B1- Corporate Governance/Operations Management Flashcards
5 Components of COSO’s Internal Control
It would be a CRIME if you forgot the components of internal control
- C- Control Environment
- R- Risk Assessment
- I- Info & Communication Systems
- M- Monitoring
- E- Existing Control Activities
Internal Control: CRIME
Control Environment
The Control Environment is often PHRASED as the “tone at the top”
- P- Philosophy and Op Style of Man
- H- Human Resources
- R- Reporting (Financial) Competencies
- A- Authority and Responsibility
- S- Structure (organizational)
- E- Ethical Values (& Integrity)
- D- Directors
ERM:
4 Categories of Enterprise Objectives
SORC
- Strategic- High level goals designed to achieve a mission, Shareholder Value Inc
- Operations- achieve obj through offective and efficient use of res, ROIC > Cost
- Reporting- achievement of reliable reporting
- Compliance- ensure compliance with laws and regulations (ETHICS)
Components of ERM
IS EAR AIM
- I- Internal Environment (PHRASED C) – C
- S- Setting Objectives (SORC)
- E- Event Identification
- A- Assessment of Risk – R
- R- Risk Response – R
- A- Activities (control) – E
- I- Info & Communication – I
- M- Monitoring/reporting deficiencies – M
ERM:
IS EAR AIM
Internal Environment
“The tone at the top” is how the Internal Environment is often PHRASED C
- P- Philosophy of Risk Management
- H- Human Resource Standards
- R- Risk Appetite/Response
- A- Authority and Responsibility
- S- Structure (organizational)
- E- Ethical Values (& Integrity)
- D- Directors
- C- Commitment to Competence
ERM:
IS EAR AIM
Event Identification
Event Workshop- “hire experienced facilitator to stimulate a discussion from a cross-functional group representing different areas throughout the company”
ERM:
IS EAR AIM
Assessment of Risk
Event Inventory- significant component of risk assesment is the identification of events that might impede the achievement of objectives
Develop a listing of potential events common to a specific industry or functional area
Most frequent objectives of cost accounting systems are …
PIE
- Product Costing- Inv, COGM, COGS
- Income Determination- Profitability
- Efficiency Measurements- Comp to std
Cost of Goods Manufactured (COGM)
Formula
Beg WIP
+ DM used
+ DL
+ MOH Applied
= Total Manu Costs Avail
- End WIP
= COGM
Cost of Goods Sold (COGS)
Formula
Beg Inv
+ COGM/Purchases
= COGAS
- End Inv
= COGS
Process Costing
- Use WA or FIFO to det Equiv Units (EU)
- Det cost/EU
Process Costing:
Weighted Average Method
2 Steps
WA EU
Units Completed
+ End WIP * % Complete
= WA EU
WA = Beg Costs + Current Costs
EU
Process Costing:
FIFO Method
3 Steps
FIFO EU
Beg WIP * % to complete
Units Started & Completed
+ End WIP * % Complete
= FIFO EU
FIFO = Current Costs
EU
Engineered Cost
a cost that bears an observable and known relationship to a quantifiable activity base
ERM:
Event Identification
Events can only be identified after the organization objectives have been identifies.
ERM: Internal Environment
PHRASED C
Risk Appetite
Generally, an organization;s risk appetite have been exceeded when the combined likelihood and impact of negative events SIGNIFICANTLY exceeds residual risks
What are COSO’s 4 stages of the change continuum
- Control Baseline
- Change Identification
- Change Management
- Control Validation/Update
Cost drivers are:
activities that cause costs to increase as the activity increases
Total Productivity Ratios (TPRs)
consider all inputs and the prices of those inputs
TPR= quantity of output/costs of inputs
Partial Productivity Ratios (PPR)
consider the quantity of one input (not the price)
PPR= quantity of output produced/quantity of single input
Control Activities are most closely related to:
A) Risk Responses
B) Risk Assessments
C) Residual Risks
D) Inherent Risks
A) Risk Responses
Because control activities are the methods used to implement the response to risk. Sometimes the control activity is also the risk response.
Which of the following is a purpose of cost allocation?
A) evaluating revenue center performance
B) Implementing ABC
C) Measuring income and assets for external reporting
D) Aiding in variable costing for internal reporting
C) Measuring income and assets for external reporting
Not ABC b/c that requires cost drivers, not cost allocation
What are Financial Reporting Risks?
The determination of what might interrupt a company’s ability to present their F/S in accordance w/ GAAP.
