CPA exam glossary

This glossary defines 310 terms of art used on the CPA exam, each one stated against the standard it comes from.

A

• accelerated filer: A public company with public float of at least 75 million dollars that has been reporting for at least a year.
• access control: Deciding who may reach what, and enforcing it.
• accounts receivable: Amounts customers owe for goods or services already delivered.
• accretion expense: The increase in an asset retirement obligation from the passage of time, measured by the interest method at the credit-adjusted risk-free rate in effect when the liability was first measured.
• accumulated adjustments account: The running total of an S corporation's post-election taxable income less distributions.
• accumulated earnings and profits: The C corporation earnings and profits an S corporation carries into S status.
• acquisition-date fair value: What something was worth on the day control changed hands.
• additional paid-in capital: Amounts received from shareholders above the par or stated value of the shares issued, reported as a separate equity caption.
• adjusted basis: What the taxpayer has invested in property for tax purposes: cost, plus improvements, less depreciation taken.
• adverse opinion: The opinion given when misstatements are both material and pervasive, so the statements are not fair at all.
• agreed-upon procedures: An engagement where the practitioner performs procedures the parties have specified and reports the findings, expressing no opinion.
• allowance for credit losses: The amount set aside for receivables not expected to be collected, estimated over the whole expected life of the asset rather than only once a loss is probable.
• analytical procedures: Evaluations of financial information by studying plausible relationships among financial and nonfinancial data.
• annual exclusion: The amount a donor may give each recipient each year with no gift tax and no return.
• applicable financial reporting framework: The framework management adopts for the statements, such as GAAP or a special purpose framework.
• applicable percentage: A rate the Code supplies for a specific computation, often phasing in or out over a range.
• application controls: Controls built into one business process or system, such as a validity check on an input field or a three-way match.
• assessed risk: The auditor's judgment about the risk of material misstatement at the assertion level, combining inherent and control risk.
• asset acquisition: Buying a group of assets that does not amount to a business.
• asset retirement obligation: A legal obligation associated with the retirement of a tangible long-lived asset, recognized at fair value in the period incurred, with an equal asset retirement cost capitalized into the asset.
• at-risk amount: How much a taxpayer could actually lose in an activity: cash and property contributed, plus debt they are personally liable for.
• audit committee: A subcommittee of the board of directors that oversees financial reporting and the external audit.
• audit evidence: Everything the auditor uses to reach a conclusion, including the accounting records and anything corroborating them.
• audit procedures: The specific work performed: inspection, observation, inquiry, confirmation, recalculation, reperformance and analytical procedures.
• audit sampling: Selecting and evaluating less than 100% of a population of audit relevance so the sample is expected to be representative, giving a reasonable basis for conclusions about the whole population.
• audit strategy: The overall scope, timing and direction of the engagement, set before the detailed plan.
• auditor's opinion: The conclusion the audit exists to produce.
• auditor's report: The document carrying the opinion, with its sections in a fixed order.
• average total assets: The average of opening and closing total assets, used wherever a period flow like sales is compared to a balance.

B

• balance sheet: A snapshot at one date of what the entity owns, what it owes, and the owners' residual.
• balance sheet date: The last day of the reporting period.
• bargain purchase gain: The gain recognized when identifiable net assets acquired exceed what was paid.
• basis of accounting: The rule for WHEN something is recorded: cash when money moves, accrual when it is earned or incurred, modified accrual somewhere between.
• boot: Anything received in an otherwise tax-free exchange that is not the qualifying property, typically cash or debt relief.
• built-in loss: Loss that already existed in property before it changed hands, measured at the transfer date.
• burden of proof: Which side has to prove the point.
• business combination: A transaction in which one entity obtains control of a business.

