BEC Flashcards
Which IT personnel roles should always be segregated?
Operators
Programmers
Librarians
What are the duties of a systems analyst?
Designs or purchases IT system
Responsible for flowcharts
Liaison between Users and Programmers
Note: Think IT Manager
What is the primary duty of a Systems Administrator?
A Systems Administrator controls database access.
What are the duties of a Systems Programmer?
Writes- Updates- Maintains- & Tests software- systems- and compilers
Which duties should a Systems Programmer NOT have?
In order to maximize internal control- a Systems Programmer should NOT have application programming duties/abilities or be an Operator on the system.
What are the duties of a Systems Operator?
Schedules and Monitors Jobs
Runs IT Help Desk
What duties should a System Operator NOT have?
For internal control purposes- they should not be a Programmer on the system.
If it is not possible to segregate duties in an IT System- what actions should be taken to compensate for internal control purposes?
Include Computer Logs.
Control Group should review the logs.
What is the purpose of a Management Information System (MIS)?
To assist with decision making.
What is an Accounting Information System (AIS)?
A type of Management Information System (MIS) that processes accounting transactions.
What are the characteristics of an Executive Information System (EIS)?
Specialized for Company Executive needs
Assists with Strategy Only
No Decision-Making Capabilities
What are the characteristics of an Expert System (ES)?
Computer uses reasoning
Structured
No human interpretation needed
What are the characteristics of a Decision Support System (DSS)?
Computer provides data
Gives Interactive Support
Human interpretation needed
What are the characteristics of an Ad Hoc computer report?
User initiates the report.
The report is created upon demand.
When are Exception reports generated?
Exception reports are produced when Edit Tests- Check Digits- or Self-Checking Digits identify a problem
What is a query?
A type of Ad Hoc report- initiated by a user.
What is End-User Computing?
The User develops and executes their own application.
What is the primary benefit of E-commerce?
E-commerce makes business transactions easier.
What are the risks of E-commerce?
Compromised data or theft.
Less paper trail for auditors.
What are the benefits of Electronic Data Interchange?
Uses globally-accepted standards
Efficient
What is a File Server?
A file server stores shared programs and documents.
What is the purpose of a Database?
Located on a File Server- a Database allows users to share documents.
What is the purpose of a LAN (Local Area Network)?
It connects computers in close proximity.
What is the purpose of a WAN (Wide Area Network)?
It connects computers that are far apart.
What are the characteristics of a VAN (Value-Added Network)?
Privately-owned Network
Serves as 3rd Party Between 2 Companies
Routes EDI Transactions
Accepts wide range of Protocols
Very Costly
What is the purpose of a Firewall?
Prevents unauthorized access to a network.
What are the characteristics of a virus?
Takes over a computer
Needs a host program to run
What are the characteristics of a computer worm?
Takes over multiple computers
Doesn’t need a host program to run
What is the purpose of Automated Equipment Controls?
They prevent and detect hardware errors.
What is RAM?
Random Access Memory.
Internal memory in the computer used during immediate processing.
What is a CPU?
Computer Processing Unit
It processes commands within a computer.
What is Job Control Language?
It schedules and allocates system resources.
What are examples of input devices?
Keyboard
Mouse
Scanner
Magnetic Ink Reader
Magnetic Tape Reader
EDI
Point of Sale Scanner
What are examples of Output Devices?
Speakers
Monitors
Printers
What are the characteristics of Magnetic Tape storage?
Sequential Access - Sorts data in order
Slower data retrieval
Header Label prevents Operator error by loading wrong tape
External Labels prevent accidental destruction by operator
What are the characteristics of Magnetic Disks?
Random Access - Finds data in random spots
Faster data retrieval
Uses Boundary Protection for data
What is a Gateway?
Connects one network to another
Note: the Internet is connected by Gateways
What are Parity Checks?
A control that detects internal data errors.
A bit is added to each character- it checks to see if a bit was lost.
What is an Echo Check?
Transmitted data is returned to the sender for verification (it echoes back to the sender)
What is a Change Control?
It authorizes program changes and approves program test results.
What is security software?
Software that controls access to IT systems.
