Glossary · 60 terms
Accounting
All accounting terms in the EquitiesIndia.com glossary — plain-English definitions written for Indian retail investors.
Amortisation(Amortization)
Amortisation is the systematic write-off of the cost of an intangible asset over its useful economic life, analogous to depreciation for tangible assets.
Audit Trail Requirement(Edit Log Requirement)
The audit trail requirement under the Companies (Accounts) Amendment Rules 2021 mandates that accounting software used by companies must record an immutable log of every transaction and its alteration, with the feature enabled at all times during the financial year.
Auditor Report(Statutory Audit Report)
The auditor's report is the independent statutory auditor's opinion on whether a company's financial statements present a true and fair view of its financial position and performance, in accordance with applicable accounting standards.
Balance Sheet(Statement of Financial Position)
A balance sheet is a financial statement that presents a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of what the company owns, owes, and the residual interest of its owners.
Beneish M-Score(M-Score earnings manipulation)
The Beneish M-Score is an eight-variable accounting model developed by Messod Beneish in 1999 that uses financial statement ratios to identify the probability that a company has engaged in earnings manipulation, with a score above -1.78 commonly used as a threshold suggesting material manipulation risk.
Benford's Law (Accounting Fraud Detection)(Benford distribution)
Benford's Law is a mathematical observation that in many naturally occurring numerical datasets, the first significant digit is not uniformly distributed but follows a specific logarithmic distribution — with 1 appearing most frequently (about 30.1%) and 9 least frequently — and deviations from this expected distribution in financial statements can serve as a forensic signal of potential data manipulation or fraud.
Biological Assets (Ind AS 41)(Ind AS 41)
Ind AS 41 governs the accounting for biological assets — living animals and plants used in agricultural activity — requiring measurement at fair value less costs to sell, with changes in fair value recognised in profit or loss in the period they arise.
Capital vs Revenue Expenditure(Capex vs Opex Accounting)
Capital expenditure creates or enhances an asset providing future economic benefits and is capitalised on the balance sheet, while revenue expenditure is consumed within the period and immediately expensed, with the distinction governed by capitalisation policies and materiality thresholds.
Cash Flow from Financing (CFF)(CFF)
Cash flow from financing (CFF) records all cash movements between a company and its capital providers — including equity issuances and buybacks, debt borrowings and repayments, lease liability payments, and dividend distributions to shareholders.
Cash Flow from Investing (CFI)(CFI)
Cash flow from investing (CFI) captures all cash inflows and outflows related to the acquisition and disposal of long-term assets and investments, including capital expenditure, acquisitions, proceeds from asset sales, and investment in financial securities.
Cash Flow from Operations (CFO)(CFO)
Cash flow from operations (CFO) is the net cash generated or consumed by a company's core business activities during a period, derived by adjusting net profit for non-cash items and working capital changes using the indirect method under Ind AS 7.
Cash Flow Statement(Statement of Cash Flows)
The cash flow statement reports all actual cash inflows and outflows during a period, categorised into operating, investing, and financing activities, reconciling the opening and closing cash balances.
Consolidation vs Standalone Financials(consolidated accounts)
Standalone financial statements report the results and financial position of a single legal entity, while consolidated financial statements aggregate the results of a parent company and all its subsidiaries into a single set of accounts, presenting the economic group as if it were one enterprise.
Contingent Liability(Off-Balance Sheet Obligation)
A contingent liability is a potential obligation that may arise depending on the outcome of a future event — such as a court case or tax dispute — which is disclosed in the notes to financial statements rather than recorded on the balance sheet.
Contract Assets vs Contract Liabilities(Unbilled Revenue)
Under Ind AS 115, a contract asset arises when an entity has transferred goods or services to a customer before the customer pays, while a contract liability (deferred revenue) arises when the customer pays before the entity performs — both reflecting timing differences between performance and billing.
