4 BEC Flashcards
When inventory conversion period is 60 days what does that mean
it measures the time from when inventory is acquired to when it is sold
CASH CONVERSION
INVENTORY CONVERSION
PLUS A/R DAYS TO PAY
LESS PURCHASES DAYS TO PAY TERMS
INVENTORY CONVERSION IS 60
A/R TERMS NET 15
PURCHASES TERMS NET 30
60 + 15 - 30 = 45 CCC DAYS
The difference between standard hours at standard wage rates and actual hours at standard wage rates is referred to as which of the following types of variances? A. Labor usage. B. Indirect labor spending. C. Direct labor spending D. Labor rate
Correct answer is labor Useage as in labor Useage efficiency variance
who knew
Information and Communication
General notes: Communication enables people to understand what their responsibilities are with respect to internal control and why it’s important.
The right information must be communicated at the right time to managers. The stress on this is because the complexity of the organization has increased and therefore it’s more difficult to communicate.
Stress on retaining proof that you did communicate the information in audits.
How regulations impact the reliability and protection of information.
How technology impact the speed, means and quality of information.
Consideration of how the organization interacts with third-party service providers outside it’s legal and operational boundaries.
Which component does this belong to:
How the organization interacts with third party service providers outside it’s legal and operational boundaries.
It’s information and communication, but it’s also another I think.
What are the three principals related to Information and Communication Component.
Remember Objects are the SORC
Components are the CRIME or the IS EAR AIM
Organization Obtains or Generates and uses relevant, quality information to support the functioning of internal control
Organization internally communicates information, including objectives and responsibilities for internal control
Organization communicates with external parties about matters affecting the functioning of internal control
Just to help Remember the 17 it Goes. CRIME is really CRCIM Control Environment - 5 Risk Assessment - 4 Control Activities - 3 Information and Communication - 3 Monitoring -2
5-4-3-3-2
C-R-C-I-M
Monitoring Activities Notes
ongoing evaluations, separate evaluations or some combination of the two to make sure each of the components, including the controls to effect the principles within each component are present and functions
Findings are evaluated and deficiencies are communicated in a timely matter with serious matters reported to the senior management and the BOD
Distinguishes between a management review control (which is a control activity that responds to specific risk and is designed to detect and correct errors) versus a management review control which is a monitoring activity that would ask WHY the errors exist and then assign responsibility for fixing it to someone.
A monitoring activity is assessing whether the controls in each of the five components are operating as intended.
Monitoring Activities - What is an ongoing evaluation
Built into routine operations and are performed on a real-time basis
Monitoring Activities - What is a separate evaluation
Evaluation conducted periodically by objective management personnel, internal audit and external parties.
Where do internal audit audits fall in the 5 components.
Monitoring Activity
What are the two principles relating to Monitoring Activities?
Organization Selects, develops and performs ongoing and/or separate evaluations to ascertain whether components of internal control are present and functioning
Organization evaluates and communicates internal control deficiencies in a timely manner to those parties responsible for taking corrective action including senior mgt and the BOD
OPERATING LEVERAGE - WHEN YOU’RE FIXED COSTS ARE HIGH RELATIVE TO YOUR VARIABLE COSTS PER SALE,
FINANCIAL LEVERAGE - EBIT/EBIT- INTEREST, HOW MUCH OF YOUR EARNINGS PER SHARE IS IMPACTED BY INTEREST
OPERATING LEVERAGE - A HIGHLY LEVERAGED OPERATION HAS A FEW SALES, EACH SALE HAS TO COVER A LOT OF THE FIXED COSTS, WHEREAS IF YOU HAVE LOTS OF SALES YOU GET A LITTLE BACK EACH ONE AND HYOU’RE NOT DEPENDENT ON ONLY A FEW SALES
FINANCIAL LEVERAGE - INTEREST IS A FIXED COST SO IF IT’S A HUGE PART OF YOUR EXPENSES IT’S NEVER GONNA GET BETTER, I WROTE BEFORE THIS HAD SOMETHING TO DO WITH COMMON STOCK, NOT SURE NOW.
FINANCIAL LEVERAGE FORMULA
EBIT/EBIT - INTEREST
Major Deficiency
An internal control deficiency or a combination of deficiencies that reduces the likelihood that the company can achieve it’s objectives.
