A la Carte
Technically à la carte, an eating-place menu from which individual dishes at separate prices can be ordered, or less commonly where a side dish may be ordered at no extra charge, from the French phrase meaning 'to the menu'. Increasingly now applied to non-food services in which individual selections are offered rather than fixed provisions.
Top quality rating, applicable to various business situations, example, credit-worthiness, and more general references to quality and fitness for purpose.
Above The Line - Marketing and advertising through mass-media, such as television, radio, newspapers, magazines, Internet, etc., which is less personal than Below The Line Marketing.
Amounts due to suppliers who have provided inventory to the company (A/P).
Dollars due from customers as a result of selling services or inventory on terms which allow for delivery prior to the payment of cash. The transaction exists as a receivable on the balance sheet until cash is collected from the customer (A/R).
Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense.
Financial statements describing the actual operations of the business. Actuals often pertain to the "historical" period before the start of the forecast period, but as time goes on, additional imported Actuals will generally overlap with the forecast.
A sworn signed statement of fact used as evidence in court whose signature has been witnessed by a commissioner of oaths or other authorized officer, for example a notary.
A company or person controlled by or connected to a larger organization. In web marketing an affiliate normally receives a commission for promoting another company's products or services.
Allowance For Doubtful Accounts
A contra asset account with a credit balance used to reduce the carrying amount of accounts receivable to net realizable value. The allowance balance is the estimated total of uncollectible accounts included in accounts receivable.
Allowance For Sampling Risk
The difference between a sample estimate and the projected population characteristic at a specified sampling risk. This allowance is also the difference between the expected error rate and the tolerable deviation rate.
The recognition of part of an intangible asset's cost as an expense during each year of its useful life. Items that are amortized include goodwill, start-up expenses and purchased patents.
A comparison of financial statement amounts with an auditor's expectation. An example is to compare actual interest expense for the year (a financial statement amount) with an estimate of what that interest expense should be. The estimate can be found by multiplying a reasonable interest rate times the average balance of interest bearing debt outstanding during the year (the auditor's expectation). If actual interest expense differs significantly from the expectation, the auditor explains the difference in audit documentation.
Anything owned by the company that has a monetary value; ex: 'fixed' assets like buildings, plant and machinery, vehicles (these are not assets if rented and not owned) and potentially including intangibles like trademarks and brand names, and 'current' assets, such as stock, debtors and cash.
The Balance Sheet is one of the three essential measurement reports for the performance and health of a company along with the Profit and Loss Account and the Cashflow Statement. The Balance Sheet is a 'snapshot' in time of who owns what in the company, and what assets and debts represent the value of the company. The balance sheet equation is fundamentally: (where the money came from) Capital + Liabilities = Assets (where the money is now).
A fee or commission paid by an individual when they sell their shares in an investment fund.
A group of workers or the period worked from late afternoon until late at night in an industry or occupation where there is also a day shift and a night shift.
Informal term for reciprocity or returning favors, as in the term 'you scratch my back and I'll scratch yours'.
A loan in which two companies in separate countries borrow each other's money at the same time for a specific period at an agreed upon interest rate.
In retail sales, when customers are lured by advertisements for a product at a low price, then finds that the product is not available but a more expensive substitute is.
Describes a long term loan in which there is a large final payment when the loan matures.
In computing, the amount of information that can be transmitted through a communication channel over a given period of time, usually measured in 'bits per second' (bps).
The selling of both insurance and banking services, usually by a major bank.
A short working day, often with a long lunch break.
A loan made by a bank to an individual, company, etc., for a fixed term, to be repaid with interest.
A financial arrangement in which a person avoids possible conflict of interest by transferring financial affairs to a fiduciary that has sole asset management discretion. The person establishing the trust also gives up the right to information regarding the assets.
An analysis tool that models how revenue, expenses, and profit vary with changes in sales volume. Breakeven analysis estimates the sales volume needed to cover fixed and variable expenses.
The sales level at which revenues equal expenses (fixed and variable).
In a financial planning context the word 'budget' (as a noun) strictly speaking means an amount of money that is planned to spend on a particularly activity or resource, usually over a trading year, although budgets apply to shorter and longer periods. An overall organizational plan therefore contains the budgets within it for all the different departments and costs held by them. The verb 'to budget' means to calculate and set a budget, although in a looser context it also means to be careful with money and find reductions (effectively by setting a lower budgeted level of expenditure). The word budget is also more loosely used by many people to mean the whole plan. In which context a budget means the same as a plan.
Cancel Supporting Documents
To mark supporting documents as having been used to support a transaction so the same documents can't be used to support another transaction. An example is stamping vouchers "paid."
The net worth of a business, including assets, cash, property, etc., which exceeds its liabilities (debts). The amount of money invested in a business to generate income.
Money spent by a company on fixed assets, such as buildings, vehicles, machinery, which is deducted from its profits before tax is calculated.
The value of all resources available to the company, typically comprising share capital, retained profits and reserves, long-term loans and deferred taxation. Viewed from the other side of the balance sheet, capital employed comprises fixed assets, investments and the net investment in working capital (current assets less current liabilities). In other words: the total long-term funds invested in or lent to the business and used by it in carrying out its operations.
The sudden movement of money from one country or investment to another in order to reduce risk, such as high inflation, or to increase profit.
A long-term lease of property, plant, or equipment in which the lessee acquires essentially all the risks and benefits associated with the ownership of the leased item. Because it most closely resembles the financing of an asset purchase, a capital lease is treated as a long-term debt rather than as a rental.
Capital Gains Tax
Tax payable on profits made on the sale of certain types of assets by a company or individual.
When an economic system of a country is controlled and profited by private individuals and corporations, rather than the government.
When a company converts its spare profits into shares, which are then distributed to existing shareholders in proportion to the amount of shares they already hold.
Recorded as an asset. A capitalized lease is in substance a purchase to the lessee. An asset is recorded equal to the present value of the lease payments, which is also recorded as a liability. Payments, partly interest and partly principal, are made on the lease liability. The lease asset is depreciated by the lessee as though it were legally owned by the lessee.
Money which is spent for the acquisition of assets, such as land, buildings, vehicles, machinery.
Interest rate, usually on a loan, which cannot rise above the upper set level but can vary beneath this level.
Allows the right to emit a measured amount of harmful gases, such as carbon dioxide, into the air, and can be traded between businesses and countries.
The movement of cash in and out of a business from day-to-day direct trading and other non-trading or indirect effects, such as capital expenditure, tax and dividend payments.
The Cashflow statement shows the movement and availability of cash through and to the business over a given period, certainly for a trading year, and often also monthly and cumulatively.
A warning or caution.
Chart of Accounts
In an accounting system, the list of accounts to which transactions are posted.
A redundant digit added to a code to check accuracy of other characters in the code.
A listing of checks issued, normally in numeric sequence and in order by date issued.
Arrangement or grouping. Assets and liabilities are normally classified as current or noncurrent.
To pledge property as security (collateral) for a debt.
A secret agreement between two or more parties for fraud or deceit.
