Glossary

accountability
The obligation to explain, justify, and take responsibility for one’s actions or for an organisation’s actions.
accountancy
The profession encompassing the full range of work undertaken by accountants, including financial reporting, auditing, and advisory services.
accountants in business
Accountants who work within the finance function of an organisation, managing budgets, preparing financial statements, and providing strategic advice. See also: accountants in practice.
accountants in practice
Accountants who work in public practice, providing services such as auditing, tax advice, and business consultancy to clients. See also: accountants in business.
accounting
Accounting is a technical, social and moral practice concerned with the sustainable utilisation of resources and proper accountability to stakeholders to enable the flourishing of organisations, people and nature.
accounting information systems
Systems that collect, store, and process financial and accounting data to produce information for decision-making.
accounting period
A specific time frame for which financial statements are prepared, typically a month, quarter, or year.
accounting standards
Guidelines and rules for preparing financial statements, ensuring consistency and comparability.
accrual basis accounting
An accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.
accruals
Expenses which have been occurred in the period but have not yet been invoiced to the entity.
activity-based carbon data
Activity data specifies how many units of a particular product or material a company has purchased. For example, it could be litres of fuel, kilograms of textile, etc. In carbon accounting, activity data generally allows for more accurate emissions estimates than spend-based data.
advocacy threat
The threat to independence that an auditor will promote a client’s position to the point that the auditor’s objectivity is compromised
agency
The capacity of an individual or an institution to choose and affect change in society See also: agency theory.
agency theory
A framework used in economics and business to analyse relationships between interested parties where the owners (the principal) delegate tasks or decision-making authority to the organisation’s management (the agent or the steward) to act on their behalf.
amortisation
The systematic allocation of the cost of an intangible asset over its useful life.
analytics
The computational analysis of data using statistical techniques for descriptive, diagnostic, predictive and prescriptive analytics.
annual report
A company’s communication with its interested parties. An annual report is required for certain listed companies depending on stock exchange requirements. It includes the annual accounts, audit report and directors’ report, and can include a number of other reports and explanatory information about the organisation’s performance. For example, these may include a remuneration report, pay gap report, sustainability report amongst others.
artificial intelligence
The simulation of human intelligence processes by machines, particularly computer systems, to perform tasks such as learning, reasoning, and problem solving
assets
A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. It something that is valuable and controlled by the entity.
asset turnover ratio
How effectively assets are being used to generate revenues
assurance
the various services that provide independent assessment and verification of information
assurance engagement
An engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users about the outcome of the evaluation or measurement of a subject matter against criteria.
audit
an examination of the financial reports of an organisation. Often the requirement for an audit is prescribed by law.
audit committee
A subcommittee of the board of directors responsible for overseeing the financial reporting process, audit process, and internal controls.
audit evidence
Information collected by an auditor to support their opinion on the financial statements.
audit qualification
A specific certification or registration required for accountants to conduct auditing work, ensuring they meet the necessary standards and regulations.
audit report
A formal opinion or disclaimer issued by an auditor as a result of an audit or evaluation.
audit trail
A step-by-step record that traces the financial data to its source, providing a clear path for verification.
bad debts
Amounts owed to a business that are unlikely to be collected, often written off as an expense.
balance sheet
A financial statement that provides a snapshot of an organisation’s assets, liabilities, and equity at a specific point in time. Also known as: statement of financial position (SoFP).
bank reconciliation
The process of comparing the bank statement with the company’s accounting records to identify and resolve discrepancies.
benchmarking
The process of comparing an organisation’s performance metrics to industry standards or best practices.
big data
Large and complex data sets that traditional data processing software cannot handle efficiently.
blockchain
A decentralized digital ledger technology that records transactions across many computers in a way that ensures security and transparency.
bond
A loan, often made by a government
bookkeeping
The mechanical and procedural aspects of accounting, such as recording financial transactions in journals and ledgers. See also: double-entry bookkeeping.
business intelligence (BI)
Technologies, applications, and practices for the collection, integration, analysis, and presentation of business information.
business process reengineering
Business process reengineering is used to change the way processes are executed in organisations to reduce bottlenecks and improve flow.
capital
Resources an organisation uses to create value, including financial, manufactured, natural, human, intellectual, and social capital.
capitals
resources used by an organisation to create value
carbon accounting
The process of measuring and reporting an organisation’s greenhouse gas (GHG) emissions.
carbon budget
The Carbon Budget is the maximum amount of carbon that can be released into the atmosphere while maintaining a specified chance of staying below a given global average surface temperature rise.
carbon dioxide equivalent (CO2e)
The amount of carbon dioxide equivalent of other emissions. For example, 1 tonne of Methane has a global warming potential (over a 100-year timeframe) 25 times higher than 1 tonne of CO₂. Therefore, 1 tonne of Methane = 25 tonnes of CO₂e.