Note: Don’t confuse this with anti-virus software
What is the purpose of a Digital Signature?
It confirms a message has not been altered.
List the types of computers from smallest to largest
PDA/Smartphone/Tablet
Microcomputer - PC- Laptop (cost-effective)
Minicomputer - Like a Mainframe- but smaller
Mainframe - Large computer with terminals attached
Supercomputer - Very powerful and very big
What are the units of computer data from smallest to largest?
Bit - 1 (on) and 0 (off)
Byte - 8 bits to a byte/character
Field - group of related characters/bytes (i.e. Name- Zip Code- Serial #)
Record - Group of related fields (i.e. Member name- address- phone number)
File - Group of related records (i.e. Membership directory)
What is the duty of a design engineer?
Determine language used for a specific computer- on a computer-to-computer basis
What are object programs?
Programs written in base computer language- not similar to English.
How can source programs be recognized?
They are written in a language close to English.
What is the purpose of a Compiler?
Takes Source language (English) and converts to Object (Computer) Language
How does Online Analytical Processing work?
It uses a Data Warehouse to support management decision making.
What is Data Mining?
Using artificial intelligence and pattern recognition to analyze data stores within a Data Warehouse.
What is the purpose of online transaction processing?
To process a company’s routine transactions.
What are the characteristics of batch processing?
Data held- updates multiple files all at once
Leaves a better audit trail
Uses Grandfather-Father-Son backup (3 levels of backup kept in 3 locations)
What does an output control check for?
Checks to see if output data is valid- distributed and used in an authorized manner.
What does a processing control check?
Checks if data processing produced proper output
What is a hash total?
An input control number- a meaningless sum of values included in the input.
Example would be summing a list of SSNs to make sure the data is the same once entered as it was prior to input into the system.
What is a validity check?
Checks to see if data in existing tables or files belongs in the set
For example- is there a # in an alpha-only field or a letter in a numeric-only field
What is a limit check?
Checks to see if numbers surpass a certain limit- i.e. in an age field is the number greater than 110.
What is a check digit?
An input control that adds an identification number to a set of
digits - usually at the end
What is a field check?
An input check that prevents invalid characters- i.e. checks for alphabetic letters in a SSN field
What is a Hot Site?
A disaster recovery system where if the main system goes down- a Hot Site is ready to take over immediately.
What is a Cold Site?
If a main system goes down- a Cold Site will take time to get set up and running.
What is the most common database language?
SQL - Structured Query Language
What is a Data Definition Language?
Defines SQL Database
Controls SQL Tables
What is a Data Manipulation Language?
Queries SQL Database tables
What is a Data Control Language?
Controls Access to SQL Database
What are the characteristics of a Relational Database?
Logical structure
Uses rows and columns similar to spreadsheet
What are the characteristics of a Hierarchical Database?
Has various levels
Uses trees to store data
What are the advantages of a database?
Data is more accessible
Reduced redundancy
What are the disadvantages of a database?
Cost of installation
Skilled personnel required to maintain
What are the components of a database?
Desktop client
Application Server
Database Server
Think: Your desktop computer runs applications and saves to a database
What is Capital Budgeting? How is it used?
Managerial Accounting technique used to evaluate different investment options
Helps management make decisions
Uses both accounting and non-accounting information
Internal focus
GAAP is not mandatory
What values are used in Capital Budgeting?
Capital Budgeting ONLY uses Present Value tables.
Capital Budgeting NEVER uses Fair Value.
When is the Present Value of $1 table used?
For ONE payment- ONE time.
When is the Present Value of an Annuity Due used?
Multiple payments made over time- where the payments are made at the START of the period.
When is the Present Value of an Ordinary Annuity of $1 (PVOA) used?
Multiple payments over time- where payments are made at the END of the period.
Think A for Arrears.
What is the calculation for the Present Value of $1?
1 / (( 1+i )^n)
i : interest rate
n : number of periods
What is Net Present Value (NPV)?
A preferred method of evaluating profitability.
One of two methods that use the Time Value of Money
: PV of Future Cash Flows - Investment
How is NPV used to calculate future benefit?
