifies financial assets by business model and contractual cash flow characteristics into amortised cost, FVOCI, or FVTPL; expected credit losses apply to amortised-cost assets.

LKAS 21: monetary items are retranslated at closing rate with differences in profit or loss; non-monetary items at fair value use the rate at the fair value date.

LKAS 7: interest paid may be classified as operating or financing but must be applied consistently; cash equivalents are short-term, highly liquid investments with original maturity of three months or less.

LKAS 10: adjusting events provide evidence of conditions existing at the reporting date; non-adjusting events are disclosed if material and do not change recognised amounts.

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

Margin of safety (%) = (budgeted sales − break-even sales) ÷ budgeted sales × 100.

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

Under absorption costing, fixed production overhead is absorbed into product cost; under marginal costing it is treated as a period cost, so profit differences equal the change in inventory × overhead absorption rate per unit.

Overhead absorption rate = budgeted overhead ÷ budgeted absorption base (labour hours, machine hours, or direct labour cost).

Standard costing variances: material price = (standard price − actual price) × actual quantity; material usage = (standard quantity − actual quantity) × standard price.

Labour rate variance = (standard rate − actual rate) × actual hours paid; labour efficiency variance = (standard hours for actual output − actual hours worked) × standard rate.

Relevant cost rules for decisions: ignore sunk costs and allocated fixed overhead; include opportunity cost and incremental cash flows.

A limiting factor is ranked by contribution per unit of the scarce resource; the product with the highest contribution per limiting factor is prioritised.

Audit risk = inherent risk × control risk × detection risk. Detection risk is controlled by the auditor through the nature, timing and extent of procedures.

ISA 700 requires an opinion on whether financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.

ISA 705 modified opinions: qualified (material but not pervasive misstatement or limitation), adverse (material and pervasive misstatement), and disclaimer (material and pervasive limitation of scope).

ISA 315 requires the auditor to identify and assess risks of material misstatement at both financial statement and assertion levels, including significant risks.

ISA 500: audit evidence must be sufficient and appropriate; external confirmations and inspection of original documents rank higher than internally generated copies.

ISA 570 going concern: if material uncertainty exists but disclosure is adequate, the auditor includes an emphasis of matter paragraph; if disclosure is inadequate, a qualified or adverse opinion follows.

ISA 240 treats revenue recognition as a presumed fraud risk; management override of controls is a mandatory significant risk.

Independence under the IESBA Code: no direct financial interest in the audit client, and no close family member in a position to influence the client's accounting records.

ISA 530 sampling: sampling risk is the risk that the auditor's conclusion based on a sample differs from the conclusion from the whole population; non-sampling risk is all other causes of incorrect conclusion.

Income tax on companies is administered under the Inland Revenue Act No. 24 of 2017 as amended; the standard corporate rate is 30%, with a 14% concessionary rate for specified qualifying sectors and a 15% rate for certain listed companies.

Resident companies are taxed on worldwide income; non-resident companies are taxed only on Sri Lankan-source income.

Qualifying payments (interest, royalties, rent, and service fees) to non-residents attract a final withholding tax; interest is withheld at 5% and royalties at 14% where a double tax treaty does not reduce the rate.

Capital gains on the realisation of investment assets are taxed at 10% for companies and individuals; gains on the disposal of quoted shares are exempt.

VAT standard rate is 18% with effect from 1 January 2024; VAT registration is compulsory when taxable supplies exceed the prescribed threshold, currently LKR 60 million per annum.

Gains from the realisation of land by individuals are taxed at a concessionary rate where the land is used for residential purposes, subject to statutory conditions.

Terminal benefits paid to employees on retirement are exempt up to the statutory threshold, currently LKR 10 million, with the balance taxed as employment income.

Advance personal income tax on employment income is deducted monthly by the employer under the PAYE scheme using the statutory tax-free threshold and progressive rates.

The tax year for income tax is the year of assessment commencing 1 April and ending 31 March; returns are generally due by 30 November following the year of assessment.

The Public Finance Act No. 38 of 2021 governs public financial management, replacing the Fiscal Management (Responsibility) Act No. 3 of 2003 framework.

Appropriation Act authorises expenditure from the Consolidated Fund for each financial year; expenditure without such authorisation is ultra vires.

The Consolidated Fund receives all government revenue; the Annual Estimates are presented to Parliament and debated before the Appropriation Bill is passed.

Article 154 of the Constitution provides for the Auditor General, who audits the accounts of all government departments, public corporations and local authorities.

