CA Sri Lanka Corporate Level Exam flashcards

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

Goodwill on consolidation

Consideration transferred plus NCI plus previously held interest, less fair value of net identifiable assets acquired. Any excess after reassessment is a bargain purchase gain recognised in profit or loss.

Control under SLFRS 10

Power over relevant activities, exposure to variable returns, and ability to use that power to affect returns. Voting majority is evidence but not conclusive; substantive potential voting rights are considered.

Upstream versus downstream sale

An upstream sale is subsidiary to parent, so unrealised profit is shared with NCI. In a downstream sale, parent to subsidiary, the full unrealised profit is eliminated against the parent's profit.

Restructuring provision criteria

Recognise only when a detailed formal plan identifies the business, locations, employees and timing, and a valid expectation has been raised by implementation or announcement before the reporting date.

Deferred tax measurement

Temporary differences multiplied by the tax rate expected when the difference reverses. Deferred tax assets require convincing evidence that future taxable profit will be available against which they can be used.

Impairment of goodwill

Goodwill is tested annually for impairment and is never reversed. Other assets are written down to recoverable amount, the higher of fair value less costs of disposal and value in use.

Residual income formula

Accounting profit less the required rate of return multiplied by invested capital. It charges an explicit capital cost, so managers accept projects earning above the required return even when divisional ROI falls.

Economic value added

NOPAT less WACC multiplied by adjusted invested capital. Adjustments capitalise items such as R&D and operating leases to bring accounting profit closer to economic profit.

Balanced scorecard perspectives

Financial, customer, internal business process, and learning and growth. Each objective requires a measure, target and initiative so that strategy translates into operational action.

Porter's five forces

Rivalry, buyer power, supplier power, threat of new entrants and threat of substitutes. The framework explains industry profitability rather than the competitive position of a single firm.

Minimum transfer price

Variable cost plus opportunity cost. With spare capacity the opportunity cost is zero; at full capacity it equals the lost external contribution, so internal transfer may be declined.

Inherent versus residual risk

Inherent risk is exposure before controls; residual risk remains after controls operate. Risk responses are avoid, reduce, transfer or accept, selected by comparing residual exposure to risk appetite.

Ansoff matrix

Market penetration, market development, product development and diversification. Diversification combines new products with new markets and carries the highest risk of the four strategies.

Audit risk model

Audit risk equals inherent risk multiplied by control risk multiplied by detection risk. Detection risk is the only component the auditor controls, through the nature, timing and extent of procedures.

Performance materiality

An amount below overall materiality that reduces to an appropriately low level the probability that uncorrected and undetected misstatements together exceed materiality for the financial statements.

Qualified versus adverse opinion

Qualified is material but not pervasive misstatement; adverse is material and pervasive. A disclaimer arises from inability to obtain sufficient appropriate evidence that is material and pervasive.

Key audit matters

Matters of most significance in the audit of listed entity financial statements, selected from those communicated with those charged with governance. Reporting them does not modify the opinion.

Self-review threat

Arises when the firm evaluates work it previously performed, such as preparing the financial statements or designing controls it now audits. Safeguards or declining the engagement are required.

Professional scepticism

A questioning mind and critical assessment of evidence, including management representations. Contradictory evidence must be investigated rather than explained away by prior client experience.

Fraud risk presumption

Revenue recognition is presumed a fraud risk, rebuttable only with documented justification. Fraud risk factors are grouped as incentive or pressure, opportunity, and rationalisation or attitude.

Special resolution threshold

A special resolution requires not less than 75% of votes cast by members entitled to vote at a duly convened meeting; an ordinary resolution requires a simple majority of votes cast.

Dividend distributable profits test

A dividend may be paid only from distributable profits, and the company must satisfy the solvency test immediately after the distribution, covering debts payable within twelve months.

Balancing allowance and charge

Disposal proceeds below tax written-down value give a balancing allowance; proceeds above it give a balancing charge, which increases taxable income for the period.

Separate legal personality

The company is a legal person distinct from its members and directors. Liability is limited, and the corporate veil is lifted only in narrow cases such as fraud or agency.

Contract formation elements

Offer, acceptance, consideration, intention to create legal relations and capacity. Consideration must be sufficient but need not be adequate; past consideration is generally not valid.

Weighted average cost of capital

Equity weight times cost of equity plus debt weight times after-tax cost of debt, using market value weights. A project-specific rate applies where business risk differs from the firm's.

CAPM cost of equity

Risk-free rate plus beta multiplied by the market risk premium. Beta measures systematic risk; unsystematic risk is diversifiable and is not rewarded with a premium.

Internal rate of return

The discount rate giving zero NPV. Use interpolation between two rates, and beware multiple IRRs where cash flows change sign more than once; prefer NPV for ranking.

Working capital cycle

Inventory days plus receivable days less payable days. Shortening the cycle releases cash, but tighter credit terms or lower inventory may reduce sales and damage supplier relations.

Purchasing power parity

The currency of the country with higher inflation is expected to depreciate by approximately the inflation differential, so real purchasing power is equalised over the long run.

Interest rate swap

An agreement to exchange fixed for floating interest obligations without exchanging principal. It converts exposure and can lower borrowing cost through comparative advantage.

Transformational leadership elements

Idealised influence, inspirational motivation, intellectual stimulation and individualised consideration. Transactional leadership instead relies on contingent reward and management by exception.

Tuckman group stages

Forming, storming, norming, performing and adjourning. Conflict during storming is normal and can be constructive if channelled into clarifying roles and ground rules.

Belbin team roles

Action roles are shaper, implementer and completer-finisher; people roles are coordinator, team worker and resource investigator; thought roles are plant, monitor-evaluator and specialist.

Handy culture types

Power, role, task and person cultures. A role culture depends on rules and job descriptions and adapts poorly to rapid change; a task culture organises around projects.

Stakeholder power-interest mapping

High power and high interest are key players engaged closely; high power and low interest are kept satisfied; low power and high interest are kept informed; the remainder are monitored.

Kotter change sequence

Create urgency, form a guiding coalition, create a vision, communicate it, empower action, generate short-term wins, consolidate gains, and anchor changes in the culture.

Segregation of duties

Authorisation, custody, recording and reconciliation should be performed by different people. Combining custody of assets with record-keeping is the classic control weakness.

General versus application controls

General IT controls cover access management, change management and IT operations across systems. Application controls cover input, processing and output within a specific business process.

Recovery time and point objectives

Recovery time objective is the maximum acceptable outage; recovery point objective is the maximum acceptable data loss measured in time. Both drive backup and redundancy design.

COSO control components

Control environment, risk assessment, control activities, information and communication, and monitoring activities. The control environment, set by tone at the top, is the foundation.

Cloud shared responsibility

The provider secures physical infrastructure and platform availability; the client remains responsible for access rights, data classification, configuration and user monitoring.