carbon disclosure
The process of reporting an organisation’s greenhouse gas GHG emissions and climate-related risks and opportunities to stakeholders.
carbon footprint
The total greenhouse gas (GHG) emissions caused by an individual, event, organisation, service, place, or product, expressed as carbon dioxide equivalent (CO₂e).
carbon management
The strategies and actions taken by an organisation to measure, reduce, and offset its greenhouse gas GHG emissions.
carbon negative
When an organisation’s activity goes beyond achieving net-zero carbon emissions to create an environmental benefit by removing additional carbon dioxide from the atmosphere or investing time or money in nature-based solutions. Examples include regenerative farming, mangrove planting, or kelp farms that sequester carbon from the atmosphere. Also known as: climate positive.
carbon neutrality
Achieving a net-zero carbon footprint by balancing the amount of GHG emissions produced with an equivalent amount of emissions removed or offset.
carbon offsetting
The practice of compensating for GHG emissions by investing in projects that reduce or remove emissions elsewhere, such as reforestation or renewable energy projects. See also: net zero.
cash
Amounts held in the bank or that can be readily converted to cash.
cash basis accounting
An accounting method where revenues and expenses are recorded only when cash is received or paid.
cash conversion cycle
The time it takes for a company to convert its investments in inventory and other resources into cash flows from sales.
cash equivalents
Short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value.
cash flow
The movement of cash into and out of a business, reflecting its operating, investing, and financing activities.
cash flow forecasting
The process of estimating the future cash inflows and outflows of a business to ensure it can meet its financial obligations.
cash flow from financing activities
Cash generated or used by a company’s financing activities, including issuing or repaying debt and equity transactions.
cash flow from investing activities
Cash generated or used by a company’s investment activities, such as the purchase or sale of long-term assets and investments.
cash flow from operating activities
Cash generated or used by a company’s core business operations, including receipts from sales and payments for expenses.
cash reserves
Funds that a company sets aside to meet short-term and emergency funding needs.
chart of accounts
A listing of all the accounts in the general ledger, each account accompanied by a reference number.
climate change adaptation
Scenario planning to determine the possible risks and opportunities that any irreversible climate change outcomes might bring and adapting accordingly. See also: climate change mitigation.
climate change mitigation
Efforts to reduce or prevent the emission of GHGs to limit the magnitude of future global warming. See also: climate change adaptation.
climate positive
When an organisation’s activity goes beyond achieving net-zero carbon emissions to create an environmental benefit by removing additional carbon dioxide from the atmosphere or investing time or money in nature-based solutions. Examples include regenerative farming, mangrove planting, or kelp farms that sequester carbon from the atmosphere. Also known as: carbon negative.
closing entries
Journal entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent accounts.
cloud computing
The delivery of computing services, including storage, processing, and software, over the internet, allowing for remote access and scalability. See also: cloud technology.
cloud technology
Cloud technology refers to a network of configurable computing resources, such as networks and applications. Unlike traditional desktop software systems, these do not require capital expenditure and make computing resources, which are often only available to larger firms, more accessible and cost-effective. See also: cloud computing.
common-size financial statements
Financial statements in which each line item is expressed as a percentage of a base figure, such as total assets or total sales, to facilitate comparison.
comparability
The ability to see similarities and differences between financial statements of different entities or within the same organisation over a period of time because they have been prepared using the same accounting standards.
comparative analysis
The process of comparing an organisation’s financial data with that of other organisations or industry benchmarks.
compliance audit
An audit that assesses whether an organisation is adhering to regulatory guidelines, laws, and internal policies.
conceptual framework
A system of interrelated objectives and fundamentals that provides the foundation for the development of consistent accounting standards and the evaluation of existing ones.
consistency
The use of the same accounting principles and methods from period to period within an entity.
control account
A general ledger account that summarises the total balances of a subsidiary ledger.
corporate governance
The system by which organisations are directed and controlled, including the processes and structures used to ensure accountability, fairness, and transparency.
corporate social responsibility (CSR)
A company’s commitment to operating in an ethical and sustainable manner, taking into account the social and environmental impacts of its activities. CSR initiatives can include environmental protection, employee welfare, community engagement, and ethical business practices.
corporation
A legal entity that is separate from its owners, providing limited liability to its shareholders.
costing techniques
Methods used to calculate the cost of producing goods or services, including direct and indirect costs.
costs of sales
Expenses directly attributed to the sales. Cost of sales = Costs that are directly related to creating the goods sold or service provided. E.g., raw materials, salaries for staff involved in producing goods or services, energy costs in producing goods or services.
credibility
The quality of being trusted and believed in, which is essential for the reliability of financial information.