NPV : PV Future Cash Flows - Investment
If NPV is Negative- Cost is greater than benefits (bad investment)
If NPV is Positive- Cost is less than benefit (good investment)
If NPV : 0- Cost : Benefit (Management is indifferent)
What is the rate of return on an investment called?
The Discount Rate.
What does the Discount Rate represent?
The rate of return on an investment used.
It represents the minimum rate of return required.
What are the strengths of the Net Present Value system?
Uses the Time Value of Money
Uses all cash flows- not just the cash flows to arrive at Payback
Takes risks into consideration
What are the weaknesses of the Net Present Value system?
Not as simple as the Accounting Rate of Return.
How do Salvage Value and Depreciation affect Net Present Value?
NPV includes Salvage Value because it is a future cash inflow.
NPV does NOT include depreciation because it is non-cash.
Exception - If a CPA Exam question says to include tax considerations- then you have to include depreciation because of income tax savings generated by depreciation.
If multiple potential rates of return are available- which is used to calculate Net Present Value?
The minimum rate of return is used.
What is the Internal Rate of Return (IRR)?
It calculates a project’s actual rate of return through the project’s expected cash flows.
IRR is the rate of return required for PV of future cash flows to EQUAL the investment.
Investment / After Tax Annual Cash Inflow : PV Factor
Which rate of return is used to re-invest cash flows for Internal Rate of Return?
Cash flows are re-invested at the rate of return earned by the original investment.
How does the rate used for Internal Rate of Return (IRR) compare to that used for Net Present Value (NPV)?
Rate of return for IRR is the rate earned by the investment.
Rate of return for NPV is the minimum rate.
What are the strengths and weaknesses of the Internal Rate of Return system?
Strengths: Uses Time Value of Money- Cash Flow emphasis
Weakness: Uneven cash flows lead to varied IRR
When is NPV on an Investment positive?
When the benefits are greater than the costs.
IRR is greater than the Discount Rate
When is NPV on an Investment Negative?
When Costs are greater than Benefits
IRR is less than the Discount Rate
When is NPV Zero?
When benefits equal the Costs
IRR : Discount Rate
What is the Payback Method? How is it calculated?
It measures an investment in terms of how long it takes to recoup the initial investment via Annual Cash Inflow
Investment / Annual Cash Inflow : Payback Method
Compare to a targeted timeframe; if payback is shorter than target- it’s a good investment. If payback is longer than target- it’s a bad investment.
What are the strengths of the Payback Method?
Takes risk into consideration
2 year payback is less risky than a 5 year payback
What are the weaknesses of the payback method?
Ignores the Time Value of Money
Exception: Discount payback method
Ignores cash flow after the initial investment is paid back
What is the Accounting Rate of Return?
An approximate rate of return on assets
ARR : Net Income / Average Investment
Compare to a targeted return rate; if ARR greater than target- good investment. If ARR less than target- bad investment.
What are the strengths of the Accounting Rate of Return (ARR)?
Simple to use
People understand easily
What are the weaknesses of the Accounting Rate of Return (ARR)?
Can be skewed based on Depreciation method that is used.
Ignores the Time Value of Money.
What is an Expected Return?
An approximate rate of return on assets.
What is the primary duty of the board of directors?
To monitor management behavior.
What is the responsibility of the Nominating or Corporate Governance Committee of the board of directors?
Oversees the board
Responsible for hiring new CEO
What is the responsibility of the audit committee of the board of directors?
The audit committee appoints and oversees the external auditor.
What is the duty of the compensation committee of the board of directors?
The compensation committee handles the CEO’s compensation package.
What does the NYSE and NASDAQ require of the board of directors?
They require the board to be independent.
What is the main goal in an executive compensation package?
The package should ensure that the goals of management should match those of the shareholders.
How can an executive compensation package ensure that goals of management align with those of shareholders?
Executive compensation should create an incentive for management to govern in a shareholder-friendly way that doesn’t sacrifice the long-term success of the enterprise for short-term gain.
Which influences help mold the direction that management takes?
They range from internal (Board of Directors- Audit Committee- Internal Control) to external (Creditors- SEC- IRS)
These influences should not be tainted by undue influence from management or have financial ties to management such as compensation-related duties
What is shirking?
