Financial Glossary

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S ( 159 DEFINITIONS )

Safe harbour
A safe harbour is the concept that the plaintiff in a lawsuit must show that the auditor did not act in good faith when reporting on a forecast. This effectively places the burden of proof on the plaintiff. top

Safety stock
Safety stock is the difference between average usage of materials and maximum usage of materials that can reasonably be expected during the lead time. This is used when there are usage uncertainties or delivery uncertainties. top

Salary or wages
Salary or wages means the income, including taxable benefits, of a taxpayer from an office or employment and includes all fees received for services not rendered in course of the taxpayer's business but does not include superannuation or pension benefits or retiring allowances. top

Sale (of accounts or notes receivable)
A sale of accounts or notes receivable is the same as factoring. The sale is at a discount. top

Sale allowances
Sale allowances are a reduction in the price of merchandise caused when the customer chooses to keep merchandise that is defective in some way. top

Sale and leaseback
A sale and leaseback occurs when a firm sells an asset to a financial institution, and the financial institution, as a lessor, leases back the asset to the firm. top

Sales discount
Sales discounts are cash discounts taken by customers against an amount owed to the seller. top

Sales equivalency
Sales equivalency is the additional sales volume that must be generated under the present operating structure in order to increase profit by an amount identical to a given cost reduction. top

Sales forecast
A sales forecast is estimated future sales. top

Sales mix
The sales mix is the relative combination in which a company's products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales. top

Sales returns
Sales returns are merchandise that was previously recorded as a sale and has been returned by the customer for full credit. top

Sales, service, and disposal cycle
The sales, service, and disposal cycle is where the product is marketed, distributed, and serviced and where waste products are disposed of. top

Sales-type lease
A sales-type lease is a type of capital lease where the lessor, usually a manufacturer or dealer, uses leases as a means of selling a product. A sales type lease has two profit components: 1) the profit on the sale of the product, and 2) interest (finance) revenue from the lease. top

Salvage value
Salvage value is the residual value that can be realized from the disposal of an asset. top

Sample
A sample is a set of sampling units. top

Sample audit review file (SARF)
A sample audit review file (SARF) is a technique similar to SCARF except instead of programming auditors' test criteria, a random selection scheme is programmed. top

Sampling error
Sampling error is the amount by which a projected likely misstatement amount could differ from an actual (unknown) total as a result of the sample not being exactly representative. top

Sampling error-adjusted upper limit
The sampling error-adjusted upper limit is the sample deviation rate adjusted upward to allow for the idea that the actual population rate could be higher. top

Sampling risk
Sampling risk is the probability that an auditor's conclusion based on a sample might be different from the conclusion based on a audit of the entire population. top

Sampling unit
A sampling unit is one logical unit from a population, such as a customer's account, an inventory item, etc. top

Scattergraph method
The scattergraph method is a method of separating a mixed cost into its fixed and variable elements. Under this method, a regression line is fitted to an array of plotted points by simple visual inspection. top

Schedule of accounts payable
A schedule of accounts payable is a list of the balances of all the accounts in the accounts payable ledger that is summed to show the total amount of accounts payable outstanding. The schedule will often be aged to indicate how long the individual account balances have been outstanding. top

Schedule of accounts receivable
A schedule of accounts receivable is a list of the balances of all the accounts in the Accounts receivable ledger that is summed to show the total amount of accounts receivable outstanding. This schedule is often aged to indicate how long the individual account balances have been outstanding. top

Schedule of cost of goods manufactured
The schedule of cost of goods manufactured is a schedule showing the direct materials, direct labour, and manufacturing overhead costs incurred for a period and assigned to Work in progress and completed goods top

Schema
A schema is the entire set of data elements in a computerized data base. top

Scienter
Scienter occurs when a person acts with knowing intent to deceive. top

Scope limitations
Scope limitations are conditions in which the auditors are unable to obtain sufficient competent evidence. top

Search for unrecorded liabilities
The search for unrecorded liabilities is a set of procedures designed to yield audit evidence of liabilities that were not recorded in the reporting period. top

Second audit partner
The second audit partner is one who reviews the work of the audit team. top