credit
An entry on the right side of an account, representing an increase in liabilities, equity, or income or a decrease in assets or expenses.
cultural factors
The influence of societal norms, values, and practices on financial reporting standards and practices.
current assets
An asset expected to be held for less than 12 months
current liabilities
A liability expected to be settled within 12 months.
current ratio
Ability to meet short term demands from short term assets.
cybersecurity
The practice of protecting systems, networks, and programs from digital attacks, ensuring the integrity, confidentiality, and availability of information.
dashboards
Visual displays of the most important information needed to achieve one or more objectives, consolidated and arranged on a single screen.
data
Raw facts and figures that are collected and processed to provide meaningful information.
data analytics
The process of examining data sets to draw conclusions about the information they contain, often using specialised systems and software.
data governance
The management of data availability, usability, integrity, and security in an organisation.
data management
The practice of collecting, storing, and using data securely, efficiently, and cost-effectively.
data mining
The process of discovering patterns and relationships in large data sets to predict future trends and behaviours.
data quality
The condition of data based on factors such as accuracy, completeness, reliability, and relevance.
data visualisation
The graphical representation of information and data to help people understand complex data sets.
data warehouse
A central repository of integrated data from one or more disparate sources, used for reporting and data analysis.
debenture
A type of loan, usually longer than 10 years.
debit
An entry on the left side of an account, representing an increase in assets or expenses or a decrease in liabilities, equity, or income.
debt ratio
A financial ratio that measures the extent of a company’s leverage, calculated as total debt divided by total assets. Also know as gearing See also: gearing.
depreciation
The systematic allocation of the cost of a tangible asset over its useful life.
digital transformation
The integration of digital technology into all areas of a business, fundamentally changing how the business operates and delivers value to customers.
direct method
A method of preparing the statement of cash flows where actual cash receipts and payments are reported.
disclosure requirements
The mandatory information that organisations must include in their financial reports to provide transparency to stakeholders.
dividend
A sum of money paid regularly (typically annually) by a company to its shareholders out of its profits
dividend payout ratio
the extent to which the company is paying out its profit to shareholders rather than retaining it for investment in the business
dividend yield ratio
the return on the investment in shares.
double-entry bookkeeping
A system of recording financial transactions where each transaction is recorded with equal and opposite entries in two or more accounts (e.g., debit and credit). This ensures that the accounting equation (Assets = Liabilities + Equity) always remains in balance.
double materiality
This acknowledges that organisations are not only materially vulnerable to environment-related events and risks (outside in), but also materially impact the environment through their own activities (inside out).
DuPont analysis
A detailed approach to analysing the components of return on equity (ROE) by breaking it down into three parts profit margin, asset turnover, and financial leverage.
earnings before interest and taxes (EBIT)
A measure of an organisation’s profit that includes all expenses except interest and income tax expenses.
earnings before interest, taxes, depreciation, and amortisation (EBITDA)
A measure of an organisation’s profit that includes all expenses except interest, corporation tax, depreciation and amortisation expenses. It is used as an alternative to net income in some circumstances.
earnings per share (EPS)
Earnings generated by the business, and available to shareholders given the number of shares issued
e-commerce
The buying and selling of goods and services over the internet.
economic activity
Actions that involve the production, distribution, and consumption of goods and services.
economic consequences
The financial impact of business decisions and transactions on an organisation’s performance and position.
economic environment
The overall economic conditions that affect an organisation’s financial performance, such as inflation, interest rates, and economic growth.
economic events
Significant occurrences, such as mergers, acquisitions, or economic crises, that impact an organisation’s financial reporting.
efficiency ratios
Ratios that measure how effectively an organisation uses its assets, such as the inventory turnover ratio and accounts receivable turnover ratio.
emission factors
Coefficients that quantify the emissions or removals of a GHG per unit of activity, such as kilograms of CO₂ per litre of fuel consumed.
enterprise resource planning (ERP)
Integrated software platforms used by organisations to manage and automate many of the business processes across various departments.
environmental social governance (ESG)
The principles of environmental social governance (ESG) reporting include repotting on the environmental, social impact and governance elements of an organisation and, often it’s supply chain.
equity
The residual interest in the assets of the entity after deducting all its liabilities. The organisation’s obligation to its owners.
ethical behaviour
A way of acting that is fair, honest, and respectful of others, inline with social norms.
ethical dilemmas
Situations where individuals must choose between conflicting ethical principles or values.
ethical duty
The obligation of accountants to follow a set of moral principles and rules of conduct when providing financial services and information. These principles include honesty, fairness, objectivity, and responsibility
ethics
The moral principles that govern a person’s behaviour or the conducting of an activity. See also: ethical behaviour.
expenses
Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. It is known as an activity that results in the consumption of value.
