Sri Lanka Audit Officer Exam cheat sheet

Under the accrual basis, revenue is recognised when the performance obligation is satisfied, not when cash is received; expenses are matched to the period in which the related revenue is earned.

The accounting equation: Assets = Liabilities + Equity. Every transaction preserves this equality; a debit increases assets/expenses and decreases liabilities/equity/revenue, while a credit does the opposite.

Depreciation methods: straight-line = (Cost − Residual value) / Useful life; reducing balance = Carrying amount × Rate; units of production = (Cost − Residual) × Units used / Total expected units.

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

Inventory under IAS 2 is measured at the lower of cost and net realisable value; cost includes purchase price, import duties and directly attributable conversion costs, but excludes abnormal waste and storage costs.

A bank reconciliation starts with the cash book balance and adjusts for items not yet recorded: unpresented cheques, deposits not yet credited, bank charges, standing orders, direct credits and dishonoured cheques.

IAS 16 revaluation model: carrying amount is fair value at revaluation date less subsequent depreciation; an increase goes to other comprehensive income (revaluation surplus), a decrease is expensed unless it reverses a prior surplus.

The trial balance proves the arithmetical equality of debits and credits but does not detect errors of omission, compensating errors, errors of principle, or errors where the wrong account is used within the same side.

ISA 200: the auditor obtains reasonable assurance that financial statements are free from material misstatement, whether due to fraud or error, and expresses an opinion in a written report.

Audit risk model: Audit risk = Inherent risk × Control risk × Detection risk. Detection risk is the only component the auditor controls through the nature, timing and extent of procedures.

ISA 315 requires the auditor to identify and assess risks of material misstatement at the financial statement and assertion levels, including understanding the entity's IT environment and internal controls.

ISA 500: audit evidence must be sufficient (quantity) and appropriate (relevance and reliability). External evidence is more reliable than internal; original documents are more reliable than photocopies.

ISA 700: the auditor expresses an unmodified opinion when the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.

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

ISA 240: the auditor must maintain professional scepticism, consider fraud risk factors, and treat management override of controls as a significant risk on every audit.

Materiality (ISA 320): misstatements are material if they could influence the economic decisions of users; common benchmarks are 5% of profit before tax, 1% of total revenue, or 1–2% of total assets.

ISA 560: the auditor considers events after the reporting period up to the date of the auditor's report; after that date, the auditor has no obligation to perform procedures unless facts become known.

The Annual Estimate is presented to Parliament under Article 148 of the Constitution; no expenditure may be incurred without parliamentary appropriation, and the Consolidated Fund is the source of appropriated funds.

The Financial Regulations (FR) govern public expenditure; FR 1 states that every public officer is responsible for the due and proper application of public funds and property under their control.

Imprest: a fixed advance issued to a sub-office for petty expenses; it is recouped by submitting paid vouchers to the paying office, and the amount is restored to the fixed level.

The Auditor General is appointed by the President under Article 153 and audits the accounts of all departments, public corporations and local authorities; the report is tabled in Parliament.

Vote on Account: when the annual budget is not passed before the start of the financial year, Parliament may authorise expenditure for a limited period (usually up to three months) at the previous year's rate.

Supplementary Estimate: additional funds required beyond the original appropriation are sought from Parliament through a supplementary estimate, and expenditure may not exceed the approved limit.

The Treasury is headed by the Secretary to the Treasury; the Treasury Circulars and Financial Regulations together set out the rules for custody, disbursement and accounting of public money.

Local authorities (Municipal Councils, Urban Councils, Pradeshiya Sabhas) prepare annual budgets and accounts under the Local Authorities Elections Ordinance and are audited by the Auditor General.

Contribution margin = Sales − Variable costs; contribution per unit = Selling price − Variable cost per unit. Profit = (Contribution per unit × Units sold) − Fixed costs.

Break-even point in units = Fixed costs / Contribution per unit; break-even revenue = Fixed costs / Contribution-to-sales (C/S) ratio, where C/S ratio = Contribution / Sales.

Margin of safety = Actual sales − Break-even sales; expressed as a percentage of actual sales. It measures the fall in sales before a loss is incurred.

Absorption costing includes fixed production overheads in product cost; marginal costing treats fixed overheads as period costs. The difference in profit equals the change in inventory × fixed overhead absorption rate per unit.

Under- or over-absorption of overheads = Actual overhead incurred − Absorbed overhead (budgeted rate × actual activity). Under-absorption is a debit to the income statement.

Standard costing variances: material price = (Standard price − Actual price) × Actual quantity; material usage = (Standard quantity − Actual quantity) × Standard price; labour rate and efficiency variances follow the same pattern.

