ICAP CAF flashcards

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

Accounting equation

Assets equal liabilities plus equity; every transaction preserves this equality by changing at least two elements in the same or opposite directions.

Accrual basis

Recognises the effects of transactions and other events when they occur, not when cash is received or paid, so revenue and expenses match the period benefited.

Faithful representation

Financial information faithfully represents economic phenomena when it is complete, neutral and free from material error, depicting the substance of the transaction rather than only its legal form.

IAS 2 inventory measurement

Inventory is measured at the lower of cost and net realisable value; cost includes purchase, conversion and other costs needed to bring inventory to its present location and condition.

Resident individual test

An individual is resident in Pakistan for a tax year if present 183 days or more, or 120 days or more plus 365 days in the preceding four tax years.

Taxable salary

Salary income includes pay, wages, allowances, perquisites and benefits received by an employee from employment, taxed on receipt basis unless a specific rule applies.

Input tax adjustment

A registered person may deduct sales tax paid on taxable purchases and services from output tax, subject to documentary evidence and exclusions, and pay the net amount.

Withholding tax agent

A person required by law to deduct or collect tax from payments must deposit it with the tax authority and issue the prescribed certificate to the taxpayer.

Contribution margin

Sales revenue minus total variable costs; it contributes first to covering fixed costs and then to profit, and can be stated per unit or as a ratio.

Breakeven point

The activity level at which total revenue equals total costs and profit is zero; in units it equals fixed costs divided by contribution per unit.

Relevant cost

A future, incremental cash flow that differs between alternatives; sunk costs, committed costs and allocated fixed costs are not relevant to the decision.

Overhead absorption rate

Budgeted production overhead divided by the budgeted activity base, used to charge overhead to units; actual overhead less absorbed overhead is over- or under-absorption.

Valid contract essentials

Offer, acceptance, consideration, intention to create legal relations, capacity and lawful object are required; a defect may make a contract void or voidable.

Mutual agency partnership

Each partner is both principal and agent of the firm, so acts within the ordinary course of business bind the firm and all partners.

Caveat emptor

Let the buyer beware: the buyer takes goods subject to defects unless the seller gave an express condition, warranty or the sale falls within a statutory exception.

Holder in due course

A person who takes a negotiable instrument in good faith, for value, before maturity and without notice of defects, obtaining better title than the transferor.

IFRS 15 core principle

Recognise revenue when control of promised goods or services transfers to the customer, in an amount reflecting the consideration the entity expects to be entitled to.

Impairment 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.

Deferred tax

Tax arising from temporary differences between accounting carrying amounts and tax bases, recognised as a deferred tax liability or asset using expected tax rates.

Right-of-use asset

A lessee recognises a right-of-use asset and a lease liability at the present value of lease payments, then depreciates the asset and recognises interest.

Current ratio

Current assets divided by current liabilities; it indicates short-term liquidity and the ability to meet obligations falling due within one year.

Return on capital employed

Earnings before interest and tax divided by capital employed, usually total assets minus current liabilities, expressed as a percentage measuring operating profitability.

Interest cover

Earnings before interest and tax divided by finance cost; a lower ratio signals greater risk that operating profit cannot cover interest payments.

Net present value

The sum of discounted future cash flows minus the initial investment; a positive NPV means the project adds value at the chosen discount rate.

Separate legal personality

A company is a legal person distinct from its members and directors, so it owns property, contracts and sues in its own name with limited member liability.

Annual general meeting

A general meeting of members held each year to receive accounts, appoint auditors and transact ordinary business; Pakistani companies must hold it within 120 days of year end.

Private company limits

A private company restricts share transfers, limits members to 50 excluding employees and prohibits public invitation to subscribe for its securities.

Directors' fiduciary duty

Directors must act in good faith in the company's best interests, exercise due care and skill, and avoid conflicts of interest unless properly authorised.

Audit risk model

Audit risk equals inherent risk times control risk times detection risk; the auditor reduces detection risk by designing substantive and control-testing procedures.

Sufficient appropriate evidence

Evidence must be enough in quantity and relevant and reliable in quality to support the audit opinion; external evidence is generally more reliable than internal evidence.

Qualified audit opinion

Issued when the auditor concludes that misstatements are material but not pervasive, or sufficient appropriate evidence cannot be obtained but the possible effect is not pervasive.

Going concern assumption

Financial statements are prepared assuming the entity will continue operating; the auditor evaluates management's assessment and whether material uncertainty exists.