Cost Audit(Section 148 Cost Audit)
Cost audit, mandated under Section 148 of the Companies Act 2013, requires specified manufacturing and service companies to maintain prescribed cost records and have them audited by a cost accountant, providing regulators with detailed product-level cost data.
Deferred Revenue(Unearned Revenue)
Deferred revenue is a liability representing cash received from customers for goods or services not yet delivered, recognised on the balance sheet until the performance obligation is satisfied in accordance with Ind AS 115.
Deferred Tax Asset(DTA)
A Deferred Tax Asset (DTA) is a balance sheet item representing taxes paid or carried forward that can be offset against future taxable income, arising from timing differences between accounting profit and taxable profit.
Deferred Tax Liability(DTL)
A Deferred Tax Liability (DTL) is a balance sheet obligation representing taxes that are owed but have not yet been paid because of timing differences where income has been recognised for accounting purposes earlier than it is taxable.
Depreciation(D&A)
Depreciation is the systematic allocation of the cost of a tangible fixed asset over its useful life, reflecting the gradual consumption of the asset's economic value through use, obsolescence, or passage of time.
Earnings Management(creative accounting)
Earnings management refers to deliberate use of accounting judgment and discretionary accruals within or beyond the boundaries of accepted accounting standards to achieve specific earnings outcomes — meeting analyst estimates, avoiding covenant breaches, or influencing executive compensation tied to reported profits.
Emphasis of Matter(EOM paragraph)
An Emphasis of Matter paragraph is a section added to an audit report — without modifying the audit opinion — to draw users' attention to a matter that is already adequately disclosed in the financial statements but is of such fundamental importance that the auditor believes highlighting it is essential for users' understanding.
Exceptional Items(Below the Line Items)
Exceptional items are material income or expense items that, by virtue of their size or nature, require separate disclosure within the statement of profit and loss to enable users to assess the underlying financial performance of the entity, as guided by Ind AS 1.
Extraordinary Items (Ind AS)(Ind AS Extraordinary Items)
Under Indian Accounting Standards, the concept of extraordinary items was abolished; items that were historically classified as extraordinary are now either absorbed into operating results or disclosed as exceptional items, reflecting a shift toward greater transparency in profit reporting.
Fair Value Accounting
Fair Value Accounting is the practice of measuring and reporting assets and liabilities at their current market price or estimated market value (fair value) rather than at historical cost, providing more timely information about economic values but introducing volatility into financial statements.
Forensic Accounting(forensic audit)
Forensic accounting applies specialised accounting, auditing, and investigative techniques to detect, quantify, and document financial fraud, misrepresentation, or irregularities in corporate financial statements — often used in regulatory investigations, litigation, and credit analysis.
Going Concern(going concern assumption)
Going concern is a fundamental accounting assumption that a business will continue to operate for the foreseeable future — typically at least twelve months — without any intention or necessity to liquidate; when this assumption is in doubt, auditors are required under auditing standards to report accordingly, which is a significant red flag for investors.
Goodwill(Acquisition Goodwill)
Goodwill is an intangible asset representing the excess of the purchase price paid in an acquisition over the fair value of the identifiable net assets acquired, capturing the brand, customer relationships, and synergies of the acquired business.
IFRS(International Financial Reporting Standards)
IFRS (International Financial Reporting Standards) are globally recognised accounting standards issued by the International Accounting Standards Board (IASB) that govern how financial statements are prepared and presented, enabling consistency and comparability of financial information across countries.
Impairment
Impairment occurs when the carrying value of an asset on the balance sheet exceeds its recoverable amount — the higher of its fair value less costs to sell and its value in use — requiring the company to write down the asset value and recognise an impairment loss in the income statement.
Impairment Testing (Ind AS 36)(Ind AS 36)
Ind AS 36 requires companies to test assets — particularly goodwill and intangibles with indefinite useful lives — for impairment annually and whenever there is an indication of impairment, comparing the asset's carrying amount to its recoverable amount (higher of fair value less costs of disposal and value in use).
