B1

Question 1

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

Answer 1

1. Safeguard company’s assets

2. Maximize shareholder return

Question 2

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

Answer 2

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

Question 3

SOX Title III-Corporate Responsibility

Answer 3

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

Question 4

SOX Title IV-Enhanced Financial Disclosures

Answer 4

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

Question 5

Definition of Internal Control

Answer 5

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

Question 6

The 3 categories of objectives within the COSO framework

ORC

Answer 6

Operating
Reporting
Compliance

Question 7

Operations Objectives

Answer 7

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.

Question 8

Reporting Objectives

Answer 8

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.

Question 9

Compliance Objectives

Answer 9

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

Question 10

The 5 principles related to the control environment EBOCA)

Answer 10

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

Question 11

ERM enterprise objectives (4)

SORC

Answer 11

Strategic
Operations
Reporting
Compliance

Question 12

Strategic Objectives

Answer 12

High-level goals designed to achieve the mission

Question 13

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

Answer 13

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

Question 14

ERM-Internal Environment 8 Components

EBOCA HR

Answer 14

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

Question 15

4 ways to respond to risk

Answer 15

1. Avoidance
2. Reduction
3. Sharing
4. Acceptance

Question 16

Total Factor Productivity Ratios (TFP)

Answer 16

output/total costs

Question 17

Partial Productivity Ratios (PPRs)

Answer 17

Output/specific quantity

Question 18

Control Charts

Answer 18

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

Question 19

Pareto Diagrams

Answer 19

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.

Question 20

Cost Objects

Answer 20

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.

Question 21

Prime Costs

Answer 21

Direct materials+direct labor

Question 22

Conversion Costs

Answer 22

Direct labor+overhead applied

Question 23

Product Costs

Answer 23

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

Question 24

Period Costs

Answer 24

• 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

Question 25

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

Answer 25

- Product costing (inventory and cost of goods manufactured and sold) - Income determination (profitability) - Efficiency measurements (comparisons to standards)

Question 26

Direct Costs

Answer 26

- 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

Question 27

Direct Raw Materials

Answer 27

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

Question 28

Direct Labor

Answer 28

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

Question 29

Indirect Costs

Answer 29

- Not easily traceable to a cost pool or cost object | - Typically incurred to the benefit of two or more cost pools or objects

Question 30

Variable Costs

Answer 30

- 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

Question 31

Fixed Costs

Answer 31

- 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

Question 32

Semi-variable costs

Answer 32

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

Question 33

Relevant Range

Answer 33

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

Question 34

Cost of Goods Manufactured Statement

Answer 34

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

Question 35

Direct Materials Used Formula

Answer 35

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

Question 36

Cost of Goods Sold Statement

Answer 36

``` Finished goods, beginning +Cost of goods manufactured =Cost of goods AFS -Finished goods, ending =Cost of goods sold ```

Question 37

Job-Order Costing

Answer 37

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

Question 38

Process Costing

Answer 38

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

Question 39

Equivalent Units

Answer 39

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

Question 40

EUP under FIFO (3 components)

Answer 40

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

Question 41

EUP under Weighted-Average (2 components)

Answer 41

1. Units completed | 2. Ending WIP * % completed

Question 42

Normal Spoilage

Answer 42

- Occurs under regular operating conditions and is included in the standard cost of the manufactured product - Capitalized as part of inventory

Question 43

Abnormal Spoilage

Answer 43

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

Question 44

Comparison of EUP calculation under FIFO and Weighted-Average

Answer 44

- 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

Question 45

Activity

Answer 45

Any work performed inside a firm

Question 46

Resource

Answer 46

An element used to perform an activity

Question 47

Cost Driver

Answer 47

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

Question 48

Examples of Jobs that would Use Job-Costing

Answer 48

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

Question 49

Examples of Jobs that would use process costing

Answer 49

- Oil& gas - Chemicals - Steel - Textiles

Question 50

Title VIII-Corporate and Criminal Fraud Accountability

Answer 50

- Criminal penalties for altering documents - Statute of limitations for securities fraud - Whistle blower protection - Criminal penalties for securities fraud

Question 51

Structure of COSO framework

Answer 51

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.

Question 52

Enterprise Risk Management-Integrated Framework

Answer 52

- 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

Question 53

Enterprise risk management definition

Answer 53

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.

Question 54

Inherent risk

Answer 54

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

Question 55

Residual risk

Answer 55

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

Question 56

Risk avoidance

Answer 56

-management election to avoid or terminate risk

Question 57

Risk reduction

Answer 57

Management election to reduce or mitigate risk (derivative instruments)

Question 58

Risk sharing

Answer 58

Management reducing risk by transferring it (insurance)

Question 59

Risk acceptance

Answer 59

The company takes no action, proceeds with event.

Question 60

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

Answer 60

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

Question 61

Job cost records

Answer 61

- 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

Question 62

Activity based costing

Answer 62

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.