PIPFA Final Level flashcards

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

IFRS 15 core principle

Revenue is recognized to depict the transfer of promised goods or services to customers in an amount reflecting the consideration the entity expects to be entitled to.

Five-step revenue model

Identify the contract; identify performance obligations; determine transaction price; allocate the transaction price; recognize revenue when each performance obligation is satisfied.

Performance obligation

A promise to transfer a distinct good or service (or a series of distinct goods/services that are substantially the same) to a customer; distinct if customer can benefit on its own and it is separately identifiable.

Transaction price variable consideration

Estimated using either the expected value method (sum of probability-weighted amounts) or the most likely amount method, constrained to the amount for which a significant revenue reversal is not highly probable.

IFRS 9 business model test

Classification of financial assets depends on how the entity manages its financial assets to generate cash flows: hold to collect, hold to collect and sell, or other business model.

SPPI test

Contractual cash flows are solely payments of principal and interest on the principal amount outstanding; interest includes consideration for time value of money and credit risk.

Expected credit loss model

IFRS 9 requires recognition of expected credit losses (ECL) based on forward-looking information; for trade receivables, a simplified approach using a lifetime ECL provision matrix is permitted.

Goodwill impairment testing

Goodwill is not amortized; it is tested annually for impairment (or more often if indicators exist) by comparing the recoverable amount of the cash-generating unit to its carrying amount.

IAS 36 recoverable amount

The higher of an asset's fair value less costs of disposal and its value in use; value in use is the present value of future cash flows expected from the asset.

Deferred tax liability

Arises from taxable temporary differences, which are differences that will result in taxable amounts in future periods when the carrying amount of an asset is recovered or a liability is settled.

WACC formula

WACC = (E/V) × Re + (D/V) × Rd × (1 − Tc), where E is market value of equity, D is market value of debt, V = E + D, Re is cost of equity, Rd is cost of debt, Tc is corporate tax rate.

CAPM formula

Cost of equity = risk-free rate + beta × (market return − risk-free rate); beta measures the sensitivity of the security's returns to market returns.

Dividend growth model

Cost of equity = (expected dividend per share / current share price) + dividend growth rate; assumes dividends grow at a constant rate indefinitely.

NPV decision rule

Accept a project if net present value (present value of cash inflows minus present value of cash outflows, discounted at the cost of capital) is positive; NPV measures absolute increase in shareholder wealth.

IRR decision rule

Accept a project if its internal rate of return (discount rate making NPV zero) exceeds the cost of capital; IRR may give multiple or no solutions for non-conventional cash flows.

IAS 2 inventory measurement

Inventory is measured at the lower of cost and net realizable value; cost includes purchase costs, conversion costs, and other costs incurred in bringing inventory to its present location and condition.

IAS 16 revaluation model

After initial recognition, an item of property, plant and equipment may be carried at a revalued amount (fair value at date of revaluation less subsequent depreciation and impairment), provided fair value can be measured reliably.

IFRS 16 lessee accounting

A lessee recognizes a right-of-use asset and a lease liability measured at the present value of lease payments; the liability is subsequently measured using the effective interest method.

IAS 37 provision recognition

A provision is recognized when there is a present obligation from a past event, it is probable that an outflow of resources will be required, and the amount can be reliably estimated.

Contingent liability disclosure

A possible obligation whose existence will be confirmed by uncertain future events, or a present obligation not recognized because outflow is not probable or cannot be measured reliably; disclose unless remote.

Modified accrual basis

Governmental funds under GASB recognize revenues when measurable and available, and expenditures when the related liability is incurred, regardless of when cash is paid.

Encumbrance accounting

A budgetary technique that reserves appropriations when purchase orders or contracts are issued; it prevents overspending and is reversed when the related expenditure is recorded.

Governmental fund statements

Include the balance sheet and statement of revenues, expenditures, and changes in fund balances; prepared on the modified accrual basis and focus on current financial resources.

Proprietary fund statements

Include the statement of net position and statement of revenues, expenses, and changes in net position; prepared on the full accrual basis and focus on economic resources.

Financial reporting entity

The primary government plus component units; component units are included if the primary government is financially accountable or exclusion would make the financial statements misleading.

Major fund reporting

A governmental or enterprise fund is major if total assets, liabilities, revenues, or expenditures are at least 10% of the corresponding total for all funds of that category and at least 5% of the total for all governmental and enterprise funds combined.

IPSAS 1 accrual statements

Requires a statement of financial position, statement of financial performance, statement of changes in net assets/equity, cash flow statement, and notes, prepared on the accrual basis.

Performance audit 3Es

Economy (acquiring resources at lowest cost), efficiency (maximizing output for given input), and effectiveness (achieving intended outcomes); a value-for-money audit examines these.

General obligation debt

Debt backed by the full faith and credit of the government, often repaid from general tax revenues; debt service is accounted for in a debt service fund.

Revenue debt

Debt secured by specific revenue streams (e.g., utility fees, tolls) rather than the general taxing power; often accounted for in an enterprise fund.

Balanced scorecard public sector

A performance management framework adapted to public sector with perspectives such as financial, customer, internal processes, and learning and growth, emphasizing outcomes and mission.

Budgetary comparison schedule

Required supplementary information (RSI) under GASB that compares original and final appropriated budgets with actual results on the budgetary basis, highlighting variances.