Income Statement(P&L Statement)
The income statement (also called the profit and loss statement or P&L) summarises a company's revenues, costs, and profits over a specific accounting period, showing how much money was earned and spent.
Ind AS(Indian Accounting Standards)
Ind AS (Indian Accounting Standards) are the accounting standards notified by the Ministry of Corporate Affairs that converge with International Financial Reporting Standards (IFRS), mandatory for specified classes of Indian companies to ensure globally comparable financial reporting.
Indian Accounting Standards Overview(Ind AS)
Indian Accounting Standards (Ind AS) are a set of accounting standards converged with International Financial Reporting Standards (IFRS) that are mandated for listed companies and large unlisted companies in India under the Companies Act, 2013 and MCA rules.
Institute of Chartered Accountants of India(ICAI)
The Institute of Chartered Accountants of India (ICAI) is the statutory body established under the Chartered Accountants Act, 1949, responsible for regulating the accountancy profession, setting accounting and auditing standards, and administering education and examinations for Chartered Accountants in India.
Internal Audit Function(Section 138 Internal Audit)
Section 138 of the Companies Act 2013 mandates an internal audit function for specified classes of companies based on turnover, paid-up capital, and borrowing thresholds, with the internal auditor reporting to the audit committee on the adequacy of internal controls.
Internal Financial Controls(IFC)
Internal Financial Controls (IFCs) are the policies, processes, and procedures a company implements to ensure the accuracy and reliability of financial reporting, prevention of fraud, and compliance with applicable laws and accounting standards — and their adequacy must be explicitly reported on by both management and auditors under the Companies Act 2013.
Inventory Valuation (Ind AS 2)(Ind AS 2)
Inventory valuation under Ind AS 2 requires measuring inventories at the lower of cost and net realisable value (NRV), using either the First-In First-Out (FIFO) or weighted average cost formula — explicitly prohibiting the LIFO method used in some international jurisdictions.
Inventory Write-Down(NRV Write-Down)
An inventory write-down reduces the carrying value of inventory to its net realisable value when NRV falls below cost, as required by Ind AS 2, and is immediately recognised as an expense in the profit and loss account.
Key Audit Matters(KAM)
Key Audit Matters (KAMs) are those matters that, in the auditor's professional judgement, were of most significance in the audit of the financial statements for the current period — typically areas involving high estimation uncertainty, complex judgments, or significant transactions — and must be communicated in the audit report of listed companies.
Lease Accounting (Ind AS 116)(Ind AS 116)
Ind AS 116 requires lessees to recognise a right-of-use (ROU) asset and a corresponding lease liability on the balance sheet for virtually all leases, replacing the former operating lease treatment where lease costs were simply expensed as incurred.
Minority Interest(Non-Controlling Interest)
Minority Interest (also called Non-Controlling Interest) is the portion of a subsidiary company's equity not owned by the parent company, recognised separately within the consolidated balance sheet's equity section and on the consolidated income statement.
Operating Lease vs Finance Lease(Ind AS 116)
Under Ind AS 116 (Leases), which became effective for Indian listed companies from April 2019, virtually all leases are recognised on the lessee's balance sheet as a right-of-use asset and a corresponding lease liability, replacing the earlier distinction where operating leases were kept entirely off-balance-sheet and only finance leases appeared on it.
Other Comprehensive Income (OCI)(OCI)
Other Comprehensive Income is a component of total comprehensive income under Ind AS that captures gains and losses excluded from the profit and loss account, including fair value changes on certain equity instruments, actuarial remeasurements of defined benefit plans, and effective portions of cash flow hedges.
Prior Period Items(Accounting Error Correction)
Prior period items are corrections of material errors from previous periods, which under Ind AS 8 are accounted for retrospectively by restating comparative figures rather than being recognised in the current year profit and loss account.
Promoter Pledge Accounting(promoter pledge)
Promoter pledge accounting refers to the disclosure and analytical treatment of shares pledged by company promoters as collateral for personal or group-level loans, which creates contingent risks of forced selling and shareholding dilution that do not appear directly in the company's own financial statements but materially affect equity risk.