C

• C corporation: A corporation taxed in its own right under subchapter C.
• California Consumer Privacy Act: California's consumer privacy statute, as amended by the CPRA.
• capital asset: For tax, almost everything a taxpayer owns EXCEPT inventory, receivables, and depreciable or real property used in a trade or business.
• capital assets: In GOVERNMENTAL reporting, long-lived assets such as land, buildings and infrastructure.
• capital gain net income: Capital gains minus capital losses for the year, long-term and short-term combined.
• capital loss: Loss on the sale of a capital asset.
• capital structure: The mix of debt and equity funding the entity uses.
• capitalize: To record a cost as an asset and spread it over the periods it benefits, rather than expensing it immediately.
• carrying amount: What an asset or liability is currently shown at on the balance sheet: its original amount adjusted for depreciation, amortization, impairment or accrual.
• carryover basis: Basis that follows the property from the previous owner instead of resetting to what was paid.
• carve-out method: Excludes a subservice organization's control objectives and controls from both the description and the scope of the service auditor's report.
• cash basis: Recognizing revenue when cash is received and expense when cash is paid.
• cash equivalents: Short-term, highly liquid investments readily convertible to known amounts of cash and so near maturity that interest rate changes pose insignificant risk.
• change in accounting estimate: A revision to an estimate because new information arrived, applied prospectively in the period of change and later periods, never by restating prior statements.
• change in accounting principle: A switch from one acceptable principle to another, allowed only when a new standard requires it or the new principle is preferable.
• claim for refund: A formal request to get back tax already paid.
• clearly trivial: So small that it plainly does not matter, on its own or added to everything else.
• committed fund balance: Fund balance constrained to a purpose by formal action of the government's own highest level of decision-making authority, and removable only by the same kind of action.
• competence, capabilities, and objectivity: The three things evaluated before relying on anyone else's work: whether they have the skill, whether they have the resources to apply it, and whether they are free of pressure to reach a particular answer.
• complementary user entity controls: Controls a service organization assumes its customers are running.
• component materiality: Materiality set for one part of a group, below group materiality, so that undetected errors across several components cannot add up past the group threshold.
• component unit: A legally separate organization for which the primary government is financially accountable.
• conditional contribution: A promised gift that depends on a barrier the recipient must overcome and a right of return if it does not.
• consideration: The bargained-for exchange that makes a promise enforceable.
• constructive receipt: Income is taxed when it is made available without substantial restriction, not when it is collected.
• consumer goods: Goods bought mainly for personal, family or household use.
• continuing operations: Everything the entity still does, as opposed to a component it has disposed of or classified as held for sale.
• contract asset: The right to consideration for goods or services already transferred, where the right still depends on something other than the passage of time.
• contract liability: The obligation to transfer goods or services for which the customer has already paid, or for which payment is unconditionally due.
• contractual basis: A special-purpose framework built from the terms of a contract, used when two parties agree how the numbers will be prepared for their own purposes.
• contribution margin: Sales less variable cost.
• control environment: The governance and management functions and the attitudes, awareness, and actions of those charged with governance and management concerning the entity's system of internal control.
• control objectives: What a set of controls is supposed to achieve, stated so that it can be tested.
• control risk: The risk that the entity's own controls will not prevent, or detect and correct, a material misstatement on a timely basis.
• COSO Internal Control - Integrated Framework: The reference model for internal control: five components and seventeen principles, all of which must be present and functioning for control to be effective.
• cost of goods sold: What the items actually sold cost to make or buy.

D

• data warehouse: A separate store holding integrated historical data organized for analysis, rather than for running the business day to day.
• days sales outstanding: How long on average it takes to collect a receivable, measured as receivables divided by credit sales per day.
• debt basis: An S corporation shareholder's basis in loans they personally made to the corporation.
• defense in depth: Layering independent controls so that no single failure exposes the asset.
• deferred inflow of resources: An acquisition of net assets that belongs to a future period, so it sits between liabilities and equity on a government's statement of net position rather than in either.
• deferred outflow of resources: A consumption of net assets that belongs to a future period.
• deferred tax asset: A future tax saving created when an item is deducted for accounting before it is deducted for tax, or when a loss can be carried forward.
• deferred tax liability: The deferred tax consequences of taxable temporary differences: income already in the books that the return has not taxed yet, or a deduction taken on the return ahead of the books.
• derecognition: Taking an asset or liability off the books, because it has been sold, settled, transferred or has expired.
• description of the system: Management's account of the service it provides and the controls around it.
• diluted earnings per share: Earnings per share computed as though every dilutive potential common share had been issued; antidilutive securities are excluded.
• direct financing lease: A lessor lease where control transfers only because a third-party guarantee makes collection probable.
• direct skip: A transfer straight to someone two or more generations below the transferor, such as a grandchild.
• disallowed loss: A loss the Code refuses to let you deduct, typically on a sale to a related person or a wash sale.
• disclaimer of opinion: The auditor states that no opinion is expressed, because they could not get evidence and the possible effect is pervasive.
• distributable net income: The ceiling on what a trust or estate may deduct for distributions and on what the beneficiary must report.
• dividends-received deduction: A deduction that keeps corporate profit from being taxed three times as it passes between corporations.
• dual-purpose test: One procedure that tests a control and substantively tests the transaction at the same time, on the same sample.
• due diligence: The specific inquiry, documentation and record-keeping a preparer must perform before claiming certain credits or head-of-household status.