A letter written by the auditor to an underwriter of securities, which expresses an opinion about whether the audited financial statements and schedules in the registration statement comply as to form with applicable accounting requirements of the Act and related rules and regulations adopted by the SEC. Procedures performed are specified by the underwriter.
Cost Of Debt Ratio (average cost of debt ratio)
Despite the different variations used for this term (cost of debt, cost of debt ratio, average cost of debt ratio, etc) the term normally and simply refers to the interest expense over a given period as a percentage of the average outstanding debt over the same period, i.e., cost of interest divided by average outstanding debt.
Cost Of Goods Sold (COGS)
The directly attributable costs of products or services sold, (usually materials, labor, and direct production costs). Sales less COGS = gross profit. Effectively the same as cost of sales (COS) see below for fuller explanation.
Cost Of Sales (COS)
Cost of sales is the value, at cost, of the goods or services sold during the period in question, usually the financial year, as shown in a Profit and Loss Account (P&L). Commonly arrived at via the formula: opening stock + stock purchased - closing stock.
The risk that material error in a balance or transaction class will not be prevented or detected on a timely basis by internal controls.
An officer who supervises financial affairs of an entity. In internal control the controller is often the person with record keeping (general ledger) responsibilities, as contrasted with asset custody, management decision-making, and internal audit functions.
Corroborate (corroborating) (corroboration) (corroborative)
To strengthen with other evidence, to make more certain.
Enumerate some characteristic such as the number of items in inventory.
Cumulative Effect of changing to a new accounting principle is the effect on retained earnings at the beginning of the current period. It is included in net income after extraordinary items. Only the direct effect (net of income tax effect) is considered.
Cash and anything that is expected to be converted into cash within twelve months of the balance sheet date.
Money owed by the business that is generally due for payment within 12 months of balance sheet date. What the company "owes" which must be paid within one year (CL). Examples: creditors, bank overdraft, taxation.
Current Portion of Long-Term Debt
The portion of a long-term loan (principal only) which is due within the next 12 months (CDTD).
The relationship between current assets and current liabilities, indicating the liquidity of a business, i.e. its ability to meet its short-term obligations. Also referred to as the Liquidity Ratio.
Total current assets divided by total current liabilities.
One who has possession or is in charge of something. Some entities entrust investment securities to a bank, which is custodian of the company's securities.
Designating a point of termination. An auditor uses tests of cutoff to obtain evidence that transactions for each year are included in the financial statements of the appropriate year.
An income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property.
The risk audit procedures will lead to a conclusion that material error does not exist when in fact such error does exist.
A control designed to discover an unintended event or result.
Departure from prescribed internal control. Often expressed as a rate at which the departure occurs.
A statement that the auditor is unable to express an opinion as to the presentation of financial statements in conformity with U.S. GAAP.
A dividend is a payment made per share, to a company's shareholders by a company, based on the profits of the year, but not necessarily all of the profits, arrived at by the directors and voted at the company's annual general meeting. A company can choose to pay a dividend from reserves following a loss-making year, and conversely a company can choose to pay no dividend after a profit-making year, depending on what is believed to be in the best interests of the company. Keeping shareholders happy and committed to their investment is always an issue in deciding dividend payments. Along with the increase in value of a stock or share, the annual dividend provides the shareholder with a return on the shareholding investment.
Disclosure Revealing information.
Financial statement footnotes are one way of providing necessary disclosures.
discovery sampling Acceptance sampling (sampling to determine whether internal control compliance is greater than or less than the tolerable deviation rate) when the expected attribute occurrence rate is zero.
Document (documentary) (documentation)
Written or printed paper that bears information that can be used to furnish decisive evidence. Could also be a recording, computer readable information, or a photograph.
Money paid in good faith as a deposit, usually for a property, to show that the buyer is serious about doing business with the vendor.
An arrangement in which an extra future conditional payment is made to the seller of a business in addition to the original price, based upon certain criteria being met.
Also known as net worth or owners' equity. Equity is the net value of a company's total assets, less its total liabilities.
A sampling to estimate the actual value of a population characteristic within a range of tolerable misstatement.
Evidence (evidential matter)
Includes written and electronic information (such as checks, records of electronic fund transfers, invoices, contracts, and other information) that permits the auditor to reach conclusions through reasoning.
Evaluating the preparation of prospective statements, support underlying assumptions, and presentation. The accountant reports whether, in his or her opinion, the statements conform to AICPA guidelines and assumptions provide a reasonable basis for the responsible party's forecast. The accountant should be independent, proficient, plan the engagement, supervise assistants, and obtain sufficient evidence to provide a reasonable basis for the report.
As an audit procedure, to examine something is to look at it critically.
Except for A qualified opinion.
An auditor can qualify the audit opinion for both departures from U.S. GAAP in the financial statements and restrictions on the scope of the audit. The opinion paragraph of the qualified report is worded "In our opinion, except for..."
To carry out an internal control procedure, such as to sign and mail a check after inspecting supporting documents.
Cash paid or liability incurred.
A paragraph added to an audit report to explain something, such as the reason for a qualified or adverse opinion.
Fully and clearly expressed, leaving nothing implied.
Prospective financial statements that present expected future financial position, results of operations, and cash flows based on expected conditions. A financial forecast is of the most likely future scenario.
Prospective financial statements that present, given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and changes in financial position. A financial projection includes several alternative scenarios while a forecast is the single most likely scenario.
Financial Institution Confirmation Request
A confirmation sent to the client's bank or other financial institution asking the bank to confirm directly to the auditor information about balances at a particular date.
First In, First Out (FIFO)
A method of inventory valuation whereby the goods first purchased or manufactured are considered the first ones sold. During periods of inflation, the FIFO method shows inflated profits compared to the last in, first out (LIFO) method.
The 12-month period, not necessarily coinciding with the calendar year, chosen to constitute a single year for external financial reporting and taxes.
Fiscal Year End
The last month of a company's fiscal year.
Assets held for use by the business rather than for sale or conversion into cash, ex: fixtures and fittings, equipment, buildings.
A cost which does not vary with changing sales or production volumes, ex, building lease costs, permanent staff wages, rates, depreciation of capital items.
A schematic representation of a sequence of operations in an accounting system or computer program. Also called a flow diagram or flow sheet.
A column is to add a column of numbers.
Most people choose the forecast year to coincide with either the January-December calendar year or the fiscal year of the business, but this is not a requirement. Depending on the forecast start month, the first year of the forecast period may cover less than 12 months. In this case, assumption values that are entered for the first forecast year should represent the correct fraction of the 12-month totals.
A deliberate deception to secure unfair or unlawful gain. False representation intended to deceive relied on by another to that person's injury. Fraud includes fraudulent financial reporting undertaken to render financial statements misleading, sometimes called management fraud, and misappropriation of assets, sometimes called defalcations.
Appears between the bottom of the Statement of Activities or Balance Sheet and is the difference between the Total Assets and Total Liabilities.
