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BEC 1 Flashcards

1
Q

The Sarbanes-Oxley Act assigns the following corporate responsibilities regarding internal controls that must accompany financial reports:

A

CEO & CFO must certify the following for annual and quarterly reports: 1. The officers are responsible for establishing and maintaining internal controls. 2. Internal control is designed to ensure that material info is provided to internal & external users. 3. Internal conrols have been evaluated within 90 days prior to the report. 4. The officers’ conclusiosn regarding internal control effectiveness as of the evaluation date

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2
Q

The SOX Act specifically prohibits improper influence on the conduct of audits defined as follows

A

No officer or director may take any action to fradulently influence, coerce, manipulate, or mislead an independent CPA engaged in an audit of the F/S of an issuer for the purpose of rendering the F/S materially misleading

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3
Q

The SOX Act imposes certain financial penalties on officers who are responsible for material misstatements resulting from their misconduct. Penalties include:

A
  1. Refund to the issuer of any bonus or other incentive-based or equity-based compensation during the 12-month period following the first public issuance of the financial document. 2. Refund any profits realized from the sale of securities of the issuer during the 12-month period following the first public issuance of the financial document.
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4
Q

Title IV of the Sarbanes Oxley Act, Enhanced Financial Disclosures, includes the following topics:

A

Disclosures in periodic reports Enhanced conflict-of-interest provisions Dislcosures of transactions involving management and principle stockholders Mgmt assessment of internal controls Certain exemptions Code of ethics for senior financial officers Dislcosure of audit committee financial expert Enhanced review of periodic disclosures by issuers

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5
Q

The Sarbanes Oxley Act requires certain disclosures in periodic reports. Those disclosures include:

A
  1. All adjusting entries identified by the public accounting firm reporting on the F/S. 2. The F/S disclose all material off-balance sheet transactions including operating leases, contingent obligations, and relationships with unconsolidated subsidiaries. 3. Pro forma F/S shall include all relevant info and shall not include misleading or untrue info
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6
Q

The Sarbanes Oxley Act includes certain enhanced conflict-of-interest provisions. Those provisions include:

A

Prohibitions on personal loans to executives with some exceptions

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7
Q

The Sarbanes Oxley Act includes provisions for disclosure of transactions involving management and principle stockholders. Those provisions include:

A

Reporting by persons with ownership of 10% or more. Statements are filed at the time of registration, when a person achieves 10% ownership, and when there has been a change in ownership.

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8
Q

The Sarbanes Oxley Act includes provisions for management assessment of internal controls. Those provisions includes a report showing:

A
  1. Management’s assertion that it is responsible for adequate internal control structure. 2. Management’s conclusions regarding its assessment of the effectiveness of the internal control structure and procedures for financial reporting 3. The auditor’s attestation regarding management’s assessment of internal control
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9
Q

The Sarbanes Oxley Act includes provisions for audit committee disclosures. Those disclosures include:

A

The issuer must disclose the existence of a financial expert on the committee or the reasons why the committee does not have a member who is a financial expert.

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10
Q

For purposes of service on the audit committee, what qualifies an individual for classification as a financial expert?

A

A financial expert qualifies through education, past experience as a public accountant, or past experience as a finance officer for an issuer. Knowledge of the financial expert should include: 1. Understanding of GAAP 2. Experience in the preparation or auditing of F/S for comparable issuers 3. Application of GAAP 4. Experience with internal controls 5. Understanding of audit committee functions

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11
Q

Title VIII of the Sarbanes-Oxley Act considers what topics?

A

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

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12
Q

Title IX of the Sarbanes-Oxley Act considers what topics?

A

Title IX, White Collar Crime Penalty Enhancements, includes the following: - Attempt and conspiracy - Amended sentencing guidelines for white-collar offenses - Failure of corporate officers to certify financial reports

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13
Q

An issuer periodic report containing financial statements filed with the SEC must include the following written certifications:

A

Each certified financial report must include a written statement: 1. That the periodic report complies with the Securities Exchange Act of 1934. 2. That info in the report fairly presents, in all material respects, the financial condition and operating results of the issuers. 3. Which must be signed by the CEO & CFO of the issuer, who bear responsibility for these statements.

