CPALE key terms

Recording revenue when earned and expenses when incurred, regardless of when cash changes hands. This basis underlies Philippine Financial Reporting Standards and produces matching of costs with related revenues.

A journal entry made at period end to update account balances before statements are prepared, covering accruals, deferrals, depreciation, and estimates so reported figures reflect the accrual basis.

A cost already incurred but not yet paid or recorded, such as unpaid salaries or interest. It is recognized by debiting an expense and crediting a liability at reporting date.

Inventory measurement rule requiring carrying amount to be written down when net realizable value falls below cost, with the write-down recognized as an expense in the period it arises.

The amount by which an asset's carrying amount exceeds its recoverable amount. Recognized in profit or loss unless a revaluation surplus exists for the same asset class.

The higher of an asset's fair value less costs of disposal and its value in use. Used to test assets for impairment and to measure any resulting write-down.

The present value of the future cash flows expected from an asset and from its eventual disposal, discounted at a pre-tax rate reflecting current market assessments of time value and risk.

Five-step model recognizing revenue when control of promised goods or services transfers to the customer, measured at the transaction price allocated to each distinct performance obligation.

A promise to transfer a distinct good or service to a customer. Each obligation is identified separately and revenue is recognized when it is satisfied, either at a point in time or over time.

The amount of consideration an entity expects to be entitled to under a contract, adjusted for variable consideration, significant financing components, non-cash consideration, and amounts payable to the customer.

The present value of lease payments not yet paid, discounted using the interest rate implicit in the lease or the lessee's incremental borrowing rate, measured at commencement and remeasured on specified trigger events.

The lessee's asset representing its right to use an underlying asset for the lease term, initially measured at the lease liability plus initial direct costs and prepaid lease payments, less incentives received.

The rate of interest a lessee would pay to borrow over a similar term, with similar security, the funds needed to obtain an asset of similar value in a similar economic environment.

An asset arising in a business combination representing future economic benefits from assets that cannot be individually identified, measured as consideration transferred plus non-controlling interest less net identifiable assets acquired.

The equity in a subsidiary not attributable, directly or indirectly, to the parent. It may be measured at fair value or at the proportionate share of the acquiree's identifiable net assets.

The excess of the acquirer's interest in the fair value of net identifiable assets acquired over the consideration transferred. It is recognized in profit or loss after reassessing the measurement.

Statements presenting a parent and its subsidiaries as a single economic entity, eliminating intragroup balances, transactions, income, and expenses in full and presenting non-controlling interest within equity.

The currency of the primary economic environment in which an entity operates. Foreign currency transactions are translated into it, and foreign operations are translated into the presentation currency.

A component of other comprehensive income holding exchange differences arising from translating a foreign operation's statements, including related intragroup monetary items, recycled to profit or loss on disposal.

The risk that the auditor expresses an inappropriate opinion when financial statements are materially misstated. It comprises inherent risk, control risk, and detection risk, and is managed by designing audit procedures.

The susceptibility of an assertion to material misstatement before considering related controls. It is assessed for each assertion and drives the nature, timing, and extent of further audit procedures.

The risk that audit procedures fail to detect a material misstatement. Unlike inherent and control risk, it is controlled by the auditor through the design and performance of substantive work.

The threshold above which omissions or misstatements could influence economic decisions of users. It is determined at planning, applied in evaluating misstatements, and documented in the audit file.

Audit work designed to detect material misstatements at the assertion level, comprising tests of details and substantive analytical procedures. Required for every material class of transactions and balance.

Applying audit procedures to less than all items in a population so each sampling unit has a chance of selection, enabling the auditor to draw conclusions about the whole population.

A letter from management confirming responsibilities for preparing the financial statements and providing the auditor with information and access. It is dated near the audit report date.

An audit opinion that is qualified, adverse, or a disclaimer, issued when the auditor concludes the financial statements are materially misstated or evidence cannot be obtained.

For individuals, the total of all items of income from whatever source, less exclusions and allowable deductions. For corporations, it means gross income from business or trade under the tax code.

Expenses and other amounts a taxpayer may subtract from gross income, such as ordinary and necessary business expenses, interest, taxes, and depreciation, subject to substantiation and limitation rules.

VAT paid or accrued on purchases of goods, services, and capital assets by a VAT-registered person, creditable against output VAT on sales, with excess carried over or refunded in specified cases.

VAT imposed on the sale of goods or services by a VAT-registered taxpayer, computed on the gross selling price or gross receipts and reduced by allowable input VAT.

A sale subject to VAT at zero percent, typically exports and specified transactions, where no output VAT is charged but related input VAT remains creditable, often resulting in a refund.

A tax on the net gain from selling capital assets, distinguished from regular income tax. Rates and treatment differ for shares of stock and real property classified as capital assets.

An artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incidental to its existence.

A doctrine allowing courts to treat shareholders as personally liable for corporate obligations when the corporation is used to defeat public convenience, justify wrong, commit fraud, or evade the law.

The governing body of a corporation that exercises corporate powers, holds property, and manages the business, elected by stockholders and subject to fiduciary duties of care and loyalty.

Sales revenue less all variable costs. It measures the amount available to cover fixed costs and generate operating profit, and is central to cost-volume-profit and break-even analysis.

The level of sales at which total revenues equal total costs, producing zero operating profit. In units it equals fixed costs divided by unit contribution margin.

A future cost that differs among decision alternatives. Sunk costs and costs identical across options are excluded from incremental analysis of alternatives such as make-or-buy and special orders.

The benefit forgone by choosing one alternative over another. It is not recorded in accounting records but must be included when evaluating decisions with scarce resources.