E

• earned income: Compensation for personal services -- wages, or net earnings from self-employment.
• earnings and profits: A corporation's cumulative economic capacity to pay a distribution out of earnings rather than out of capital.
• effective portion: The part of a cash flow hedge's gain or loss that actually offsets the hedged risk.
• emphasis-of-matter paragraph: A paragraph drawing attention to something already properly presented in the statements.
• encryption at rest: Protecting stored data so that reading the disk or the backup yields nothing usable.
• engagement quality review: An objective evaluation of the significant judgments and the conclusions reached, performed by someone not on the engagement team before the report is released.
• enterprise fund: A proprietary fund used where a government charges outside users for goods or services, run on the full accrual basis like a business.
• equity method: Used when the investor can exercise significant influence, presumed at 20% or more of the voting stock.
• equity multiplier: Total assets divided by equity.
• excess business loss: The amount by which a noncorporate taxpayer's aggregate business deductions exceed business income plus a threshold.
• extract, transform, load: The sequence that moves data from source systems into a data warehouse: extract from the sources, transform into a common structure, then load into the target.

F

• fair market value: The price at which property would change hands between a willing buyer and a willing seller, neither under compulsion and both reasonably informed.
• finance lease: A lessee lease that meets one of five transfer-of-control tests.
• financial statements: The formal set an entity publishes: balance sheet, income statement, statement of cash flows, statement of changes in equity, and the notes.
• foreign key: A column, or set of columns, in one table whose values must correspond to a primary key in another table.
• full accrual: Recognizing revenue when earned and expense when incurred, and reporting every asset and liability including long-term ones.
• functional currency: The currency of the main economic environment in which an entity operates, which is usually where it generates and spends cash.
• functional expense: Expense classified by what it was FOR -- program, management and general, fundraising -- rather than by what it was.
• further audit procedures: The work done in response to assessed risk: tests of controls and substantive procedures.

G

• general controls: Controls over the IT environment as a whole -- access, change management, operations -- that everything else depends on.
• General Data Protection Regulation: The European Union regulation governing processing of personal data.
• general IT control: A control over the entity's IT processes that supports the continued effective functioning of information-processing controls and the integrity of information.
• general use: A report anyone may read, such as a SOC 3.
• going concern: The assumption that the entity will keep operating long enough to realize its assets and meet its obligations.
• goodwill: An asset representing the future economic benefits of acquired assets not separately identified, measured as consideration less identifiable net assets.
• governmental activities: The part of a government's operations financed mainly by taxes rather than by fees, reported on the government-wide statements on the full accrual basis.
• governmental funds: The funds that account for tax-supported activity, reported on the modified accrual basis with a current financial resources focus.
• grantor trust: A trust whose income is taxed to the person who created it, because they kept too much control.
• gross income: All income from whatever source derived, unless the Code specifically excludes it.
• gross profit: Sales less the cost of goods sold, before any operating expense.
• guaranteed payment: A payment to a partner for services or the use of capital, determined without regard to partnership income.

H

• held for sale: A classification for a component the entity is actively marketing and expects to sell within a year.
• hot assets: A partnership's unrealized receivables and inventory.

I

• impairment: Writing an asset down because its carrying amount can no longer be recovered.
• inclusive method: Brings a subservice organization's controls inside the description and the scope of the service auditor's report, so one report covers both organizations.
• income statement: The statement of what was earned and spent over a period, ending in net income.
• information and communication: One of the five components of internal control: how an entity obtains the information it needs and gets it to the people who have to act on it.
• information-processing control: A control over processing in an IT application or a manual information process that directly addresses a risk to the integrity of information.
• inherent risk: The susceptibility of an assertion to material misstatement before any control is considered.
• innocent spouse relief: Relief from joint liability for a spouse who did not know, and had no reason to know, of an understatement on a joint return, where it would be inequitable to hold them liable.
• inside basis: The partnership's own tax basis in the assets it holds.
• interest expense: The cost of borrowing for the period, accrued as time passes rather than when the payment is made.
• interest income: What a lender earns for the use of its money over time, recognized as it is earned.
• internal audit: An in-house function that evaluates controls and processes and reports to those charged with governance.
• internal control over financial reporting: A process designed to provide reasonable assurance regarding the preparation of reliable financial statements.
• internal service fund: A proprietary fund that supplies goods or services to other parts of the same government on a cost-reimbursement basis, such as a motor pool.
• internal-use software: Software acquired or built for the entity's own operations.