Second partner review
The second partner review occurs when working papers and financial statements, including footnotes, are given a final review on large engagements by a partner not responsible for client relations. top

Second-best contract
The second-best contract is the most efficient contract short of first-best. The agency cost of the second-best contract is the irreducible minimum resulting from the unobservability of the agent's effort and resulting moral hazard problem. top

Secondary trading
Secondary trading is trading in previously issued securities. As opposed to primary distributions, securities merely change hands, but no flow of funds from investors to an issuing corporation takes place. top

Secret reserves (on issue of stock)
Secret reserves on issue of stock occur when a company issues shares for non-cash consideration and the value of such consideration exceeds the recorded value of the shares issued. The company has essentially received an unrecorded asset (or secret reserve) from which it will receive benefit. top

Segment of a business
A segment of a business refers to the operations of a company that involve a particular line of business or class of customer, geographic location etc. The assets, activities and financial results of the operation must be distinguishable from other parts of the business. top

Segment reporting
Segment reporting is supplementary information provided by companies reporting certain financial results by industry and/or geographic region. top

Segmented information
Segmented information is disclosure note information concerning geographic and business segments of an entity. top

Self-checking number
A self-checking number is a basic code number with its check digit. top

Self-imposed budget
A self-imposed budget is a method of budget preparation in which managers with responsibilities over cost control prepare their own budget figures. The managers' supervisors review these budget figures and any questions are then resolved in a face-to-face meeting. top

Self-insurance
Self-insurance is when a company does not purchase third party insurance coverage and instead bears the risk of losses itself. top

Self-interested people
Self-interested people care only about their own well-being. top

Self-sustaining subsidiaries
A self-sustaining subsidiary is one that is financially and operationally independent. top

Selling expenses
Selling expenses are the expenses of promoting sales by displaying and advertising the merchandise, making sales and delivering goods to customers. top

Selling price/cost variance
The selling price/cost variance is a measure of the net income gained or lost through failure to maintain control over selling price and over the various costs that a company may incur. top

Senior securities
Senior securities are preferred shares that have prior claims to earnings over common shares and convertible debt that has a senior interest claim. top

Sensitivity analysis
A sensitivity analysis shows the impact on earnings, cash flows or fair values of financial instruments resulting from changes in relevant commodity prices, interest rates, and foreign exchange rates. top

Separate entity assumption
The separate entity assumption states that accounting information reflects the assumption that a corporation and its shareholders and stakeholders are separate economic entities. top

Sequential processing
Sequential processing is a method of arranging processing departments in which all units flow in sequence from one department to another. top

Serial bonds
Serial bonds are debt offerings where specific portions of the debt issue mature periodically over the issue's life. In effect the bonds have staggered maturities depending on the serial number that they bear. top

Service department
A service department is a department that provides support or assistance to operating departments and that does not engage directly in production or in other operating activities of an organization. top

Service life
The service life is the length of time in which a plant asset will be used in the operations of the business. top

Service organization
A service organization is another business that executes and/or records transactions on behalf of the client. top

Service-hours amortization
Service-hours amortization is a method of calculating amortization expense that bases amortization expense on current service hours used as related to total service hours expected. top

Settlement of debt
Settlement of debt is the repayment of debt by the borrower for less than the amount owing. top

Setup
Setup involves activities that must be performed whenever production is switched over from making one type of item to another. top

Setup costs
Setup costs are labour and other costs involved in getting facilities ready for a run of a different production item. top

Shadow price
Shadow price is an opportunity cost. It is the highest valued benefit forgone when an action is taken within the structure of linear programming. Shadow prices indicate the rate at which optimal objective functions (i.e. profit maximization) change as constraints increase or decrease by one unit. A shadow price is an imputed marginal value assigned to individual resources by linear programs. top

Share issue costs
Share issue costs are costs incurred in issuing equity securities including registration fees, underwriter commissions, legal and accounting fees, printing costs, clerical costs, promotional costs, etc. These costs may be offset against proceeds in share capital, debited to retained earnings, or set up as a separate asset. top

