BEC Deck #1 Flashcards
Elements of the Control Environment?
CRIME:
1) Control environment - (EBOCA = Ethics, Board, Organizational, Commitment to Competence, Accountability) “tone at the top,” management’s philosophy towards internal control and responsibility (assignment of authority, responsibility and accountability, HR policies)
2) Risk assessment - (SAFR = Specify objectives, Analyze risks, Fraud, Assess Changes) (financial reporting objectives, adoption of new accounting principles, hiring new personnel, new technology, restructuring)
3) Info & Tech - (OIE = Obtain & Use, Internal, External) identify and exchange information regarding controls and operations - periodic reporting on effectiveness of controls (transact and disclose information)
4) Monitoring - (SOD = Separate, Ongoing, Deficiencies) Identify/Report deficiencies and Investigate; updating mission vision/values - Monitoring the company’s data and its systems (Internal Audit function)
5) Existing control activities (CATP = Control Activities, Technology, Policies and Procedures) (authorization of transactions, segregation of duties, pre-numbering of documents, performance reviews)
How to formulate Written Memos?
IEC
Intro, Issues, Explanation, Conclusion, Closing
Rephrase questions, use “for example,” “In conclusion,” “the purpose of this memo”
5 Components of COSO ERM?
“GO PRO”
1) Governance and Culture (DOVES = Desired Culture, Oversight, Values, Employees, Structure)
2) Strategy and Objective-setting (SOAR = Strategies, Objectives, Analyzes, Risk appetite)
3) Performance (VAPIR = View, Assesses/Analyze/Establish, Prioritizes risks, Identifies risk, and Responses for risks)
4) Review and revision (SIR = Substantial Change, Reviews Risk and Performance)
5) Ongoing Information, communication, and reporting (TIP = Technology, Informational Risk, Performance)
What are the broad categories of Risk?
“DUNS”
Diversifiable
Unsystematic (non-market/firm-specific)
Non-diversifiable
Systematic (market)
CAPM Equation?
R = RF + Beta (RM-RF)
Required rate on equity = Risk free rate or Treasury bond rate + Beta (Expected market return - Risk free rate)
WACC Equation?
Required rate on equity X (1-tax rate) + cost of debt X % debt
Cost of Retained earnings or Required Return equation using Dividend Growth Model?
(Dividend (1+growth rate) / current share price) + growth rate
Value of equity using sector P/E?
(Net Income) X (P/E multiple)
Dividend Discount Model?
DDM = (Dividend (1+growth rate) / cost of equity - growth rate)
Cost of preferred dividend?
(% Preferred stock X par value) / market value of preferred stock
Internal rate of return (IRR) equation?
Discount rate that produces NPV of $0
Net incremental investment (investment required) / Net annual cash flows
Difference between Forward and Future Contracts?
Forward contracts:
Larger groups of transactions
Negotiated
Unregulated
Future:
Specific transactions (single A/R)
Regulated contracts
What is the effective interest rate or cost calculation?
Interest charged or paid / Net cash proceeds
Job vs Cost vs ABC Costing Methods?
Job - Large or unique items - allocate costs by individual job
Process - Large homogeneous items - averages product costs
ABC - Looks at multiple cost drivers and the effect relationships driving that cost
ROI & RI Equations?`
ROI = Income/Investment (can be average assests)
RI = Income - (Investment x Hurdle rate)
ROE Equation?
NI/Sales X Sales/Assets X Assets/Equity
Put vs Call Option
Put = SELL (put it up for sale)
Call = BUY (call someone to buy)
What is the Annual cost of a quick payment discount (APR discount)?
365/(pay period-discount period) X Discount/(1-discount)
What is the simple linear regression equations?
y = a + Bx
a = y axis
b = slope
x = independent variable
Breakeven Formula in Units and $$?
B/E in Units = FC / CMX
B/E in $ = FC / CM%
SP(X) = FC + VC(X)
X= Units
Direct Labor or Material Usage (efficiency) variance formula?
Standard Rate X (Actual hours - Standard hours)
Material price variance formula?
Actual Quantity X (Actual - Standard Price)
Formula for production volume variance?
Applied Overhead - Budgeted overhead based on standard hrs.
(Standard var OH rate x Standard DL hrs) + (Standard fixed overhead rate x Actual production) MINUS
(Standard var OH rate x Standard DL hrs) + (Standard fixed overhead rate x Actual production)
Discounted Cash Flow Model Equation?
K = D/P + G
= Dividend/Price + Growth %
Margin of Safety?
Actual (or budgeted) Sales - Breakeven Sales
Price Elasticity Formula?
% change Quantity / % change in Price
(New Price- Old Price)/Old Price
EVA formula?
=NOPAT - (Investments x WACC)
=Net Operating Profits After Tax - (Investments x WACC)
Conformance vs Non-conformance Costs?
Conformance:
- Prevention = training, redesign, inspection preproduction - - Appraisal (detection) = maintenance, testing, inspection postproduction
Non-conformance:
- Internal failure = Rework, scrap, tooling
- External failures = Returns, claims, warranty
Prime vs Conversion Costs
Prime = DM + DL
Conversion = DL + Overhead
Payback period formula?
Investment / (Post tax cash flow + depreciation tax shield)
EOQ formula?
Square root of 2(Sales in units x cost per purchase order) / carrying cost per unit
Pareto vs Fishbone Diagram?
Pareto - Individual and cumulative graphical analysis of errors
Fishbone - Describes a process and problems in a process (Cause & Effect)
Total Quality Management (TQM) characteritics?
1) Customer Focus
2) Continuous Improvement
3) Workforce Involvement
4) Management Support
5) Objective Measures
6) Timely recognition
7) Ongoing Training
SCOR card attributes?
Plan
Source - select vendors, vendor payments, etc.
Make - activities turning raw material into FG
Deliver - managing orders, forecasting, AR & collections
Formula for Free Cash Flow?
NI + non-cash expenses - increase in WC - capital expenditures
What is TPR vs PPR?
Total Productivity Ratios - quantity of all output produced vs. costs of all inputs. (Quantity produced / Total cost of inputs)
Partial Productivity Ratios - quantity of output produced vs. quantity of individual input. (Quantity produced / Quantity of individual item used)
What is the real cost associated with inflation?
=Future Value/ (1+inflation rate)
Real cost is below the future value when inflation is rising
