ICAN CAP-III flashcards

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

Performance obligation

A promise to transfer a distinct good or service to a customer. Revenue is recognised when each obligation is satisfied, either at a point in time or over time.

Variable consideration constraint

Variable consideration is included in the transaction price only to the extent that a significant reversal of revenue is not highly probable when uncertainty is resolved.

Goodwill on acquisition

Consideration transferred plus non-controlling interest plus previously held interest, less the fair value of identifiable net assets acquired. Acquisition costs are expensed, not included.

Recoverable amount

The higher of an asset's fair value less costs of disposal and its value in use. An impairment loss arises when carrying amount exceeds recoverable amount.

Detection risk

The risk that the auditor's procedures fail to detect a material misstatement. It is controlled by the auditor and falls as assessed risks of material misstatement rise.

Performance materiality

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

Key audit matters

Matters of most significance in the audit of listed entity financial statements, selected from those communicated to those charged with governance and described under ISA 701.

Adverse audit opinion

Issued when misstatements are both material and pervasive to the financial statements. A disclaimer is used instead when the auditor cannot obtain sufficient evidence.

Tax avoidance versus evasion

Avoidance arranges affairs within the letter of the law to reduce tax; evasion involves concealment or falsification and is a criminal offence.

Deferred tax asset recognition

Recognised for deductible temporary differences and unused tax losses only when it is probable that future taxable profit will be available to utilise them.

Arm's length principle

Intra-group transactions must be priced as if between independent parties. The OECD methods include comparable uncontrolled price, resale price, cost plus, net margin and profit split.

Residual income

Profit less a charge for invested capital at the required rate of return. It supports goal congruence because any project earning above the required rate increases it.

Economic value added

Net operating profit after tax less the weighted average cost of capital multiplied by invested capital, after adjusting accounting figures for economic substance.

Balanced Scorecard perspectives

Financial, customer, internal business process, and learning and growth. Each perspective carries objectives, measures, targets and initiatives linked by cause and effect.

Material usage variance

Standard quantity for actual output less actual quantity used, multiplied by standard price. It isolates inefficient use of materials from price effects.

Weighted average cost of capital

The blended after-tax cost of equity and debt weighted by market values. It is the discount rate for projects of average business risk.

Capital asset pricing model

Required equity return equals the risk-free rate plus beta multiplied by the equity risk premium. Beta captures only non-diversifiable systematic risk.

Interest rate cap

An option that pays the borrower when the reference rate exceeds the strike, hedging rising interest costs while retaining the benefit of falling rates.

Cash operating cycle

Inventory days plus receivable days less payable days. It measures the period between paying suppliers and collecting cash from customers.

Agency problem

The conflict between owners and managers when control is separated from ownership. Monitoring and incentive alignment are the main governance responses.

Five fundamental ethical principles

Integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. Threats to them must be identified, evaluated and addressed.

Familiarity threat

Arises when a close relationship with a client makes the professional too sympathetic to their interests, for example through long association or friendship.

Segregation of duties

No single person should authorise, record and have custody of an asset. Splitting these functions reduces the risk of undetected error or fraud.

General IT controls

Controls over access management, change management, IT operations and program development that support the reliable functioning of application controls.

Benford's law

In naturally occurring data, leading digits are not evenly distributed; the digit one occurs about 30 percent of the time. Deviations may signal manipulation.

Recovery point objective

The maximum tolerable amount of data loss measured in time. It drives backup frequency and replication design in business continuity planning.

SOC 1 report

An independent assurance report on a service organisation's controls relevant to user entities' financial reporting, used by auditors when relying on outsourced processing.

Data minimisation

A privacy principle requiring that only personal data necessary for a stated purpose is collected and retained, limiting exposure and compliance risk.

Algorithmic bias

Systematic unfairness in automated decisions arising from biased training data or model design, requiring validation, testing and human oversight.

Continuous auditing

Near-real-time automated testing of transactions and controls by the auditor, distinct from continuous monitoring performed by management.

Predictive analytics

Use of historical data and statistical models to forecast future outcomes. Prescriptive analytics goes further by recommending actions.

Data quality dimensions

Completeness, accuracy, validity, consistency, timeliness and uniqueness. Weak input quality cannot be remedied by later analysis.