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14
Q

Title XI of the Sarbanes Oxley Act considers what topics?

A

Title XI, Corporate Fraud Accountability, includes the following: - Tampering with a record or impeding an official proceeding - Temporary freeze of authority for the SEC - Authority of the SEC to prohibit persons from serving as officers or directors - Retaliation against informants

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15
Q

Under Title XI, Corporate Fraud Accountability, what are the penalties for tampering with a document used in an official proceeding or retaliating against an informant providing information to the SEC?

A

Document tampering will result in fines and/or a prison term of not more than 20 years. Retailiation against informants providing information to the SEC will result in fines and/or prision term of not more than 10 years

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16
Q

How does the principles-based approach support an effective system of internal control under the COSO framework?

A

An effective system of internal control requires the use of judgement in determining the sufficiency of controls, applying the proper controls, and assessing the effectiveness of the system of internal controls. The principles-based approach of the COSO framework emphasizes the importance of management judgment.

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17
Q

What are the components of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework?

A
  1. Control Environment 2. Risk assessment 3. Information and communications 4. Monitoring 5. Existing control activities
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18
Q

What are the five principles associated with the control environment component of the COSO Internal Control Integrated Framework?

A
  1. Committement to ethics and integrity (E) 2. Board independence and oversight (B) 3. Organizational structure (O) 4. Commitment to competence (C) 5. Accountability (A)
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19
Q

What are the four principles associated with the risk assessment component of the COSO Internal Control Integrated Framework?

A
  1. Specify objectives 2. Identify and analyze risks 3. Consider potential for fraud 4. Identify and assess changes
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20
Q

What are the three principles associated with the (existing) control activities component of the COSO Internal Control Integrated Framework?

A
  1. Select and develop control activities 2. Select and develop technology controls 3. Deploy through policies and procedures
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21
Q

What are the three principles associated with the info and communications component of the COSO Internal Control Integrated Framework?

A
  1. Obtain and use information 2. Internally communicate info 3. Communicate with external parties
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22
Q

Name and describe the three objectives within the COSO framework

A
  • Operating objectives pertain to the effectiveness and efficiency of the entity’s operations - Reporting objectives pertain to the reliability, timeliness, and transparency of an entity’s reporting - Compliance objectives are necessary to ensure the entity is adhering to all laws and regulations.
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23
Q

What is the purpose of the COSO cube?

A

To show a graphical 3-dimensional depiction of the relationship between an entity’s 3 objectives, its 5 integrated conrol components, and the entity’s organizational structure

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24
Q

What is necessary for the 5 components of the COSO framework to create an effective internal control environment for an entity?

A

In order to have an effective internal control environment for an entity, the 5 components and 17 related principles must be both present and functioning. Additionally, the 5 components must operate together as an integrated system, to reduce the risk to an acceptable level, that the entity will not achieve its objectives.

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25
Q

Differentiate the COSO framework from the Audit framework

A

The 5 components of the COSO framework are useful for identifying and evaluating the effectiveness of an entity’s internal control. In contrast, the Audit framework focuses on how a given conrol prevents or detects and corrects material misstatements in an entity’s financial reporting.

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26
Q

Identify some inherent limitations that may exist even with an effective internal control system

A

The following inherent limitations may still exist with an effective internal control system: - Breakdowns in internal control due to error or human failure - Issues pertaining to the suitability of the entity’s objectives - External events beyond the control of the entity - Faulty or biased judgement in decision making - Mgmt override of controls - Circumvention of controls through collusion

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27
Q

What constitutes ineffective internal control under the COSO framework?

A

If a major deficiency is identified related to the presence and functioning of a component or relevant principle, or with respect to the components operating together in an integrated manner, the entity may not conclude that it has effective internal control system in place under the COSO framework

28
Q

What are the two principles associated with the monitoring component of the COSO Internal Control Integrated Framework?

A
  1. Ongoing and separate evaluations 2. Communication of deficiences
29
Q

What theme does the ERM framework encompass?