external audit
An audit conducted by an independent auditor to provide an opinion on the truth and fairness of an organisation’s financial statements.
faithful representation
The requirement that financial information accurately reflects the economic phenomena it purports to represent. It should show the true nature of the economic situation or substance of the organisation.
familiarity threat
The threat that building a long or close relationship with an audit client’s management can create a reluctance to challenge their decisions, potentially compromising professional scepticism.
financial accounting
The branch of accounting that focuses on the preparation of financial statements for external users, such as investors and creditors.
financial accounting standards board (FASB)
An independent organisation responsible for establishing accounting and financial reporting standards in the United States.
financial analysis
The process of evaluating financial data to understand an organisation’s performance and make informed decisions.
financial capital
Funds available to an organisation for use in the production of goods or services.
financial information
Data related to the financial performance and position of an organisation, used for decision-making by internal and external users.
financial interest
When an assurance (audit) team member or their immediate family has shares or other economic relationships with an audit client.
financial reporting
The process of producing statements that disclose an organisation’s financial status to management, investors, and the government.
financial reporting standards
Guidelines and rules for preparing financial statements, ensuring consistency and comparability.
financial statements
Formal records of the financial activities and position of an organisation that summarise the financial performance and position of an organisation, including the income statement, statement of financial position, and statement of cash flows. Sometimes known as financial reports or annual accounts
financial transactions
Economic events that affect the financial position of an organisation and are recorded in the accounting records.
financing activities
Transactions that result in changes in the size and composition of the equity capital and borrowings of the entity.
fintech
Technology-driven innovations in financial services, including mobile payments, online banking, and blockchain-based solutions.
forensic accounting
A specialisation within accounting that involves investigating financial fraud and providing litigation support.
for-profit organisation
An organisation that aims to make a profit through its operations and is primarily concerned with its own interests.
framework
Structured approaches used to measure and report on different forms of capital, such as the Integrated Reporting Framework.
fraud detection
The process of identifying and investigating fraudulent activities within an organisation.
free cash flow
The cash generated by a company after accounting for capital expenditures, which can be used for expansion, dividends, or debt reduction.
free cash flow to equity (FCFE)
The cash flow available to equity shareholders after accounting for capital expenditures, operating expenses, and debt repayments.
free cash flow to firm (FCFF)
The cash flow available to all investors, including equity and debt holders, after accounting for capital expenditures and operating expenses.
future transactions
Business activities that are intended to have economic consequences in the future, often involving risk and uncertainty.
gearing
The proportion of total financial capital which is debt. Assesses how risky it might be to invest in a business
general ledger
A complete record of all financial transactions over the life of a company, organised by account.
generally accepted accounting principles (GAAP)
the prevailing accounting rules in a jurisdiction, e.g. international financial reporting standards
globalisation
The increasing interconnectedness of economies and markets, which affects the comparability and consistency of financial reports across different countries
global warming potential (GWP)
The relative measure of how much heat a greenhouse gas traps in the atmosphere.
greenhouse gas
Gases that trap heat in the atmosphere, contributing to global warming and climate change. Common GHGs include carbon dioxide (CO₂), methane (CH₄), and nitrous oxide (N₂O).
greenhouse gases (GHGs)
Gases in Earth’s atmosphere that trap heat. They let sunlight pass through the atmosphere, but prevent the heat that the sunlight brings from leaving the atmosphere. The main greenhouse gases are carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O) and chlorofluorocarbons (man-made, fluorinated gases).
greenwashing
A range of reporting practices used by businesses to present their social and environmental performance in a carefully curated way to convince readers they are more sustainable than they actually are.
gross profit margin
The profit after deducting the costs associated with making and selling its products or service (costs of sales).
group accounts
Financial statements that present the financial position and performance of a parent company and its subsidiaries as a single entity.
harmonisation
The process of increasing the compatibility of accounting practices by setting bounds to their degree of variation.
horizontal analysis
A technique used to evaluate financial statement data over a period of time, identifying trends and growth patterns.
human capital
The skills, knowledge, and experience possessed by individuals that contribute to an organisation’s success.
IFRS S1
International Financial Reporting Standards, Sustainability 1 General sustainability disclosures (based on ISSB and TCFD frameworks)
IFRS S2
International Financial Reporting Standards, Sustainability 1 Climate related disclosures (based on ISSB and TCFD frameworks)
income
An increase in equity that results from an increase in assets or a decrease in liabilities, other than from contributions from equity participants. It is an activity that results in the generation of value.
income statement (IS)
A financial statement that shows an organisation’s revenues, expenses, and profits or losses over a specific period. Also known as: the statement of profit and loss.
independence
the ability to make professional decisions without being influenced by personal or business interests.
indirect method
A method of preparing the statement of cash flows where net income is adjusted for changes in balance sheet accounts to calculate cash from operating activities.