Shareholder benefits and appropriations
Any event or transaction that improves the taxpayer's economic position is a shareholder benefit. Note that there does not have to be an intention to confer a benefit for an amount to be included in income. If the transaction is a bona fide business transaction, no benefit is conferred. The value of the benefit is generally based on the FMV of the benefit. Included in shareholder benefits are exchanges of property, additions or improvements made to a shareholder's building, the personal use of corporate property, property transferred to a shareholder for inadequate or no consideration, expenditures benefiting the taxpayer's spouse or children, embezzlement of funds by the shareholder, and the forgiveness of a debt owed by the shareholder to a corporation. top

Shareholder loans and benefits
Shareholder loans occur when shareholders or shareholder/employees "borrow" money from corporations. A loan to a shareholder, or any other indebtedness, is included in the shareholder's income in the year in which the funds are borrowed if the loan is not repaid within one year of the corporate year end. As well, an imputed interest benefit is calculated on the loan and is included in income. Shareholder/employees may borrow, in their capacity as employees and not in their capacity as shareholders, from corporations in the normal course of business. These loans are not considered to be income, but they have to be repaid in after-tax dollars from other remuneration received by the shareholder/employee. Loans to shareholder/employees are not considered income if the employer's business is the lending of money and if the loan was used to acquire a dwelling for the individual's inhabitation, to acquire shares from the treasury, or to acquire an automobile used to perform employment duties. These loans must be adequately documented and bona fide arrangements need to be made for the repayment of the loan within a reasonable time period. top

Shareholders
Shareholders are the owners of a corporation. top

Shareholders of record
Shareholders of record are the shareholders of a corporation as reflected in the record of the corporation. top

Shares
Shares are units of ownership in a corporation. top

Shares sold on subscription basis
Shares sold on a subscription basis are shares sold to prospective shareholders by an initial agreement to purchase a specified number of shares on credit with payments due in the future. Shares are not issued until they have been fully paid for. top

Short selling
Short selling is the sale of shares or commodities that a seller does not currently own. The seller borrows the shares or commodities and sells them with the intent to replace them by later repurchasing the shares in the market at a lower price. Thus, short selling provides a vehicle for speculation in a market characterized by anticipated price declines. top

Short term
Short term is the period of time over which productive capacity cannot be changed and must be considered a constraint. top

Short-term commercial paper
Short-term commercial paper is short-term notes payable. top

Short-term investments
Short-term investments are investments that are capable of liquidation in a ready market that management intends to hold for the short term. top

Shrinkage
Shrinkage is inventory losses that occur as a result of shoplifting or deterioration. top

Signalling
Signalling is an action taken by a high-type manager that would not be rational if that manager was a low-type. top

Significant influence
Significant influence is ownership interest to the extent that the investor can affect strategic operating, investing, and financing policies of the investee. top

Simple capital structure
A simple capital structure is a capital structure that does not include any rights or options to purchase common shares or any securities that are convertible into common shares. top

Simple extension
Simple extension is the calculation of projected likely misstatement based on sample evidence using the difference and ratio methods. top

Simple interest
Simple interest is the principal amount multiplied by the period's interest rate. It excludes any compounding effect. top

Single person decision theory
Single person decision theory is based on the viewpoint of an individual who must make a decision under conditions of uncertainty. State probabilities are no longer objective. The theory sets out a procedure for allowing additional information to be obtained to revise the decision-maker's subjective assessment of the probabilities of what might happen after the decision is made. top

Single proprietorship
A single proprietorship is a business owned by one individual that is not organized as a corporation. This is also known as a sole proprietorship. top

Single-step format
The single-step format is presenting an income statement with no subtotal. All revenues and all expenses are included in one category each. top

Sinking fund amortization
Sinking fund amortization is a method of allocating costs in which amortization expense is lowest in an asset's early years but increases over time. This method is used for highly leveraged assets based on the assumption that the interest charges for the asset will be higher in the asset's early years and will decrease over time. top

Sinking-fund payments
Sinking-fund payments are payments by the issuing corporation to provide for periodic retirement of debt or preferred shares. top

Skewness
Skewness is the property of the concentration of a large proportion of the dollar amount in an account in a small number of the population items. top

Small Business Corporation (SBC)
A small business corporation (SBC) is a CCPC, all or substantially all (90 percent or more) of the fair market value of the assets of which are used principally (more than 5 percent) in an active business carried on in Canada by the corporation or a related corporation, or shares or debt of other connected small business corporations, or a combination of those two requirements. top