When management doesn’t act in the best interest of shareholders.
It can be alleviated by tying compensation to stock performance or company profit.
What requirements are imposed on a public company under Sarbanes-Oxley?
Management must submit a report on the effectiveness of Internal Control in the 10K.
Management must disclose significant Internal Control deficiencies.
CEO/CFO must certify that the financial statements comply with securities laws and fairly present the financial condition of the company.
What characteristics are promoted by the COSO framework on Internal Control?
Reliable financial reporting
Effective and efficient operations
Compliance
What are the elements of the control environment?
Integrity & Ethics Competence The Board of Directors & Audit Committee Management's Operating Style Organizational Structure Authority & Roles of Responsibilities HR Policies
What are control activities?
A component of Internal Control that includes actions being taken to promote the control environment.
What are the basic elements of Internal Control?
Control Environment Risk Assessment Control Activities Information and Communication Monitoring
What is the significance of the Information and Communication aspect of Internal Control?
Management must have access to relevant and timely information to make good decisions.
How does Monitoring affect Internal Control?
Internal Control activities must be constantly monitored and evaluated for effectiveness.
What activities does the COSO framework for enterprise risk management include?
Identifies Risk Factors Promotes Risk Response Decisions Compares Management Risk vs. Shareholder Goals Aids in evaluating opportunities Promotes Quicker Capital movement
Does NOT eliminate all risk
What are possible responses to risk under the COSO framework for enterprise risk management?
Avoid or Reduce
Share or Accept
What is Cost Accounting?
Cost Accounting is a component of GAAP that records Ending Inventory on the Balance Sheet for
o Direct Materials
o Direct Labor
o Work in Process
o Finished Goods
Cost Accounting also records for the Income Statement
What is the difference between Cost Accounting and Managerial Accounting?
Cost Accounting - External Focus- GAAP
Managerial Accounting - Internal Focus- Not GAAP
What are Product Costs (aka Inventory Costs)?
Prime Costs
Conversion Costs
What are included in Prime Costs?
Direct Material USED - Have become part of the product or had a direct impact on the product
Direct Labor Used - Employees who worked on product and had direct impact
What is Factory Overhead?
All factory costs except for DM and DL used in production- including Spoilage (except for abnormal spoilage- which is a period cost and not included in OH).
What is included in Fixed Factory Overhead?
FFO : Estimated Costs / Normal Capacity
Uses Normal Activity
Examples of Fixed Factory OH: Depreciation (SL)- Utilities- Taxes
Under/Over-applied Fixed OH always goes to COGS
What is included in Variable Overhead?
VO : Estimated Activity / Actual Activity
Uses Actual Activity
Examples of Variable Factory OH: Deprecation (Units of Prod)- Indirect materials (supplies & insignificant items)- Indirect labor (factory foreman- janitors- machine maintenance)
Where is Under/Over-applied Variable OH recorded?
If Immaterial - Goes to COGS
If Material - Goes to WIP- Finished Goods- or COGS- based on their Ending Balance
Where is Under/Over-applied Fixed OH recorded?
It always goes to COGS
What is indicated by a Debit balance in Actual Factory Overhead? How is it corrected?
Under-applied overhead.
If it’s Fixed OH- under-applied goes to COGS.
If it’s Variable OH- under-applied goes to COGS if immaterial- but is allocated to WIP- FG or COGS based on ending balances.
What is indicated by a Credit balance in Applied Factory Overhead? How is it corrected?
A credit balance indicates over-applied overhead.
If Fixed overhead- it is corrected from COGS.
If Variable overhead- it is corrected through COGS if immaterial- but if material overage is allocated to WIP- FG or COGS based on ending balances.
Which variables are used to calculate Direct Material balances?
Beginning Balance DR Net purchases (plus freight-in)CR Direct Materials Used
: Ending balance (goes to BS)
What variables are used to calculated Work in Process (WIP)?
Beginning Balance (End Bal of Previous WIP)DR Direct Materials UsedDR Direct Labor Used (Conversion Cost)CR COGMDR Factory Overhead Applied (Conversion Cost)
: Ending Balance (Goes to BS)