Glossary

Finance & Accounting glossary

92 key terms and acronyms from across Finance & Accounting certifications, in plain English. Definitions are simplified for learning; the official exam outlines are authoritative.

ACCA: Association of Chartered Certified Accountants.
Accrual accounting: Recognising items when earned/incurred, not when paid.
Alpha: Return above a benchmark.
Alternative investment: An asset outside traditional stocks, bonds and cash.
Applied Knowledge: The foundation level of the ACCA exams.
Applied Skills: The core technical level.
Audit and assurance: Independent examination giving confidence in information.
Backtesting: Checking a risk model against actual outcomes.
Basis risk: Risk that a hedge and the hedged item move differently.
Beta: Sensitivity of returns to a market factor.
Break-even point: The sales level where profit is zero.
Budget: A financial plan for a future period.
Capstone course: The financial plan development course required within the registered education program.
Carried interest: The GP's share of profits above a hurdle.
Cash flow: The money coming in and going out over a period.
CFP: Certified Financial Planner, a personal financial planning certification administered by CFP Board.
CFP Board: The US body that sets the education, exam, experience and ethics standards for the CFP certification.
Code and Standards: CFP Board's Code of Ethics and Standards of Conduct for CFP professionals.
Consolidation: Combining group company accounts.
Contribution margin: Sales revenue minus variable costs.
Convexity: How a bond's duration changes as yields change.
Corporate and business law: The legal framework around business.
Cost of capital: The required return to fund the business.
Counterparty risk: Credit risk that the other side of a trade defaults.
CPE: Continuing Professional Education - 30 hours every 2 years (including 2 hours of Ethics) to maintain the CFP.
Credit risk: Risk that a counterparty fails to meet an obligation.
Decision analysis: Choosing among alternatives using relevant data.
Delta: An option's price sensitivity to the underlying's price.
Due diligence: The review of a manager or investment before committing.
Duration: A bond's price sensitivity to interest-rate changes.
Estate planning: Arranging the transfer of a person's wealth and affairs.
Ethics module: The required Ethics and Professional Skills module.
Exemption: Skipping an exam based on prior qualifications.
Expected shortfall: The average loss in the tail beyond VaR; a coherent risk measure.
Experience requirement: 6,000 hours (Standard) or 4,000 hours (Apprenticeship) of qualifying work.
Exposure at default (EAD): The amount at risk at the time of default.
Fiduciary duty: The obligation to act in a client's best interest when providing financial planning.
Financial management: Managing an organisation's funding and investment.
Financial planning: Helping a person organise their finances to meet life goals across saving, protecting and investing.
Financial planning process: CFP Board's step-by-step approach to advising a client, from understanding their situation to monitoring the plan.
Financial reporting: Preparing financial statements for stakeholders.
Fixed cost: A cost that does not change with output.
Forecast: An estimate of future financial outcomes.
Fund of funds: A fund that invests in other funds.
General Partner (GP): The manager of a private fund.
Hedge: A position taken to offset a specific risk.
Hedge fund: A pooled fund using a wide range of strategies, often with leverage.
Hurdle rate: The return an LP must earn before the GP shares profits.
IFRS: International Financial Reporting Standards.
Illiquidity premium: Extra expected return for holding hard-to-sell assets.
Insurance planning: Choosing coverage for life, health, disability, property and liability risks.
Internal control: Processes safeguarding assets and reporting.
Investment planning: Building an approach to risk, return and asset selection suited to a client's goals.
IRR: The discount rate that makes NPV zero.
J-curve: The early dip then rise in private-equity returns over a fund's life.
Limited Partner (LP): An investor in a private fund.
Liquidity risk: Risk of being unable to fund or trade without large cost.
Lock-up: A period during which investors cannot redeem.
Loss given default (LGD): The share of exposure lost if default occurs.
Management accounting: Information used internally for decisions.
Market risk: Risk of loss from moves in prices, rates, FX or commodities.
Net worth: Total assets minus total liabilities.
NPV: Net Present Value of a set of cash flows.
Operational risk: Risk of loss from people, processes, systems or external events.
PER: Practical Experience Requirement - 36 months of work.
Performance management: Using information to plan and control performance.
Private credit / debt: Lending outside public bond markets, such as direct lending.
Private equity: Investing in private companies (buyout, venture, growth).
Probability of default (PD): The chance a borrower defaults over a period.
Psychology of financial planning: The study of client behaviour, communication and counselling in planning.
Real assets: Tangible assets such as real estate, infrastructure and commodities.
Relevant cost: A future cost that differs between alternatives.
Residual income: Income above a required return on capital.
Retirement planning: Accumulating savings and turning them into sustainable retirement income.
Risk management: Identifying and reducing financial risks, often through insurance.
ROI: Return on investment.
SBL: Strategic Business Leader exam.
SBR: Strategic Business Reporting exam.
Standard cost: An expected cost used as a benchmark.
Strategic Professional: The advanced level (Essentials + Options).
Stress testing: Estimating losses under severe but plausible scenarios.
Structured product: A security built from other assets, often via securitisation.
Tax planning: Arranging finances to be tax-aware across planning decisions.
Taxation: Rules for calculating and paying tax.
The 4 E's: Education, Examination, Experience and Ethics - CFP Board's four certification components.
Time value of money: Money today is worth more than the same amount later because it can earn a return.
Value at Risk (VaR): The loss not expected to be exceeded at a given confidence over a horizon.
Variable cost: A cost that changes with output.
Variance: The difference between actual and expected.
Vintage year: The year a private fund starts investing.
Volatility: The standard deviation of returns; a key risk input.
Working capital: Current assets minus current liabilities.