CA Sri Lanka Strategic Level Exam flashcards

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

Control under SLFRS 10

An investor controls an investee when it has power over relevant activities, exposure to variable returns, and the ability to use its power to affect those returns. Consolidation follows control, not ownership percentage alone.

Goodwill on acquisition

Goodwill equals consideration transferred plus non-controlling interest plus fair value of previously held interest, less net identifiable assets acquired. It is not amortised but tested annually for impairment.

Five steps of SLFRS 15

Identify the contract with the customer, identify distinct performance obligations, determine the transaction price, allocate it to obligations, and recognise revenue when each obligation is satisfied.

Lessee recognition under SLFRS 16

A lessee recognises a right-of-use asset and a lease liability measured at the present value of lease payments, discounted using the rate implicit in the lease or the incremental borrowing rate.

Deferred tax measurement

Deferred tax is measured on temporary differences between carrying amount and tax base at rates expected to apply on reversal. A deferred tax asset needs probable future taxable profit.

Expected credit losses

Under SLFRS 9, impairment allowances are recognised for expected credit losses before default occurs, using forward-looking information; the loss allowance equals the present value of expected shortfalls.

Porter's five forces

Industry profitability is shaped by rivalry among existing firms, threat of new entrants, threat of substitutes, bargaining power of suppliers and bargaining power of buyers. Judge each force's strength, not mere existence.

Value chain primary activities

Primary activities are inbound logistics, operations, outbound logistics, marketing and sales, and service. Support activities are firm infrastructure, human resource management, technology development and procurement.

BCG matrix logic

The matrix plots market growth against relative market share. Stars consume and generate cash, cash cows fund others, question marks need investment decisions, and dogs are divestment candidates.

Ansoff growth matrix

Growth options are market penetration, product development, market development and diversification. Risk increases from penetration through diversification, which combines new products with new markets.

Core competence criteria

A core competence is a bundle of skills that is valuable, rare, difficult to imitate and not easily substituted. It should underpin multiple products and be hard for competitors to replicate.

Balanced scorecard perspectives

The four perspectives are financial, customer, internal business process, and learning and growth. Each objective should carry a measure, target and initiative linking to strategy.

Stakeholder power-interest grid

Stakeholders are mapped on power and interest. High power and high interest require close management; high power and low interest require keeping satisfied; low power and low interest require minimal monitoring.

PESTLE analysis purpose

PESTLE scans political, economic, social, technological, legal and environmental factors. It identifies external drivers of change that affect strategy, not internal capabilities, and should feed scenario planning.

WACC formula

WACC equals equity weight times cost of equity plus debt weight times cost of debt times one minus the tax rate. Market values and marginal costs are used for average-risk project appraisal.

CAPM cost of equity

Cost of equity equals the risk-free rate plus beta multiplied by the market risk premium. Beta captures systematic risk only, since unsystematic risk can be diversified away by investors.

NPV decision rule

Net present value is the present value of cash inflows less the initial outlay, discounted at the opportunity cost of capital. Accept positive NPV projects; prefer NPV to IRR for mutually exclusive choices.

Modified duration effect

The percentage change in a bond's price approximately equals minus modified duration times the change in yield. Convexity adjusts the estimate for larger yield movements.

Interest rate parity

Interest rate parity states that the forward premium or discount reflects the interest rate differential between two currencies; otherwise riskless arbitrage would exist.

Futures versus forwards

Futures are standardised, exchange-traded, margined and marked to market daily, so they carry basis risk. Forwards are customised over-the-counter contracts carrying counterparty credit risk.

Combined leverage

Degree of combined leverage equals degree of operating leverage multiplied by degree of financial leverage. It measures the sensitivity of earnings per share to changes in sales volume.

Hedging policy content

A treasury hedging policy specifies exposures to be hedged, permitted instruments, hedge ratios, authorisation limits, hedge accounting treatment and reporting. Speculation falls outside the mandate.

Agency problem

Separation of ownership from control lets managers pursue their own interests rather than shareholders'. Governance responds with independent boards, incentive alignment, audit and transparent disclosure.

Audit committee composition

An effective audit committee comprises independent non-executive directors with financial expertise. It oversees external audit, internal control, risk management and the integrity of financial reporting.

Five ethical threats

The Code of Ethics identifies self-interest, self-review, advocacy, familiarity and intimidation threats. Where a threat is significant, safeguards are applied or the engagement is declined.

Independence in appearance

Independence requires both independence of mind and the appearance of independence. Long association with a client creates familiarity threat, addressed by rotation or independent quality review.

Confidentiality principle

Confidentiality obliges the professional accountant not to disclose client information without authority, and it continues after the relationship ends. Legal or regulatory disclosure may be permitted or required.

Whistleblowing safeguards

A whistleblowing framework needs a protected disclosure route, an independent reporting channel, documented investigation and a clear prohibition of retaliation against the reporter.

Residence-based taxation

Residents are generally taxed on worldwide income while non-residents are taxed on domestic-source income. Residence status therefore determines the scope of the tax base.

Capital allowances

Capital allowances replace accounting depreciation as a tax deduction. The resulting difference between an asset's carrying amount and tax base creates a temporary difference and deferred tax.

Tax avoidance versus evasion

Avoidance uses legal arrangements to reduce tax but may be challenged by general anti-avoidance rules if lacking commercial substance. Evasion is illegal and attracts penalties and prosecution.

Transfer pricing principle

Related-party transactions must be priced on arm's-length terms as if between independent parties. Contemporaneous documentation supports the pricing and is required in a tax audit.