BEC

Question 1

Enterprise risk management helps an entity achieve four types of objectives. They are:

R.O.C.S

Answer 1

Reporting - objectives associated with the reliability of all forms of reporting, financial and otherwise

Operation - objectives related to the effective and efficient use of company resources

Compliance - objectives to ensure that the company complies with all relevant laws, rules, regulations, both internal and external

Strategic - high-level objectives that are aligned closely with and support a company’s mission

Question 2

Risk assessment focuses on the following two risks:

I.R.

Answer 2

Inherent risks

Residual risk

Question 3

The 2017 COSO ERM framework is a set of five components and twenty interrelated principles. The five components are:

P.R.I.G.S.

Answer 3

Performance

Review and Revision

Information, Communication, and Reporting

Governance and Culture

Strategy and Objective Setting

Question 4

Residual risk is

Answer 4

the risk that remains after management’s response to mitigate risk.

Question 5

Inherent risk is

Answer 5

the natural level of risk prior to any mitigation or reduction efforts.

Question 6

Event risk is

Answer 6

the possibility of a negative impact resulting from an unexpected event.

Question 7

Detection risk is the

Answer 7

risk that material misstatements will go undetected.

Question 8

Internal control consist of five interrelated components:

C.C.R.I.M.

Answer 8

Control environment (FOUNDATION OFF ALL)

Control activities = (include all of the policies and procedures used within a system to help ensure that all management directives are performed as anticipated. )

Risk assessment,

Information and communication.

Monitoring = Monitoring is a company’s attempt to assess its internal control on an ongoing basis and make necessary changes whenever needed.

Question 9

Risk responses fall into the following categories:

S.A.R.A.

Answer 9

Sharing – Reducing the risk likelihood or impact by transferring or sharing the risk such as purchasing insurance or forming a joint venture.

Acceptance – No action is taken to affect the likelihood or impact of the risk.

Reduction – Action is taken to reduce the likelihood or impact of the risk. The amount of the potential loss from each identified risk should be estimated to the extent possible. Some risks are indeterminate and can only be described as large, moderate or small.

Avoidance – Exiting the activity or activities that give rise to the risk, such as exiting a product line or selling a division.

Question 10

A perfectly competitive market will exist if the following conditions are true:

Perfect competition

Answer 10

Customers are indifferent as to which supplier to buy from

Many independent firms are in the industry

Perfect information exists in the market

There are no barriers restricting firms from entering or exiting

The product is standardized

There is no non-price competition

Question 11

The following is a list of assumptions that characterize monopolistic competition:

Answer 11

There are many non-collusive firms operating within the market, meaning that they operate independently of each other

The market for a product or products that can be differentiated, which means that each product is similar but not exactly alike

There is some non-price competition in which each firm tries to distinguish its product or service from competing products and services

The firms have limited control over price because of the presence of so many other firms selling similar products

There are minimal barriers from restricting firms from entering or exiting the market

Each firm has a highly elastic demand curve – when a company raises its price just a little bit the demand will go down and total revenue will decrease

Question 12

The primary financial risks are

B.I.T.

Answer 12

borrowing risks,
investing risks, and
transaction risks

Question 13

Black Scholes Option Pricing Model: Information Needed

P.E.R.E.S.

Answer 13

Price of the underlying asset

Exercise price of the option

Risk-free interest rate

Expiration date of the option

Standard deviation of the stock’s prices

Question 14

Cash Conversion Period formula:

Answer 14

(Inventory Conversion Period + Receivables Conversion Period) - Payable Conversion Period

Question 15

Quick Ratio (acid test) Formula:

Answer 15

(Cash + Marketable Securities + Net Accounts Receivables) ÷ Current Liabilities

Question 16

Current Ratio Formula:

Answer 16

Current Assets ÷ Current Liabilities

Question 17

Economic indicators are:

Answer 17

Leading indicator

Lagging Indicator

Coincident Indicator

Payroll Indicator

Question 18

Economic indicator - Coincident indicator include:

Answer 18

Employees on nonagriculture income

Personal Income minus transfers payments

Index of industrial Production

Manufacturing and trade sales

Question 19

What are the four screening methods, or ranking methods, used to determine if a project meets the necessary requirements to be a worthwhile investment?

P.I.N.A.

Answer 19

Payback Period/Discounted Payback Period

Internal Rate-of-Return

Net Present Value

Accounting Rate-of-Return

Question 20

Payback Period/Discounted Payback Period –
DEFINITION

Answer 20

Used to determine the number of periods that must pass before the net-after cash inflows from the investment will equal the initial cost of the investment.

Question 21

Net Present Value –
DEFINITION

Answer 21

Calculates the present value of the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the required rate of return.

Question 22

Internal Rate-of-Return
DEFINITION

Answer 22

Calculates the interest rate at which the present value of expected cash inflows from a project equals the present value of expected cash outflows.

Question 23

Accounting Rate-of-Return –
DEFINITION

Answer 23

The ratio of the amount of the expected increase in annual average accounting income as a result of the project relative to the required investment.

Question 24

Depressions can be caused by:

E.S.O.

Answer 24

Excess of savings over new investment requirements

Speculation in the security markets

Overextension of credit during peak phases and excess inventories

Question 25

Depressions can be caused by:

Answer 25

Overextension of credit during peak phases and excess inventories

Speculation in the security markets

Excess of savings over new investment requirements

Question 26

All companies will experience different benefits from effective risk management but some of the common benefits include:

Answer 26

Fewer disruptions to operations

Higher utilization of resources

Fewer shocks and unwelcome surprises

More effective strategic planning

Better cost control

Minimizing losses and maximizing profits

Confidence in the organization from employees and shareholders
Better contingency planning

Improved ability to achieve objectives and take advantage of opportunities

Question 27

Which is the Foundation of the five components of Internal Control?