K

• kiddie tax: Taxing a child's unearned income above a threshold at the parents' rate, so that income cannot be shifted to a lower bracket by gift.

L

• large accelerated filer: A public company with public float of at least 700 million dollars.
• lease liability: The lessee's obligation to make the remaining lease payments, measured at their present value.
• lease term: The non-cancellable period, plus any option period the lessee is reasonably certain to take, plus any period controlled by the lessor.
• least privilege: Giving each user and process only the access it needs to do its job, and no more.
• level of assurance: How much confidence the practitioner expresses.
• liabilities assumed: Obligations the acquirer takes on as part of a combination.
• like-kind exchange: A swap of real property held for business or investment, where gain is deferred rather than recognized.
• limited partnership: A partnership with at least one general partner who manages and is personally liable, and limited partners who invest without personal liability or control.
• lineal descendant: A person in the direct downward line from an individual: child, grandchild, great-grandchild.
• loss contingency: An existing condition involving uncertainty that may produce a loss, resolved by a future event.

M

• management override: Management using its authority to bypass controls that otherwise work.
• management's discussion and analysis: A narrative overview management provides ahead of the financial statements.
• management's specialist: An expert management uses to help prepare the financial statements, such as an actuary or an appraiser.
• married filing separately: A filing status where spouses report their own income on their own returns.
• material misstatement: An error or omission in the financial statements large enough, or of a kind, that it could change the decision of a reasonable user relying on them.
• material participation: Involvement in an activity that is regular, continuous and substantial, tested against seven alternative standards.
• material weakness: A deficiency, or combination of deficiencies, in internal control over financial reporting where there is a reasonable possibility that a material misstatement will not be prevented, or detected and corrected, on a timely basis.
• measurement date: The date at which an amount is fixed for accounting.
• modified accrual: The basis for governmental fund statements: revenue when measurable and available, expenditure when the liability is incurred.
• monetary penalty: A fixed dollar amount imposed for a specific failure, separate from the tax owed and separate from interest.
• more likely than not: A greater than 50 percent chance of being sustained on its merits.
• multi-factor authentication: Requiring evidence from two or more different categories: something you know, something you have, something you are.

N

• nature, timing, and extent: The three dials on any audit procedure: what kind of test, when it is run, and how much of the population it covers.
• net assets: Assets less liabilities.
• net capital gain: Net long-term capital gain minus net short-term capital loss.
• net income: What is left after every revenue and expense of the period, including tax and discontinued operations.
• net investment income: Interest, dividends, capital gains, rents, royalties and income from passive businesses, less the deductions allocable to them.
• net of tax: Stated after the tax effect has been taken out.
• net operating loss: A year in which allowable deductions exceed gross income.
• net position: A government's assets plus deferred outflows, less liabilities and deferred inflows.
• net profit margin: Net income divided by sales.
• net realizable value: Estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation.
• net sales: Gross sales less returns, allowances and discounts.
• NIST Cybersecurity Framework: A voluntary framework of cybersecurity outcomes organized into functions.
• noncontrolling interest: The share of a subsidiary that the parent does not own.
• nonresident alien: An individual who is neither a United States citizen nor a resident under the green card or substantial presence tests.