Government accounting is predominantly cash-based modified accrual; the financial statements comprise the statement of financial position, statement of financial performance, and cash flow statement.

Commitment accounting records obligations before cash payment and is used to control expenditure against the authorised warrant limits.

Internal audit in the public sector operates under the Internal Audit Circular and reports to the Accounting Officer, providing independent assurance on internal controls.

The Public Accounts Committee of Parliament examines the Auditor General's reports and the appropriation accounts to ensure accountability.

Fiscal rules under the Public Finance Act require the government to maintain a fiscal strategy statement and report on fiscal performance against targets.

Companies Act No. 7 of 2007 governs incorporation, directors' duties, and company meetings; a private company may have a single member and a single director.

A director owes fiduciary duties of good faith, care and skill, and must avoid conflicts of interest; breach may result in personal liability.

The Partnership Act No. 21 of 2018 provides for limited liability partnerships; partners remain liable for their own wrongful acts but not for other partners' obligations beyond their contribution.

A contract requires offer, acceptance, consideration, intention to create legal relations, and capacity; consideration must be sufficient but need not be adequate.

The Prevention of Frauds Ordinance requires certain contracts, including those relating to land, to be in writing and signed.

The Sale of Goods Ordinance implies conditions as to title, description, fitness for purpose and merchantable quality into contracts for the sale of goods.

The Industrial Disputes Act and Termination of Employment of Workmen Act No. 45 of 1971 govern termination of employment; termination without valid reason may attract compensation.

The Intellectual Property Act No. 36 of 2003 protects patents, trademarks, industrial designs and copyright in Sri Lanka.

The IESBA Code of Ethics rests on five fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.

A self-interest threat arises from financial or other interests; a self-review threat arises when the professional reviews their own work; advocacy and familiarity threats are managed by safeguards or refusal.

Confidentiality continues after the professional relationship ends; disclosure is permitted only where required by law or authorised by the client.

The Personal Data Protection Act No. 9 of 2022 regulates the processing of personal data in Sri Lanka and requires lawful basis, purpose limitation, and data subject rights.

The Computer Crimes Act No. 24 of 2007 criminalises unauthorised access to computers and data, and offences relating to data interference.

Segregation of duties in information systems separates authorisation, custody and record-keeping to reduce fraud risk; access controls enforce least privilege.

A general IT control covers the environment (change management, backup, access), while an application control operates on transaction processing such as input validation and reconciliation.

An audit trail must be tamper-evident; system-generated logs should be retained for the period required by the entity's retention policy and applicable law.

Professional scepticism requires the auditor to question information and not accept evidence at face value, particularly where incentives or related-party transactions exist.

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

Margin of safety (%) = (budgeted sales − break-even sales) ÷ budgeted sales × 100.

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

Under absorption costing, fixed production overhead is absorbed into product cost; under marginal costing it is treated as a period cost, so profit differences equal the change in inventory × overhead absorption rate per unit.

Overhead absorption rate = budgeted overhead ÷ budgeted absorption base (labour hours, machine hours, or direct labour cost).

Standard costing variances: material price = (standard price − actual price) × actual quantity; material usage = (standard quantity − actual quantity) × standard price.

Labour rate variance = (standard rate − actual rate) × actual hours paid; labour efficiency variance = (standard hours for actual output − actual hours worked) × standard rate.

Relevant cost rules for decisions: ignore sunk costs and allocated fixed overhead; include opportunity cost and incremental cash flows.

A limiting factor is ranked by contribution per unit of the scarce resource; the product with the highest contribution per limiting factor is prioritised.

Audit risk = inherent risk × control risk × detection risk. Detection risk is controlled by the auditor through the nature, timing and extent of procedures.

ISA 700 requires an opinion on whether financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.

ISA 705 modified opinions: qualified (material but not pervasive misstatement or limitation), adverse (material and pervasive misstatement), and disclaimer (material and pervasive limitation of scope).

ISA 315 requires the auditor to identify and assess risks of material misstatement at both financial statement and assertion levels, including significant risks.

ISA 500: audit evidence must be sufficient and appropriate; external confirmations and inspection of original documents rank higher than internally generated copies.

ISA 570 going concern: if material uncertainty exists but disclosure is adequate, the auditor includes an emphasis of matter paragraph; if disclosure is inadequate, a qualified or adverse opinion follows.

ISA 240 treats revenue recognition as a presumed fraud risk; management override of controls is a mandatory significant risk.

Independence under the IESBA Code: no direct financial interest in the audit client, and no close family member in a position to influence the client's accounting records.