GAAP or Generally Accepted Accounting Principles
According to Rule 203 of the AICPA Code of Professional Conduct, GAAP for nongovernment entities include (in a conflict the source earlier in the list prevails): 1. FASB Statements and Interpretations, APB Opinions, ARBs. 2. FASB Technical Bulletins, AICPA Guides and AICPA Statements of Position. 3. Positions of the FASB Emerging Issues Task Force and AICPA Practice Bulletins. 4. AICPA accounting interpretations, FASB staff "Qs and As", and widely recognized industry practices. 5. FASB Concepts Statements, textbooks, articles.
GAAS or Generally Accepted Auditing Standards
The ten auditing standards adopted by the membership of the AICPA. Auditing standards differ from audit procedures in that "procedures" relate to acts to be performed, whereas "standards" deal with measures of the quality of the performance of those acts and objectives of the procedures.
GASB or Government Accounting Standards Board
A nongovernment private organization that sets GAAP in the United States for governmental entities.
The ratio of debt to equity, usually the relationship between long-term borrowings and shareholders' funds.
Policies and procedures to assure proper operation of computer systems, including controls over data center and network operations, software acquisition and maintenance, and access security.
A book of original entry in a double-entry system. The journal lists transactions and indicates accounts to which they are posted. The general journal includes all transactions not included in specialized journals used for cash receipts, cash disbursements, and other common transactions.
In the ten U.S. generally accepted auditing standards there are three general standards:
- The examination is to be performed by a person or persons having adequate technical training and proficiency as an auditor.
- In all matters relating to the assignment, independence in mental attitude is to be maintained by the auditor.
- Due professional care is to be exercised in performing the examination and preparation of the report.
Generalized Audit Software
Packaged computer programs used on a variety of computers during audit field work to read computer files, select information, perform calculations, create data files, and print reports in a format specified by the auditor.
Any surplus money paid to acquire a company that exceeds its net tangible assets value.
Government Auditing Standards
A book issued by the comptroller general of the United States, sometimes called the "yellow book." Government Auditing Standards contains standards for audits of government organizations, programs, activities, and functions and of government assistance received by contractors, not-for-profit organizations, and other nongovernment organizations. These standards, which include designing the audit to provide reasonable assurance of detecting material misstatements resulting from noncompliance with provisions of contracts or grant agreements that have a direct and material effect on determination of financial statement amounts, are followed when required by law, regulation, agreement, contract, or policy. For financial audits, Government Auditing Standards prescribes fieldwork and reporting standards beyond those required by GAAS.
Gross Margin Percentage
The gross margin from an income statement divided by net sales revenue.
hard copy A printed copy of information as opposed to information stored in computer readable form.
Sales less cost of goods or services sold. Also referred to as gross profit margin, or gross profit, and often abbreviated to simply 'margin'. See also 'net profit'.
A computer and associated physical equipment involved in data processing or communications functions as opposed to software (the computer programs that provide instructions the computer follows).
Computer controls built into physical equipment by the manufacturer.
A control total that has no meaning in itself except for control, e.g., total social security numbers of employees paid.
Protect an entity against the risk of adverse price or interest-rate movements on its assets, liabilities, or anticipated transactions. A hedge avoids or reduces risk by counterbalancing losses with gains on separate positions.
Initial Public Offering (IPO)
An Initial Public Offering (IPO being the Stock Exchange and corporate acronym) is the first sale of privately owned equity (stock or shares) in a company via the issue of shares to the public and other investing institutions. In other words an IPO is the first sale of stock by a private company to the public. IPOs typically involve small, young companies raising capital to finance growth. For investors IPO's can risky as it is difficult to predict the value of the stock (shares) when they open for trading. An IPO is effectively 'going public' or 'taking a company public'.
Assets which have no physical properties or "set" values. Examples of intangibles include patents, research and development, and goodwill (INT).
A long-term asset that represents a financial, legal, or accounting concept rather than a physical item. Examples of intangible assets include: Goodwill , the value of a patent, copyright, or trademark, the value of a franchise or operating rights. Under accounting rules, an intangible asset must have a useful life greater than one year, and a portion of its value must be amortized over time as an expense. Near the end of the useful life of an intangible asset, when its remaining life is less than one year, the asset must still be classified as a long-term asset. See also tangible asset.
Internal Control Policies and Procedures
Provide reasonable assurance that specific entity objectives will be achieved. It consists of: the control environment, risk assessment, control activities, information and communications, and monitoring.
The goods and materials a company sells to make a profit. Inventory exists in three forms: raw materials, work in progress, and finished goods. In the process of selling inventory, either cash is received or an account receivable is created (INV).
An itemized list of goods shipped or services rendered with costs.
A book of original entry in a double-entry system. The journal lists all transactions and the accounts to which they are posted.
A bond that is rated below the investment grade before the purchase. It may also be known as a high yielding bond, non investment grade bond or speculative grade bond. To make them more attractive to investors, junk bonds pay higher yields, however they are much more likely to default. The rating of a bond is determined by the credit rating of the borrower. In today’s economy bonds are traded in the same fashion as other commodities.
An inventory system that attempts to minimize inventory costs that do not add value for the customer. It arranges for suppliers to deliver small quantities of raw materials just before those units are needed in production. Storing, insuring, and handling raw materials are costs that add no value to the product, and are minimized in a just in time system.
In the context of finance, refers to compensation of dealers by sales finance companies for discounting installment purchase paper. In the context of contracts, refers to secret payments made to insure that the contract goes to a specific firm.
An additional feature of a debt obligation that increases its marketability and attractiveness to investors.
Tax owed for the investment income of children if the amount is more than $1,400.
Those who aid a company in fending off a takeover bid, usually investment bankers who devise strategies to make the target less attractive or more difficult to acquire.
Used in of banking to refer to the practice of depositing and drawing checks at two or more banks and taking advantage of the time it takes for the second bank to collect funds from the first bank.
A scheme to cover embezzlement by using payments made by one customer to reduce the receivables balance of another customer.
The schedule at the beginning of audit documentation that summarizes the detailed schedules. LIFO "Last In First Out" inventory cost flow.
Limit Test (limit check).
A computer program step that compares data with predetermined limits as a reasonableness test (hours worked over 60 per week).
The availability of cash or ability to obtain it quickly. Debt paying ability.
Lockbox (Bank Lockbox) speeds the availability of funds from cash collections by reducing the time from the customer mailing the check until the funds are available to spend. Remittances are sent to a bank near the customer and the bank deposits funds speedily to the payee's account.
Last In, First Out (LIFO)
A method of inventory valuation whereby the goods most recently purchased or manufactured are considered the first ones sold. In periods of rising prices, the LIFO method shows a lower profit than the first in, first out (FIFO) method.
A long-term contract granting use of real estate, equipment or other fixed assets in exchange for payment. All leases entered in the Property, Plant and Equipment Detail are considered capital leases; operating leases should be entered as expenses in the Expenses Detail.
Letters Of Credit
These mechanisms are used by exporters and importers, and usually provided by the importing company's bank to the exporter to safeguard the contractual expectations and particularly financial exposure of the exporter of the goods or services. (Also called 'export letters of credit, and 'import letters of credit'.) When an exporter agrees to supply a customer in another country, the exporter needs to know that the goods will be paid for.