O

• online analytical processing: Processing optimized for querying accumulated data across many dimensions, as a data warehouse does.
• operating cycle: How long it takes to turn cash into inventory, inventory into a receivable, and the receivable back into cash.
• operating effectiveness: Whether a control actually worked across the period, as opposed to whether it was well designed.
• operating income: Profit from the core business, before interest and tax.
• operating lease: A lease that does not transfer control.
• operating leverage: How much a company's profit moves for a given move in sales, driven by how much of its cost is fixed.
• operating segment: A component of a public entity that may recognize revenues and incur expenses, whose operating results the chief operating decision maker reviews to allocate resources and assess performance, and for which discrete financial information is available.
• ordinary income: Income taxed at the regular graduated rates rather than at preferential capital gain rates.
• ordinary loss: A loss deductible against ordinary income without the capital loss limits.
• other comprehensive income: Gains and losses that bypass net income and sit in equity until realized, such as unrealized gains on available-for-sale debt securities and foreign currency translation.
• other information: Financial and non-financial information included in the annual report outside the audited statements.
• outside basis: A partner's tax basis in the partnership interest itself.
• overall materiality: Materiality for the statements as a whole, set during planning.

P

• partnership interest: A partner's stake in the partnership itself, distinct from any interest in its underlying assets.
• partnership liabilities: Debt of the partnership, allocated among the partners and added to their outside basis.
• passive activity: A trade or business in which the taxpayer does not materially participate, plus most rental activity.
• passive income: Income from an activity the taxpayer does not materially participate in, plus most rental income.
• PCAOB standards: The auditing standards that apply to audits of issuers, numbered AS.
• PCI DSS: The Payment Card Industry Data Security Standard: contractual rules that anyone storing, processing or transmitting card data must follow.
• penetration test: An authorized simulated attack that tries to actually exploit weaknesses, as opposed to a vulnerability scan, which only lists what might be exploitable.
• perfection: The step that makes a security interest good against other creditors, usually by filing a financing statement.
• performance obligation: A promise in a contract to transfer a distinct good or service.
• personal holding company income: Mostly passive income -- dividends, interest, rents, royalties -- which, with concentrated ownership, triggers a penalty tax on undistributed amounts.
• phishing: Tricking a person into surrendering credentials or running malware, usually by email that impersonates something trusted.
• piercing the corporate veil: A court setting aside limited liability and reaching the owners personally, typically where the entity was undercapitalized, its formalities ignored, or its funds mixed with the owner's.
• preferred dividends: Dividends owed to preferred shareholders before common receives anything.
• present fairly: The overall judgment behind an opinion: the statements as a whole give a true picture within the applicable framework, beyond mere technical compliance with each rule.
• present value: What a future amount is worth today, once a discount rate has been applied for the waiting.
• primary beneficiary: The party that must consolidate a variable interest entity: the one with power over its significant activities AND exposure to losses or returns that could be significant.
• primary key: The column or combination of columns that uniquely identifies each row in a relational table.
• prior period adjustment: A correction of a material error in previously issued statements.
• Privacy Rule: The HIPAA rule governing who may use or disclose protected health information and on what terms.
• private foundation: A tax-exempt organization funded from one source rather than from the public.
• processing integrity: One of the trust services categories: system processing is complete, valid, accurate, timely and authorized.
• professional skepticism: An attitude that includes a questioning mind and a critical assessment of evidence.
• program changes: The IT general control area covering modifications to systems already in production: requested, tested, approved and migrated by someone other than the developer.
• program development: The IT general control area covering how new systems are built, tested and approved before going live.

Q

• qualified business income: The net income from a domestic pass-through trade or business, excluding investment income and reasonable compensation.
• qualified nonrecourse financing: Borrowing secured by real property from a commercial lender, where nobody is personally liable.
• qualified opinion: The opinion given when a misstatement is material but not pervasive, or when evidence the auditor could not obtain would have been.
• qualified or adverse: The two modified opinions used when the auditor has the evidence but disagrees with the statements: qualified when the effect is material, adverse when it is also pervasive.