Answer 27

Control Environment

Question 28

Sarbanes-Oxley Act of 2002 Section 201:

Answer 28

Section 201: Services Outside the Scope of Practice of Auditors; Prohibited Activities

Question 29

Sarbanes-Oxley Act of 2002 Section 204:

Answer 29

Section 204: Auditor Reports to Audit Committees

Question 30

Sarbanes-Oxley Act of 2002 Section 302:

Answer 30

Section 302: Corporate Responsibility for Financial Reports

Question 31

Sarbanes-Oxley Act of 2002 Section 404:

Answer 31

Section 404: requires management to document and test the company’s internal controls and to report on their effectiveness

Question 32

A firm’s value chain is generally viewed as having the following components

Answer 32

inbound logistics,
operations,
outbound logistics,
marketing and sales, and
service to customers.

Question 33

Big Data is characterized by the following four attributes known as the 4 V’s

Answer 33

Volume refers to the amount of data that exists.

Velocity refers to the speed at which data is generated and changed, also called its flow rate.

Variety refers to the diverse forms of data that organizations create and collect.

Veracity refers to the accuracy of data or the extent to which it can be trusted for decision-making.

Question 34

ROA = Return on Assets

Answer 34

net income divided by total assets.

Question 35

ROE = Return on Equity

Answer 35

net income divided by total equity

Question 36

ROIC = Return on Invested capital

Answer 36

net income plus interest divided by average total invested capital. Invested capital is equal to interest bearing debt plus shareholders equity.

Question 37

Manufacturers of capital goods are: C & HE

Answer 37

construction and heavy equipment

Question 38

consumer durables are: A & A

Answer 38

automobiles and appliances

Question 39

service businesses are: M

Answer 39

medical

Question 40

producers of non-durable consumer goods are: F & C

Answer 40

food and clothing

Question 41

There are 4 types of IT governance; S.S.P.D

Answer 41

strategic governance,
shared service governance,
project governance, and
data governance.

Question 42

Big Data is characterized by the following four attributes known as the 4 V’s:

Answer 42

Volume - refers to the amount of data that exists.

Velocity - refers to the speed at which data is generated and changed, also called its flow rate.

Variety - refers to the diverse forms of data that organizations create and collect.

Veracity - refers to the accuracy of data or the extent to which it can be trusted for decision-making.

Question 43

The capital asset pricing model formula is:

Answer 43

Investor’s required rate of return = Risk-free rate of return + Beta (Market rate of return – Risk-free rate of return).

Question 44

AR turnover is calculated as

Answer 44

total sales divided by average receivables

Question 45

Inventory turnover is calculated as

Answer 45

cost of sales divided by average inventory.

Question 46

Strategic governance ensures

Answer 46

that IT objectives are aligned with the organization’s strategic objectives and provides a structure for the allocation of IT resources to meet business needs.

Question 47

Factory overhead and manufacturing overhead are interchangeable terms. The costs included in factory overhead include:

Answer 47

Indirect Materials
Indirect Labor
General Manufacturing Overhead

Question 48

Factory overhead -
Theoretical capacity assumes

Answer 48

output is produced 100% of the time.

Question 49

Factory overhead -
Practical capacity adjusts

Answer 49

theoretical capacity for non-production time such as holidays

Question 50

Factory overhead -
Normal volume adjusts

Answer 50

theoretical capacity for long run product demand over a multiple year period.

Question 51

Factory overhead -
Expected annual capacity adjusts

Answer 51

theoretical capacity for the expected output for the current year only

Question 52

The primary functions of an information system are:
P.I.C.O.S.

Answer 52

Processing
Input
Control
Output
Storage

Question 53

Section 201 of the Sarbanes-Oxley Act of 2002
The prohibited services include

Answer 53

bookkeeping services, actuarial services, legal services, internal audit functions, in addition to many others.

Tax services, comfort letters, and statutory audits are all permitted services that usually require pre-approval by the audit committee.

Question 54

The risk of fraud should be a concern to every management group as well as every audit team. You are beginning a new audit engagement. The client is the Hywong Corporation. Before the audit works begins, you want to make certain that the management and audit committee of the board of directors of this new client are aware of the importance of preventing fraud. Factors within an organization can often contribute to the risk of fraud. Write a memo to the president of Hywong and the audit committee to describe the importance of corporate governance oversight to reduce the risk of fraud. Please type your answer in the space provided below.

Answer 54

The management of a company has primary responsibility for the design and implementation of antifraud programs and controls to prevent, deter, and detect fraud. The audit committee has primary responsibility to oversee the organization’s financial reporting and internal control processes.

As a part of this work, the audit committee provides oversight of management’s fraud risk assessment process and antifraud programs and controls. Management and the board of directors are responsible for setting the “tone at the top” for ethical behavior within the company. Management must behave at all times with honesty and integrity because this attitude reinforces the importance of these values to employees throughout the organization. The corporate code of conduct establishes the “tone at the top” by stressing the importance of honesty and integrity. It can also provide specific guidance for all employees about permitted and prohibited behavior.

Typical items addressed in a code of conduct include expectations of general employee conduct, restrictions on conflicts of interest, and limitations on relationships with clients and suppliers. Additionally, the board of directors must be sufficiently objective so that the independence of its members cannot possibly be impaired. This independence is essential because the board has the ultimate responsibility for the implementation of antifraud programs and all other affairs of the organization.

Question 55

cost accounting
price variance is calculated as:

Answer 55

(Actual Price − Standard Price) × Actual Quantity Used.