ICAN CAP-II cheat sheet

Conceptual framework: an asset is a present economic resource controlled by the entity as a result of past events; a liability is a present obligation to transfer an economic resource. Recognition requires relevance and faithful representation.

Five-step IFRS 15 model: identify the contract, identify performance obligations, determine transaction price, allocate price to obligations by standalone selling price, recognise revenue when each obligation is satisfied (over time or at a point).

Lease classification under IFRS 16: lessees recognise a right-of-use asset and lease liability for all leases except short-term (≤12 months) and low-value asset leases; lessors still classify as finance or operating.

Impairment of non-financial assets (IAS 36): carrying amount compared with recoverable amount, which is the higher of fair value less costs of disposal and value in use.

Expected credit loss under IFRS 9: 12-month ECL initially; lifetime ECL when credit risk increases significantly; lifetime ECL regardless of stage for purchased or originated credit-impaired assets.

Deferred tax: temporary differences multiplied by expected tax rate on reversal. Deferred tax liability arises on taxable temporary differences; deferred tax asset only if future taxable profit is probable.

Consolidation: control exists with power over the investee, exposure to variable returns, and ability to use power to affect returns. Intragroup balances, income and unrealised profits are eliminated in full.

Earnings per share (IAS 33): basic EPS = profit or loss attributable to ordinary shareholders ÷ weighted average number of ordinary shares. Diluted EPS adjusts both numerator and denominator for dilutive potential shares.

Financial statement analysis: current ratio = current assets ÷ current liabilities; quick ratio excludes inventory; debt-to-equity = total debt ÷ total equity; gross margin = gross profit ÷ revenue.

ISA 200: reasonable assurance is a high but not absolute level; inherent limitations include sampling risk, estimation uncertainty and evidence being persuasive rather than conclusive.

Risk model: audit risk = inherent risk × control risk × detection risk. Detection risk is controlled by the auditor through nature, timing and extent of procedures; it moves inversely with acceptable audit risk.

Materiality: overall materiality is set by professional judgement (common benchmarks: 5% of profit before tax, 0.5–1% of revenue or total assets); performance materiality is lower to reduce aggregation risk.

Assertions tested: existence/occurrence, rights and obligations, completeness, accuracy/valuation and allocation, cut-off, classification and presentation.

Audit evidence is more reliable when obtained from independent external sources, from original documents, and from auditor's direct observation or inspection rather than management representation.

Independence (IESBA Code): a firm cannot audit an entity where a fee from one client exceeds 15% of total fees for two consecutive years without disclosure and safeguards; prohibited non-assurance services include assuming management responsibility.

Going concern (ISA 570): if material uncertainty exists but disclosure is adequate, issue an unmodified opinion with a Material Uncertainty Related to Going Concern section; if disclosure is inadequate, qualify or disclaim.

Audit report modifications: qualified opinion (material but not pervasive misstatement or scope limitation), adverse opinion (material and pervasive misstatement), disclaimer (material and pervasive scope limitation).

Internal control: the five COSO components are control environment, risk assessment, control activities, information and communication, and monitoring activities.

Residence vs source: residents are taxed on worldwide income, non-residents generally on Nigeria-source income only; double taxation treaties provide relief by exemption, credit or deduction.

Capital allowances replace depreciation for tax: qualifying capital expenditure is written off by annual allowance plus initial allowance; balancing adjustment arises on disposal.

Value added tax is an indirect, consumption-based tax collected by registered businesses; input VAT is generally recoverable only on goods and services used to make taxable supplies, not on exempt supplies.

Taxable profit = accounting profit adjusted for disallowed expenses (fines, donations outside rules, depreciation) and non-taxable income (exempt dividends, capital gains) less capital allowances.

Withholding tax is an advance collection mechanism on specified payments (dividends, interest, rent, professional fees, contracts); the rate depends on payer and payee status, and credits are offset against final liability.

Capital gains tax applies to chargeable gains from disposal of chargeable assets: proceeds less allowable cost (acquisition cost, enhancement cost, incidental disposal cost) less reliefs and exemptions.

Transfer pricing: related-party transactions must be at arm's length; the OECD methods are comparable uncontrolled price, resale price, cost plus, transactional net margin and profit split.

Tax administration: self-assessment requires filing and payment within statutory deadlines; failure attracts penalties and interest, and objections must be lodged within the prescribed period.

