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BEC > BEC Final Review > Flashcards

BEC Final Review Flashcards

1
Q

What are the specific duties of BOD

A

provide strategic direction for the corporation and provide oversight to management

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2
Q

Officers are ______ to the board

A

fiduciary

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3
Q

T/F officers must be shareholders

A

F

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4
Q

T/F board members are agents

A

F

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5
Q

Which of the following are key responsibilities of the board:

A

Elect, remove and supervise managers

adopt, repeal, and amend bylaws

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6
Q

Indemnification

A

Reimbursement of board members for lawsuits

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7
Q

T/F board members can conduct business with the corporation

A

T - must be fair to the corporation

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8
Q

T/F corporation officers are agents

A

T

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9
Q

What were the outcomes of SOX

A

expanded disclosures
reps from CEO and CFO

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10
Q

What are the enhanced disclosures required

A

material adjustments, off-balance transactions, pro forma FS, and special purpose entities

Ownership over 10%

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11
Q

Title IV

A

enhanced financial disclosures

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12
Q

Title III

A

Corporate responsibility

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13
Q

Title VIII

A

Corporate and criminal fraud accountability

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14
Q

how long should auditor retain information?

A

seven years

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15
Q

Title IX

A

white-collar crime penalty

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16
Q

Periodic reports with SEC must include the following:

A

report complies with Securities Exchange Act 1934

information contained is fairly presented

signed by CEO & CFO

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17
Q

Title XI

A

corporate fraud accountability

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18
Q

What are the COSO framework objectives?

A

Operating
Reporting
Compliance

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19
Q

Operating objective

A

effectiveness and efficiency of an entity’s operations

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20
Q

Reporting

A

Reliability, timeliness, and transparency of an entity’s external and internal financials

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21
Q

Compliance

A

Ensure the entity is adhering to laws and regulations

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22
Q

What was the treadway commission established by?

A

private sponsoring organizations

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23
Q

What objective does competence relate to?

A

Control environment

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24
Q

What objective does accountability relate to?

A

Control environment

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25
Q

competence

A

commitment to attract, develop, and retain competent individuals

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26
Q

accountability

A

holds employees accountable for internal control responsibilities, measure of performance, and incentives

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27
Q

lines of organizational structure

A

reporting relationships should not undermine the commitment to effective financial reporting

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28
Q

What objective does lines of organizational structure relate to?

A

control environment

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29
Q

What are the principles related to control environment?

A

competence
accountability
board independence
lines of organization
ethics

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30
Q

setting objectives

A

understanding the mission, vision, and core values

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31
Q

assessment of operational risk

A

theft of merchandise

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32
Q

assessment of reporting risk

A

new accounting standards or inability to apply GAAP

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33
Q

assessment of compliance risk

A

do they meet requirements of laws and regulations?

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34
Q

fraud risk

A

considers incentives and pressure to commit fraud and ability to rationalize

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35
Q

what are the 3 components of the fraud triangle

A

incentive
opportunity
ability to rationalize

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36
Q

change management

A

assess changes that could significantly impact the system of internal control

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37
Q

what objective does setting objectives relate to?

A

risk management

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38
Q

what objective does assessing risk relate to?

A

risk management

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39
Q

what objective does fraud risk relate to?

A

risk management

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40
Q

what objective does change management relate to?

A

risk management

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41
Q

what are the principles of risk management?

A

setting objectives
assessing risks
fraud risks
change management

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42
Q

verificiation

A

confirming transactions or operations have been executed accurately and completely

ex) expenditure cycle, receiving room creates a receiving report

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43
Q

reconciliation

A

comparing data from different sources to detect and correct any discrepancies

ex) expenditure cycle, invoice comes from vendor, AP should reconcile what was ordered with what was received and make sure purchase was approved

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44
Q

risk reduction

A

control activities reduce the risk to achievement of objectives to acceptable levels

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45
Q

what objective does risk reduction relate to?

A

control activities

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46
Q

what objective does technology controls relate to?

A

control activities

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47
Q

what objective does policy relate to?

A

control activities

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48
Q

monitoring

A

testing controls and reporting on deficiencies; assessing quality of IC over time

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49
Q

ongoing and separate evaluations

A

management should establish and implement ongoing and separate evaluations regarding how IC is functioning

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50
Q

evaluate and communicate IC deficiencies

A

timely communication

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51
Q

what objective does ongoing and separate evaluation of IC relate to?