Smoke/fire concept
The smoke/fire concept means that there can be more exposure to error (smoke) than actual error (fire). This concept is an analogy used for the test of controls sampling in the determination of a tolerable deviation rate. top

Sojourn
Sojourn has the meaning of living in a place temporarily without becoming a resident of that place. top

Sole proprietorship
A sole proprietorship is a form of business organization in which the owner faces unlimited liability and where, effectively, the owner's business and personal finances are not separate. top

Solvency ratios
Solvency ratios are ratios designed to assess the ability of a company to make both the interest and principal payments on its long-term obligation. top

Source documents
Source documents are documents that are the source of information recorded with accounting entries. They are also known as business papers. top

Source theory
Under the source theory income is perceived as the product of the asset and capital as the asset itself; thus, income can only originate from a productive source. Using the metaphor of the fruit and the tree to illustrate the source theory: income represents the fruit and capital represents the tree. Any gain realized on the disposition of the tree is capital since only the fruit is income. top

Special journal
A special journal is a journal with a non-flexible, pre-determined format in which only specific transactions that fit the format can be recorded. top

Special resolution
A special resolution is required to make changes to a corporation's bylaws including shareholder rights and the capital structure of the business. Generally, under statutes governing corporate activity, special resolutions require a two-thirds majority vote to pass. top

Special stock dividend
A special stock dividend is a stock dividend of a different class already held by the recipient. It is recorded at market value. top

Special termination benefits
Special termination benefits are enhanced retirement offers extended to employees as incentives or inducements to retire or to retire early. top

Specialists
Specialists are persons skilled in fields other than accounting and auditing who are not members of the audit team. top

Specific cost identification
Specific cost identification is a method of inventory costing that identifies the specific invoice cost of the specific units sold for costs of goods sold. top

Specified investment business
A specified investment business is a business the principal purpose of which is to derive income from property, such as interest, dividends, rents, and royalties. However, where a corporation employs in the business throughout the year more than five full-time employees, or any other corporation associated with the corporation provides the services that would have been provided by its own employees and the corporation would have employed more than five full-time employees, then its income is considered to be ABI and not income from a specified investment business. top

Specified non-resident
A specified non-resident is one who is a specified shareholder or one who is not dealing at arm's length with a specified shareholder, regardless of whether that shareholder is resident in Canada. top

Speculating
Speculating is trading aimed at making a profit as prices change. A speculator has no interest in actually taking delivery of an asset. top

Spin-off
A spin-off is the separation of a consolidated business by distributing the shares of a subsidiary of the corporation to the parent company's individual shareholders on a pro rata basis. top

Spot exchange rate
The spot exchange rate is the current rate of exchange for immediate delivery of one currency against another. top

Spot price
The spot price is the price of an asset to be delivered immediately. top

Staff positions
Staff positions are positions in an organization that are only indirectly related to the achievement of the organization's basic objectives. Such positions are supportive in nature in that they provide service or assistance to line positions or to other staff positions. top

Standard cost
Standard cost is a pre-determined, expected cost per unit. This is sometimes used for inventory valuation if not materially different from cost. top

Standard cost card
A standard cost card is a detailed listing of the standard amounts of materials, labour, and overhead that should go into a unit of product, multiplied by the standard price or rate that has been set. top

Standard cost per unit
The standard cost per unit is the expected cost of a unit of product as shown on the standard cost card. It is computed by adding the standard material cost per unit to the standard labour cost per unit and the standard manufacturing overhead cost per unit. top

Standard deviation
The standard deviation is a statistical measure that is commonly viewed as a reasonable measure of risk. It measures the variability of a random variable around its expected value or mean, and equals the square root of the variance. top

Standard hours allowed
The standard hours allowed is the time that should have been taken to complete the period's output as computed by multiplying the number of units produced by the standard hours per unit. top

Standard hours per unit
The standard hours per unit is the amount of labour time that should be required to complete a single unit of product, including allowances for breaks, machine downtime, cleanup, rejects, and other normal inefficiencies. top