Letters Of Guarantee
There are many types of letters of guarantee. These types of letters of guarantee are concerned with providing safeguards to buyers that suppliers will meet their obligations or vice-versa, and are issued by the supplier's or customer's bank depending on which party seeks the guarantee. While a letter of credit essentially guarantees payment to the exporter, a letter of guarantee provides safeguard that other aspects of the supplier's or customer's obligations will be met. The supplier's or customer's bank is effectively giving a direct guarantee on behalf of the supplier or customer that the supplier's or customer's obligations will be met, and in the event of the supplier's or customer's failure to meet obligations to the other party then the bank undertakes the responsibility for those obligations.
The relationship between debt and equity. A company is considered highly leveraged if its levels of debt are high compared to its equity.
Any obligations by which an organization is bound to pay a sum expressed in dollars, or having to give up some asset having a monetary value. Local union’s obligations or debts. Liabilities are long-term loans of the type used to finance the business and short-term debts or money owing as a result of trading activities to date. Long term liabilities, along with Share Capital and Reserves make up one side of the balance sheet equation showing where the money came from. The other side of the balance sheet will show Current Liabilities along with various Assets, showing where the money is now.
Indicates the company's ability to pay its short term debts, by measuring the relationship between current assets (i.e. those which can be turned into cash) against the short-term debt value. (current assets/current liabilities) Also referred to as the Current Ratio.
Long Term Debt
The portion of a term loan which does not have to be paid within the next year.
Management Representation Letter
A letter addressed to the auditor, signed by the client's chief executive officer and chief financial officer. During an audit, management makes many representations to the auditor. Written representations from management in the letter confirm oral representations given to the auditor, document the continuing appropriateness of such representations, and reduce the possibility of misunderstanding.
In business and finance there are many types of margin. It simply means the distance between one financial point and another financial point; usually the higher the margin, the better. The most common type of margin revolves around profit and is known as the “margin of safety” or simply “profit margin.”
Mergers and Acquisitions
Buying, selling, taking over and combining of different companies to facilitate a company’s market growth and development without having to establish a separate business entity.
A financial security based off the back of a pool of mortgages, which are gathered together. These financial bonds are sold to the public or other financial institutions and the investors get a percentage of the interest that is paid on the mortgages, as well as the payments of the principal.
Net Assets (also called total net assets)
Total assets (fixed and current) less current liabilities and long-term liabilities that have not been capitalized (ex: short-term loans).
Net Current Assets
Current Assets less Current Liabilities.
Net Fixed Assets
Also known as the book value, the net fixed asset is calculated as the purchase price of the asset (gross fixed asset) less the accumulated depreciation (the sum of the annual amounts charged for the "wearing out" of the asset) (NFA).
Net Present Value (NPV)
NPV is a significant measurement in business investment decisions. NPV is essentially a measurement of all future cashflow (revenues minus costs, also referred to as net benefits) that will be derived from a particular investment (whether in the form of a project, a new product line, a proposition, or an entire business), minus the cost of the investment. Logically if a proposition has a positive NPV then it is profitable and is worthy of consideration. If negative then it's unprofitable and should not be pursued. While there are many other factors besides a positive NPV which influence investment decisions; NPV provides a consistent method of comparing propositions and investment opportunities from a simple capital/investment/profit perspective.
Net profit can mean different things so it always needs clarifying. Net strictly means 'after all deductions' (as opposed to just certain deductions used to arrive at a gross profit or margin). Net profit normally refers to profit after deduction of all operating expenses, notably after deduction of fixed costs or fixed overheads. This contrasts with the term 'gross profit' which normally refers to the difference between sales and direct cost of product or service sold (also referred to as gross margin or gross profit margin) and certainly before the deduction of operating costs or overheads. Net profit normally refers to the profit figure before deduction of corporation tax, in which case the term is often extended to 'net profit before tax' or PBT.
The owner's investment or "equity" in the company which may be either "purchased" or "earned." Purchased equity consists of preferred stock, common stock, and capital surplus. Simply put, the net worth is the difference between the assets and liabilities of a company (NW).
Note Payable Bank
Obligations evidenced by a promissory note from the bank which have maturity dates of less than one year (N/P).
A loan made by the company which is evidenced by a promissory note (N/R).
Assertions about obligations deal with whether liabilities are obligations of the entity at a given date. For example, management asserts that amounts capitalized for leases in the balance sheet represent the cost of the entity's rights to leased property and that the corresponding leases liability represents an obligation of the entity.
To do away with something so as to leave no trace.
Watch and test a client action (such as taking inventory).
Assertions about occurrence deal with whether recorded transactions have occurred during a given period. For example, management asserts that sales in the income statement represent the exchange of goods or services with customers for cash or other consideration.
Access to a computer for immediate processing without having to wait for a batch of transactions to be processed at a later time.
How an internal control was applied, the consistency with which it was applied, and by whom.
Continuing operations is reported on an income statement.
A CPA's conclusion held with confidence but not substantiated by positive knowledge or proof.
opinion paragraph The paragraph in the audit report that expresses the auditor's conclusions. The wording of the standard, unqualified opinion paragraph is: "In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of XYZ Company at December 31, year A, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles."
A listing of goods or services requested from a supplier with specifications and desired delivery method. A company starts the purchase process internally with a requisition, which results in an order being transmitted to a supplier. When the supplier ships the goods or provides the service, an invoice is sent to the customer telling the customer the specifications, delivery method, and price of those goods or services.
Income due to activities outside the normal operations of the business, for example, dividends from investments and gain from foreign exchange.
The objective of the overall review stage of the audit is to assess conclusions reached, and evaluate the overall financial statement presentation. The overall review includes reading the financial statements and notes and considering adequacy of evidence gathered in response to unusual or unexpected balances. Results of an overall review may indicate the need for additional evidence.
Expenses incurred in operating a business, such as rent, executive salaries, and insurance, that is not directly related to the manufacture of a product or delivery of a service. A portion of overhead can be attributed to cost of sales, usually on a percentage basis; the remainder is considered an operating expense.
Another term for equity.
An arrangement where entities and/or individuals agree to cooperate to advance their interests. In the most frequent instance, a partnership is formed between one or more businesses in which partners (owners) co-labor to achieve and share profits or losses.
P/E Ratio (price per earnings)
The P/E ratio is an important indicator as to how the investing market views the health, performance, prospects and investment risk of a public company listed on a stock exchange (a listed company). The P/E ratio is arrived at by dividing the stock or share price by the earnings per share (profit after tax and interest divided by the number of ordinary shares in issue). Step by step, to calculate the P/E ratio:
• Establish total profit after tax and interest for the past year.
• Divide this by the number of shares issued.
• This gives you the earnings per share.
• Divide the price of the stock or share by the earnings per share.
• This gives the Price/Earnings or P/E ratio.
When cash is used to purchase a good or service, the benefits of which will be realized or received within the current year (12 months).
