B1 Unit

Question 1

Main Idea/Focus of COSO

Answer 1

a private sector initiative for financial reporting, with emphasis on internal controls & how to assess these controls (are they effective)…basically they made 17 principles which fall under 5 internal control components to achieve 3 objectives.

Question 2

Who uses COSO?

Answer 2

Management and the board. COSO tests to see if the controls are effectivley designed and actually work…it also gives confidence to stockholders.

Question 3

What are the 3 Objectives of COSO

Answer 3

ORC

Operating, Reporting, and Compliance objectives.

Question 4

5 Internal Control Components:

Answer 4

Control Environment- Tone at the Top
Risk Assessment- FS Misstated
Information & Communication- FACT: Fair, Accurate, Complete, Timely.
Monitoring Activities-Effectiveness of controls while reporting deficiencies.
Existing Control Activities- policies to mitigate risks.

Question 5

Part of the 17, fall under CRIME…What is under C

Answer 5

5 fall under C: EBOCA- Ethics, Board Independence, Orgizanational Structure, Commit to competence, Accountability.

Question 6

Part of the 17, fall under CRIME…What is under R

Answer 6

4 fall under R: SAFR-Specify Objectives, Assess Changes, Fraud Potential, Risk identification & analysis.

Question 7

Part of the 17, fall under CRIME…What is under I

Answer 7

3 fall under I: OIE- Obtain and use info, Internal communication, Extneral Communication.

Question 8

Part of the 17, fall under CRIME…What is under M

Answer 8

2 fall under M: SOD- Seperate & Ongoing Evaluation, Deficiencies

Question 9

Part of the 17, fall under CRIME…What is under E

Answer 9

3 fall under E: CAT P- Control Activities, Technology controls, Policies & Procedures.

Question 10

Why do we apply COSO? What level of assurance is acheieve?

Answer 10

To reduce the levels of risk.

And Reasonable, not absolute.

Question 11

There is a COSO Document of Internal Controls…what are the components?

Answer 11

COPS

Component evaluation, Overall assessment, Principal Evaluation, Summary of Deficiency

Question 12

Common Risks Identified using COSO:

Answer 12

Material Omission (unintentional), Fraud (intentional), Management Override, Illegal Acts

Question 13

When designing and implementing controls: management considers

Answer 13

laws, the nature of the business, scope of operations, competence of personnel, technology.

Question 14

Treadway Commision was established to .

Answer 14

study factors that lead to fraudlent reporting, it was established by private sponsoring organizations

Question 15

By developing value we use CPER:

Answer 15

Creation: Benefit must be more than the costs, generate a cost.
Preservation: You sustain the profit, by having a continuuing operating profit.
Erosion: value goes down when cost exceeds benefit.
Realization: when the stakeholders receive a benefit by either getting a dividend or growing the stock price. But it could also be in a non-monetary value through brand image or satisfaction etc…

Question 16

CCPIS: to manage risk and create value.

Answer 16

Culture
Capabilities-competitive advantage
Practices-continually applied across all levels.
Integration with strategies and performance: relates to the mission (what you want to do, and what the vision is for the future.)

Question 17

Risk Appetite-

Answer 17

How willing you are to assume risk. More risk, more reward.

Question 18

Portfolio View vs. Profile View

Answer 18

Portfolio View takes a holistic view, it is entity wide and at the “parent” level.

Profile View is more defined and specific to a department, division, product etc…

Question 19

Components of Enterprise Risk Managment: 5 components and 20 principles.
5 Components are:

Answer 19

GO PRO
Governance & Culture-tone at top/values
Objective setting- mission/vision
Performance-measurability & respond to risk
Review & Revision-to adapt/repsond to risk
Ongoing reporting and communication.

Question 20

For the G in GO PRO:

Answer 20

DOVES think core values: Deisred culture, board oversight, values at core, employees are capable, structure of operations.

Question 21

For the O in GO PRO:

Answer 21

SOAR: strategies and alternates are evaluated, objectives are set, analyze business context, risk appetite.

Question 22

For the P in GO PRO:

Answer 22

VAPIR: View at parent level, assess risk severity, prioritize risk, identify risk, respond to risk.

Question 23

For the R in GO PRO:

Answer 23

SIR:substantial changes assessed, improving the enterprise risk management, review risk & performance.

Question 24

For the second O in GO PRO:

Answer 24

TIP: Technology, information is communicated, performance reports on risk.

Question 25

Three types of risk:

Answer 25

inherent-comes with the industry you are in, Target residual-willing to assume the risk, and actual residual-any remaining risk after mgmt actions have been made.

Question 26

Repsonses to risk: AARTS

Think of frequency graph

Answer 26

Avoid (F: High, Sev: High)
Reduce (F: High, Sev: Low)
Transfer/share the risk (F:Low, Sev: High)
Self Insure/Accept (F:Low, Sev: Low)

Question 27

What is the statute of limitations for securities fraud?

Answer 27

no later than the earlier of 2 years after the discovery or 5 years after the violation.

Question 28

What classifys a financial expert?

Answer 28

understands and applys GAAP, has public accounting experience, internal control experience.

Question 29

Code of ethics promotes what

Answer 29

honest/ethical conduct, full, fair and accurate disclosures, compliance with all laws.

Question 30

Who does the auditor directly report to?

Answer 30

The audit Commitee. The audit commitee also handles disputes between auditor and management.