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ACA Certificate Key Terms: Accounting, Assurance, Ethics and Sustainability

Core definitions, tests and rules for the accounting, assurance, ethics and sustainability modules at ICAEW ACA Certificate Level. Study material written for practice, not the official exam.

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Accruals basis
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1
Accruals basis
Income and expenses are recognised when they are earned or incurred, not when cash is received or paid.
2
Going concern
The assumption that the entity will continue in operation for the foreseeable future, so statements are not prepared on a break-up basis.
3
Fundamental qualitative characteristics
Relevance and faithful representation. Comparability, verifiability, timeliness and understandability only enhance them.
4
Asset (Conceptual Framework)
A present economic resource controlled by the entity as a result of past events.
5
Liability (Conceptual Framework)
A present obligation of the entity to transfer an economic resource as a result of past events.
6
Materiality
Information is material if omitting, misstating or obscuring it could reasonably be expected to influence primary users' decisions.
7
Substance over form
Transactions are reported according to their economic reality, not just their legal form, as part of faithful representation.
8
IAS 2 inventory measurement
Lower of cost and net realisable value. NRV is estimated selling price less costs of completion and costs to sell.
9
Break-up basis
Used when the entity is not a going concern: assets at expected realisable values, with costs of closure provided.
10
Adjusting event after the reporting period
An event that provides evidence of conditions existing at the reporting date, for example a customer's insolvency confirming a doubtful debt.
11
IAS 37 provision criteria
A present obligation from a past event, a probable outflow of resources and a reliable estimate. No provision for future operating losses.
12
Reasonable assurance
A high but not absolute level of assurance, expressed as a positive opinion. Needs more extensive evidence than limited assurance.
13
Limited assurance
A lower level of assurance, expressed negatively: nothing has come to attention to suggest a material misstatement.
14
Audit risk model
Audit risk = inherent risk × control risk × detection risk. Detection risk = audit risk / (inherent risk × control risk).
15
Performance materiality
An amount set below overall materiality to reduce the risk that uncorrected and undetected misstatements add up to more than materiality.
16
Fraud triangle
Incentive or pressure, opportunity and rationalisation.
17
Preventive v detective controls
Preventive controls stop errors happening, for example authorisation limits. Detective controls find them afterwards, for example reconciliations.
18
Segregation of duties
Authorising, recording and having custody of assets are given to different people so that one person cannot commit and conceal an error or fraud.
19
General IT controls v application controls
General controls cover access, change management and backup across systems. Application controls operate within a program, such as input validation.
20
Positive v negative confirmation
Positive: the customer replies whether or not the balance is correct. Negative: the customer replies only if it disagrees.
21
Existence v completeness testing
Existence: select from the records and trace to the physical asset. Completeness: select from the physical asset and trace to the records.
22
Sampling v non-sampling risk
Sampling risk: the sample is not representative of the population. Non-sampling risk: wrong procedures or misinterpreting evidence.
23
Monetary unit sampling interval
Population book value / sample size, for example £3.6m / 90 = £40,000.
24
Five fundamental ethical principles
Integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.
25
Threats to the fundamental principles
Self-interest, self-review, advocacy, familiarity, intimidation and, in the ACA syllabus for assurance providers, management threat.
26
Professional scepticism
A questioning mind and critical assessment of evidence, alert to conditions that may indicate misstatement.
27
Tipping off (money laundering)
A criminal offence to disclose that a report has been made or an investigation is under way if it is likely to prejudice the investigation.
28
Rules-based v principles-based code
Rules-based: detailed prescribed requirements. Principles-based: fundamental principles applied with judgement. The ICAEW Code is principles-based.
29
ISSB standards
IFRS S1 covers general sustainability-related financial disclosures. IFRS S2 covers climate-related disclosures.
30
Greenhouse Gas Protocol scopes
Scope 1: direct emissions. Scope 2: purchased energy. Scope 3: other indirect emissions in the value chain.
31
Planetary boundaries
Nine limits for Earth system processes, such as climate change and biodiversity loss, within which humanity can operate safely.
32
Utilitarianism v deontological ethics
Utilitarianism judges an act by the greatest good for the greatest number. Deontological ethics judges it by duty and rules, whatever the consequences.

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