Department that determines amounts of wage or salary due to each employee.
A practice monitoring program in which the audit documentation of one CPA firm is periodically reviewed by independent partners of other firms to determine that it conforms to the standards of the profession.
pending Legal proceedings not yet decided.
An allowance for daily expenses. Often used to reimburse employees for estimated expenses as opposed to accounting for each small component of the expenses.
Permanent Audit Documentation
Items of continuing accounting significance, such as the analysis of balance sheet accounts and contingencies. Such information from a prior year is used in the current audit and updated each year. Sometimes called the continuing file.
Carry out an action such as a crime.
An inventory accounting system updated for each addition to inventory and each issuance from inventory, so the records indicate the exact quantity on hand at any moment. The alternative is a periodic inventory system where actual inventory on hand is determined only once a year.
Personal Financial Statements
A statement of changes in net worth during a period of individual’s present assets and liabilities at estimated current value on an individual's balance sheet (statement of financial condition).
The department that maintains records of each individual's employment.
Having the power to influence. Most audit evidence is persuasive, but not conclusive.
pervasive Having the ability to permeate. An error is pervasive if it is material to more than one of the primary financial statements.
Expression of an opinion on an item in financial statements is not permitted as part of a disclaimer or adverse opinion on the financial statements as a whole because it would tend to overshadow or contradict a disclaimer of opinion or an adverse opinion.
Audit planning is developing an overall strategy for conduct and scope of the audit. The nature, extent, and timing of planning vary with size and complexity of the entity, experience with the entity, and knowledge of the business. In planning the audit, the auditor considers the entity's business and its industry, its accounting policies and procedures, methods used to process accounting information, the planned assessed level of control risk, and the auditor's preliminary judgment about audit materiality.
Something given as security to guarantee payment of a debt.
The number of items in the population from which a sample is drawn.
A statement as to what the CPA believes. An example is an opinion that the financial statements are presented fairly in conformity with U.S. GAAP. The opposite is negative assurance, a statement about what the CPA does not know. A statement that the CPA was "not aware of material modifications that should be made to financial statements for them to conform to U.S. generally accepted accounting principles" is negative assurance used in review reports.
Positive Confirmation (Positive Request)
The positive form of receivables confirmation asks the customer to respond whether the customer agrees or disagrees with the client's reported receivable balance. The negative form of accounts receivable confirmation asks the client's customer to respond only if the customer disagrees with the balance determined by the client. The negative form is used when controls over receivables are strong and accounts receivable consists of many accounts with small balances. The positive form is used when controls are weak or there are fewer, but larger, accounts.
The auditor of a client for a prior year who no longer audits that client.
Assertions about presentation deal with whether particular financial statement components are properly classified and described. For example, management asserts that long-term liabilities in the balance sheet will not mature in one year. Similarly, management asserts that extraordinary items in the income statement are properly classified and described.
A control designed to avoid an unintended event.
The auditor responsible for the greater portion of financial statements. The principal auditor may assume responsibility for the work of the other auditor or divide responsibility with the other auditor.
The objective of pro forma financial information is to show effects on historical financial information as if a proposed event had occurred earlier.
Probability proportional to size (pps) sampling
A sampling plan that bases the likelihood of selecting a particular account on the relative size of that account, so larger accounts have a greater probability of being selected for the sample than smaller accounts.
A contingent loss is probable if it is uncertain but likely to happen.
An action, such as a step performed as part of an audit program or as part of the client's internal controls.
An internal control included in computer software designed to assure that all transactions are handled as authorized and none omitted or added.
The portion of an entity that acquires resources and converts them to the product or service for customers.
A document that initiates the manufacturing process.
An auditor includes the auditor's formal education and subsequent experience. The independent auditor must undergo training adequate in technical scope, including commensurate general education. The assistant entering an auditing career must obtain experience with proper supervision and review of his or her work by a more experienced superior.
Prospective Financial Statements
Cover a period that has partially expired. Statements for periods that have completely expired are not prospective financial statements.
A registration statement filed with the SEC includes audited financial statements (balance sheet, income statement, and statement of cash flows) for the previous three years. A prospectus contains the same information and must be supplied to all parties to whom offers are made. There is a twenty-day waiting period between the filing of the registration statement and the first sale of securities. During this period, preliminary ads and a "red herring" prospectus can be provided to offerees but must be clearly marked as preliminary.
A power of attorney granting a third party the right to a stockholder's vote. When management or others solicit proxies from stockholders, a copy of the proxy statement must be filed with the SEC ten days before mailing the solicitation. The proxy statement must include all information relevant to the matter voted on.
A document from a buyer to a seller placing an order and listing quantities and specifications.
Profit And Loss Account (P&L)
It shows profit performance, which often has little to do with cash, stocks and assets (which must be viewed from a separate perspective using balance sheet and cashflow statement). The P&L typically shows sales revenues, cost of sales/cost of goods sold, generally a gross profit margin (sometimes called 'contribution'), fixed overheads and or operating expenses, and then a profit before tax figure (PBT).
Variant of linear programming in which the objective function is quadratic rather than linear. In portfolio selection, we often minimize the variance of the portfolio (which is a quadratic function) subject to constraints on the mean return of the portfolio.
A period of time during the first few months or weeks of a new policy when an insurance company will not reimburse a policyholder for a claim in order to allow the insurance company time to find any fraudulent information in the application.
A signature on the back of a negotiable instrument transferring the amount to some other party but that includes wording that limits the endorser's liability.
An auditor's opinion expressing certain limitations of an audit.
Qualified Plan or Trust
A tax-deferred plan allowing employer and employee contributions that build up savings, which are paid out at retirement or on termination of employment. Tax is paid only when amounts are drawn from the trust.
An annuity allowable as investment for a qualified plan or trust.
Shares of common stock that a person must hold in order to qualify as a director of the issuing corporation.
Qualifying Stock Option
A benefit granted by a corporation that allows employees to purchase shares at a discount price.
An analysis of the qualities of a company that cannot be measured concretely, such as management quality or employee morale.
Traditional analysis of firm-specific prospects for future earnings. It may be based on data collected by the analysts, there is no formal quantitative framework used to generate projections.
Quality of Earnings
Increased earnings due to increased sales and cost controls, as compared to artificial profits created by inflation of inventory or other asset prices.
Gives the seller choice of deliverables in Treasury bond and Treasury note futures contracts. Also called the swap option. Related: Cheapest to deliver issue.
Difference between Treasury securities and non-Treasury securities that are identical in all respects except for quality rating. For instance, the difference between yields on Treasuries and those on single A-rated industrial bonds. Also called credit spread.
Current assets minus inventories.
Same as the Acid Test. The relationship between current assets readily convertible into cash (usually current assets less stock) and current liabilities. A sterner test of liquidity.
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Quid Pro Quo
An arrangement allowing a firm to use research from another firm at no cost in exchange for executing all of its trades with the firm that provides the research.
Time period an issuer is "in registration" with the SEC and may not promote its forthcoming issue.