Relevant costs for decision-making are future cash flows that differ between alternatives; sunk costs, committed fixed costs and non-cash items such as depreciation are irrelevant.

The high-low method: variable cost per unit = (Highest total cost − Lowest total cost) / (Highest activity − Lowest activity); fixed cost = Total cost − (Variable cost per unit × Activity level).

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

The Sale of Goods Ordinance implies conditions that goods correspond with description, are fit for purpose and of merchantable quality; breach of a condition allows rejection, while breach of a warranty allows damages only.

Under the Partnership Ordinance, a partnership is the relation between persons carrying on a business in common with a view of profit; partners are jointly and severally liable for partnership debts.

A company is a separate legal person (Salomon v Salomon) with perpetual succession, limited liability for members and the ability to own property and sue in its own name.

The doctrine of ultra vires: an act beyond the objects stated in the memorandum of association is void; the Companies Act 2007 has relaxed this by removing the objects clause requirement for most companies.

Negligence requires a duty of care, breach of that duty, causation and damage; the duty is owed to persons foreseeably affected by the act or omission.

An agent binds the principal where the agent has actual authority (express or implied) or apparent authority arising from the principal's representation to third parties.

The Limitation Ordinance bars actions on contracts after six years from the date the cause of action accrues; actions on judgments are barred after twelve years.

The Companies Act No. 7 of 2007 governs incorporation, management and winding up; a private company may have a single member, and a public company must have at least two members and at least two directors.

Directors owe fiduciary duties of good faith, care and skill, and must avoid conflicts of interest; they may be liable for insolvent trading if they continue to trade when the company cannot pay its debts.

Dividends may be paid only out of distributable profits; the solvency test under the Companies Act requires the company to satisfy the directors that it can pay its debts as they fall due.

Corporate income tax in Sri Lanka is administered under the Inland Revenue Act No. 24 of 2017; the standard rate for companies is 30%, with a concessional rate of 14% for certain specified undertakings.

Value Added Tax (VAT) is charged at 18% on the supply of goods and services; registration is compulsory when taxable supplies exceed the prescribed threshold, and VAT returns are filed monthly.

Capital allowances replace depreciation for tax purposes; qualifying capital expenditure on plant and machinery attracts an allowance, and tax losses may be carried forward for a limited period.

Withholding tax applies to specified payments such as interest, royalties and rent; the payer deducts the tax at source and remits it to the Commissioner General of Inland Revenue.

The tax year is the year of assessment beginning on 1 April and ending on 31 March; returns are due within the prescribed period and late filing attracts penalties and interest.

The Constitution of Sri Lanka, adopted in 1978, established an executive presidency; the President is both head of state and head of government and is elected for a five-year term.

Parliament consists of 225 members elected by proportional representation; the Prime Minister is appointed by the President and must command the confidence of Parliament.

The Supreme Court is the highest court and has sole jurisdiction over constitutional matters; the Court of Appeal hears appeals from the High Court and other lower courts.

The Central Bank of Sri Lanka is responsible for monetary policy, currency issue and financial system stability; its Monetary Board sets policy rates such as the policy interest rates.

The Colombo Stock Exchange is the principal stock market; the Securities and Exchange Commission of Sri Lanka regulates the securities market.

Sri Lanka's main export earners include textiles and apparel, tea, rubber, coconut products and tourism; remittances from overseas workers are a major source of foreign exchange.

The United Nations, World Bank, International Monetary Fund and Asian Development Bank are key multilateral institutions of which Sri Lanka is a member.

The Auditor General, the Attorney General and the Solicitor General are constitutional officers with distinct roles in public accountability and legal advice.

Percentage change = (New value − Old value) / Old value × 100; a 20% increase followed by a 20% decrease results in a net 4% decrease.

Simple interest = Principal × Rate × Time / 100; compound interest = Principal × (1 + Rate/100)^Time − Principal.

Profit and loss: Profit percentage is calculated on cost price unless stated otherwise; Selling price = Cost price × (100 + Profit%) / 100.

Ratio and proportion: if a : b = c : d then ad = bc; to divide a quantity in the ratio a : b, the shares are (a/(a+b)) × quantity and (b/(a+b)) × quantity.

Time and work: if A can do a job in x days and B in y days, together they take xy/(x+y) days; work done in one day is 1/x + 1/y.

Averages: Average = Sum of values / Number of values; if each value is increased by k, the average increases by k; if each is multiplied by k, the average is multiplied by k.

English grammar: subject-verb agreement requires a singular verb with a singular subject; collective nouns take a singular verb when acting as a unit; neither/either take a singular verb.

Active to passive voice: the object becomes the subject, the verb becomes a form of 'be' plus the past participle, and the agent is introduced by 'by' (often omitted).