Standard price per unit
The standard price per unit is the price that should be paid for a single unit of materials, including allowances for quality, quantity purchased, freight-in, receiving, and other such costs and net of any discounts allowed. top

Standard quantity allowed
The standard quantity allowed is the amount of materials that should have been used to complete the period's output as computed by multiplying the number of units produced by the standard quantity per unit. top

Standard quantity per unit
Standard quantity per unit is the amount of materials that should be required to complete a single unit of product including allowances for normal waste, spoilage, rejects, and similar inefficiencies. top

Standard rate per hour
The standard rate per hour is the labour rate that should be incurred per hour of labour time, including allowances for employment taxes, fringe benefits, and other such labour costs. top

Standard recording system
Standard recording system is the practice of recording an asset upon payment of cash before goods or services are received and recording a liability upon cash receipt before goods or services are provided. top

Standard setting
Standard setting is the regulation of a firm's external information production decisions by some central authority. top

Stated interest rate
The stated interest rate is the rate that determines periodic interest payments. It is also referred to as the coupon, nominal, or contractual rate. top

Statement of changes in owners' equity
Statement of changes in owners' equity is a financial statement that shows the beginning balance of owners' equity, the changes in equity that resulted from new investments by the owners, net income (or net loss), withdrawal, and the ending balance. top

Statement of changes in partners' equity
The statement of changes in partners' equity is a financial statement that shows the total capital balances at the beginning of the period, any additional investments by the partners, the net income or loss of the period, and the ending capital balances. top

Statement of financial position
The statement of financial position is another name for the balance sheet, which is a financial statement providing information that helps users understand a company's financial status by listing the types and dollar amounts of assets, liabilities and equity as of a specific date. top

States of nature
States of nature are uncertain future events such as the state of the economy. top

Static budget
A static budget is a budget designed to cover only one level of activity and in which actual costs are always compared against budgeted costs at this one activity level. top

Statistical process control (SPC)
Statistical process control (SPC) is a technique whereby workers use charts to monitor the quality of the parts or components that pass through their workstations. top

Statistical sampling
Statistical sampling is audit sampling that uses the laws of probability for selecting and evaluating a sample from a population for the purpose of reaching a conclusion about the population. top

Statutory law
Statutory law consists of all the prohibitions enacted by a legislature. top

Step method of service department cost allocation
The step method of service department cost allocation is a method in which the costs are allocated to other service departments as well as to operating departments in a sequential manner. The sequence starts with the service departments that provide the greatest amount of service to other departments. top

Step-variable cost
A step-variable cost is a cost that is obtainable only in large pieces and that increases only in response to fairly wide changes in the activity level. (An example of a step-variable cost would be the cost of maintenance workers.) top

Stewardship
Stewardship is an objective of financial reporting to external parties that emphasizes management care or responsibility for assets. top

Stock dividend
A stock dividend includes any dividend paid by a corporation to the extent that it is paid by the issuance of shares of any class of the capital stock of the corporation. top

Stock option
A stock option is a derivative instrument allowing the holder to purchase a specified number of shares of a company at a specified price during a specific period. top

Stock right
A stock right is a form of derivative instrument allowing the holder to purchase securities of a company at a specified price during a specific period. top

Stock split
A stock split occurs when existing shares are divided or split, with several new shares issued for every original outstanding share. The market price of the share should adjust accordingly. This is often done to bring the stock price down to a predetermined level. top

Stock warrants
Stock warrants are stock rights that are attached to other securities granting the holder the right to purchase securities of a company at a specific price at a specific time. top

Straight-line amortization
Straight-line amortization is an amortization method where the annual expense is equal over the asset's life. The amortizable amount is divided by the asset's useful life. top

Straight-line interest method
The straight-line interest method is a method of determining interest expense on long-term debt by amortizing the discount (or premium) in equal amounts over the life of the loan. Interest expense is the sum of actual cash interest costs and discount (or premium) amortization. This method is acceptable under GAAP only if the results are not materially different from the effective interest method. top

Strategic cost management
Strategic cost management is accounting information used to support internal decisions (within a firm) and which should facilitate the development and implementation of business strategy. top

Strategy pair
A strategy pair is a statement of the strategy chosen by each player. top