The minimum number of people who must be present or must provide a proxy to vote at a meeting in order to make a valid decision.
Highest bid and lowest offer (asked) price currently available on a security or a commodity.
The electronic board at a brokerage firm displaying prices other financial data.
The price at which the last trade of a particular security or commodity took place.
In audit sampling a ratio of the proportion of errors in the sample applied to the population value to estimate total error.
The relation between two quantities expressed as the quotient of one divided by the other. The ratio of 8 to 2 is written 8/2 and equals four. Financial statement ratios are used in analytical procedures in audits.
Reasonable Assurance (in audit report)
An auditor works within economic limits. The audit opinion, to be economically useful, must be formed in a reasonable time and at reasonable cost. The auditor must decide, exercising professional judgment, whether evidence available within limits of time and cost is sufficient to justify an opinion.
Reasonable Assurance (in internal control)
An internal control, no matter how well designed and operated, cannot guarantee that an entity’s objectives will be met because of inherent limitations in all internal control systems.
When an auditor is asked to audit and report on financial statements that have been previously audited and reported on.
Perform procedures again and compare to original results.
A document completed in the receiving department, which identifies the purchase order that initiated the purchase, and the date, quantity, and condition of goods received.
Perform procedures again and compare to original results.
A schedule establishing agreement between separate sources of information, such as accounting records reconciled with the financial statements.
A situation in which an employer intends to cease business, so therefore the workforce lose their jobs, or an employee is made redundant because their job no longer exists in the company they work for. Employees in these situations often qualify for redundancy pay.
A statement submitted to officially provide the SEC with information about an offering of securities. A registration statement includes audited financial statements (balance sheet, income statement, and statement of cash flows) for the previous three years.
A statistical method for finding the relationship between two or more variables. Also called least squares or linear regression.
Different audit evidence provides different degrees of assurance to the auditor. When evidence can be obtained from independent sources outside an entity, it provides greater assurance of reliability for an independent audit than that secured solely in the entity. More effective internal controls provide more assurance about reliability of the accounting data and financial statements. The independent auditor's direct personal knowledge, from physical examination, observation, computation, and inspection, is more persuasive than information obtained indirectly.
Sending money to someone at a distance. A remittance advice is a paper record of the amount sent, purpose of the payment, and associated account identification.
A contingency with only a slight chance of occurring. In computer processing of information, a distant computer.
The repeating by the auditor of a computation made by the client to check its accuracy.
Matters coming to the auditor's attention that are communicated to the audit committee because they are significant deficiencies in internal control which could adversely affect the ability to record, process, summarize, and report financial data.
A letter from management to the auditor representing that the financial statements are fairly presented. The letter is addressed to the independent auditor, and dated at the date of the auditor's report. It is signed by members of management whom the auditor believes are responsible for, and knowledgeable about, matters covered (chief executive officer and chief financial officer).
A formal written request for something needed. A purchase by a company is initiated internally by a requisition, resulting in the issuance of a purchase order to the outside supplier.
The accumulated and retained difference between profits and losses year on year since the company's formation.
These are funds used by an organization that are restricted or earmarked by a donor for a specific purpose, which can be extremely specific or quite broad; or a particular project with agreed terms of reference and outputs such as to meet the criteria or terms of the donation or award or grant.
Return On Capital Employed (ROCE)
A fundamental financial performance measure. A percentage figure representing profit before interest against the money that is invested in the business. (profit before interest and tax, divided by capital employed, x 100 to produce percentage figure.)
Return On Investment (ROI)
Another fundamental financial and business performance measure. In simple terms ROI is the profit made from an investment.
The total income received in exchange for goods or services during a specific accounting period. Revenue can be recorded using either the cash basis (as received), or the accrual basis (as earned). Also referred to as sales or sales revenue.
The portion of a company that fills customer orders, accounts for receivables, and collects those receivables.
To examine again. The overall review of audit documentation is completed after field work. A peer review is a practice monitoring program in which audit documentation of one CPA firm is periodically reviewed by independent partners of other firms to determine that they conform to professional standards. An analytical review is a type of substantive audit procedure. A review of financial statements of a nonpublic company is an engagement that results in the expression of less assurance than an audit, but more than in a compilation. A review of interim financial statements of a public company consists of analytical procedures and inquiries.
RFID or radio frequency identification tag
Attached to and identifies a thing such as an item in inventory, a case of items, a pallet of cases, a car passing through a reader on a toll way, or a person passing through a doorway. A transceiver sends an activating signal and receives identification information. An active RFID tag has an internal battery and has a longer range than a passive tag which is powered by the radio signal it receives.
Assertions about rights deal with whether the entity has rights to the asset at a given date. For example, management asserts that amounts capitalized for leases in the balance sheet represent the cost of the entity's rights to leased property.
An analysis of the possibility of suffering loss.
The scrap value of an asset. Acquisition cost minus salvage value yields the total amount that an asset is depreciated over its useful life.
The four-digit code prescribed by the Standard Industrial Classification System to categorize businesses according to the types of activities they performs.
The balance sheet nominal value paid into the company by shareholders at the time(s) shares were issued.
A measure of the shareholders' total interest in the company represented by the total share capital plus reserves.
A target or average cost that can be used either to value inventory or as a basis of comparison with actual costs. Standard costs can often be used to calculate cost of sales, in which case standard cost refers to the average amount of materials, direct labor and overhead required to produce a single product or service unit.
When an auditor confirms receivables, some customers of the client fail to respond to the first confirmation request. Another request sent to the same customers is the second request.
Right to repossess goods as security for payment of a debt.
An extra digit is added to a number. The extra digit is computed from the other digits in the number. The computer program can then check input by recomputing and comparing the check digit. This is a useful control over the input of account numbers.
The auditor of an organization that provides services such as data processing or pension trust administration to other organizations (the users). Auditors of the users (user auditors) rely on a report from the service auditor about controls in the service organization that apply to financial statements of the user organization they are auditing.
A document prepared when goods are shipped. It lists the date shipped, the customer, method of shipment, and quantities and specifications of goods shipped.
Representation of the operation or features of one process or system through the use of another. Computer simulation of waiting lines can determine the number of employees needed to serve customers at a particular time.
Single Audit Act
This federal legislation requires state and local governments that receive federal aid of $500,000 or more in a fiscal year to have an audit under the act. A government that receives less than $500,000 can have an audit under the act or with specific laws and regulations of programs in which the government participates. Auditors report whether the audited entity has followed laws and regulations that may have a material effect on each major federal aid program.
Programs and languages that control computer hardware.
A sole proprietor is someone who owns an unincorporated business by himself or herself
An expert at activities not usually done by auditors (such as an appraiser for valuation).
A statistic used to measure dispersion equal to the square root of the arithmetic mean of the squares of the deviations from the arithmetic mean.
Making inferences in uncertain situations using applied mathematics. Measurements from a small group, the sample, are used to infer the behavior of a larger group, the population. Probability theory determines how well the sample represents the population.
Taking a sample from a population and checking after each sample item is drawn whether the sample supports a desired conclusion. Sampling ceases as soon as that conclusion is supported.