Industrial Revolution
During the 1800s, the UK, the US and several other European economies were marked by a move from a reliance on agriculture to an economy characterised by systematisation of production processes (largely through factories and mechanisation of tasks). This was accompanied by developments in rail, sea and air transport, thereby facilitating the transportation of goods and people more reliably than in the past. While this period gave rise to many inventions and increased wealth, it was also a period of colonialisation and gave rise to significant social inequalities.
industrial revolution
During the 1800s the UK, the US, and several other European economies were marked by a move from a reliance on agriculture to an economy characterised by systematisation of production processes.
industry practices
The common accounting and reporting practices within a specific industry that influence how financial information is presented.
information
Information is data that has been analysed or transformed into a meaningful form that can inform decision making.
intangible assets
An identifiable non-monetary asset without physical substance. e.g. software, patents. Informal it is an asset that you cannot touch, which can be separated from the organisation as a whole.
integrated reporting (IR)
A holistic, principles-based way of reporting that recognises that firms use a broad set of resources to generate value. These six capitals comprise financial capital, manufactured capital, human capital, intellectual capital, social and relationship capital and natural capital.
intellectual capital
Intangible assets such as patents, trademarks, and proprietary knowledge.
intellectual property (IP)
Legal rights that result from intellectual activity in the industrial, scientific, literary, and artistic fields, such as patents, copyrights, and trademarks.
interest cover
How many times the interest expense can be paid out of the profit before tax.
interest expense
Expenses which relate to finance costs (e.g., interest) on loans which related to the period.
Intergovernmental Panel on Climate Change (IPCC)
The United Nations body for assessing the science related to climate change.
Internal audit
An audit conducted to assess the effectiveness of internal controls, risk management, and governance processes. This can be completed by an organisation’s own staff or outsourced.
internal controls
Processes and procedures implemented by an organisation to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.
International Accounting Standards Board (IASB)
The international body responsible for setting International Financial Reporting Standards (IFRS). These are applicable to all members of the International Federation of Accountants.
International Accounting Standards (IAS)
Standards issued by the International Accounting Standards Committee (IASC), which were replaced by IFRS in 2001.
International Financial Reporting Standards (IFRS)
A set of accounting standards developed by the International Accounting Standards Board (IASB) that aim to bring transparency, accountability, and efficiency to financial markets around the world.
International Framework for Assurance Engagements
A framework that provides guidelines for conducting assurance engagements, ensuring consistency and quality in the assurance process.
International sustainability standards board (ISSB)
A private-sector body that develops and approves standards for sustainability disclosure. The ISSB’s standards are intended to provide a global baseline for investors and other capital market participants.
internet of things (IoT)
The network of physical objects embedded with sensors, software, and other technologies to connect and exchange data with other devices and systems and the internet
intimidation threat
The threat that an auditor will be deterred from acting objectively or raising concerns or reporting their true findings because of actual or perceived pressures, including attempts to exercise undue influence over the auditor
inventory
Items the company is holding to sell to customers. Also known as: stock.
inventory turnover
How long inventory is held by the entity before it is sold. Also known as: inventory days.
investing activities
The acquisition and disposal of long-term assets and other investments not included in cash equivalents.
investor expectations
The demands and preferences of investors regarding the type and quality of financial information provided by organisations.
journal
A detailed account that records all the financial transactions of a business, listed in chronological order.
Keynesian Economics
An economic theory developed by John Maynard Keynes, emphasising the role of government intervention in stabilising the economy.
key performance indicators (KPIs)
Metrics used to evaluate the success of an organisation or of a particular activity in which it engages.
ledger
A book or digital record where all financial transactions are summarised and categorised into accounts.
Financial compensation that an organisation must pay as a result of legal action taken against it.
The laws and regulations that mandate specific disclosures and reporting practices for organisations.
The framework that defines the legal responsibilities and liabilities of an organisation, such as sole trader, partnership, or corporation.
liabilities
A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. It is something that is owed by the company, that can be settled by handing over as asset (typically cash).
life cycle assessment (LCA)
A technique to assess the environmental impacts associated with all stages of a product’s life, from raw material extraction through to disposal.
limited company
an entity that exists separately from its owners, the shareholders. Their liability is limited to the share capital that they have invested in the company.
limited liability
A situation where business owners’ personal assets are protected from the business’s debts and obligations.
limited liability partnership (LLP)
A partnership where some or all partners have limited liabilities, protecting them from personal responsibility for the business’ debts
liquidity
The ability of an organisation to meet its short-term obligations using its most liquid assets.
liquidity ratios
Ratios that measure an organisation’s ability to meet its short-term obligations, such as the current ratio and quick ratio.
loan
Amounts due to a bank or financial institutions. Also known as: debt or borrowings.
