ICAP CFAP key terms

A method that records revenue when earned and expenses when incurred, regardless of when cash changes hands, giving a more faithful picture of performance over a period than cash receipts and payments alone.

The presumption that an entity will continue operating for the foreseeable future without needing to liquidate or curtail operations, which justifies carrying assets at cost rather than break-up value.

The rule that expenses are recognised in the same period as the revenue they helped generate, so profit reflects the true cost of earning income rather than the timing of payments.

A degree of caution applied when making judgements under uncertainty, so that assets and income are not overstated and liabilities and expenses are not understated.

A reduction in the carrying amount of an asset when its recoverable amount falls below the value recorded in the books, requiring a write-down charged to profit or loss.

The amount at which an asset or liability appears in the statement of financial position, being its original measurement adjusted for accumulated depreciation, amortisation, impairment or other remeasurement.

The systematic allocation of the depreciable cost of a tangible non-current asset over its useful life, reflecting consumption of economic benefits rather than changes in market value.

The periodic write-off of the cost of an intangible asset over its finite useful life, following the same logic as depreciation but applied to items such as licences, software and patents.

The excess of consideration paid in a business combination over the fair value of identifiable net assets acquired, representing future economic benefits that cannot be separately identified.

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The threshold at which omissions or misstatements could influence the economic decisions of users, guiding what must be disclosed and how much audit work is warranted.

The risk that the auditor expresses an inappropriate opinion on financial statements that are materially misstated, made up of inherent, control and detection risk components.

The information gathered by the auditor to support conclusions on which the audit opinion is based, obtained through inspection, observation, enquiry, confirmation, recalculation and analytical procedures.

The policies, procedures and systems an entity establishes to safeguard assets, ensure reliable reporting and promote compliance with laws and regulations.

A control that divides responsibilities for authorising, recording and safeguarding assets among different people so that no single individual can both perpetrate and conceal an error or fraud.

A framework describing the three conditions that typically precede fraud: an incentive or pressure, an opportunity to act, and a rationalisation that justifies the conduct.

The state of being free from relationships or interests that could compromise objectivity, comprising independence of mind and independence in appearance.

An attitude of questioning and critical assessment of evidence, remaining alert to indications of misstatement, fraud or bias rather than accepting information at face value.

The ethical duty not to disclose information acquired through professional relationships without proper authority, unless there is a legal or professional right or duty to do so.

The system of rules, practices and processes by which a company is directed and controlled, balancing the interests of shareholders, management, creditors and other stakeholders.

The body elected by shareholders to oversee strategy, appoint and monitor management, approve financial reporting and safeguard the interests of the company and its stakeholders.

A subcommittee of non-executive directors responsible for overseeing financial reporting, the external audit relationship and the effectiveness of internal controls and risk management.

The conflict that arises when managers, acting as agents for shareholders, pursue their own interests rather than maximising shareholder wealth, creating a need for monitoring and incentives.

The principle that a sum of money available today is worth more than the same sum in the future, because it can be invested to earn a return in the intervening period.

The sum of a project's expected future cash flows discounted to today's value at the required rate of return, less the initial investment; a positive figure indicates value creation.

The discount rate at which a project's net present value equals zero, representing the annualised return the investment is expected to generate over its life.

The rate used to convert future cash flows into present value, typically reflecting the opportunity cost of capital and the riskiness of the cash flows concerned.

The blended required return on a firm's debt and equity, weighted by their proportions in the capital structure, used as the hurdle rate for investment appraisal.

The mix of debt and equity a company uses to finance its operations and growth, which affects its cost of capital, financial risk and flexibility.

The use of borrowed funds to finance assets, which magnifies returns to shareholders in good times but also magnifies losses and increases financial risk.

The excess of current assets over current liabilities, measuring the short-term funds available to run day-to-day operations and meet obligations as they fall due.

The ability of an entity to meet its short-term obligations as they fall due, and of an asset to be converted into cash quickly without significant loss of value.

The projection of expected cash receipts and payments over future periods, used to anticipate funding needs, manage liquidity and plan investment or borrowing.

The amount on which tax is levied after adjusting accounting profit for items that are exempt, disallowed or subject to different timing rules under the tax code.

A provision recognising the tax effects of temporary differences between the carrying amount of assets and liabilities and their tax base, which reverse in future periods.

A tax deduction that spreads the cost of qualifying capital assets against taxable profits over prescribed periods, in place of accounting depreciation.

Tax deducted at source by a payer on certain payments such as dividends, interest or royalties, and remitted to the tax authority on behalf of the recipient.

The imposition of tax on the same income or transaction by two jurisdictions, often mitigated by tax treaties that allocate taxing rights and grant credits or exemptions.

A structured review of an organisation's internal strengths and weaknesses alongside external opportunities and threats, used to inform strategy formulation and prioritisation.

A scan of the external macro-environment covering political, economic, social, technological, legal and environmental factors that may affect an organisation's strategy.

The sequence of primary and support activities through which an organisation creates and delivers value to customers, analysed to identify sources of cost advantage or differentiation.

A performance measurement framework that translates strategy into objectives and measures across financial, customer, internal process and learning and growth perspectives.

A quantifiable measure chosen to track progress towards a critical objective, providing management with a concise signal of whether performance is on track.

A financial plan for a defined future period that sets out expected income, expenditure and resource use, providing a benchmark against which actual results are compared.

The comparison of actual results with budgeted or standard figures, breaking differences into causes such as price, volume or efficiency to guide corrective action.