ICAN CAP-II key terms

Recording revenue when earned and expenses when incurred, regardless of when cash moves. It matches costs with the benefits they produce and underpins the financial statements prepared under IFRS and most national frameworks.

The presumption that an entity will continue operating for the foreseeable future without liquidation or forced cessation. If doubt exists, management must disclose material uncertainty and auditors must evaluate the appropriateness of the assumption.

Expenses are recognised in the same period as the revenue they helped generate, rather than when payment occurs. It drives accruals, prepayments, depreciation and inventory cost of sales calculations.

A reduction in the carrying amount of an asset when its recoverable amount falls below book value. The loss is recognised immediately in profit or loss, or against a revaluation surplus where the asset was previously revalued.

The price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It uses a three-level hierarchy based on observable inputs.

Combining the financial statements of a parent and its controlled subsidiaries into a single set, eliminating intragroup balances and transactions. Control normally exists where the parent holds power, exposure to variable returns, and the ability to use that power.

The excess of consideration transferred plus non-controlling interest over the fair value of identifiable net assets acquired in a business combination. It is not amortised but tested annually for impairment.

The threshold at which omissions or misstatements could influence economic decisions of users. It is a matter of professional judgement applied both in preparing financial statements and in planning and evaluating an audit.

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

An amount set below overall materiality to reduce to an appropriately low level the probability that uncorrected and undetected misstatements exceed materiality for the financial statements as a whole.

The processes, policies and procedures designed by those charged with governance to provide reasonable assurance about reliable reporting, effectiveness and efficiency of operations, and compliance with laws. Auditors assess control risk to plan substantive work.

A matter that, in the auditor's professional judgement, was of most significance in the audit and is communicated in the auditor's report. It is selected from matters discussed with those charged with governance.

An objective evaluation of the significant judgements and conclusions reached by the engagement team, performed before the report is issued. It is required for listed entities and other higher-risk engagements.

An attitude of questioning mind, alertness to conditions indicating possible misstatement, and critical assessment of evidence. It is required throughout the audit and is not the same as distrust of management.

The total income subject to tax after applying exemptions and specific deductions permitted by the tax law. It forms the base before allowable general deductions and reliefs are subtracted to arrive at taxable income.

The amount on which tax is actually computed, being assessable income less allowable deductions, losses brought forward and any reliefs. Progressive or flat rates are then applied to determine the tax liability.

A deduction spread over several years for the cost of qualifying capital assets used in a trade, instead of an immediate expense. It reflects wear and tear or statutory rates rather than accounting depreciation.

A tax asset or liability arising from temporary differences between accounting carrying amounts and tax bases of assets and liabilities, or from unused tax losses. It is measured at rates expected to apply when reversed.

Tax deducted at source by a payer on specified payments such as dividends, interest, royalties or payments to non-residents, then remitted to the revenue authority. It is often a final tax or a credit against the recipient's liability.

The pricing of transactions between related entities across jurisdictions. Tax rules require these to follow the arm's length principle, supported by documentation, to prevent profit shifting to low-tax locations.

A structured review of an organisation's internal strengths and weaknesses alongside external opportunities and threats. It informs strategy formulation by matching capabilities to environmental conditions.

A framework assessing industry attractiveness through rivalry among existing competitors, threat of new entrants, threat of substitutes, bargaining power of buyers and bargaining power of suppliers.

Breaking an organisation into primary and support activities to identify where value is created and where cost or differentiation advantage can be built or defended against competitors.

A conflict arising when managers, acting as agents, pursue their own interests rather than those of shareholders. It is addressed through incentives, monitoring, disclosure and board oversight.

A set of principles and provisions governing board composition, independence, committees, remuneration and risk oversight. Listed companies typically must apply it or explain any departure.

The view that a company should account for the interests of employees, customers, suppliers, communities and regulators, not only shareholders. It underpins sustainability reporting and broader accountability expectations.

A situation where competing values or duties make any available choice involve some harm or breach. Resolving it requires a structured framework such as consequences, duties, rights and virtue considerations.

The state of being free from relationships, financial interests or circumstances that could compromise objective judgement. Independent directors strengthen board monitoring and are a core governance safeguard.

Sales revenue less variable costs. Expressed per unit or as a ratio, it shows how much each sale contributes to covering fixed costs and generating profit, and underpins break-even and marginal decisions.

The activity level at which total revenue equals total cost, giving neither profit nor loss. It is computed as fixed costs divided by contribution per unit, or by the contribution margin ratio in revenue terms.

Decision-making that considers only future cash flows that differ between alternatives, ignoring sunk costs and allocated common fixed costs. It supports make-or-buy, accept-or-reject and special-order decisions.

The sum of discounted future cash inflows and outflows of a project less its initial investment. A positive NPV indicates the project adds value at the required rate of return.

The discount rate at which a project's net present value equals zero. Comparing it with the cost of capital indicates acceptability, though it can mislead when comparing projects of different scale.

The blended required return on a firm's debt and equity, weighted by their market values and adjusted for tax. It serves as the hurdle rate for investment appraisal and discount rate for valuation.

Something of value given in exchange for a promise, making an agreement legally enforceable. It may be money, goods, services or a forbearance, and past consideration is generally insufficient.

The two core elements forming a binding contract: a definite promise made with intent to be bound, and unqualified agreement to it. Acceptance must normally be communicated to the offeror.

A void contract has no legal effect from the outset, while a voidable contract remains valid until one party elects to rescind it, for example for misrepresentation, duress or undue influence.

The systematic examination of data using statistical and computational techniques to identify patterns, anomalies and insights. In audit and finance it supports risk assessment, testing and predictive decision-making.

The accuracy, completeness and consistency of data throughout its lifecycle, protected by controls over entry, processing, storage and transfer. Weak integrity undermines analytical results and reported information.

Controls over the IT environment supporting application systems, including access management, change control, backup and operations. They determine whether reliance can be placed on automated application controls.

Accounting that segregates resources into funds, each with its own purpose and restrictions, such as general, special revenue or capital projects funds. It demonstrates compliance with donor or statutory conditions.

A basis used in some public sector funds that recognises revenue when measurable and available, and expenditures when the liability is incurred. It differs from full accrual and from cash accounting.

The recurring sequence of planning, legislative approval, execution, monitoring and reporting of public budgets. It provides authority for spending and a framework for accountability and performance assessment.