ICAM CA(M) flashcards

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

Accounting equation

Assets equal liabilities plus equity. Every transaction affects at least two elements and keeps this equality intact, which is why total debits must always equal total credits.

Accrual versus cash basis

Accrual accounting records revenue when earned and expenses when incurred, regardless of cash movement. Cash basis records only when cash is received or paid.

Straight-line depreciation formula

Annual charge equals cost minus residual value, divided by useful life in years. It produces a constant charge each period and suits assets whose benefits are consumed evenly.

Reducing balance depreciation

Charge equals the opening carrying amount multiplied by a fixed percentage rate. The charge falls each year as carrying amount declines, and the asset is never fully written down to zero.

Lower of cost and NRV

Inventory is measured at the lower of cost and net realisable value, where NRV is estimated selling price less costs to complete and sell. Write-downs are recognised as an expense.

IFRS 15 five-step model

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

IFRS 16 lessee recognition

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

Impairment recoverable amount

Recoverable amount is the higher of fair value less costs of disposal and value in use. An impairment loss arises when carrying amount exceeds this figure.

Goodwill on consolidation

Consideration transferred plus non-controlling interest plus fair value of prior holdings, less fair value of identifiable net assets acquired. It is not amortised but tested annually for impairment.

Audit risk model

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

Reasonable assurance

The auditor obtains reasonable, not absolute, assurance because of sampling risk, judgement, limitations of internal control and the possibility of collusion or fraud.

Financial statement assertions

Categories the auditor tests, including occurrence, completeness, accuracy, cut-off, existence, rights and obligations, valuation and allocation, and presentation and disclosure.

Most reliable audit evidence

Evidence is more reliable when obtained from independent external sources, when it is original rather than a copy, and when it results from the auditor's direct inspection or observation.

Performance materiality

An amount set below overall materiality to reduce to an appropriately low level the probability that uncorrected and undetected misstatements together exceed overall materiality.

Types of audit opinion

Unmodified, qualified, adverse and disclaimer of opinion. Qualified and adverse opinions involve material misstatement; a disclaimer arises when the auditor cannot obtain sufficient evidence.

Key Audit Matters

Matters of most significance in the audit, selected from those communicated with those charged with governance. Required under ISA 701 for audits of listed entities.

Fraud risk in revenue

ISA 240 creates a rebuttable presumption that revenue recognition carries a fraud risk, and requires the auditor to evaluate management override of controls on every audit.

Auditor independence

The auditor must be independent in mind and appearance, avoiding financial interests, business relationships and close family ties that a reasonable third party would see as compromising objectivity.

Deferred tax calculation

Deferred tax equals the temporary difference between an asset's carrying amount and its tax base, multiplied by the tax rate expected when the difference reverses.

Deferred tax asset recognition

A deferred tax asset is recognised only when future taxable profit is probable against which the deductible difference or unused tax loss can be offset.

Capital allowances versus depreciation

Capital allowances are tax deductions for qualifying capital expenditure, replacing accounting depreciation for tax. The gap between the two creates a temporary difference.

Withholding tax on cross-border payments

Tax deducted at source on payments such as royalties, interest and dividends to non-residents. Double tax treaties may reduce the domestic rate.

Arm's length principle

Transfer pricing rule requiring related-party transactions to be priced as if between independent parties. Common methods are comparable uncontrolled price, resale price and cost plus.

Tax loss carry-forward conditions

Unused tax losses may be carried forward only if continuity of ownership or same business tests are met, depending on the jurisdiction's rules.

VAT output less input tax

A supplier charges output tax on sales and reclaims input tax on purchases. The difference is remitted to the tax authority; VAT is borne by the final consumer.

Break-even point

Fixed costs divided by contribution per unit. Contribution per unit equals selling price minus variable cost per unit, and at break-even profit is zero.

Margin of safety

Budgeted or actual sales minus break-even sales, divided by budgeted sales. It shows the percentage by which sales can fall before a loss arises.

Relevant costing

Only future, incremental cash flows are relevant to a decision. Sunk costs, committed costs and apportioned fixed overheads are excluded because they do not change.

Net present value rule

Discount all project cash flows at the cost of capital. Accept a project when NPV is positive; among mutually exclusive projects, choose the highest NPV.

Weighted average cost of capital

Equity weight times cost of equity plus debt weight times after-tax cost of debt, where weights use market values of equity and debt.

Material price variance

Standard price minus actual price, multiplied by actual quantity purchased. A positive result is favourable because materials cost less than standard.

Working capital cycle

Inventory days plus receivables days minus payables days. A shorter cycle frees cash, while a longer cycle increases the need for external finance.