CPA Rwanda key terms

A method that records revenue when earned and expenses when incurred, regardless of when cash actually changes hands. It matches costs to the periods they help generate income.

The presumption that a business will continue operating long enough to carry out its commitments and use its assets as intended. If doubtful, additional disclosures or a different measurement basis may be required.

A reduction in an asset's carrying amount when its recoverable amount falls below book value. The loss is recognised immediately in profit or loss unless a standard requires otherwise.

The amount at which an asset or liability appears in the statement of financial position, net of accumulated depreciation, amortisation or impairment. It is the book value used for subsequent measurement comparisons.

The systematic allocation of a tangible asset's depreciable amount over its useful life. It spreads the cost of consumption across the periods that benefit from the asset.

The idea that expenses should be recognised in the same period as the revenues they helped produce. It underpins accruals, deferrals and the treatment of inventory and depreciation.

The process of determining when and how much income from contracts with customers should be recorded. It typically requires identifying performance obligations and allocating the transaction price to them.

Statements presenting a parent and its subsidiaries as a single economic entity. Intercompany balances and transactions are eliminated, and non-controlling interests are shown separately.

An intangible asset arising on acquisition, measured as the excess of consideration and non-controlling interest over the fair value of identifiable net assets. It is not amortised but tested annually for impairment.

The power to direct the relevant activities of an investee, exposure to variable returns, and the ability to use that power to affect those returns. Control determines whether consolidation is required.

Sales revenue less all variable costs. It measures how much each unit or sale contributes toward covering fixed costs and then generating profit.

The level of activity at which total revenue equals total cost, producing neither profit nor loss. It can be expressed in units or sales value using contribution margin.

The excess of budgeted or actual sales over break-even sales, often stated as a percentage. It indicates how much sales can fall before a loss arises.

A future cash cost that differs between alternatives being considered. Sunk costs and costs common to all options are excluded from decision analysis.

The benefit forgone by choosing one course of action over the next best alternative. It is relevant to decisions even when no cash outflow is recorded.

A system that sets predetermined costs for materials, labour and overhead, then compares them with actual results. Differences are analysed as variances to support control and performance evaluation.

The process of breaking down the difference between budgeted and actual performance into its causes. It helps managers identify inefficiencies, price effects and volume changes.

A budget adjusted to the actual level of activity achieved. It allows fair comparison of actual costs with what costs should have been at that volume.

The risk that the auditor expresses an inappropriate opinion when financial statements are materially misstated. It comprises inherent risk, control risk and detection risk.

The threshold at which omissions or misstatements could influence the economic decisions of users. It guides planning, evidence gathering and evaluation of uncorrected misstatements.

Information used by the auditor to reach conclusions on which the opinion is based. It must be sufficient in quantity and appropriate in relevance and reliability.

An attitude of questioning and alertness to conditions suggesting possible misstatement, including fraud. It requires critical assessment of evidence rather than accepting management's representations at face value.

Freedom from relationships or interests that could compromise objectivity in audit or assurance work. It covers both actual independence and the appearance of independence to third parties.

A situation where personal, financial or other interests could improperly influence professional judgement or advice. Threats must be identified, evaluated and safeguarded or the engagement declined.

The professional duty not to disclose client or employer information acquired through work, except where permitted by law or authorised. It continues even after the relationship ends.

The amount on which income tax is calculated after adjusting accounting profit for disallowed expenses, exempt income and permitted allowances. It is the base used to compute the tax liability.

An indirect tax charged on the supply of goods and services at each stage of production, with businesses recovering input tax against output tax collected. The final burden falls on the consumer.

Tax deducted at source by a payer on certain payments such as dividends, interest, rent or professional fees. It is remitted to the revenue authority and may be credited against final liability.

The system of rules, practices and processes by which a company is directed and controlled. It addresses board accountability, shareholder rights, transparency and risk oversight.

A legal obligation of directors and officers to act in the best interests of the company with loyalty, care and good faith. It requires avoiding conflicts and not misusing position or information.

The conflict that arises when managers, acting as agents, pursue their own interests rather than those of shareholders. Governance and incentive mechanisms are designed to reduce it.

The process by which a company ceases operations, realises assets, settles liabilities and distributes any surplus to members before dissolution. It may be voluntary or ordered by a court.

The sum of a project's expected cash flows discounted at the required rate of return, less the initial investment. 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 required rate of return to decide whether to accept an investment.

The minimum return a company must earn on its investments to satisfy providers of debt and equity. It is often computed as a weighted average of after-tax component costs.

The mix of debt and equity a company uses to finance its assets. It affects financial risk, cost of capital and the returns available to shareholders.

The use of borrowed funds to increase the potential return to shareholders. It magnifies both gains and losses and raises financial risk.

A structured review of an organisation's internal strengths and weaknesses alongside external opportunities and threats. It informs strategy formulation and risk awareness.

A framework assessing industry attractiveness through rivalry, buyer power, supplier power, threat of new entrants and threat of substitutes. It shapes competitive positioning decisions.

The sequence of primary and support activities through which an organisation creates and delivers value to customers. Analysing it helps identify where cost or differentiation advantage can be built.

The systematic examination of data to uncover patterns, trends and anomalies that support decision-making. In audit and business it ranges from descriptive reporting to predictive modelling.

The policies and procedures designed to provide reasonable assurance over reliable reporting, effective operations and compliance. It includes the control environment, risk assessment, control activities, information and monitoring.

Dividing responsibilities so that no single person controls all stages of a transaction. It reduces the risk of error and fraud by creating checks between authorisation, custody and recording.