BEC Deck #1

Question 1

Elements of the Control Environment?

Answer 1

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)

Question 2

How to formulate Written Memos?

Answer 2

IEC
Intro, Issues, Explanation, Conclusion, Closing
Rephrase questions, use “for example,” “In conclusion,” “the purpose of this memo”

Question 3

5 Components of COSO ERM?

Answer 3

“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)

Question 4

What are the broad categories of Risk?

Answer 4

“DUNS”
Diversifiable
Unsystematic (non-market/firm-specific)
Non-diversifiable
Systematic (market)

Question 5

CAPM Equation?

Answer 5

R = RF + Beta (RM-RF)
Required rate on equity = Risk free rate or Treasury bond rate + Beta (Expected market return - Risk free rate)

Question 6

WACC Equation?

Answer 6

Required rate on equity X (1-tax rate) + cost of debt X % debt

Question 7

Cost of Retained earnings or Required Return equation using Dividend Growth Model?

Answer 7

(Dividend (1+growth rate) / current share price) + growth rate

Question 8

Value of equity using sector P/E?

Answer 8

(Net Income) X (P/E multiple)

Question 9

Dividend Discount Model?

Answer 9

DDM = (Dividend (1+growth rate) / cost of equity - growth rate)

Question 10

Cost of preferred dividend?

Answer 10

(% Preferred stock X par value) / market value of preferred stock

Question 11

Internal rate of return (IRR) equation?

Answer 11

Discount rate that produces NPV of $0
Net incremental investment (investment required) / Net annual cash flows

Question 12

Difference between Forward and Future Contracts?

Answer 12

Forward contracts:
Larger groups of transactions
Negotiated
Unregulated
Future:
Specific transactions (single A/R)
Regulated contracts

Question 13

What is the effective interest rate or cost calculation?

Answer 13

Interest charged or paid / Net cash proceeds

Question 14

Job vs Cost vs ABC Costing Methods?

Answer 14

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

Question 15

ROI & RI Equations?`

Answer 15

ROI = Income/Investment (can be average assests)
RI = Income - (Investment x Hurdle rate)

Question 16

ROE Equation?

Answer 16

NI/Sales X Sales/Assets X Assets/Equity

Question 17

Put vs Call Option

Answer 17

Put = SELL (put it up for sale)
Call = BUY (call someone to buy)

Question 18

What is the Annual cost of a quick payment discount (APR discount)?

Answer 18

365/(pay period-discount period) X Discount/(1-discount)

Question 19

What is the simple linear regression equations?

Answer 19

y = a + Bx
a = y axis
b = slope
x = independent variable

Question 20

Breakeven Formula in Units and $$?

Answer 20

B/E in Units = FC / CMX
B/E in $ = FC / CM%
SP(X) = FC + VC(X)
X= Units

Question 21

Direct Labor or Material Usage (efficiency) variance formula?

Answer 21

Standard Rate X (Actual hours - Standard hours)

Question 22

Material price variance formula?

Answer 22

Actual Quantity X (Actual - Standard Price)

Question 23

Formula for production volume variance?

Answer 23

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)

Question 24

Discounted Cash Flow Model Equation?

Answer 24

K = D/P + G
= Dividend/Price + Growth %

Question 25

Margin of Safety?

Answer 25

Actual (or budgeted) Sales - Breakeven Sales

Question 26

Price Elasticity Formula?

Answer 26

% change Quantity / % change in Price
(New Price- Old Price)/Old Price

Question 27

EVA formula?

Answer 27

=NOPAT - (Investments x WACC)
=Net Operating Profits After Tax - (Investments x WACC)

Question 28

Conformance vs Non-conformance Costs?

Answer 28

Conformance:
- Prevention = training, redesign, inspection preproduction - - Appraisal (detection) = maintenance, testing, inspection postproduction
Non-conformance:
- Internal failure = Rework, scrap, tooling
- External failures = Returns, claims, warranty

Question 29

Prime vs Conversion Costs

Answer 29

Prime = DM + DL
Conversion = DL + Overhead

Question 30

Payback period formula?

Answer 30

Investment / (Post tax cash flow + depreciation tax shield)

Question 31

EOQ formula?

Answer 31

Square root of 2(Sales in units x cost per purchase order) / carrying cost per unit

Question 32

Pareto vs Fishbone Diagram?

Answer 32

Pareto - Individual and cumulative graphical analysis of errors
Fishbone - Describes a process and problems in a process (Cause & Effect)

Question 33

Total Quality Management (TQM) characteritics?

Answer 33

1) Customer Focus
2) Continuous Improvement
3) Workforce Involvement
4) Management Support
5) Objective Measures
6) Timely recognition
7) Ongoing Training

Question 34

SCOR card attributes?

Answer 34

Plan
Source - select vendors, vendor payments, etc.
Make - activities turning raw material into FG
Deliver - managing orders, forecasting, AR & collections

Question 35

Formula for Free Cash Flow?

Answer 35

NI + non-cash expenses - increase in WC - capital expenditures

Question 36

What is TPR vs PPR?

Answer 36

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)

Question 37

What is the real cost associated with inflation?

Answer 37

=Future Value/ (1+inflation rate)
Real cost is below the future value when inflation is rising