Sri Lanka Accountants' Service Exam flashcards

40 cards. Read the term and the definition here. The deck at the top of this page is optional.

Break-even point in units

Fixed costs divided by contribution per unit. It shows the sales volume at which total contribution exactly covers fixed costs and profit is zero.

Margin of safety

Budgeted or actual sales minus break-even sales, expressed as a percentage of budgeted sales. It measures how far sales can fall before a loss arises.

Relevant cost

A future incremental cash flow that differs between alternatives. Sunk costs, committed costs and allocated fixed overhead are excluded from short-term decision making.

Overhead absorption rate

Budgeted production overhead divided by the budgeted absorption base, such as direct labour hours or machine hours. It converts overhead into a per-unit product cost.

Material usage variance

Standard quantity for actual output minus actual quantity used, multiplied by standard price. It isolates the cost effect of using more or less material than standard.

Absorption versus marginal profit

The profit difference equals the change in inventory units multiplied by the fixed overhead absorption rate per unit. Absorption costing carries fixed overhead forward in inventory value.

Audit risk model

Audit risk equals inherent risk multiplied by control risk multiplied by detection risk. The auditor reduces detection risk by increasing the extent of substantive procedures.

Qualified audit opinion

Issued when a misstatement or scope limitation is material but not pervasive. The opinion states that the financial statements are fairly presented except for the matter described.

Disclaimer of opinion

Issued when a scope limitation is both material and pervasive, so the auditor cannot obtain sufficient appropriate evidence and therefore cannot express an opinion.

Management override risk

A presumed significant fraud risk under ISA 240, because management can manipulate records and estimates. Auditors test journal entries and accounting estimates in response.

Sufficient appropriate evidence

Evidence must be enough in quantity (sufficient) and relevant and reliable in quality (appropriate). External original documents are more reliable than internal photocopies.

Going concern material uncertainty

Where a material uncertainty exists but disclosure is adequate, the auditor includes an emphasis of matter paragraph without modifying the opinion.

Corporate income tax rate

Under the Inland Revenue Act No. 24 of 2017, the standard company rate is 30%, with concessionary rates of 14% and 15% for specified qualifying sectors and listed companies.

Residence basis of taxation

Resident companies are taxed on worldwide income, while non-resident companies are taxed only on income arising from sources in Sri Lanka.

Withholding tax on non-resident payments

Qualifying payments to non-residents attract final withholding tax, for example 5% on interest and 14% on royalties, unless a double tax treaty reduces the rate.

Capital gains tax rate

Gains on realising investment assets are taxed at 10%. Gains on the disposal of quoted shares are exempt from capital gains tax.

VAT standard rate

The standard VAT rate is 18% with effect from 1 January 2024. Registration is compulsory when taxable supplies exceed the prescribed annual threshold.

Year of assessment

The Sri Lankan income tax year runs from 1 April to 31 March. Returns are generally due by 30 November following the end of the year of assessment.

PAYE on employment income

The employer deducts advance personal income tax monthly from employment income, applying the statutory tax-free threshold and progressive rates to each employee.

Terminal benefit exemption

Retirement terminal benefits are exempt up to the statutory threshold, currently LKR 10 million. Any excess is treated as taxable employment income.

Consolidated Fund

The fund into which government revenue is paid and from which authorised expenditure is met. Withdrawals require authorisation by an Appropriation Act or law.

Appropriation Act

The annual law authorising expenditure from the Consolidated Fund for specified purposes and limits. Expenditure beyond the authorised amount is unlawful.

Auditor General mandate

Under Article 154 of the Constitution, the Auditor General audits government departments, public corporations and local authorities, and reports to Parliament.

Public Accounts Committee

A parliamentary committee that examines the Auditor General's reports and appropriation accounts, holding accounting officers accountable for public expenditure and financial management.

Commitment accounting

Recording obligations when they are incurred, before cash is paid. It controls spending against authorised warrant limits and prevents over-commitment of budgeted funds.

Public Finance Act 2021

Public Finance Act No. 38 of 2021 governs public financial management, fiscal rules and reporting, replacing the earlier Fiscal Management (Responsibility) Act framework.

Companies Act 2007

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

Contract consideration

Consideration must be sufficient but need not be adequate. It is the price each party gives for the other's promise and must not be past.

Limited liability partnership

Under the Partnership Act No. 21 of 2018, partners are not personally liable for other partners' obligations beyond their agreed contribution, but remain liable for their own wrongful acts.

Five fundamental ethical principles

Integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. Threats to compliance are identified and addressed with safeguards.

Self-review threat

Arises when a professional evaluates their own previous work, such as auditing a system they designed. Safeguards include independent review or withdrawing from the engagement.

Segregation of duties

Separating authorisation, custody of assets and record-keeping among different people. It reduces the opportunity for fraud and error in information systems.

Personal Data Protection Act

Act No. 9 of 2022 regulates personal data processing in Sri Lanka, requiring a lawful basis, purpose limitation, security safeguards and respect for data subject rights.

Professional scepticism

A questioning attitude that does not accept information at face value. It is applied especially to management representations, estimates and related-party transactions.

LKAS 36 recoverable amount

The higher of fair value less costs of disposal and value in use. An impairment loss is recognised when carrying amount exceeds this recoverable amount.

SLFRS 15 revenue model

Five steps: identify the contract, identify performance obligations, determine the transaction price, allocate it, and recognise revenue as each obligation is satisfied.

LKAS 37 provision criteria

A provision is recognised only when a present obligation exists, an outflow of resources is probable, and the amount can be reliably estimated.

LKAS 21 monetary items

Monetary items are retranslated at the closing rate, with exchange differences recognised in profit or loss. Non-monetary fair value items use the rate at the fair value date.

Cash equivalents definition

Short-term, highly liquid investments readily convertible to known cash amounts with insignificant risk of change in value, and original maturity of three months or less.

Adjusting events after reporting date

Events providing evidence of conditions existing at the reporting date. They require adjustment of recognised amounts, unlike non-adjusting events, which are only disclosed.