local GAAP
Accounting principles and standards that are specific to a particular country or region, used by entities that do not adopt IFRS.
machine learning
A subset of AI that involves the use of algorithms and statistical models to enable computers to improve their performance on tasks through experience.
management accounting
The branch of accounting that focuses on providing information for internal use by management for decision-making, planning, and control.
management performance measures (MPM)
alternative performance measures designed to supplement the financial reports and provide better insight into the organisation’s performance.
management threat
The threat that an auditor will make management decisions or be perceived to be acting as a representative of management of a client
manufactured capital
Physical objects that are used in production, such as buildings, machinery, and infrastructure.
market conditions
The state of the financial markets, including supply and demand dynamics, which can impact the content and presentation of financial reports.
market ratios
Ratios that provide insights into an organisation’s market performance, such as the price-to-earnings (P/E) ratio and earnings per share (EPS).
materiality
The significance of an item or an amount to a company’s financial statements. Information is considered material if its omission or misstatement could influence the economic decisions of users of the financial statements.
narrative sections
Parts of the annual report that provide context and explanations for the financial data, such as the chief executive report, remuneration report and audit committee report.
natural capital
Natural resources and environmental services that provide value, such as water, minerals, and ecosystems.
natural capital accounting
The process of incorporating the value of natural resources and environmental services into financial reporting.
net asset turnover
How effectively a company turns its capital into revenue.
net cash flow
The total cash inflows minus the total cash outflows over a specific period.
net margin
The percentage of revenue which is converted to net profit which is profit after all expenses including tax and financing costs.
net zero
When the total amount of greenhouse gases (GHG) released and the amount removed from the atmosphere are equal.
neutral
The idea that accounting information should not be shown in a biased way.
non-cash transactions
Transactions that do not involve cash inflows or outflows, such as depreciation, amortisation, and stock-based compensation.
non-current assets
An asset expected to be held for more than 12 months
non-current liabilities
A liability expected to be settled after 12 months
non-GAAP metrics
Financial measures that do not conform to GAAP, often used by management to provide additional insights into the company’s performance.
non-governmental organisation (NGO)
independent organisations, normally not-for-profit. Charities are a form of NGO, established for the public benefit.
non-profit organisation
An entity that operates for purposes other than generating profit, often focusing on social, educational, or charitable activities.
operating activities
The primary revenue-generating activities of a business and other activities that are not investing or financing activities.
operating and administration expense
Expenses which relate to the operating activities of the company. Includes staff, rental, depreciation and amortisation expenses.
operating cash flow margin
A measure of how efficiently a company converts sales into cash, calculated as operating cash flow divided by net sales.
operating profit margin
Represents the profit after deducting all operating expenses. Including cost of sales plus administrative costs and distribution costs. In ratio analysis this is shown as a percentage of revenue demonstrating the percentage of revenue which is converted to operating profit which is profit after overhead expenses.
operational audit
An audit that evaluates the efficiency and effectiveness of an organisation’s operations and processes.
overdraft
Amounts due to a bank or financial institutions. Usually payable back on demand.
partnership
A business structure where two or more individuals share ownership, profits, and liabilities.
parts per million (PPM)
A measurement of greenhouse gases in the atmosphere.
petty cash
A small amount of cash kept on hand for minor or incidental expenses.
posting
The process of transferring journal entry information to the ledger accounts.
predictive analysis
The use of financial ratios and other data to forecast future performance and potential risks.
predictive analytics
The use of statistical algorithms and machine learning techniques to identify the likelihood of future outcomes based on historical data.
prepayments
Expenses which relate to the following period and have been paid in advance. Payments are made in advance for these goods or services to be received in the future and will be recorded as assets until the related benefits are realised.
prescriptive analytics
The use of data to determine the best course of action in a given situation.
price earnings ratio (P/E)
What the market is willing to pay in share price based on an entity’s earnings
pricing techniques
Methods used to determine the selling price of goods and services, considering factors such as cost, competition, and market demand.
private limited company (Ltd)
A type of limited company that does not offer its shares to the public and has restrictions on share transfers.
professional accountant
a qualified individual who has specialised knowledge and skills in accounting, and who is expected to maintain and update that knowledge throughout their career. They are also expected to act with diligence and integrity, and to provide high-quality services to their clients
professional judgement
The process of using knowledge, experience, and training to make informed decisions. It’s a key skill for accountants and auditors, and is used in many areas of accounting, including budgeting, financial reporting, and audits.
professional scepticism
A questioning mind. It includes being alert to conditions that could indicate fraud or error, and critically assessing evidence
profitability ratios
Ratios that assess an organisation’s ability to generate profit, such as the gross profit margin and net profit margin.
profit and loss account
A financial statement that shows an organisation’s revenues, expenses, and profits or losses over a specific period. Also known as: income statement.