Stratification
Stratification, in relation to account balances and audit sampling, refers to subdividing a population before taking a sample. top

Striking price
Striking price is the price at which call or put options are exercised. top

Structure of the ITA
The structure of the ITA is composed of a number of sections, parts, divisions, and subdivisions. top

Subordinate debt
Subordinate debt is debt that can only be repaid after other creditors (senior) debt have been paid. top

Subschema
A subschema is a certain portion of a computerized database. top

Subscription (with reference to shares)
A subscription is a contractual commitment by an investor to purchase unissued shares and become a shareholder. top

Subsequent events
Subsequent events are events that occur after the year-end but before the financial statements are issued. These events may be recorded or disclosed depending on their nature. top

Subsidiary
A subsidiary is an investee company in which the investor company, the parent, controls the investee, usually by holding in excess of 50% of the voting shares. top

Substance over form
Substance over form is the concept that accounting information should represent what it purports to represent, the economic substance of a transaction, not just its legal form. top

Substantive audit procedures
Substantive audit procedures are transaction detail audit and analytical procedures designed to detect material misstatements in account balances and footnote disclosures. top

Substantive tests of details auditing
Substantive tests of details auditing is the performance of procedures to obtain direct evidence about the dollar amounts and disclosures in financial statements. top

Substantive-purpose audit program
A substantive-purpose audit program is a list of account balance-related procedures designed to produce evidence about assertions in financial statements. top

Substantively enacted income tax rate
A substantively enacted income tax rate is where a tax rate is specified in sufficient detail to be applied in practice. At a minimum, the rate must have been drafted in legislative or regulatory form and tabled in Parliament or presented in council. top

Successful-efforts approach to oil and gas accounting
The successful-efforts approach to oil and gas accounting capitalizes only the costs of successful wells and expenses dry holes. top

Sum-of-the-years-digits (SYD) method
The sum-of-the-years-digits (SYD) method is a system to amortize the cost of a capital asset in which the allocated cost is greater in the early periods of the asset's life; a fraction with they SYD as a base is used in the calculation. top

Sum-of-the-years-digits amortization
The sum-of-the-years-digits amortization is a method of accelerated amortization where amortization is calculated by multiplying the amortizable cost by a fraction whose denominator is the sum of the years' digits. top

Sunk cost
A sunk cost is a past cost. It is irrelevant to future decisions because the expenditure has already been made and cannot be changed regardless of the alternative selected. top

Superannuation or pension benefit
A superannuation or pension benefit includes any amount received from a superannuation or pension fund or plan. top

Superficial loss
A superficial loss is an actual loss realized by a taxpayer that is disallowed when the following circumstance occurs. If an identical property is acquired or reacquired by a taxpayer or an affiliated person within 30 days before the and 30 days after the disposition that created the loss, the loss is disallowed. The loss disallowed is a superficial loss and is usually added to the ACB of the reacquired property. The superficial loss rules prevent a solely tax-motivated disposition. top

Supervision
Supervision, in payroll processing, is the concept that all authorization of all pay base data (hours, job number, etc.) must be by an employee's immediate supervisor. top

Supplies inventory
Supplies inventory is an inventory of items on hand not held for resale but rather to be used in production or maintenance activities. top

Swap
A swap is an agreement between two parties to exchange future cash flows. For example, in what is called a vanilla-interest-rate swap, one firm swaps its fixed coupon rate debt obligation for the floating rate obligations of another firm. top

Synergy
Synergy is the economics realized in the merger of two companies. top

Systematic random sample
A systematic random sample is a random sample chosen by calculating a skip interval and selecting every nth population unit in a frame. top

Systematic risk
Systematic risk is risk that can not be diversified away from a given portfolio and usually consists of economy-wide factors. top

Systems control audit review file (SCARF)
Systems control audit review file (SCARF) is the method in which auditors build into the data processing programs special limit, reasonableness, or other audit tests for selection of transactions for audit. top

Systems development and documentation standards manual
Systems development and documentation standards manual is the computer documentation containing standards that ensure a) proper user involvement in the systems design and modification process, b) review of the specifications of the system, c) approval by user management and data processing management, and d) controls and auditability. top