Deferred tax accounting uses the tax base of assets and liabilities: tax base is the amount deductible for tax purposes in future periods; temporary difference = carrying amount minus tax base.

Porter's five forces: rivalry among existing competitors, threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers. High forces depress industry profitability.

Porter's generic strategies: cost leadership, differentiation and focus (cost focus or differentiation focus). Being 'stuck in the middle' yields below-average returns.

PESTLE scans macro-environment: political, economic, social, technological, legal, environmental factors. SWOT summarises internal strengths and weaknesses against external opportunities and threats.

Ansoff matrix: market penetration (existing product, existing market), product development, market development, diversification (related or unrelated).

Value chain: primary activities (inbound logistics, operations, outbound logistics, marketing and sales, service) plus support activities (firm infrastructure, HR, technology, procurement).

BCG matrix: stars (high growth, high share), cash cows (low growth, high share), question marks (high growth, low share), dogs (low growth, low share).

Core competence criteria (Prahalad and Hamel): it must provide access to markets, contribute significantly to perceived customer value, and be difficult for competitors to imitate.

Balanced scorecard perspectives: financial, customer, internal business process, and learning and growth. Strategy maps link objectives causally across the four perspectives.

Agency theory: separation of ownership and control creates conflicts; governance mechanisms include independent boards, audit committees, incentive alignment and transparent disclosure.

Board structure: separation of chair and CEO roles, independent non-executive directors, and an audit committee composed of independent non-executives with at least one financial expert.

OECD governance principles: shareholder rights, equitable treatment of shareholders, role of stakeholders, disclosure and transparency, and board responsibilities.

Ethical decision frameworks: consequentialist (utilitarian) reasoning weighs outcomes; deontological reasoning applies duties and rules irrespective of outcome; virtue ethics asks what a person of good character would do.

Threats to independence under the IESBA Code: self-interest, self-review, advocacy, familiarity and intimidation. Safeguards include rotation, independent review and removing the service.

Whistleblowing: protected disclosure requires a reasonable belief of wrongdoing, disclosure to a prescribed person or body, and good faith; retaliation against the whistleblower is prohibited.

Corporate social responsibility and sustainability reporting frameworks include GRI standards, the Integrated Reporting framework and the TCFD recommendations on climate-related financial disclosure.

Insider trading prohibition: persons with inside information must not deal, tip others, or procure others to deal in the securities until the information becomes public.

Contribution margin = sales − variable costs. Break-even units = fixed costs ÷ contribution per unit; break-even revenue = fixed costs ÷ contribution margin ratio.

Margin of safety = (budgeted sales − break-even sales) ÷ budgeted sales. Target profit units = (fixed costs + target profit) ÷ contribution per unit.

Relevant costs for decisions: future, incremental and avoidable. Sunk costs, allocated fixed overhead and committed costs are irrelevant.

Make-or-buy: choose the lower relevant cost, including opportunity cost of using scarce internal capacity; include avoidable fixed costs of making.

Limiting factor analysis: rank products by contribution per unit of scarce resource; this maximises total contribution when a single constraint binds.

Standard costing variances: material price = (standard price − actual price) × actual quantity; material usage = (standard quantity − actual quantity) × standard price; labour rate and efficiency variances follow the same pattern.

Absorption vs marginal costing: absorption costing includes fixed production overhead in product cost, so profit differs by the amount of fixed overhead absorbed into closing inventory.

Transfer pricing: minimum transfer price for the selling division = variable cost + opportunity cost of the transferred unit; range is bounded above by the external market price.

Activity-based costing assigns overhead to cost pools driven by activities (setup, inspection, machine hours) and then to products via cost drivers, reducing cross-subsidisation.

Weighted average cost of capital: WACC = (E/V) × Ke + (D/V) × Kd × (1 − tax rate), where V = E + D. Use market values where available.

Cost of equity via CAPM: Ke = Rf + β × (Rm − Rf). Dividend growth model: Ke = D1 ÷ P0 + g, with D1 = D0 × (1 + g).

NPV = present value of cash inflows − initial investment; accept if NPV > 0. IRR is the discount rate at which NPV = 0; accept if IRR > cost of capital.