profit before tax
Represents profit after deducting all expenses, except tax. All expenses including all operating expenses plus, net finance costs.
profit for the year
Represents the final profit figure, after deducting all expenses from revenue.
provisions
A liability of uncertain timing or amount. Informal it is an amount owed where you are not certain of the amount or if and when it will be paid.
prudence
The application of caution when making judgments about information when conditions may be uncertain.
public interest entities (PIEs)
a business that is of significant public interest. The definition of a PIE can vary by country, but it typically includes businesses that are large, have many employees, or are in a certain industry
public limited company (PLC)
A type of corporation whose shares can be publicly traded on a stock exchange.
qualifications
The certifications and educational achievements required to confer status as a recognised practitioner of a profession or activity.
qualitative data
Information which is non-numerical, often descriptive and subjective in nature.
quantitative data
Information which is expressed in numerical format.
quick ratio
the ability of an organisation to meet short term demands from short term assets, excluding stock (which is not easily convertible to cash).
ratio analysis
A technique used to evaluate relationships between different financial statement items to assess an organisation’s performance.
regulation
The enforcement of rules and standards to ensure accuracy, consistency, and transparency in financial reporting.
relevance
The quality of information that makes it capable of influencing the decisions of users.
renewable energy sources
Energy derived from natural sources that are replenished at a higher rate than they are consumed, such as sunlight and wind. Renewable energy sources are plentiful and all around us.
reporting entity
An organisation or segment of an organisation that is required to prepare financial statements for external users.
retained earnings
Equity that is generated from accumulated profits over time. It represents the company’s obligation to its owners in relation to the company’s accumulated profits.
return on assets (ROA)
A profitability ratio that indicates how efficiently a company is using its assets to generate earnings, calculated as net income divided by total assets.
return on capital employed (ROCE)
How much operating profit is being produced by the various sources of finance (debt and equity). Note that long term debt may include non-current and current elements, some long term debt will be due to be repaid within 12 months.
return on equity (ROE)
A measure of financial performance calculated by dividing net income by shareholders’ equity, indicating how well a company uses investments to generate earnings growth.
return on shareholder funds (ROSF)
How much net profit (i.e. the total profit available to shareholders) is generated per £1 (or $1) of equity
return on total assets (ROTA)
How much operating profit is being produced by all of the assets (non-current and current).
revaluation reserve
Any increases in the value of non-current assets which are not due to be sold. Revaluing fixed assets is an accounting choice and not required under IFRS.
revenue
The gross inflow of economic benefits during the period arising from the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants. It is the income generated from sales of goods or provision of services.
reversing entries
Journal entries made at the beginning of an accounting period to reverse or cancel out adjusting entries made at the end of the previous period.
risk
The possibility of a financial loss or other adverse outcome resulting from uncertain future events.
risk assessment
The process of identifying, analysing, and evaluating risks that could impact an organisation’s objectives.
risk management
The identification, assessment, and prioritisation of risks, followed by coordinated efforts to minimise, monitor, and control the impact of those risks.
robotic process automation
The use of software robots to automate repetitive and rule-based tasks traditionally performed by humans.
scale
The size of an organisation, which can impact the complexity and detail of its financial reports.
science based targets initiative (SBTi)
This is a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI), and the Worldwide Fund for Nature (WWF).
scope 1 emissions
Direct GHG emissions from sources that are owned or controlled by the organisation, such as fuel combustion in company-owned vehicles.
scope 2 emissions
Indirect GHG emissions from the consumption of purchased electricity, heat, or steam.
scope 3 emissions
All other indirect GHG emissions that occur in the value chain of the organisation, including both upstream and downstream emissions.
self-interest threat
The threat that a financial or other interest will inappropriately influence the auditor’s judgement or behaviour
self-review threat
The threat that an auditor will not appropriately evaluate or review the results of a judgement made previously by colleagues from the same firm
share capital
The nominal value of the shares issued within equity of an entity. It represents the sum of money raised by a company through the issue of ordinary shares, and therefore the company’s obligation to its owners in relation to ordinary share ownership.
small and medium enterprises (SMEs)
Businesses that are defined by their size, which can be measured by the number of employees or their annual turnover. The definition of an SME varies by country and industry.
social and relationship capital
The value derived from an organisation’s relationships with stakeholders, including customers, suppliers, and the community.
social capital
The networks, relationships, and social interactions that facilitate cooperation and economic activity.
social costs
The negative impacts of an organisation’s activities on society, including health, safety, and community well-being.
social licence to operate (SLO)
to operate an organisation needs to establish the support of the community that hosts its activities
socio-ecological systems
The complex interactions between society and ecological systems, emphasising the interdependence of human and environmental health.