A

monitoring

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52
Q

what objective does evaluating and communicating IC deficiencies relate to?

A

monitoring

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53
Q

quality

A

information needs to be relevant, timely, and current

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54
Q

what is the primary purpose of the information and communication objective?

A

enabling internal control functions

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55
Q

what are the principles related to monitoring?

A

ongoing separate evaluations
evaluating and communicating IC

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56
Q

what are the principles related to information and communication?

A

quality
internal
external

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57
Q

in order to have an effective system of IC, senior management and board must

A

understand when operations are managed effectively

compliance with rules and regulations

preparation of financial reports that confirm to entity’s reporting objectives

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58
Q

what is the objective of ERM?

A

manage risk and create value

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59
Q

risk avoidance

A

unable to mitigate risk

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60
Q

risk inventory

A

all risks that could impact an entity

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61
Q

risk capacity

A

maximum amount of risk that an entity can absorb in pursuit of strategy

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62
Q

risk profile

A

risk at a particular level related to the risk

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63
Q

input edit checks (constraints)

A

preventative controls that assist in protecting the integrity of information and allowing complete transactions to be submitted

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64
Q

which of the following is an input edit check?

reasonableness test
data validation
input validation
sequence check

A

reasonableness

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65
Q

which of the following is NOT an input edit check?

field check
referential integrity check
data validation
closed loop verification

A

data validation

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66
Q

what are processing controls?

A

protect an organization against processed data from being incomplete or inaccurate

data matching
input validation
sequence check
cross footing

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67
Q

Process narratives

A

written documents that tell the story of a process

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68
Q

data flow diagrams

A

logical flow of data through a process

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69
Q

flowcharts

A

visual representations of how information flows through a process

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70
Q

system interface diagram

A

how users and functions interface with the organization system

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71
Q

economic profit

A

net income - WACC

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72
Q

perfect competition

A

large number of firms
very little product differentiation
no barriers to entry
firms are price takers

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73
Q

T/F demand in perfect competition is perfectly elastic

A

T

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74
Q

monopolistic competition

A

relatively large number of firms
differentiated products sold by firms in the market
few barriers to entry
firm has control over quantity produced with price set by market

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75
Q

T/F demand in monopolistic competition is perfectly inelastic

A

F - highly elastic

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76
Q

monopolistic competition has _______ economic profit in the long run because of barriers to entry

A

zero

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77
Q

which of the following matches the market to the type of market structure?

grocery store - monopolistic competition
corn - perfect competition
airline - oligopoly
Gas/utilities - monopoly

A

All of the above

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78
Q

oligopoly

A

very few firms sell differentiated products
fairly significant barriers to entry
firms are interdependent
firms face kinked demand

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79
Q

kinked demand

A

match price cuts but ignore price increases

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80
Q

monopoly

A

single firm in a market
significant barriers to entry
no substitute
ability to set output and price`

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81
Q

fiscal policy

A

government spending and taxationmo

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82
Q

Fundamental law of demand

A

price of product/service and the quantity demanded are inversely related.

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83
Q

what drives the fundamental law of demand

A

substitution effect
income effect

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84
Q

substitution effect

A

consumers tend to purchase more or less of a good when its price falls or rises in relation to price of other good

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85
Q

income effect

A

when prices are lowered (income at a constant) consumers will purchase more of the lowered price products

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86
Q

what is the different between movement vs shift

A

movement - slides along the supply or demand curve and are related to price

shift - other than changes in price

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87
Q

what are examples of factors that shift demand

A

wealth
price of related goods
consumer income
consumer expectations
number of buyers

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88
Q

what are examples of factors that shift supply

A

price expectations
product costs
price or demand of other goods
subsidies or taxes
product tech

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89
Q

fundamental law of supply

A

price and quantity supplied are directly related

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90
Q

what does the interaction of supply & demand dictate?

A

price level

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91
Q

what does price level dictate?

A

quantity demanded and supplied

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92
Q

price floor

A

set artificially high - minimum price above equilibrium line

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93
Q

price ceiling

A

set artificially low - maximum price set below the equilibrium line

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94
Q

what do price ceilings cause?