ISA 530 sampling: sampling risk is the risk that the auditor's conclusion based on a sample differs from the conclusion from the whole population; non-sampling risk is all other causes of incorrect conclusion.

Income tax on companies is administered under the Inland Revenue Act No. 24 of 2017 as amended; the standard corporate rate is 30%, with a 14% concessionary rate for specified qualifying sectors and a 15% rate for certain listed companies.

Resident companies are taxed on worldwide income; non-resident companies are taxed only on Sri Lankan-source income.

Qualifying payments (interest, royalties, rent, and service fees) to non-residents attract a final withholding tax; interest is withheld at 5% and royalties at 14% where a double tax treaty does not reduce the rate.

Capital gains on the realisation of investment assets are taxed at 10% for companies and individuals; gains on the disposal of quoted shares are exempt.

VAT standard rate is 18% with effect from 1 January 2024; VAT registration is compulsory when taxable supplies exceed the prescribed threshold, currently LKR 60 million per annum.

Gains from the realisation of land by individuals are taxed at a concessionary rate where the land is used for residential purposes, subject to statutory conditions.

Terminal benefits paid to employees on retirement are exempt up to the statutory threshold, currently LKR 10 million, with the balance taxed as employment income.

Advance personal income tax on employment income is deducted monthly by the employer under the PAYE scheme using the statutory tax-free threshold and progressive rates.

The tax year for income tax is the year of assessment commencing 1 April and ending 31 March; returns are generally due by 30 November following the year of assessment.

The Public Finance Act No. 38 of 2021 governs public financial management, replacing the Fiscal Management (Responsibility) Act No. 3 of 2003 framework.

Appropriation Act authorises expenditure from the Consolidated Fund for each financial year; expenditure without such authorisation is ultra vires.

The Consolidated Fund receives all government revenue; the Annual Estimates are presented to Parliament and debated before the Appropriation Bill is passed.

Article 154 of the Constitution provides for the Auditor General, who audits the accounts of all government departments, public corporations and local authorities.

Government accounting is predominantly cash-based modified accrual; the financial statements comprise the statement of financial position, statement of financial performance, and cash flow statement.

Commitment accounting records obligations before cash payment and is used to control expenditure against the authorised warrant limits.

Internal audit in the public sector operates under the Internal Audit Circular and reports to the Accounting Officer, providing independent assurance on internal controls.

The Public Accounts Committee of Parliament examines the Auditor General's reports and the appropriation accounts to ensure accountability.

Fiscal rules under the Public Finance Act require the government to maintain a fiscal strategy statement and report on fiscal performance against targets.

Companies Act No. 7 of 2007 governs incorporation, directors' duties, and company meetings; a private company may have a single member and a single director.

A director owes fiduciary duties of good faith, care and skill, and must avoid conflicts of interest; breach may result in personal liability.

The Partnership Act No. 21 of 2018 provides for limited liability partnerships; partners remain liable for their own wrongful acts but not for other partners' obligations beyond their contribution.

A contract requires offer, acceptance, consideration, intention to create legal relations, and capacity; consideration must be sufficient but need not be adequate.

The Prevention of Frauds Ordinance requires certain contracts, including those relating to land, to be in writing and signed.

The Sale of Goods Ordinance implies conditions as to title, description, fitness for purpose and merchantable quality into contracts for the sale of goods.

The Industrial Disputes Act and Termination of Employment of Workmen Act No. 45 of 1971 govern termination of employment; termination without valid reason may attract compensation.

The Intellectual Property Act No. 36 of 2003 protects patents, trademarks, industrial designs and copyright in Sri Lanka.

The IESBA Code of Ethics rests on five fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.

A self-interest threat arises from financial or other interests; a self-review threat arises when the professional reviews their own work; advocacy and familiarity threats are managed by safeguards or refusal.

Confidentiality continues after the professional relationship ends; disclosure is permitted only where required by law or authorised by the client.

The Personal Data Protection Act No. 9 of 2022 regulates the processing of personal data in Sri Lanka and requires lawful basis, purpose limitation, and data subject rights.

The Computer Crimes Act No. 24 of 2007 criminalises unauthorised access to computers and data, and offences relating to data interference.

Segregation of duties in information systems separates authorisation, custody and record-keeping to reduce fraud risk; access controls enforce least privilege.

A general IT control covers the environment (change management, backup, access), while an application control operates on transaction processing such as input validation and reconciliation.

An audit trail must be tamper-evident; system-generated logs should be retained for the period required by the entity's retention policy and applicable law.

Professional scepticism requires the auditor to question information and not accept evidence at face value, particularly where incentives or related-party transactions exist.