sole trader
An individual who owns and operates a business alone, bearing full responsibility for its debts and obligations.
solvency
The ability of an organisation to meet its long-term obligations and continue its operations in the long term.
solvency ratios
Ratios that evaluate an organisation’s ability to meet its long-term obligations, such as the debt-to-equity ratio.
source documents
Original records that provide evidence of a transaction, such as invoices, receipts, purchase orders, and bank statements.
stakeholders
Any individual or entity that has an interest in or is affected by the activities of an organisation. Stakeholders can include shareholders, employees, customers, suppliers, creditors, governments, and the community. We acknowledge that the term ‘stakeholder’ is increasingly contested due to its colonial connotations, and we seek to limit its usage.
statement of cash flows
A financial statement that provides a summary of cash inflows and outflows over a specific period, categorised into operating, investing, and financing activities.
statement of financial position (SoFP)
A financial statement that provides a snapshot of an organisation’s assets, liabilities, and equity at a specific point in time. Also known as: balance sheet.
statutory audit
A legally required review of the accuracy of a company’s financial statements and records.
stock
Items the company is holding to sell to customers. It can sometimes refer to the shares held by an investor. Also known as: inventory.
subsidiary ledger
A detailed ledger that contains individual accounts for a specific type of transaction, such as accounts receivable or accounts payable.
sustainability
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It encompasses environmental, social, and economic considerations.
sustainability reporting
The practice of measuring, disclosing, and being accountable for organisational performance towards the goal of sustainable development.
Sustainable Development Goals (SDGs)
A set of 17 global goals established by the United Nations to address social, economic, and environmental challenges.
tangible assets
An asset held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and is expected to be used during more than one period. e.g. property, plant, and equipment. It is an asset you can touch and that is used in the day-to-day activities of the organisation, but not sold to generate revenue
TCFD provides a set of recommendations for the reporting of climate-related financial information. It includes four disclosure pillars; governance (surrounding climate-related risks and opportunities), strategy, risk management and metrics and targets
tax authority
A government agency responsible for collecting taxes and enforcing tax laws.
tax expense
Expenses which relate to company’s tax obligation for the period.
tax haven
A jurisdiction that allow companies to avoid public reporting requirements due to strict confidentiality laws. They often also have low or zero tax rates for companies resident in the jurisdiction.
timeliness
The provision of information to users in time to influence their decisions.
trade creditors
Liabilities to pay for goods or services that have been received or supplied and have been invoiced or formally agreed with the supplier. Informal it is the amount owing to the organisation’s suppliers and is sometimes known as trade payables. See also: trade payables.
trade debtors
Trade receivables arise when an organisation makes sales or provides a service on credit. The total value of trade receivables for an organisation represents the amount of sales which have not yet been paid for by customers. Informal it is the amount owing to the organisation from its customers and is sometimes known as trade receivables. See also: trade receivables.
trade payables
Liabilities to pay for goods or services that have been received or supplied and have been invoiced or formally agreed with the supplier. Informal it is the amount owing to the organisation’s suppliers and is sometimes known as trade creditors. See also: trade creditors.
trade receivables
Trade receivables arise when an organisation makes sales or provides a service on credit. The total value of trade receivables for an organisation represents the amount of sales which have not yet been paid for by customers. Informal it is the amount owing to the organisation from its customers and is sometimes known as trade debtors. See also: trade debtors.
transparency
The quality of being easily seen through, understood, or detected, particularly in the context of financial reporting.
trend analysis
The practice of analysing financial data over multiple periods to identify patterns and trends.
trial balance
A report that lists the balances of all ledger accounts to check the accuracy of bookkeeping and ensure that total debits equal total credits.
triple bottom line
A framework for assessing a company’s performance based on three key areas: People - social performance, including employee welfare, community engagement, and human rights. Planet -environmental performance, including environmental impact, resource conservation, and climate change mitigation. Profit - financial performance, including profitability, revenue growth, and shareholder returns.
understandability
The quality of information that enables users to comprehend its meaning.
unlimited liability
A situation where business owners are personally responsible for all the debts and obligations of their business.
value creation
The process by which an organisation generates value for its stakeholders through the effective use of various forms of capital.
verifiability
The ability to ensure that different knowledgeable and independent observers can reach a consensus that a particular depiction is faithfully represented.
vertical analysis
A method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities, and equity) in a balance sheet is represented as a proportion of the total account.
working capital
The difference between current assets and current liabilities, representing the short-term liquidity of a company.
working capital cycle
This shows how many days after paying a supplier for goods it takes receive cash from customers. This will vary across different industries. A longer cycle is expensive for a company as it will need to maintain higher cash levels.
year-end adjustments
Adjustments made at the end of an accounting period to account for accrued expenses, prepayments, bad debts, and provisions.