A

shortages

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95
Q

what do price floors cause?

A

surplus

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96
Q

T/F minimum wage is an example of a price floor?

A

F

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97
Q

T/F rent control is an example of a price floor?

A

T

98
Q

price elasticity of demand

A

% change in quantity demanded / % change in price

99
Q

% change formula

A

new - old/ old

100
Q

T/F price is inelastic if its less than 1

A

T

101
Q

T/F price is elastic if greater than 1

A

T

102
Q

T/F is price is 0 its perfectly elastic

A

F - perfectly inelastic

103
Q

when demand price is inelastic, ______ price results in a _____ quantity that is proportionally ______ than increase in price causing revenue to ______

A

increase, decrease, smaller, increase

104
Q

when demand price is elastic, _____ price results in a ______ quantity that is proportionally ______ than increase in price causing revenue to _______

A

increase, decrease, larger, decrease

105
Q

T/F if a demand is unit elastic, it will have no effect on total revenue

A

T

106
Q

price elasticity of supply

A

% change in quantity supplied / % change in price

107
Q

Cross elasticity

A

% change in number of units demanded

108
Q

what does it mean when the supply curve shifts left

A

price increase and quantity decreases

109
Q

What are porter’s five forces?

A

barriers to market entry
market competitiveness
existence of substitute products
bargaining power of customers
bargaining power of suppliers

110
Q

what happens to PV of investments during inflation?

A

decreases

111
Q

what happens to monetary assets/liabilities during periods of inflation?

A

decrease

112
Q

what happens to nonmonetary assets during inflation?

A

increases

113
Q

as prices increase, purchasing power _______, and value of money ______

A

decrease, decrease

114
Q

what is the effect of variable interest rates during times of rising prices?

A

coupon goes up, keeping price closer to par value

115
Q

if you think cost of production will increase in the future, borrow at a ______

A

fixed rate

116
Q

if you think cost of production will decrease in the future, borrow at a ______

A

variable rate

117
Q

what are internal factors of SWOT

A

strength, weakness

118
Q

what are external factors of SWOT

A

opportunities, threats

119
Q

what would high up front costs, patents, customer loyalty positively impact?

A

barriers to entry

120
Q

what would collusion positively impact?

A

market competitiveness

121
Q

what would inelastic demand positively impact?

A

existence of substitute products?

122
Q

what would having a lot of customers with high switching costs and few competitors positively impact?

A

bargaining power of customers

123
Q

what kind of market are cost leadership strategies successful?

A

markets where buyers have large bargaining power and price competition

124
Q

what kind of market are differentiation strategies successful?

A

customers see value in individual products

125
Q

comparative advantage

A

specializing in production and trade of specific products

126
Q

how do you calculate comparative advantage?

A

commodity/comparison commodity

127
Q

horizontal combination

A

companies in the same industry join under single management

128
Q

vertical combination

A

combination of companies at different stages of production

129
Q

circular combination

A

occurs when different business units with relatively removed connections come together under single management

130
Q

diagonal combination

A

company that engages in an activity integrates with another company that provides ancillary support for that primary activity

131
Q

what is facebook merging with instagram an example of?

A

horizontal combination

132
Q

what is a cell phone company buying a car company an example of?

A

circular combination

133
Q

what is a burger company buying a meat supplier company an example of?

A

vertical combination

134
Q

what is a iron and steel company merging together an example of?

A

diagonal combination

135
Q

what kind of combination is the following:
A + B = C

A

merger

136
Q

what kind of combination is the following
Large A + B = Larger A

B can keep legal title or cease to exist

A

acquisition

137
Q

what kind of combination is the following
smaller B + portion of larger A

A

purchase of assets

138
Q

what kind of combination is the following
buying outstanding shares of another company at a specified price

A

tender offer

139
Q

sell off

A

outright sale of a subsidiary

140
Q

spin off

A

new, independent company that separates a subsidiary business from a parent company

141
Q

equity carve out

A

subsidiary is made public through an initial public offering

142
Q

Which of the following are part of the SCOR Model

Plan
Monitor
Source
Operations
Make
Deliver

A

plan, make, source, deliver

143
Q

if cross elasticity is positive, goods are _____

A

substitutes

144
Q

if cross elasticity is negative, goods are ____

A

complementary

145
Q

a price increase in one good will cause quantity demanded to increase the other would indicate a (positive/negative) cross elasticity and the goods are _______

A

positive, substitutes

146
Q

a price increase in one good will cause quantity demanded to decrease the other would indicate a (positive/negative) cross elasticity and the goods are _______.