R

• reacquisition price: What it costs to retire debt early, including any call premium.
• real property: Land and anything permanently attached to it, such as a building.
• reasonable basis: The lowest standard at which a return position may be taken without penalty if it is disclosed.
• reasonable cause: An excuse the Code accepts for failing to file, pay or report correctly, when the taxpayer exercised ordinary business care and prudence.
• reasonable possibility: More than remote.
• recognition period: The window during which a converted C corporation's built-in gains remain exposed to the corporate-level tax.
• recognized gain: The part of realized gain that actually goes on the return this year.
• recovery point objective: How much data the organization can afford to lose, measured as time.
• recovery time objective: How long a system may stay down before the disruption is unacceptable.
• referential integrity: The database rule that a foreign key must point at a row that actually exists.
• regular tax: Tax computed under the ordinary rules, before the alternative minimum tax is considered.
• regulatory basis: A special-purpose framework required by a regulator, such as an insurance department's rules.
• related person: A person close enough to the taxpayer that the Code distrusts the transaction: family, controlled entities, and certain fiduciaries.
• rental real estate: Real property held to produce rent.
• report release date: The date the auditor grants the entity permission to use the report.
• reporting entity: The unit whose statements are being presented, including everything it controls.
• reporting unit: An operating segment or one level below it, and the level at which goodwill is tested for impairment.
• required supplementary information: Schedules a government must present outside the basic statements, such as budgetary comparisons and pension trend data.
• restricted fund balance: Fund balance constrained to a purpose by an external party, a constitutional provision, or enabling legislation.
• restricted use: A report intended only for named parties who understand its context, such as a SOC 2 report.
• retained earnings: Cumulative profit the entity has kept rather than paid out as dividends.
• retrospective review: Comparing last period's accounting estimates against what actually happened, to see whether management's judgments lean consistently in one direction.
• revenue recognition: Deciding when a sale becomes revenue.
• right-of-use asset: The lessee's asset representing its right to use the leased item for the lease term.
• rights and obligations: The assertion that the entity genuinely owns the assets it reports and genuinely owes the liabilities.
• risk appetite: How much risk an organization is willing to accept in pursuit of its objectives, set by the board.
• risk assessment procedures: The audit procedures designed and performed to identify and assess the risks of material misstatement at the financial statement and assertion levels.
• risk of material misstatement: The risk that the statements are materially misstated before the audit begins.

S

• S corporation: A corporation that elects to be taxed like a partnership, so profit is taxed once in the shareholders' hands.
• Safeguards Rule: The FTC rule requiring financial institutions to maintain a written information security program with a named qualified individual responsible for it.
• sales-type lease: A lessor lease that transfers control of the asset, so the lessor derecognizes it and records selling profit at commencement.
• scope limitation: Anything that stops the auditor obtaining evidence they judged necessary, whether imposed by the client or by circumstance.
• segregation of duties: Splitting a sensitive process so no one person can both commit and conceal an error or fraud.
• selecting specific items: Choosing particular items to examine because of what they are, such as large or unusual ones, rather than at random.
• self-employment tax: Social Security and Medicare tax paid by someone working for themselves, covering both the employee and employer halves.
• senior management: The people who direct and control the entity day to day, as distinct from those charged with governance, whose job is to oversee them.
• separately stated item: Income, deduction or credit that keeps its own character as it passes through to the owner, because the owner's own situation decides how it is taxed.
• service organization: A third party whose processing affects a user entity's financial reporting, such as a payroll bureau or a claims processor.
• significant deficiency: A deficiency, or combination of deficiencies, less severe than a material weakness but important enough to merit attention by those charged with governance.
• significant risk: A risk of material misstatement that warrants special audit attention because of its likelihood or its size.
• single audit: The combined financial statement and federal compliance audit required of an entity spending above a threshold in federal awards.
• small business corporation: The eligibility test for an S election: a domestic corporation, not an ineligible corporation, with no more than 100 shareholders, no shareholder other than an individual, estate, qualifying trust, or qualifying exempt organization, no nonresident alien shareholder, and one class of stock.
• SOC 1 Type 1 report: A report on the fairness of the description and the suitability of the design of controls, at a point in time.
• SOC 1 Type 2 report: A report covering the description, the suitability of design, and the operating effectiveness of controls over a period.
• SOC 2 report: A report on a service organization's controls against the trust services criteria, covering security plus any of availability, processing integrity, confidentiality, and privacy that are selected.
• SOC 3 report: A general use report on the same trust services criteria as a SOC 2, without the system description or the tests and results.
• SQL injection: An attack that smuggles database commands through a field meant for ordinary input.
• standard deduction: A flat amount any taxpayer may subtract instead of itemizing.
• statement of cash flows: The statement that explains the change in cash by sorting it into operating, investing and financing activity.
• statute of frauds: The rule that certain contracts are unenforceable unless evidenced in writing and signed, including sales of land, sales of goods of 500 dollars or more, and agreements that cannot be performed within a year.
• statute of limitations: The window in which the Service may assess more tax, normally three years from filing, extended to six for a substantial omission of income and unlimited for a false return or none at all.
• step-up in basis: Resetting inherited property's basis to its fair market value at the date of death, which erases the unrealized gain of the decedent's lifetime.
• stock basis: A shareholder's investment in S corporation stock for tax purposes.
• straight debt: A written unconditional promise to pay a sum certain whose interest is not contingent on profits, which is not convertible into stock, and whose creditor is an individual other than a nonresident alien, an estate, qualifying trust, or regular lender.
• straight-line: Spreading an amount evenly across the periods it covers.
• subsequent event: Something that happens between the balance sheet date and the date the statements are issued.
• substantial authority: The standard between reasonable basis and more likely than not: roughly a 40 percent chance, judged on the weight of published authorities rather than on the preparer's confidence.
• substantive procedures: Work aimed directly at detecting misstatement in a balance or disclosure, as opposed to testing whether a control operated.
• sufficient appropriate audit evidence: Enough evidence, of the appropriate kind.
• suitably designed: The controls, if they operated as described, would achieve the stated objective.

