ICAP CFAP cheat sheet

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

Revenue under IFRS 15 is recognised using the five-step model: identify contract, identify performance obligations, determine transaction price, allocate price, recognise on satisfaction.

Accrual basis records revenue when earned and expenses when incurred, regardless of cash timing; the matching principle links expenses to related revenue.

Depreciation methods: straight-line = (cost − residual)/useful life; reducing balance applies a constant rate to carrying amount, giving higher early expense.

Impairment under IAS 36: carrying amount is written down to the higher of fair value less costs of disposal and value in use when that recoverable amount is lower.

Audit risk model: audit risk = inherent risk × control risk × detection risk; detection risk is the only component the auditor directly controls.

Materiality is the threshold at which omissions or misstatements could influence economic decisions of users; it governs scope and evaluation of misstatements.

An unmodified (clean) audit opinion states the financial statements give a true and fair view; a qualified opinion is issued for material but not pervasive misstatement.

Time value: FV = PV × (1 + r)^n; PV = FV / (1 + r)^n; for annuities use the annuity factor [(1 − (1 + r)^−n) / r].

Net present value = present value of cash inflows − initial outlay; accept projects with NPV > 0, and prefer the higher NPV among mutually exclusive projects.

IRR is the discount rate at which NPV = 0; accept if IRR exceeds the cost of capital, but IRR can mislead with non-conventional or scale-differing cash flows.

WACC = (E/V) × Ke + (D/V) × Kd × (1 − t); it is the minimum return required on new investments of average risk.

CAPM: Ke = Rf + β × (Rm − Rf); beta measures systematic (non-diversifiable) risk, which is the only risk priced in equilibrium.

Working capital cycle = inventory days + receivable days − payable days; shortening the cycle frees cash without changing reported profit.

Dividend policy theories: Modigliani–Miller holds dividends are irrelevant in perfect markets; the residual theory pays dividends only from surplus after funding positive-NPV projects.

Gearing = debt / (debt + equity); higher gearing raises financial risk and the required return on equity, partly offset by the interest tax shield.

Taxable income = accounting profit adjusted for disallowable expenses, non-taxable income, and allowable deductions such as capital allowances.

Capital allowances replace accounting depreciation for tax; the tax base of an asset differs from its carrying amount, potentially creating deferred tax.

Deferred tax is recognised on temporary differences using the liability method at the tax rates expected to apply when the difference reverses.

Tax base of a liability = carrying amount − amount deductible in future; a taxable temporary difference creates a deferred tax liability.

Value added tax is a consumption tax borne by the final consumer; registered businesses collect output VAT, reclaim input VAT, and remit the net.

Tax avoidance is arranging affairs within the law to reduce tax; tax evasion is illegal concealment or misrepresentation and attracts penalties.

Withholding tax is deducted at source on payments such as dividends, interest, and royalties, and may be reduced under double-tax treaties.

Loss relief rules typically allow trading losses to be carried forward against future profits of the same trade, subject to ownership and continuity tests.

Porter's five forces: rivalry, threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers.

PESTLE analysis scans Political, Economic, Social, Technological, Legal, and Environmental factors in the external macro-environment.

SWOT pairs internal Strengths and Weaknesses with external Opportunities and Threats to inform strategic fit.

Ansoff matrix grows via market penetration, market development, product development, and diversification (the highest-risk quadrant).

BCG matrix classifies SBUs as stars, cash cows, question marks, and dogs by market growth and relative market share.

Cost leadership and differentiation are generic strategies; being stuck in the middle yields neither cost advantage nor premium pricing.

Break-even quantity = fixed costs / contribution per unit; margin of safety = (actual sales − break-even sales) / actual sales.

The balanced scorecard measures performance across financial, customer, internal process, and learning-and-growth perspectives.

ISA 200 requires the auditor to obtain reasonable (not absolute) assurance that financial statements are free from material misstatement.

Risk assessment procedures include inquiries of management, analytical procedures, and observation and inspection to understand the entity and its controls.

Substantive procedures comprise tests of detail and substantive analytical procedures; they are required regardless of assessed control risk.

Sampling risk is the risk conclusions drawn from a sample differ from testing the whole population; non-sampling risk arises from human error or inappropriate procedures.

The three tiers of the audit trail: tests of controls, substantive procedures, and final review; the auditor documents work in accordance with ISA 230.

Independence requires the auditor to be free from relationships that a reasonable third party would perceive as compromising objectivity.

A management representation letter is dated no earlier than the date of the auditor's report and confirms responsibilities and completeness of disclosures.

Going concern: the auditor evaluates management's assessment for at least twelve months; a material uncertainty may warrant an emphasis-of-matter paragraph.

The five fundamental principles of professional ethics: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.

A self-interest threat arises from financial or other interests; safeguards include removing the interest, independent review, or declining the engagement.

A self-review threat occurs when the firm evaluates its own prior work; an advocacy threat arises when it promotes a client's position.

Corporate governance codes separate the roles of chair and chief executive and require independent non-executive directors on key committees.

The audit committee oversees external audit, internal controls, and financial reporting, and should comprise independent non-executive directors.

Agency theory: managers (agents) may act in self-interest rather than shareholder (principal) interest; governance mechanisms align incentives.

Confidentiality persists after the professional relationship ends, but disclosure may be required by law or permitted with client consent.

Whistleblowing protections and an independent ethics hotline reduce the risk of retaliation and support a strong ethical culture.