A

negative, complementary

147
Q

if income elasticity is positive, good is a _______ good

A

normal

148
Q

if income elasticity is negative, good is a _____ good

A

inferior

149
Q

what does income elasticity of demand measure?

A

% change in quantity demanded given a % change in income

150
Q

what does cross elasticity measure?

A

% change in quantity demanded for one good caused by a price change in another?

151
Q

which type of transaction results in no cash inflow?

A

spin off

152
Q

interest rate risk

A

losses in underlying asset value or increase in underlying liability value as a result of changes in market interest

153
Q

market risk

A

losses in trading value of asset or liability in markets

154
Q

what kind of risk is market risk?

A

systematic/nondiversifiable

155
Q

credit risk

A

inability to secure debt financing in a timely and affordable manner

156
Q

default risk

A

possibility that a debtor may not repay the principal or interest due on their debt obligation on a timely basis

157
Q

liquidity rate

A

investor desires to sell a security but cannot do so on a timely basis or without material price concessions

158
Q

effective interest rate (periodic rate)

A

interest paid per period/ net proceeds of loan*

*face value - fees or charges

159
Q

simple interest rate

A

effective periodic rate x # periods in the year

160
Q

simple interest amount

A

total interest over the life of the loan
P X SAR X # of years

161
Q

compound interest

A

(1 + effective periodic rate)^(#periods) - 1

162
Q

compound interest amount

A

P x (1 + effective periodic rate)^(# years x #periods)

163
Q

nominal rate

A

real rate of return + inflation premium

164
Q

required rate

A

nominal rate + risk premiums*

*interest rate risk
liquidity risk
default risk

165
Q

transaction exposure

A

gain or loss

166
Q

economic exposure

A

value of cash flows

167
Q

if FC decreases, PV cash collected ________ and PV cash paid out _______

A

decrease, decrease

168
Q

if FC increases, PV cash collected ________ and PV cash paid out ______

A

increases, increases

169
Q

if US dollar increases, export (more/less)

A

less

170
Q

transaction

A

specific transaction; dealing with foreign currency gain or loss

171
Q

economic exposure

A

value of cash flows could fluctuate up or down as a result in exchange rate

172
Q

translation

A

foreign subsidiary

173
Q

hedging

A

financial risk management technique that mitigates risk by obtaining a financial instrument that behaves opposite from hedged item

174
Q

future hedge

A

purchase or sell a number of currency units for a negotiated price

175
Q

lower interest rate risk and increased capital availability is an advantage of (ST/LT) borrowing

A

LT

176
Q

increased liquidity and higher profitability are advantages of (ST/LT) borrowing

A

ST

177
Q

Working capital financing

A

current assets being financed with trade AP and accrued liabilities

178
Q

letter of credit

A

third party guarantee

179
Q

line of credit

A

bank loan

180
Q

T/F LT cost of borrowing is less than ST cost of borrowing

A

F

181
Q

What are the methods of LT Financing

A

leasing, bonds, equity

182
Q

T/F operating leases reflect a ROU asset and lease liability?

A

T

183
Q

What happens to the ROU asset and lease liability?

A

ROU amortizes and lease liability is paid down over the life of the lease; lease expense recognized on income statement

184
Q

T/F finance leases reflect a ROU asset and lease liability

A

T - can make an election not to recognize it

185
Q

T/F operating leases contain lease payments that consist of part interest and part principal paydown

A

F - finance leases

186
Q

what is the advantage of a financing lease?

A

depreciation

187
Q

how do you calculate the net cost for an operating lease vs a financing lease?

