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Business Environment & Concepts > B1 > Flashcards

B1 Flashcards

1
Q

The primary roles of an entity’s board of directors (2)

A
  1. Safeguard company’s assets

2. Maximize shareholder return

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2
Q

Fiduciary duties of a member of the board of directors (4)

A
  1. Right to rely
  2. Liability for unlawful distributions/dividends
  3. Duty of loyalty
  4. Corporate opportunity doctrine
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3
Q

SOX Title III-Corporate Responsibility

A

The corporate responsibility section of the act relates to the establishment of an audit committee and the representations made by key corporate officers, typically the CEO and CFO

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4
Q

SOX Title IV-Enhanced Financial Disclosures

A

The enhanced financial disclosures associated with issuer reports includes additional details regarding the financial statements, internal controls, and the operations of the audit committee

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5
Q

Definition of Internal Control

A

A process that is designed and implemented by an organization’s management, board of directors and other employees to provide reasonable assurance that it will achieve its compliance, operating, and reporting objectives

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6
Q

The 3 categories of objectives within the COSO framework

ORC

A

Operating
Reporting
Compliance

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7
Q

Operations Objectives

A

Relate to the effectiveness and efficiency of an entity’s operations. Includes financial and operations performance goals as well as ensuring that the assets of an organization are adequately safeguarded against potential losses.

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8
Q

Reporting Objectives

A

Pertain to the reliability, timeliness, and transparency of an entity’s external and internal financial and non-financial reporting as established by regulators, accounting standard setters, or the firm’s internal policies.

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9
Q

Compliance Objectives

A

Established to ensure that the entity is adhering to all applicable laws and regulations

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10
Q

The 5 principles related to the control environment EBOCA)

A
  • commitment to Ethics and integrity
  • Board independence and oversight
  • Organizational structure
  • Commitment to competence
  • Accountability
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11
Q

ERM enterprise objectives (4)

SORC

A

Strategic
Operations
Reporting
Compliance

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12
Q

Strategic Objectives

A

High-level goals designed to achieve the mission

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13
Q

The sequence of enterprise risk management framework components (IS EAR AIM)

A 
Internal environment (EBOCA HR) 
Setting objectives (strategic & related) 
Event identification 
Assessment of risk 
Risk response 
control Activities 
Information and communication 
Monitoring
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14
Q

ERM-Internal Environment 8 Components

EBOCA HR

A

commitment to Ethical values and integrity
Board oversight
Organizational structure
Commitment to competence
Accountability
Human resources standards
Risk management philosophy and Risk appetite

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15
Q

4 ways to respond to risk

A
  1. Avoidance
  2. Reduction
  3. Sharing
  4. Acceptance
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16
Q

Total Factor Productivity Ratios (TFP)

A

output/total costs

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17
Q

Partial Productivity Ratios (PPRs)

A

Output/specific quantity

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18
Q

Control Charts

A

A graphical tool that is used to plot a comparison of actual results by batch or other suitable constant interval to an acceptable range. They show if there is a trend toward improved quality conformance or deteriorating quality conformance

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19
Q

Pareto Diagrams

A

Used to determine the quality-control issues that are most frequent and often demand the greatest attention. Demonstrates the frequency of defects from highest to lowest frequency.

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20
Q

Cost Objects

A

Defined as resources or activities that serve as the basis for management decisions. Require separate cost measurement and may be products, product lines, departments, geographic territories, or any other classifications that aids in decision making.

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21
Q

Prime Costs

A

Direct materials+direct labor

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22
Q

Conversion Costs

A

Direct labor+overhead applied

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23
Q

Product Costs

A
  • All costs related to the manufacturing of the product
  • Are inventoriable (assets on the balance sheet)
  • Consist of DM, DL, and OH applied
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24
Q

Period Costs

A
  • Expensed in the period in which they are incurred
  • Not inventoriable
  • The costs of selling the product and administering and managing the operations of the firm
  • Include SG&A and Interest
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25
Q

The 3 most important objectives of cost accounting systems (PIE)

A
  • Product costing (inventory and cost of goods manufactured and sold)
  • Income determination (profitability)
  • Efficiency measurements (comparisons to standards)
26
Q

Direct Costs

A
  • Can be easily traced to a cost pool or object, as the cost directly relates to that item
  • Includes direct raw materials and direct labor
27
Q

Direct Raw Materials

A

The costs of materials purchased to be used in production (including freight-in net of any applicable purchase discounts) plus a reasonable amount for normal scrap created by the process

28
Q

Direct Labor

A

The cost of labor that is directly related to the production of the product or the performance of a service plus a reasonable amount of expected down time

29
Q

Indirect Costs

A
  • Not easily traceable to a cost pool or cost object

- Typically incurred to the benefit of two or more cost pools or objects

30
Q

Variable Costs

A
  • Total costs change proportionally with the cost driver
  • Per unit costs remain constant
  • The short-run and long-run effects of variable costs are the same within the relevant ranges
31
Q

