PIPFA Intermediate key terms

Recording revenue when it is earned and expenses when they are incurred, regardless of when cash moves. It gives a truer picture of financial performance than cash receipts alone.

The assumption that an entity will continue operating for the foreseeable future, so assets are not valued at break-up prices. If doubtful, disclosures and different valuations are required.

Expenses are recognised in the same period as the revenue they helped generate. This prevents profit from being overstated by charging costs to a later period.

Systematic allocation of the cost of a tangible non-current asset over its useful life. It reflects consumption of economic benefit, not a fall in market value.

A reduction in the carrying amount of an asset when its recoverable amount falls below book value. The loss is charged to profit or loss immediately.

An estimate of receivables unlikely to be collected, charged as an expense. It applies the prudence concept so assets and profit are not overstated.

Exercising caution when making estimates under uncertainty, so gains are not anticipated and losses are recognised as soon as reasonably possible. It does not permit deliberate understatement.

A possible obligation whose existence depends on uncertain future events, or a present obligation that cannot be reliably measured. It is disclosed rather than recognised in the accounts.

A liability of uncertain timing or amount that is recognised when a present obligation exists, an outflow is probable, and the amount can be reliably estimated.

The period between paying for inventory and collecting cash from customers. Shortening it improves liquidity and reduces the financing needed for day-to-day operations.

Current assets divided by current liabilities, showing the ability to meet short-term obligations. A very high ratio may indicate idle inventory or poor receivables collection.

The proportion of an entity's capital funded by debt rather than equity. High gearing increases financial risk because interest and repayments must be met regardless of profit.

The blended required return on a firm's debt and equity, weighted by their market values. It is used as the discount rate for appraising investment projects of similar risk.

The sum of a project's future cash flows discounted to today's value, less the initial outlay. A positive result suggests the project adds value.

The discount rate at which a project's net present value equals zero. It is compared with the cost of capital to decide whether to accept an investment.

The time taken for cumulative cash inflows to recover the original investment. It is simple and favours liquidity but ignores cash flows after the cut-off.

A statement classifying cash movements into operating, investing and financing activities. It explains the change in cash and highlights liquidity problems that profit figures can hide.

The sales volume at which total contribution equals total fixed costs, so profit is nil. It helps assess margin of safety and the impact of cost structure changes.

Sales revenue less variable costs. It measures how much each sale contributes towards covering fixed costs and then generating profit.

The excess of budgeted or actual sales over the break-even level, often expressed as a percentage. It shows how far sales can fall before a loss arises.

Setting predetermined costs for materials, labour and overheads, then comparing actual results against them. Variances are analysed to explain differences and improve control.

Breaking down the difference between budgeted and actual performance into causes such as price, efficiency and volume. It supports corrective action and performance evaluation.

A budget adjusted to the actual level of activity achieved. Comparing actual costs with a flexible budget separates spending control from volume effects.

Assigning revenues, costs and assets to accountable managers so performance can be measured against controllable items. It underpins divisional reporting and internal control.

The price at which one division of an entity supplies goods or services to another. It affects divisional profit measures and must be set carefully to avoid dysfunctional decisions.

Disclosing revenue, profit and assets by business segment or geographic area. It helps users understand the different risks and returns within a diversified entity.

Revealing transactions and balances with parties able to influence the entity, such as directors and parent companies. The aim is to show whether results were affected by non-arm's-length dealings.

The systems and processes by which an entity is directed and controlled, covering board responsibilities, accountability and shareholder rights. Good practice reduces agency risk and improves reporting quality.

A subcommittee of independent non-executive directors overseeing external audit, internal control and financial reporting. It strengthens auditor independence and the reliability of published accounts.

An independent appraisal function within an entity that evaluates risk management, control and governance processes. It reports to the audit committee and recommends improvements.

The policies and procedures designed to safeguard assets, ensure reliable records and promote compliance with laws. Weak controls increase the risk of error and fraud.

Dividing tasks so that no single person authorises, records and physically controls the same transaction. This reduces the opportunity for error or fraud to go undetected.

A financial plan approved by the legislature setting out estimated revenue and authorised expenditure for a period. It provides the legal authority to spend and a basis for accountability.

An amount of public money authorised by law for a specific purpose within a financial year. Spending beyond it generally requires supplementary approval.

The authorised transfer of funds from one budget line to another within the same approved estimate. It allows flexibility without seeking a fresh appropriation from the legislature.

Comparing actual revenue and expenditure with approved estimates, analysing variances and taking corrective action. It is central to financial discipline and accountability in government.

Keeping separate self-balancing accounts for resources restricted to particular purposes. It demonstrates that money has been used only for the purposes authorised.

An accounting basis recognising revenue when measurable and available, and expenditures when the liability is incurred. It is common in government funds and emphasises current financial resources.

An examination of whether a public programme is economical, efficient and effective. It goes beyond financial regularity to assess value for money and outcomes.

Achieving the right mix of economy, efficiency and effectiveness in the use of public resources. Auditors assess it against criteria agreed with the audited body.

The public body, often headed by an Auditor General, that audits government accounts independently and reports to the legislature. Its independence is essential to credible public accountability.

A legislative committee that examines audit reports and questions officials on public spending. It holds government to account and recommends improvements in financial management.

The shortfall between government revenue and expenditure in a period, usually financed by borrowing. Persistent deficits raise public debt and future interest burdens.

Total liabilities owed by government through borrowings and guarantees. Its sustainability depends on growth, interest rates and the primary surplus.

A rolling multi-year plan linking policy priorities to projected spending ceilings. It improves predictability and aligns annual budgets with strategic objectives.

Conducting public purchasing through open competition, published rules and recorded decisions. Transparency reduces corruption and helps obtain value for money.

A long-term arrangement where private capital and expertise deliver public infrastructure or services under a contract. Risks are shared, and careful accounting for obligations is needed.