Sri Lanka Audit Officer Exam flashcards

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

Accrual basis

Accounting method that recognises revenue when earned and expenses when incurred, regardless of cash movement, giving a truer view of financial performance than cash accounting.

Accounting equation

Assets = Liabilities + Equity. Every transaction affects at least two elements and keeps the equation balanced, forming the basis of double-entry bookkeeping.

Straight-line depreciation

Annual depreciation = (Cost − Residual value) / Useful life. It allocates an equal amount of depreciation to each year of the asset's useful life.

Net realisable value

Estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Inventory is measured at the lower of cost and NRV.

Bank reconciliation

A statement that explains the difference between the cash book balance and the bank statement balance by adjusting for unpresented cheques, uncredited deposits, bank charges and direct credits.

Audit risk model

Audit risk = Inherent risk × Control risk × Detection risk. The auditor assesses inherent and control risk and designs procedures to reduce detection risk to an acceptably low level.

Professional scepticism

An attitude of questioning mind and critical assessment of audit evidence, remaining alert to conditions indicating possible misstatement due to fraud or error.

Qualified audit opinion

Issued when the auditor concludes that misstatements are material but not pervasive, or that sufficient appropriate evidence cannot be obtained but the possible effects are not pervasive.

Materiality

The amount by which misstatements could influence the economic decisions of users of the financial statements. Common benchmarks include 5% of profit before tax or 1% of revenue.

ISA 240 fraud risk

The standard requires the auditor to consider fraud risk factors and treat management override of controls as a significant risk on every audit, designing procedures to address it.

Consolidated Fund

The fund into which all government revenues are paid and from which appropriated expenditure is met. Withdrawals require parliamentary authorisation under Article 148 of the Constitution.

Imprest

A fixed advance of public money issued to a sub-office for petty expenses. It is recouped by submitting paid vouchers so that the fixed amount is restored.

Vote on Account

Parliamentary authorisation of expenditure for a limited period, usually up to three months, at the previous year's rate when the annual budget is not passed before the financial year begins.

Auditor General

Constitutional officer appointed by the President under Article 153 who audits the accounts of government departments, public corporations and local authorities and reports to Parliament.

Supplementary Estimate

A request to Parliament for additional funds beyond the original appropriation when expenditure needs exceed the approved estimate during the financial year.

Break-even point

The level of sales at which total revenue equals total cost and profit is zero. In units it equals fixed costs divided by contribution per unit.

Contribution margin

Sales revenue minus variable costs. It contributes towards covering fixed costs and generating profit; contribution per unit equals selling price minus variable cost per unit.

Margin of safety

Actual sales minus break-even sales. It measures the amount by which sales can fall before the business incurs a loss, often expressed as a percentage of actual sales.

Overhead absorption

The process of assigning indirect production costs to products using a predetermined absorption rate, such as budgeted overhead divided by budgeted activity level.

Relevant cost

A future cash flow that differs between alternatives. Sunk costs, committed fixed costs and non-cash items such as depreciation are irrelevant to decision-making.

Consideration

Something of value given by each party to a contract. It must be sufficient but need not be adequate, and past consideration is not valid consideration.

Separate legal personality

The principle from Salomon v Salomon that a company is a legal person distinct from its members, with perpetual succession, limited liability and the capacity to own property.

Ultra vires

An act beyond the powers conferred on a company or public body by its constitution or statute. Such acts are void and cannot bind the entity.

Partnership liability

Under the Partnership Ordinance, partners are jointly and severally liable for the debts and obligations of the partnership incurred while they are partners.

Solvency test

A Companies Act requirement that directors satisfy themselves the company can pay its debts as they fall due before a distribution is made, including dividends.

Corporate income tax rate

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

Value Added Tax

An indirect tax charged at 18% on the supply of goods and services in Sri Lanka. Registration is compulsory when taxable supplies exceed the prescribed threshold, with monthly returns.

Withholding tax

Tax deducted at source by the payer on specified payments such as interest, royalties and rent, and remitted to the Commissioner General of Inland Revenue.

Year of assessment

The tax year in Sri Lanka, running from 1 April to 31 March. Income earned in this period is assessed and returns are filed within the prescribed period.

Executive presidency

The 1978 Constitution established an executive President who is head of state and government, elected for a five-year term, with powers to appoint the Prime Minister and ministers.

Parliament composition

The Parliament of Sri Lanka has 225 members elected by proportional representation. The Prime Minister must command the confidence of Parliament to hold office.

Central Bank of Sri Lanka

The monetary authority responsible for currency issue, monetary policy and financial system stability. Its Monetary Board sets policy interest rates.