A

operating lease:
1. lease payment x (1- tax rate)= after tax payment
2. after tax payment X PV factor = Net cost

financing lease
1. depreciation x tax rate= offsets cost of asset
2. initial cost - PV of depreciation tax shield = net cost

188
Q

what is a debenture

A

unsecured bond

189
Q

subordinated debenture

A

unsecured obligations that rank behind senior fixed income securities; greater risk, increased cost to borrow

190
Q

T/F debt financing exposes to more risk but has a higher rate of return

A

T

191
Q

operating leverage formula

A

% change in EBIT/% change in sales

192
Q

financial leverage formula

A

% change in EBT (earnings before tax) or EPS/ % change in EBIT

193
Q

after tax cost of debt

A

pretax cost of debt x (1-tax rate)

194
Q

pretax cost of debt

A

face amount x coupon rate

195
Q

cost of preferred stock

A

preferred stock dividends/ net proceeds of preferred stock

196
Q

cost of retained earnings

A

risk free rate + risk premium

197
Q

risk premium

A

beta coefficient of stock X market premium

198
Q

market premium

A

market rate - risk free rate

199
Q

what does beta represent?

A

volatility of target stock relative to overall market volatility

200
Q

WACC formula

A

((common equity/ market value) X cost) + ((preferred equity/ market value) X cost) + ((debt/market value) X required rate of return (1-tax rate)

201
Q

what is financial leverage?

A

the degree to which a company uses debt rather than equity in its capital structure

202
Q

APR of quick payment discount

A

360/(pay period - discount period) X Discount/(100-discount %)

203
Q

what’s the advantage to having more debt on balance sheet?

A

higher return

204
Q

debt to equity

A

total liabilities/total equity

205
Q

total debt ratio

A

total liabilities/total assets

206
Q

quick ratio

A

cash and cash equivalents + ST marketable securities + net receivables/ current liabilities

207
Q

what are the three ways to manage cash

A

reduce fees
expedite deposits
fraud protection

208
Q

what are the two ways to reduce fees?

A

compensating balances
trade credit
compensating balance

209
Q

what are the three ways to expedite deposits

A

zero account balance
electronic fund transfer
lockbox system

210
Q

compensating balance

A

bank fees are waived when customer maintains minimum account balance

211
Q

trade credit

A

buying on credit maximizes availability of funding with no or reduced charges

212
Q

commercial paper

A

source of short term financing and an investment of idle cash by the buyer

213
Q

zero account balance

A

maintains a zero balance to reduce elapsed time between accounts and maximizes availability of cash

214
Q

inventory turnover

A

COGS/Average inventory

215
Q

Days in inventory

A

Ending inventory/(COGS/365)

216
Q

Receivable turnover

A

sales/net AR

217
Q

operating cycle

A

length of time from the initial expenditure until the time cash is collected from customers

218
Q

what does a high inventory turnover mean?

A

higher demand;inventory is sold quickly; good

219
Q

what does lower days in inventory mean?

A

takes less days to sell inventory; higher demand; good

220
Q

what does a lower AR turnover mean?

A

lower amount of sales, bad

221
Q

days sales in AR

A

ending net AR/ (Net sales/365)

222
Q

what does a lower days sales in AR mean?

A

payments are made quickly; good

223
Q

change in a credit policy is an improvement if the overall operating cycle _______

A

decreases

224
Q

cash conversion cycle (net operating cycle)

A

days to sell + # days to collect - # days to pay

225
Q

operating cycle

A

days to sell + # days to collect

226
Q

AP turnover

A

COGS/Avg AP

227
Q

What does a low AP turnover mean?

A

slower payment to suppliers; favorable credit term or cash flow issue

228
Q

what does EOG assume?

A

demand is constant

229
Q

EOQ formula

A

sqrt(2SO/C)

annual or monthly sales in units
cost per purchase
carrying cost per unit or monthly

230
Q

reorder point

A

safety stock + lead time x sales during that lead time

231
Q

Trade Factors
Inflation rates increase

A

purchasing power down, thus rate of currency decreases

232
Q

Trade Factors
Income levels

A

if income in DC is up, demand for foreign goods/services also increases

233
Q

If US $ appreciates and paying in FC

A

Gain

234
Q

If US $ appreciates and receiving in FS

A

Loss

235
Q

If US $ depreciates and paying in FC

A

Loss

236
Q

If US $ appreciates and receiving in FC

A

Gain

237
Q

Futures Hedge

A

Purchase or sell a number of currency units for a negotiated price on a stated date

238
Q

When are futures hedges used?

A

Smaller amounts

239
Q

Forward hedge

A

Owner is entitled to buy or sell volumes of currency at a point in time

240
Q

When are forward hedges used?

A

BEC (9 decks)

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