A
  1. Aligning risk appetite and strategy. 2. Enhancing risk response decisions 3. Reducing operating surprises and losses 4. Identifying and managing multiple and cross-enterprise risks 5. Seizing opportunities 6. Improving deployment of capital
30
Q

Explain the difference between opportunities and risks under the ERM framework

A

Positive events that promote achievement of objectives are opportunities. Negative events that prevent the achievement of objectives are risks.

31
Q

What are the components of the COSO Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Internal Environment (I) 2. Objective Setting (S) 3. Event identification (E) 4. Accountability (A) 5. Risk Response (R) 6. Control Activities (A) 7. Information and communication (I) 8. Monitoring (M)
32
Q

What are the key elements of the internal environment component of the COSO ERM Integrated Framework?

A
  1. Philosophy of risk management 2. Human resource standards 3. Risk appetite 4. Accountability 5. Structure (organizational) 6. Ethical values (and integrity) 7. Directors’ oversight 8. Commitment to competence
33
Q

What are the key elements of the objective setting component of the COSO ERM Integrated Framework?

A
  1. Strategic objectives 2. Related objectives 3. Selected objectives 4. Risk appetite 5. Risk tolerances
34
Q

What are the key elements of the event identification component of the COSO ERM Integrated Framework?

A
  1. Events 2. Influencing factors 3. Event identification techniques 4. Event interdependence 5. Event categories 6. Distinguishing risk and opportunities
35
Q

What are the key elements of the risk assessment component of the COSO ERM Integrated Framework?

A
  1. Inherent and residual risk 2. Establishing likelihood and impact 3. Data sources 4. Assessment techniques 5. Event relationships
36
Q

What are the key elements of the risk response component of the COSO ERM Integrated Framework?

A
  1. Evaluating possible responses 2. Selected reponses 3. Portfolio view
37
Q

What are the key elements of the control activities component of the COSO ERM Integrated Framework?

A
  1. Integration with risk response 2. Types of control activities 3. Controls over information systems 4. Entity-specific controls
38
Q

What are the key elements of the information and communication component of the COSO ERM Integrated Framework?

A
  1. Information 2. Communication
39
Q

What are the key elements of the monitoring component of the COSO ERM Integrated Framework?

A
  1. Ongoing monitoring activities 2. Separate evaluations 3. Reporting deficiencies
40
Q

What is a major limitation of ERM?

A

ERM is subject to human error as ERM evaluations can contain errors and management can override controls

41
Q

Explain the purpose of a balanced scorecard

A

Framework used for implementing strategy that converts an entity’s strategic objectives into a set of performance measures

42
Q

What are the total factor productivity ratios (TFP) and partial productivity ratios (PPR)?

A

TFP and PPR are 2 types of productivity measures used as external benchmarks. Total factor productivity ratios (TFPs) reflect the quantity of all output produced relative to the costs of all inputs used. Partial productivity ratios (PPRs) reflect the quantity of output produced relative to the quantity of individual inputs used.

43
Q

What is a control chart and how is it used as a statistical quality-control tool?

A

A control chart is used to plot a comparison of actual results by batch or other suitable constant internal to an acceptable range. Control charts effectively indicate whether there is a trend toward improved quality conformance or deteriorating quality conformance

44
Q

How are Pareto diagrams and fishbone diagrams used to identify quality-control issues (defects)?

A

A Pareto diagram identifies the freqency (highest to lowest) of defects or problems that demand management attention Once intially identified in the Pareto diagram, the individual defects/problems are further analyzed by cause and effect in a fishbone diagram

45
Q

What are the characteristics of effective performance measures?

A

Effective performance measures: 1. Relate to the goals of the organization 2. Balanace long- and short- term issues 3. Reflect mgmt of key activities sometimes referred to as critical success factors in the balanced scorecard 4. Are under the control or influence of the employee 5. Are understood by the employee 6. Are used to both evaluate and reward the employee or otherwise constructively influence behavior 7. Are objective and are easily measured. 8. Are used consistently

46
Q

Define transaction marketing

A

Customers are attracted for the sake of a single sale

47
Q

Define interaction-based relationship marketing

A

When customers are attracted for the purpose of a sale that serves as the basis for an ongoing relationship

48
Q

Define database marketing

A

Information is gathered on customers and the information from that database is used to segment customers into target markets for a more effective selling effort