To arrange a population or a sample in distinct layers. Stratified sampling is used in auditing to select a greater percentage of accounts with high balances than of accounts with low balances.
Years ago there was a type of qualified audit opinion that was worded "In our opinion, subject to....." Auditors are no longer permitted to issue such opinions.
Affect the client and occur between the balance sheet date and issuance of the financial statements. Some such events provide additional evidence about conditions that existed at the balance sheet date, such as the bankruptcy of a customer with a history of financial difficulty. The financial statements are adjusted to reflect this evidence. Evidence about conditions that did not exist at the balance sheet date, such as fire that destroyed the client's plant after the balance sheet date, may be so significant as to require disclosure.
The detailed information that totals to the balance in the general ledger account. The total of all customer accounts receivable included in the subsidiary ledger of accounts receivable is the balance in the general ledger accounts receivable account.
Supported with proof or evidence.
A substantive audit procedure is a direct test of a financial statement balance.
The auditor of a client for the current year when that client had another auditor in prior years. The auditor who is no longer the auditor of that client is the predecessor auditor.
A measure of the quantity of audit evidence. The independent auditor's objective is to obtain sufficient competent evidence to provide a reasonable basis for forming an opinion.
Supervision is directing efforts of assistants in the audit and determining whether objectives were accomplished. Elements of supervision include instructing assistants, keeping informed of problems, reviewing work performed, and dealing with differences of opinion among firm personnel. The appropriate extent of supervision depends on the complexity of subject matter and qualifications of persons performing the work.
Provide goods or services to an audited entity. Sometimes called vendors.
An asset that represents a physical object such as land, furniture, and buildings. Under accounting rules, a tangible asset must have a useful life greater than one year, and must be used in business operations rather than being held for resale. The following types of assets are not considered to be tangible assets: items held for resale, which are considered to be inventory, cash and other liquid assets which are considered as current assets, and abstract assets such as goodwill, which are intangible assets.
Telegraphic Transfer (T/T)
International banking payment method: a telegraphic transfer payment, commonly used/required for import/export trade, between a bank and an overseas party enabling transfer of local or foreign currency by telegraph, cable or telex. Also called a cable transfer.
As part of inventory audit procedures auditors normally observe the client's employees counting physical inventory. A test count is inventory counted by the auditors to check the client's count.
Test Of Controls (tests of the operating effectiveness of internal controls)
Auditors evaluate the design of controls, then determine if the controls are in operation. In order to rely on the controls they must also obtain evidence as to whether the controls are operating effectively.
Test Of Detail
Direct tests of financial statement balances (substantive audit procedures) that are not analytical procedures. If tests of details are performed as tests of controls as well as substantive tests they are "dual-purpose" tests.
A symbol instead of by a number in audit work papers are footnotes. They indicate procedures that have been carried out on specific items in the work papers.
Times Interest Earned
Income before interest and taxes divided by interest expense.
Tolerable Deviation Rate
The maximum rate of deviation from an internal control that will allow the auditor to place the planned reliance on that control.
When planning a sample for a substantive test of details, the auditor considers how much monetary misstatement may exist without causing the financial statements to be materially misstated. This maximum misstatement is called tolerable misstatement for the sample.
Follow a transaction through the steps of the system.
The officer who controls the entity's funds. The treasurer normally signs checks and is responsible for cash management.
Stock of the corporation that has been issued and later reacquired. It is not an asset. It is a reduction of stockholders' equity. Treasury stock can be recorded at either its cost or its par value.
An analysis of the change in something over time. Analytical procedures, which compare financial statement ratios of different years, are an example of trend analysis.
A statement of open debit and credit accounts in a ledger to test their equality.
Describes subsidiary companies whose financial statements, shares, etc., are not included in the parent company's finances.
Without opposition or competition. A lawsuit which is not disputed by the person against whom it has been filed.
To sell a product, service, etc., cheaper than the competition.
Describes a company, business, etc., which does not have enough workers to function properly. Understaffed.
To fall short of reaching a goal or target.
When a product, service, etc., is not being bought by enough people.
A person who assesses the risk and eligibility of an insurance company's potential client. On the Stock Market, an organization, such as a bank, that agrees to purchase any unsold shares which are offered for sale by a company.
A person who has officially been declared bankrupt but has not yet been given permission to start another business, and must not stop paying debts which are still owed.
Personal income which has not come from employment but from investments, dividends, interest, etc.
An economic situation in which jobless people, often those who have been made redundant from their jobs, are actively seeking employment.
Term used when a person's employment is terminated by their employer without a good reason.
Unfavorable Trade Balance
Describes when a country's value of its imports exceeds the value of its exports.
Someone who has complaints about their employers. An unsatisfied customer.
Performed by one person, group, side, party, etc - basically 'going alone'. For example a unilateral decision is one made without dependence or condition upon others who might have interests in the matter in question.
A one-sided agreement in which one party promises to do something (or refrain from doing something) in return for an action, not a promise, from a second party.
A fund which raises money from a number of investors, usually investing only a small amount each, which is then invested on their behalf by a fund manager in a range of shares, securities, bonds, etc.
In the UK, a company whose owners have unlimited liability, e.g. if the company goes into liquidation the owners are required to raise the funds to pay the company's debts.
The obligation of a company's owners or partners to pay all the company's debts, even if personal assets have to be used.
Refers to company whose shares are not traded on the Stock Exchange.
Also known as a Wildcat Strike. A form of industrial action which does not have the approval or permission of a trade union.
Not governed or controlled by laws or rules.
Not requested or invited, for example junk mail.
Unsystematic Risk - Also called Residual Risk. The risk that can affect a company's share prices, production, etc., such as a sudden strike by employees.
On a computer, to return files to their original size after they have been compressed.
An audit opinion that the financial statements are in conformity with U.S. GAAP.
If an auditor notices events that affect financial statements on which an audit report has been issued, they are considered when updating the report on the prior statements. If those statements are changed, the report says they have been restated and expresses the appropriate opinion. If an updated opinion differs from the previous opinion, an explanatory paragraph preceding the opinion paragraph explains that the report has been updated, discloses the date and type of opinion previously expressed, and events that caused the revision.
A sales technique in which the salesperson tries to persuade the customer to purchase more expensive and/or more goods than they originally intended.
Describes someone who is moving towards a higher social and/or economic position.
Also called Urban Renewal, the redevelopment of run-down parts of a towns or cities, to include business and housing projects, typically funding by governments or agencies.
In international trade, the period of time allowed, which varies between countries, for the payment of a bill of exchange.
An estimate of the period of time over which an asset will be of use to a company. Along with acquisition cost and salvage value, this measure is used to calculate the amount that the asset is depreciated each year.
Easy to learn or use by people who are not experts.
A "service auditor" is the auditor of an organization that provides services such as data processing or pension trust administration to other organizations (the users). Auditors of the users (user auditors) rely on a report from the service auditor about controls in the service organization that apply to financial statements of the user organization they are auditing.
