ICAM CA(M) key terms

Accounting approach that records income when earned and expenses when incurred, regardless of when cash moves. It matches costs with the revenues they helped generate and underpins most financial statements.

Assumption that an entity will continue operating for the foreseeable future without liquidation or forced closure. If doubts exist, disclosures or a different basis of preparation may be required.

Quality of caution that prevents overstating assets or income and understating liabilities or expenses when judgement is uncertain, while still remaining neutral and free from deliberate bias.

Rule that expenses are recognised in the same period as the revenues they helped produce, so profit reflects the true economic effort of the period rather than the timing of payments.

Systematic allocation of a tangible non-current asset's depreciable amount over its useful life, reflecting consumption of benefit. It is not a valuation of the asset at market price.

Amount at which an asset or liability is recognised in the statement of financial position, being cost or revalued amount less accumulated depreciation and accumulated impairment losses.

Reduction in an asset's recoverable amount below its carrying amount, requiring a write-down and recognition of a loss. Recoverable amount is the higher of fair value less costs to sell and value in use.

Liability of uncertain timing or amount, recognised only when a present obligation exists from a past event, an outflow is probable and the amount can be reliably estimated.

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 rather than recognised.

Amount paid in advance for goods or services not yet received, shown as a current asset until the benefit is consumed and the expense is recognised in profit or loss.

Cost incurred in the period but not yet invoiced or paid, recorded as a liability and an expense so that profit reflects all resources consumed during the period.

Estimated amount an entity would currently obtain from disposing of an asset at the end of its useful life, after deducting expected disposal costs. It is excluded from the depreciable amount.

Events occurring between the reporting date and the date financial statements are authorised for issue. Adjusting events update amounts recognised; non-adjusting events are disclosed if material.

Threshold at which omissions or misstatements could influence decisions of users of financial statements. It depends on size and nature and guides recognition, disclosure and audit planning.

Risk that the auditor expresses an inappropriate opinion when financial statements are materially misstated. It comprises inherent risk, control risk and detection risk, and drives the design of audit procedures.

Process designed by those charged with governance and management to provide reasonable assurance about reliable reporting, effective operations and compliance. Auditors evaluate controls to assess control risk.

Control that separates authorisation, custody, recording and reconciliation tasks among different people so that no single individual can both perpetrate and conceal an error or fraud.

Audit procedures that detect material misstatements, including tests of detail on transactions and balances and substantive analytical procedures. They are required regardless of assessed control risk.

Audit evidence obtained as a direct written response from a third party to the auditor, for example a bank or customer balance confirmation. It is generally more reliable than internally generated evidence.

Formal conclusion in the auditor's report on whether financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. It may be unmodified or modified.

Attitude of questioning and alertness to conditions suggesting possible misstatement, including fraud, rather than accepting evidence at face value without corroboration.

Written agreement between auditor and client setting out the scope, responsibilities, applicable framework and expected form of report, reducing the risk of misunderstanding about the engagement.

Amount on which income tax is charged after adjusting accounting profit for disallowed expenses, non-taxable income, capital allowances and reliefs permitted by tax law.

Tax relief that spreads the cost of qualifying capital assets against taxable profits, often at prescribed rates, instead of deducting the full cost when purchased.

Accounting entry recognising the future tax consequences of temporary differences between an asset or liability's carrying amount and its tax base, shown as a deferred tax asset or liability.

Amount attributed to an asset or liability for tax purposes, used to compare with its accounting carrying amount and so identify temporary differences that create deferred tax.

Tax deducted at source by a payer from payments such as dividends, interest or royalties, then remitted to the tax authority. It may be creditable against the recipient's final tax liability.

Tax collected by a business from customers on behalf of the government, such as value added tax or sales tax, and remitted to the authority rather than borne by the business.

Sales revenue less variable costs. It measures how much each sale contributes towards covering fixed costs and generating profit, and underpins break-even and target profit calculations.

Level of sales at which total contribution equals total fixed costs, so profit is zero. It can be expressed in units or revenue and is derived from fixed costs divided by contribution per unit.

Excess of actual or budgeted sales over the break-even level, expressed in units, revenue or as a percentage. It indicates how far sales can fall before losses arise.

Decision technique using only future cash flows that differ between alternatives. Sunk costs and apportioned fixed overheads are excluded because they do not change with the decision.

Value of the next best alternative forgone when a resource is committed to one use. It is included in relevant costing even though it never appears in accounting records.

System that sets predetermined costs for materials, labour and overhead, then compares them with actual results to produce variances that highlight areas needing management attention.

Comparison of actual performance with budget or standard, splitting differences into causes such as price and usage so managers can investigate and correct significant deviations.

Budget restated for the actual level of activity achieved, allowing fair comparison with actual costs by removing volume effects from performance variances.

Period between paying for inputs and collecting cash from customers, covering inventory holding, production, receivables collection and payables payment. Shorter cycles reduce financing needs.

Projection of expected cash receipts and payments over future periods, used to identify surpluses, deficits and funding needs and to support liquidity management.

Blended required return on a firm's debt and equity, weighted by their market values. It is commonly used as the discount rate for appraising investment projects of similar risk.

Sum of a project's expected future cash flows discounted to present value at an appropriate rate, less initial investment. A positive result suggests the project adds value.

Time taken for cumulative cash inflows from a project to recover the initial investment. It is simple and focuses on liquidity but ignores cash flows after payback and the time value of money.