49
Q

Identify three types of compensation generally available

A
  1. Fixed salary 2. Bonuses 3. Perks
50
Q

List 5 issues related to incentive compensation

A
  1. Time horizon - Does the plan exclusively emphasize current reward for current performance or does it promote ongoing performance? 2. Fixed vs. variable bonuses - Is the incentive pay formula driven or subjective? 3. Stock vs. accounting-based performance valuation - Is the measurement of performance based on accounting data or equity values? 4. Local vs. company-wide performance - Does the incentive reward for local (division) or company-wide performance? 5. Cooperative vs. competitive plans - Does the incentive reward group or individual accomplishment?
51
Q

Name the 3 components of produc cost and identify which of these components are categorized as prime cost and conversion costs

A

Direct materials (DM) Direct labor (DL) Manufacturing overhead (Mfg Ovhd) Prime Cost = DM + DL Conversion Costs = DL + Mfg Ovhd

52
Q

Distinguish between product and period cost

A

Product Costs: Inventoriable - become COGS when sold Period Costs: Expensed in period incurred as they are not inventoriable

53
Q

Name the 3 most frequent objectives of an entity’s cost accounting system(s).

A
  1. Product costing (inventory and cost of goods manufactured and sold). 2. Efficency measurements (comparison to standards) 3. Income determination (profitability)
54
Q

Determine the traditional overhead rate

A

Traditional overhead rate = Budgeted mfg ovhd costs / Est. cost driver

55
Q

Define relevant range

A

Range of volume for which the assumptions of the cost driver (i.e., linear relationship with the costs incurred) are valid and in which the actual value of the cost driver exist

56
Q

Compare and contrast the direct method and step-down method for allocating service costs in activity-based costing.

A

Under direct method - each service dept’s total costs are directly allocated to the production departments without recognizing that the service departments themselves may use the services from other service departments Under step-down method - sequential approach is used to allocate service department costs to production departments as well as other service departments

57
Q

With joint products, what is the treatment of costs incurred before the split-off point?

A

Costs incurrd before the split-off point are sunk costs, not relevant to further processing decisions Joint costs are allocated by an arbitrary means such as by unit volume relationships or relative net realizable values at the split-off point

58
Q

What is the formula for cost of goods manufactured?

A

(B)eginning WIP (beginning) (A)dd Add: DM + DL + Mfg Ovhd (S)ubtract Less: WIP (ending) (E)nding COG Manufactured

59
Q

What is the formula for COGS?

A

Manufacturing entity: Finished goods (beg) + COG manufactured - Finished goods (ending) = COGS Alternative formula Beginning inventory + Purchases - Ending inventory =COGS

60
Q

What is the difference between job and process costing?

A

Job Costing With job costing, each unit/batch is unique and easily identifiable costs are determined by each job Ex: We print your resume in our print shop Process Costing: With process costing, continuous mass-produced identical units are manufactured, and costs are determined by activity/process/department Ex: We process crude oil into gasoline

61
Q

What is an equivalent unit and how are the costs applied?

A

Used in process costing, equivalent units are fully completed and partially completed units during the period In applying costs, determine the units, then costs, then apply the cost flow assumption for cost per unit and allocation of costs

62
Q

How are equivalent units and total cost calculated using the FIFO method?

A

Equivalent units = (Beginning WIP x % to be completed) + Units started and completed + (Ending WIP x % completed) Total costs = Cost incurred during the current period

63
Q

How are equivalent units and total cost calculated using the weighted average method?

A

Equivalent units = Units completed and transferred out + (Ending WIP x % completed) Total costs = Costs in beginning WIP + Costs incurred during the current period

64
Q

Name the types of spoilage and indicate the appropriate accounting treatment

A

Abnormal: Charge to income of the current period Normal: Increase the cost of the product produced (i.e., inventory)

65
Q

Define activity-based costing (ABC)

A

ABC is a costing theory that assumes that resource consuming activities cause costs and that costs should be assigned to benefiting products based on the activities performed and the resources consumed. ABC systems often divide costs into multiple activity centers and identify the activities that drive the costs in each cost center. Costs are then assigned based on the volume of cost drivers at the determined rate per cost driver.

BEC (29 decks)

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