USP - Unique Selling Point/Proposition
The key feature of a product or service which makes it stands out from the competition.
An imaginary society or world or situation which is ideal and everyone has everything they want, from the highly revered English statesman, scholar, lawyer and writer, Sir Thomas Moore’s 1516 century book Utopia, whose full Latin title loosely translates to mean 'On the Best State of a Republic and on the New Island of Utopia'. The opposite term Dystopia, was devised two centuries later.
Software control over input of data to a computer system. Data is compared with the type of data properly included in each input field, e.g., only letters in a name field.
An assertion made by management that each asset and liability is recorded at an appropriate carrying value.
The characteristic tested has many possible values (such as dollar value of inventory).
A cost which varies with sales or operational volumes, ex: materials, fuel, commission payments.
The difference between actual and targeted numbers for revenues, expenditures, or productivity. Variances are usually described as either favorable or unfavorable.
Provide goods or services to an audited entity. Also called suppliers.
Prove accuracy of numbers or existence of assets.
Prove accuracy of accounting entries by tracing to supporting documents.
A document in support of an expenditure. The signature of an appropriate official on the voucher is authorization for the treasurer to issue a check.
A stock warrant is a written document that gives the holder the right to buy shares at an agreed price, within a specific amount of time, although they can also be issued with no time frame. The agreed price is usually worse than the current market price and remains fixed, meaning the holder has to wait for the stock price to rise, then invoke the warrant and sell the shares at a profit. Obviously this has to be done within the time frame specified which tends to always be longer than a year.
A discipline in economics which aims to provide financial advice to individuals and legal entities regarding their investments and the running of their businesses. It is an umbrella term which may include, among others, financial planning, investment portfolio management, tax preparation, and legal representation.
A CPA issues an opinion on a web site when the business and information privacy practices, transaction integrity, and protection of customer information meet certain standards.
Current assets less current liabilities, representing the required investment, continually circulating, to finance stock, debtors, and work in progress.
Working Papers (written audit documentation)
Records kept by the auditor of procedures applied, tests performed, information obtained, and pertinent conclusions in the engagement.
Cancellation of part or all of a balance. Costs incurred that have no future utility are charged (written-off) to an expense or loss account, not carried forward as an asset.
In dollar terms a write-up is an intentional over-valuation of assets. In narrative terms a description of something or some event.
Translateddirectlyas "foreign currency", it is the name given to currencies that trade in non-native markets or are deposited in foreign banks. For example, when the Yen trades on U.S. exchanges it is characterized as xenocurrency.
Foreign bonds denominated in U.S. dollars and issued in the United States by foreign banks and corporations. These bonds are usually registered with the SEC. Such as, bonds issued by originators with roots in Japan are called Samurai bonds.
A CD issued in the domestic market, typically New York, by a branch of a foreign bank.
The foreign market in the United States.
Slang for one billion currency units. Used particularly in currency trading, e.g., for Japanese yen since one billion yen equals approximately US$10 million. It is clearer to say, "I'm a buyer of a yard of yen," than to say, "I'm a buyer of a billion yen," which could be misheard as "I'm a buyer of a million yen."
A special dividend declared at the end of a fiscal year that usually represents distribution of higher-than-expected company profits.
The period beginning at the start of the calendar year up to the current date.
Sheets published by the National Quotation Bureau that detail bid and ask prices, plus those firms that are making a market in over-the-counter corporate bonds.
Any bond denominated in Japanese yen currency.
The percentage rate of return paid on a stock in the form of dividends, or the effective rate of interest paid on a bond or note. The yield of a debt instrument (such as bonds, shares, annuities, etc.) is basically the return that a holder will receive for keeping the instrument for a set period of time. This definition, of course, is far from being exhaustive, all the more so as the term often encompasses different nuances of meaning, depending on its context. It is, therefore, the goal of this article to throw some light on the different ways in which the term is used by financial experts.
The advantage gained by purchasing convertible securities instead of common stock, which equals the difference between the rates of return of the convertible security and the common shares.
A municipal bond financing method. Underwriters in advance refunding add large markups on U.S. Treasury bonds bought and held in escrow to compensate investors while waiting for repayment of old bonds after issuance of the new bonds. Since bond prices and yields move in opposite directions, when the bonds are marked up, they "burn down" the yield, which may violate federal tax rules and diminishes tax revenues.
Applies mainly to convertible securities. Difference in current yield between the convertible and the underlying common.
The yield curve is a line, which shows the ratio between the interest rate of a given debt instrument and its maturity period. There are three main types of yield curves, each reflecting particular trends on the stock market, which the prospective investors must be aware of, before committing their money to the debt instrument of their choice. This article will deal with each curve type separately, making short comments on what they signify for the near future development of the stock market.
Applies mainly to international equities. Japanese securities transactions conducted on the principal of auction, i.e., (1) price priority in which the selling (buying) order with the lowest (highest) price takes precedence over other orders, and (2) time priority in that an earlier order takes precedence over other orders at the same price.
A bond on which interest accrues but is not currently paid to the investor but rather is added to the principal balance of the Z bond and becoming payable upon satisfaction of all prior bond classes.
Zero-Balance Account (ZBA)
A checking account in which zero balance is maintained by transfers of funds from a master account in an amount only large enough to cover checks presented.
Zero-Base Budgeting (ZBB)
Budgeting method that disregards the previous year's budget in setting a new budget, since circumstances may have changed. Each and every expense must be justified in this system.
A portfolio constructed to have zero systematic risk, similar to the risk-free asset, that is, having a beta of zero.
The standard deduction portion of income which is not taxed for taxpayers choosing not to itemize deductions.
A bond in which no periodic coupon is paid over the life of the contract. Instead, both the principal and the interest are paid at the maturity date.
Zero-Coupon Convertible Security
A zero-coupon bond convertible into the common stock of the issuing company after the stock reaches a certain price, using a put option inherent in the security. Also refers to zero-coupon bonds, which are convertible into an interest bearing bond at a certain time before maturity.
A portfolio of zero net value established by buying and shorting component securities, usually in the context of an arbitrage strategy.
Sale that takes place at the same price as the previous sale, but at a lower price than the last different price. Antithesis of zero-plus tick.
Zero-One Integer Programming
An analytical method that can be used to determine the solution to a capital rationing problem.
Zero Prepayment Assumption
The assumption of payment of scheduled principal and interest with no payments.
Used for listed equity securities. Transaction at the same price as the preceding trade, but higher than the preceding trade at a different price. Antithesis of zero-minus tick. See: Short sale.
A bankruptcy predictor based on the formula derived by Dr. Edward Altman. According to the Altman model, a Z-Score of 3.0 or higher indicates that the company is most likely safe based on the financial data; a score below 1.8 means that the firm is probably headed for bankruptcy. In studies, the Z-Score has been shown to have 90% accuracy of prediction of bankruptcy in the first year of the forecast, and 80% accuracy in the second year.
A type of game wherein one player can gain only at the expense of another player.
Related: Tick-test rules
Companies that continue operation while they await merger or closure, even though they are insolvent and bankrupt.