Capital rationing: for divisible projects rank by profitability index (NPV ÷ initial investment); for indivisible projects use trial-and-error combinations of feasible projects.

Working capital: cash conversion cycle = inventory days + receivable days − payable days. Shorter cycles release cash.

Operating gearing is the proportion of fixed to variable costs; financial gearing is debt relative to equity. Higher gearing increases the sensitivity of returns to sales changes.

Dividend policy theories: Modigliani–Miller irrelevance (perfect markets), bird-in-hand, tax preference and signalling explanations.

Business valuation: free cash flow to firm discounted at WACC; dividend valuation model; earnings multiples (P/E); and net asset value for asset-based valuations.

Risk management: forward contracts lock a rate; futures are standardised and margined; options give the right but not obligation to transact; swaps exchange cash flow streams.

Contract formation requires offer, acceptance, consideration, intention to create legal relations and capacity. Invitation to treat (advertisements, price lists, auctions) is not an offer.

Acceptance must be unqualified and communicated to the offeror. Postal acceptance is effective on posting under the postal rule, unless excluded.

Consideration must be sufficient but need not be adequate; past consideration is generally not good consideration.

Company law: a company is a separate legal person with perpetual succession and limited liability. Incorporation requires memorandum and articles, and registration with the regulator.

Directors' duties: act within powers, promote the success of the company, exercise independent judgement, exercise reasonable care and skill, avoid conflicts, not accept benefits from third parties, declare interest in proposed transactions.

Corporate insolvency: liquidation (members' voluntary, creditors' voluntary, compulsory) and administration aim to rescue the company or realise assets for creditors in a prescribed priority order.

Secured creditors rank ahead of unsecured creditors; preferential creditors (employees' wages, certain taxes) rank ahead of ordinary unsecured creditors; shareholders rank last.

Regulatory framework: securities regulators license intermediaries, require prospectus disclosure for public offers, and prohibit market abuse and false trading.

Employment law: a contract of service creates an employer–employee relationship with statutory rights (minimum wage, leave, notice, unfair dismissal protection), unlike a contract for services.

COSO IT general controls: access controls, change management, IT operations and backup, and system development. Application controls cover input, processing and output.

Data analytics types: descriptive (what happened), diagnostic (why), predictive (what will happen) and prescriptive (what action to take).

Audit data analytics techniques: trend analysis, ratio analysis, Benford's law on digit distributions, duplicate testing, gap detection and exception reporting.

CAATs (computer-assisted audit techniques) include audit software for re-performance and recalculation, test data, and embedded audit modules.

ACID properties of database transactions: atomicity, consistency, isolation and durability.

Cybersecurity CIA triad: confidentiality, integrity and availability; controls include encryption, multi-factor authentication, patch management and least-privilege access.

Cloud service models: IaaS (infrastructure), PaaS (platform), SaaS (application). Shared responsibility means the provider secures the platform and the customer secures data and access.

Data quality dimensions: completeness, accuracy, validity, consistency, timeliness and uniqueness. Poor master data undermines automated controls and reporting.

Blockchain: distributed ledger with cryptographic hashing and consensus; immutability supports audit trails but does not by itself assure the accuracy of data entered.

Public sector entities report under IPSAS, which is based on accrual accounting and adapted from IFRS; cash-basis IPSAS is a transitional option.

Budgetary accounting: appropriation is the authority to spend; commitment accounting records obligations before goods or services are received; virement is transfer between budget lines.

Modified accrual recognises revenues when measurable and available, and expenditures when the liability is incurred; used in some government funds.

Fund accounting separates resources restricted for specific purposes (general fund, special revenue, capital projects, debt service, enterprise funds).

Not-for-profit: net assets are classified as without donor restrictions and with donor restrictions; restricted contributions are recognised as revenue when the condition is substantially met.

Performance reporting: service performance information (outputs, outcomes, efficiency and effectiveness indicators) complements financial statements in public sector accountability.

Public procurement principles: transparency, competition, value for money, fairness and accountability; thresholds determine open competitive tendering requirements.

Public debt and fiscal reporting: consolidated financial statements cover the whole-of-government reporting entity, and contingent liabilities are disclosed rather than recognised unless probable.

Audit in the public sector: Supreme Audit Institutions provide external audit; performance (value-for-money) audit examines economy, efficiency and effectiveness separately from financial statement audit.