Sri Lanka Audit Officer Exam key terms

An accounting method that records income when it is earned and expenses when they are incurred, regardless of when cash actually changes hands. It matches costs to the revenues they helped generate.

The assumption that an entity will continue operating for the foreseeable future without being forced to liquidate or curtail operations. It justifies treating assets as long-term productive resources rather than saleable scrap.

The rule that expenses should be recognised in the same period as the revenues they helped produce, not simply when they are paid. It underpins accruals, prepayments and depreciation charges.

A reduction in the carrying amount of an asset when its recoverable amount falls below the amount recorded in the books. The loss is written off to profit or loss in the period it is identified.

The value at which an asset or liability appears in the statement of financial position, after deducting accumulated depreciation, amortisation and any impairment losses. It is also called book value.

The systematic allocation of an asset's depreciable cost over its useful life. It spreads the expense across the periods that benefit from the asset rather than charging it all at purchase.

A liability of uncertain timing or amount, recognised when a present obligation exists, an outflow is probable and the amount can be reliably estimated. It differs from a contingent liability, which is only disclosed.

A possible obligation whose existence depends on uncertain future events, or a present obligation that cannot be reliably measured or is not probable. It is disclosed in the notes rather than recognised in the accounts.

The threshold at which an omission or misstatement could influence the economic decisions of users of financial statements. It is judged by size and nature, and shapes what is disclosed, tested and reported.

The risk that the auditor expresses an inappropriate opinion on financial statements that are materially misstated. It comprises inherent risk, control risk and detection risk, and drives how much audit work is planned.

All the information used by the auditor to reach conclusions on which the opinion is based. It must be sufficient in quantity and appropriate in quality, meaning relevant and reliable.

Techniques that evaluate financial information by studying plausible relationships among data, such as ratios, trends and comparisons with budgets. They are used in risk assessment, substantive testing and final review.

Procedures designed to detect material misstatements at the assertion level, including tests of details and analytical procedures. It is performed in response to assessed risks and is not a test of controls.

The policies and procedures designed by management to provide reasonable assurance that objectives are met, covering reliability of reporting, effectiveness of operations and compliance with laws and regulations.

A control that separates incompatible tasks, such as authorising a transaction, recording it and having custody of the related asset, so that no single person can both commit and conceal an error or fraud.

The requirement that financial statements present the entity's position and performance honestly, without material bias or misstatement. It is the overarching objective of statutory financial reporting and audit.

The formal conclusion issued after an audit, stating whether the financial statements give a true and fair view. It may be unmodified, qualified, adverse or a disclaimer, depending on the evidence found.

The process of combining the financial statements of a parent and its controlled subsidiaries into one set of group accounts, eliminating intra-group balances and transactions so the group reports as a single entity.

The power to govern the financial and operating policies of another entity so as to obtain benefits from its activities. It is the test that determines whether a subsidiary must be consolidated.

The excess of the consideration paid for a business over the fair value of its identifiable net assets acquired. It represents expected future benefits such as reputation and customer relationships.

In public sector budgeting, an account that records funds voted by Parliament for a specific purpose and the expenditure charged against them. Spending beyond the amount voted requires fresh approval.

The rules governing how public funds may be collected, held, spent and accounted for, including authorisation, custody and reporting requirements. Breaches may lead to surcharge and disciplinary action.

A formal recovery imposed on a public officer personally for public money or property lost through their negligence or irregular conduct. It follows an audit query and an opportunity to explain.

An independent appraisal function within an organisation that reviews risk management, controls and governance, and reports findings to management or the audit committee. It complements, but does not replace, external audit.

A grant of funds approved by the legislature to meet government expenditure for part of a financial year, pending full approval of the annual budget. It prevents a shutdown of public services.

A technique that sets predetermined costs for materials, labour and overhead, then compares actual results against those standards to analyse variances. It supports control and performance evaluation.

The process of identifying and explaining differences between budgeted or standard figures and actual results. Variances are classified as favourable or adverse and investigated to improve future performance.

Sales revenue less variable costs. It measures how much each unit or product line contributes towards covering fixed costs and generating profit, and is central to break-even and short-term decisions.

The level of sales at which total revenue equals total cost, so the business makes neither profit nor loss. It is calculated by dividing fixed costs by the contribution per unit or contribution ratio.

A budget that is adjusted to the actual level of activity achieved, so that comparisons with actual costs are made on a like-for-like basis. It separates variable from fixed cost behaviour.

Something of value given by each party to a contract in exchange for the other's promise. Without consideration, an agreement is generally unenforceable unless it is made by deed.

The two essential steps in forming a contract: one party proposes definite terms, and the other agrees to them without introducing new conditions. A counter-offer rejects the original offer.

The principle that only the parties to a contract can enforce it or be bound by it. Third parties who benefit from a contract generally cannot sue on it, subject to statutory exceptions.

An act beyond the legal authority or powers of a company or public body. Such acts are generally void and cannot be ratified, though company law has substantially narrowed this doctrine for companies.

The constitutional document that states a company's name, registered office, objects and liability of members. It governs the company's relationship with the outside world and defines its permitted scope of activity.

The document containing the internal rules for running a company, covering directors' powers, share transfers, meetings and voting. It forms a contract between the company and its members.

A legal obligation of loyalty and good faith owed by directors and trustees to act in the best interests of the company or beneficiaries, avoiding conflicts and unauthorised personal gain.

Tax deducted at source by a payer from certain payments, such as interest, dividends, rent or payments to non-residents, and remitted to the tax authority on the recipient's behalf.

A tax deduction that spreads the cost of qualifying capital assets, such as plant and machinery, over several years. It replaces accounting depreciation, which is usually not deductible for tax.

An indirect tax charged on the supply of goods and services at each stage of production, with registered businesses reclaiming tax paid on inputs. The final burden falls on the consumer.

The technique of comparing figures in financial statements, such as liquidity, profitability and gearing ratios, to assess performance and position over time or against other entities.