CA Sri Lanka Corporate Level Exam key terms

An agreed set of principles that guides how financial statements are prepared and presented, setting out the objective of reporting and the qualitative characteristics and definitions of the elements of the statements.

The quality of information that depicts economic substance accurately, being complete, neutral and free from material error, rather than merely appearing technically correct in form.

The tests an item must pass before it is included in the financial statements: it must meet an element definition and be measurable reliably, with probable future economic benefit or sacrifice.

The principle that transactions are accounted for according to their economic reality rather than their legal label, so a sale-and-repurchase arrangement may be treated as borrowing.

The process of identifying when and how much income from contracts with customers is recorded, normally as performance obligations are satisfied and control passes to the buyer.

A distinct promise in a customer contract to transfer a good or service, which is the unit of account used to decide when revenue is recognised.

A right to consideration that is conditional on something other than the passage of time, such as meeting a milestone, distinct from a trade receivable.

A contract granting the right to use an identified asset for a period in exchange for consideration, which typically brings a right-of-use asset and a lease liability onto the lessee's statement of financial position.

The tax effect of temporary differences between accounting carrying amounts and tax bases, recognised as a liability or asset and measured at expected future tax rates.

The amount attributed to an asset or liability for tax purposes, whose difference from the accounting carrying amount creates a temporary difference and hence deferred tax.

The process of combining a parent and its controlled subsidiaries into a single set of financial statements, eliminating intragroup balances and transactions.

The power to direct the relevant activities of an investee so as to obtain variable returns and the ability to use that power to affect those returns, the test for consolidation.

The excess of consideration transferred plus non-controlling interest over the fair value of identifiable net assets acquired, recognised only in a business combination and tested annually for impairment.

An entity over which an investor has significant influence, normally indicated by holding twenty per cent or more of the voting power, accounted for using the equity method.

An accounting technique where an investment is initially recorded at cost and subsequently adjusted for the investor's share of post-acquisition profits, losses and other comprehensive income.

A reduction in the recoverable amount of an asset below its carrying amount, recognised as a loss when the higher of value in use and fair value less costs of disposal falls short.

The present value of the future cash flows expected from an asset or cash-generating unit, used as one measure of recoverable amount in impairment testing.

Recording transactions when they occur rather than when cash moves, so income is matched with the expenses incurred in earning it during the period.

The rate used to convert future cash flows to present value, reflecting current market time value of money and the specific risks of the cash flows concerned.

The sum of discounted future cash inflows less outflows of a project, where a positive result indicates the project adds value at the chosen cost of capital.

The discount rate at which a project's net present value equals zero, compared with the cost of capital to decide acceptance of an investment.

The weighted average required return of a firm's providers of debt and equity, used as the hurdle rate for investment appraisal and capital budgeting.

The proportion of debt in a company's capital structure, often expressed as debt to equity or debt to total capital, indicating financial risk and borrowing capacity.

A condition in a loan agreement requiring the borrower to maintain specified financial ratios or limits, breach of which can trigger default or accelerated repayment.

The period between paying suppliers for inventory and collecting cash from customers, calculated from inventory and receivable days less payable days.

A measure such as the current or quick ratio comparing short-term assets with short-term obligations to assess a firm's ability to meet maturing commitments.

The volume of sales at which total contribution equals fixed costs, so the business makes neither profit nor loss.

Sales revenue less variable costs, representing the amount each unit or each sale contributes towards covering fixed costs and then generating profit.

A future incremental cash flow that differs between alternatives and is therefore included in a decision, excluding sunk costs and apportioned fixed overheads.

The value of the next best alternative forgone when a resource is committed to a particular use, relevant to decisions where capacity is limited.

A cost already incurred and unaffected by the decision at hand, which must be ignored in incremental analysis because no future cash flow can change it.

The price at which one division of a group supplies goods or services to another, affecting divisional profit measurement and goal congruence across the organisation.

A unit of an organisation whose manager is accountable for specified outputs or costs, classified as a cost, revenue, profit or investment centre.

Divisional profit less a charge for the capital employed, encouraging managers to accept investments earning above the cost of capital.

The alignment of individual managers' incentives with the overall objectives of the organisation, so that decisions taken locally also benefit the group.

The conflict of interest between principals such as shareholders and agents such as directors, arising from divergent goals and information asymmetry.

The system of rules, practices and processes by which a company is directed and controlled, balancing stakeholder interests and accountability of the board.

A subcommittee of independent non-executive directors responsible for overseeing financial reporting, internal control and the relationship with external auditors.

The policies and procedures designed to provide reasonable assurance about reliable reporting, effective operations and compliance with laws and regulations.

A control that separates authorisation, custody and recording of transactions among different people so that no single person can both commit and conceal an error or fraud.

The state of being free from relationships or interests that could compromise objectivity, required of auditors and applied in fact and in appearance.