Provision vs Contingent Liability(Provisions Ind AS 37)
Under Ind AS 37, a provision is recognised when an obligation is probable and can be reliably estimated, while a contingent liability is only disclosed in the notes when the outflow is possible but not probable or the amount cannot be reliably estimated.
Provisions
Provisions are liabilities of uncertain timing or amount recognised on the balance sheet when a company has a present obligation arising from a past event, it is probable that an outflow of economic benefits will be required, and a reliable estimate of the amount can be made.
Qualified Audit Opinion(audit qualification)
A qualified audit opinion is issued by an auditor when the financial statements are fairly presented except for a specific matter — such as a departure from accounting standards or a limitation of audit scope — that is material but not pervasive enough to warrant an adverse or disclaimer of opinion.
Related Party Transactions(RPT)
Related Party Transactions (RPTs) are business dealings between a company and parties that have a pre-existing relationship with it — such as promoters, subsidiaries, directors, or key managerial personnel — which must be disclosed and, in certain cases, approved by independent shareholders.
Reserves and Surplus(Retained Earnings)
Reserves and Surplus represents the accumulated retained earnings and other reserves held by a company as part of shareholders' equity, reflecting profits not distributed as dividends and capital receipts set aside for specific or general purposes.
Revaluation Reserve(asset revaluation surplus)
A revaluation reserve is a component of equity created when a company revalues a fixed asset (typically land or buildings) to its current fair value above its historical cost, with the surplus recognised directly in other comprehensive income under Ind AS rather than through the profit and loss account.
Revenue from Contracts with Customers (Ind AS 115)(Ind AS 115)
Ind AS 115 governs revenue recognition for Indian listed companies using a five-step model: identify the contract, identify performance obligations, determine the transaction price, allocate price to obligations, and recognise revenue when each obligation is satisfied.
Revenue Recognition(Ind AS 115)
Revenue Recognition is the accounting principle that determines the specific conditions under which revenue is recorded in the income statement, requiring that revenue be recognised when (or as) a company satisfies its performance obligations to a customer.
Satyam Fraud 2009(Satyam Scandal)
The Satyam fraud of 2009, disclosed by founder Ramalinga Raju in a dramatic confession letter, revealed that India's fourth-largest IT company had fabricated over 7,000 crore rupees of cash balances and inflated revenues across multiple years, making it the largest accounting fraud in Indian corporate history at the time.
Segment Reporting(Ind AS 108)
Segment Reporting is the disclosure of financial information — revenues, profits, assets, and liabilities — broken down by a company's distinct operating or geographic segments, enabling investors to evaluate the performance and risk profile of each component of a diversified business.
Share-Based Payments (Ind AS 102)(Ind AS 102)
Ind AS 102 requires companies to recognise the fair value of equity-settled share-based compensation (including employee stock options — ESOPs) as an expense over the vesting period, with a corresponding credit to equity reserves, using option pricing models such as Black-Scholes or binomial valuation.
Stock-Based Compensation (ESOP Accounting)(ESOP expense)
Stock-based compensation, commonly implemented through Employee Stock Option Plans (ESOPs), is the grant of equity or equity-linked benefits to employees as part of their remuneration; under Ind AS 102 (Share-Based Payment), the fair value of options at grant date must be recognised as an employee benefit expense over the vesting period, impacting reported profits.
Trade Receivables Ageing(Receivables Ageing Schedule)
Trade receivables ageing is a mandatory disclosure under SEBI LODR and the Companies Act schedule that classifies outstanding customer dues into time buckets, enabling investors and auditors to assess collection efficiency and potential credit losses.
Working Capital Management(WCM)
Working capital management is the process of optimising the timing and quantum of receivables collection, inventory holding, and payables payment to minimise the cash conversion cycle while sustaining operational efficiency and supplier relationships.