T

• tax basis: What an asset or liability is worth for tax purposes, which is often not what it is worth for accounting.
• tax exempt: Not subject to tax.
• taxable income: The figure the tax rates are applied to: gross income, less the deductions the Code allows.
• technological feasibility: The point at which software to be sold, leased, or otherwise marketed reaches a completed detail program design or, absent one, a working model.
• temporary difference: A difference between the tax basis of an asset or liability and its reported amount that will produce taxable or deductible amounts in future years.
• tentative minimum tax: The alternative minimum tax computed on its own, before comparing it to the regular tax.
• tests of controls: Procedures that check whether a control actually operated as described throughout the period.
• tests of details: Substantive procedures aimed at individual transactions, balances or disclosures, rather than at the relationships between numbers that analytical procedures examine.
• those charged with governance: The people responsible for overseeing the entity's strategic direction and its accountability, including the financial reporting process.
• tolerable misstatement: A monetary amount set so that the risk of the actual misstatement in the population exceeding it is acceptably low.
• total asset turnover: Sales divided by average total assets.
• total assets: Everything the entity controls that is expected to produce future benefit, added up.
• total liabilities: Everything the entity owes, added up.
• trade or business: An activity carried on regularly, continuously and with a profit motive.
• transaction price: The consideration an entity expects to be entitled to for transferring goods or services, excluding amounts collected for third parties such as sales tax.
• treasury stock: A company's own shares reacquired and not retired.
• Trust Services categories: The five subject areas a SOC 2 can cover: security, availability, processing integrity, confidentiality and privacy.
• trust services criteria: The AICPA's control criteria for a SOC 2 engagement, in five categories: security, availability, processing integrity, confidentiality and privacy.
• Type 1 subsequent event: A recognized subsequent event: it gives evidence about a condition that already existed at the balance sheet date, so the statements are adjusted.
• Type 2 subsequent event: A nonrecognized subsequent event: the condition came into existence after the balance sheet date, so it is disclosed and never adjusted.

U

• unified credit: The credit that shelters the basic exclusion amount from gift and estate tax.
• unqualified opinion: The clean opinion: the statements are presented fairly in all material respects.
• user auditor: The auditor of an entity that uses a service organization.
• user entities: The customers of a service organization, whose own financial reporting or systems depend on the service organization's controls.

V

• valuation allowance: The contra account reducing a deferred tax asset to the portion more likely than not to be realized, meaning a likelihood above 50%.
• variable consideration: Any part of a contract price that is not fixed, such as a bonus, a discount or a refund.
• variable interest entity: An entity that cannot fund itself without further support, or whose equity holders lack the usual powers.
• variance analysis: Splitting the gap between budget and actual into causes, typically price and quantity, so that the responsibility for each can be located.

W

• wash sale: Selling a security at a loss and buying a substantially identical one within 30 days either side.
• weighted average cost of capital: The blended after-tax cost of a company's debt and equity, weighted by how much of each it uses.
• working capital: Current assets less current liabilities.
• written assertion: Management's own signed statement that the description is fair and the controls are suitably designed.
• written representations: Statements the auditor requires from management to confirm matters or support other evidence.

Common questions

What is a CPA exam glossary?

This glossary defines 310 terms of art used on the CPA exam, each one stated against the standard it comes from.

See also

• The CPA exam, section by section
• CPA licensure requirements by state