Fixed Costs

A
  • In the short term and within a relevant range, a fixed cost does not change when the cost driver changes
  • Fixed costs remain constant in total but they vary per unit
  • Given enough time, andy cost can be considered variable
32
Q

Semi-variable costs

A

Costs that include components that remain constant over the relevant range and include components that fluctuate in direct relation to production

33
Q

Relevant Range

A

-The range for which the assumptions of the cost driver are valid

34
Q

Cost of Goods Manufactured Statement

A 
WIP, beginning
\+DM used
\+DL
\+Manufacturing OH applied 
=Total manufacturing costs available
-WIP, ending
=Cost of goods manufactured
35
Q

Direct Materials Used Formula

A

Raw Mat, beginning
+purchases
-Raw Mat, ending
=DM used

36
Q

Cost of Goods Sold Statement

A 
Finished goods, beginning
\+Cost of goods manufactured
=Cost of goods AFS 
-Finished goods, ending
=Cost of goods sold
37
Q

Job-Order Costing

A

The method of product costing that identifies the job as the cost objective and is used when there are relatively few units produced or when each unit is unique or easily identifiable

38
Q

Process Costing

A

A method of product costing that averages costs and applies them to a large number of homogenous items

39
Q

Equivalent Units

A

The amount of direct material, direct labor, or conversion costs necessary to complete one unit of production

40
Q

EUP under FIFO (3 components)

A
  1. Beginning WIP * % to be completed
  2. Units completed-Beginning WIP
  3. Ending WIP * % completed
41
Q

EUP under Weighted-Average (2 components)

A
  1. Units completed

2. Ending WIP * % completed

42
Q

Normal Spoilage

A
  • Occurs under regular operating conditions and is included in the standard cost of the manufactured product
  • Capitalized as part of inventory
43
Q

Abnormal Spoilage

A
  • Should not occur under normal operating conditions
  • Not included in the standard cost of a manufactured product
  • Treated as a period cost
44
Q

Comparison of EUP calculation under FIFO and Weighted-Average

A
  • Under FIFO, the calculation consists of 3 elements representing current period production, whereas under the weighted average method, the calculation consists of only 2 elements
  • FIFO represents only costs incurred in the current period. The weighted average includes both current period costs plus prior period units
45
Q

Activity

A

Any work performed inside a firm

46
Q

Resource

A

An element used to perform an activity

47
Q

Cost Driver

A

Activity bases that are closely correlated with the incurrence of manufacturing overhead costs in an activity center, and they are often used as allocation bases for applying overhead costs to cost objects

48
Q

Examples of Jobs that would Use Job-Costing

A
  • Construction of buildings or ships
  • Aircraft assembly
  • Printing
  • Special purpose machinery
  • CPA Firm
  • Management consulting firm
  • Repair shops
  • Industrial research projects
49
Q

Examples of Jobs that would use process costing

A
  • Oil& gas
  • Chemicals
  • Steel
  • Textiles
50
Q

Title VIII-Corporate and Criminal Fraud Accountability

A
  • Criminal penalties for altering documents
  • Statute of limitations for securities fraud
  • Whistle blower protection
  • Criminal penalties for securities fraud
51
Q

Structure of COSO framework

A

There are 5 integrated components of internal control, including the control environment, risk assessment, information and communication, monitoring activities, and (existing) control activities. These components are needed to achieve the three objectives of internal control. Each component has associated principles that represent fundamental concepts.

52
Q

Enterprise Risk Management-Integrated Framework

A
  • issued to assist organizations in developing a comprehensive response to risk management
  • all entities face uncertainty
  • value is maximized when strategy balances risks and returns as well as efficiency and effectiveness in accomplishing objectives
53
Q

Enterprise risk management definition

A

ERM is a process, effected by an entity’s board of directors, management, and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.

54
Q

Inherent risk

A

The risk to an organization that exists if management takes no action to change the likelihood or impact of an adverse event.

55
Q

Residual risk

A

The risk to an organization that exists after management takes action to mitigate the adverse impact of the event.

56
Q

Risk avoidance

A

-management election to avoid or terminate risk

57
Q

Risk reduction

A

Management election to reduce or mitigate risk (derivative instruments)

58
Q

Risk sharing

A

Management reducing risk by transferring it (insurance)

59
Q

Risk acceptance

A

The company takes no action, proceeds with event.

60
Q

When traditional costing is used, the application of overhead is accomplished in two steps…

A
  1. calculated OH rate= budgeted OH costs/estimated cost driver
  2. Applied OH=actual cost driver*OH rate
61
Q

Job cost records

A
  • maintained for each product, service, or batch of products, and they serve as the primary records used to accumulate all costs for the job
  • include: materials requisitions, labor time tickets
62
Q

Activity based costing

A

Refines traditional costing methods and assumes that the resource-consuming activities with specific purposes cause costs. ABC assumes that the best way to assign indirect costs to products (cost objects) is based on the product’s demand for resource consuming activities.

Business Environment & Concepts (6 decks)

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