BEC - Final Review Flashcards
1
Q
What are 3 main objectives of the Integrated Framework of Internal Control?
A
O.R.C.
- Effective & efficient OPERATIONS, along with safeguarding assets
- Reliable & timely FINANCIAL & nonfinancial reporting
- COMPLIANCE with laws and regulations
2
Q
What are the 5 components of internal control?
A
C.R.I.M.E.
- CONTROL environoment
- RISK assessment
- INFORMATION and communications
- MONITORING activities
- EXISTING control activities
3
Q
What are the requirements of information that is communicated internally and externally?
A
F.A.C.T.
- FAIR
- ACCURATE
- COMPLETE
- TIMELY
4
Q
What are the 5 principles related to the control environment?
A
E.B.O.C.A.
- Commitment to ETHICS
- BOARD independence
- ORGANIZATIONAL structure - authorities & responsibilities
- Commitment to COMPETENCE
- ACCOUNTABILITY - measuring performance
5
Q
How do you make the entity S.A.F.R. with risk assessment?
A
S.A.F.R.
- SPECIFY objectives
- ASSESS changes in environment, business, and leadership
- Consider potential for FRAUD - see fraud triangle
- Id & analyze RISK
6
Q
What are the principles related to information and communications in the internal control framework?
A
O.I.E.
- OBTAIN and use information
- INTERNALLY communicate information
- Communicate information with EXTERNAL parties
7
Q
What are the principles related to monitoring in the internal control framework?
A
SO. D.
- SEPARATE & ONGOING evaluations - ICs are present and functioning
- Reporting DEFICIENCIES
8
Q
What are the principles related to existing control activities in the internal control framework?
A
CA.T. P.
- Select and develop CONTROL ACTIVITIES
- Select and develop TECHNOLOGY controls
- Setup POLICIES & PROCEDURES
9
Q
What are the general requirements of the COSO Integrated Framework of Internal Control?
A
All 5 components & 17 principles that are relevant should be:
- Present (design & implementation)
- Functioning (operating as designed)
10
Q
How does management compile and document the internal control assessment?
A
C.O.P.S.
- COMPONENT evaluation
- OVERALL assessment
- PRINCIPAL evaluation - isolate & define IC deficiencies
- SUMMARY of IC deficiencies
11
Q
How do management decisions affect value?
A
C.E.P.R.
- Creation
- Erosion
- Preservation
- Realization
12
Q
What is the definition of Enterprise Risk Management (ERM), according to COSO?
A
C.C.P.I.S.
- Culture
- Capabilities - competitive advantage
- Practices
- Integrated with strategy & performance
To manage risk and create value
13
Q
What are the 5 components of Enterprise Risk Management (ERM)?
A
G.O. P.R.O.
- GOVERNANCE & culture
- Strategy & OBJECTIVE-setting
- PERFORMANCE
- REVIEW & revision
- ONGOING information, communication & reporting
14
Q
What principles support the governance & culture component of ERM?
A
D.O.V.E.S.
- Defines DESIRED culture
- Exercises board OVERSIGHT
- Commitment to core VALUES
- Hires capable EMPLOYEES
- Establishes operating STRUCTURE
15
Q
What principles support the strategy & objective-setting component of ERM?
A
S.O.A.R.
- Evaluates alternative STRATEGIES
- Formulates business OBJECTIVES
- ANALYZES business context
- Defines RISK appetite
16
Q
What principles support the performance component of ERM?
A
V.A.P.I.R.
- Develop portfolio VIEW
- ASSESS severity of risk
- PRIORITIZE risk
- IDENTIFY risk
- Implement risk RESPONSES
17
Q
What principles support the review & revision component of ERM?
A
S.I.R.
- Assess SUBSTANTIAL change
- Pursue IMPROVEMENT in ERM
- REVIEW risk & performance
18
Q
What principles support the ongoing information, communication, and reporting component of ERM?
A
T.I.P.
- Leverage information & TECHNOLOGY
- Communicate risk INFORMATION
- Report on risk, culture, & PERFORMANCE
19
Q
What are the classifications of risk responses?
A
A.R.T.S.
- Avoid
- Reduce
- Transfer (share)
- Self-insure (accept)
20
Q
What should acode of ethics for senior officers promote, according to Sarbanes-Oxley?
A
- Honest & ethical conduct, including how to handle conflict of interest
- F.A.C.T. financial reporting
- Compliance with laws & regulations
21
Q
What are the 2 broad categories of risk?
A
D.U.N.S.
22
Q
How is effective interest rate calculated?
A
P = Principal
SAR = Stated Annual Rate
23
Q
How is the annual percentage rate calculated?
A
24
Q
How is the effective annual percentage rate calculated?
A
(i/p) = Effective periodic rate (stated as a decimal)
25
How is simple interest calculated?
i = stated interest rate
26
What is simple interest?
It interest paid **only** on the original principal.
27
How is compound interest calculated?
i = effective periodic interest
28
How is the required rate of return calculated?
inflation premium = purchasing power risk premium
29
What are the circumstances that impact exchange rates?
30
How is the current exchange rate interpreted?
$U.S. dollar/Foreign currency
The denominator = **Buyer**
The foreign currency currently buys $X U.S. dollars.
The U.S. dollar per foreign currency.
31
What is the spot rate?
It is $U.S. dollar amount that will buy the foreign currency.
32
How is the breakeven point calculated on a call or put?
33
What is change control?
Considers how changes to IT are monitored or authorized.
34
What is residual risk?
It's the risk that remains after responding to risk.
35
What is organizational sustainability?
The ability to withstand large-scale events.
36
When would a contract **not** be voidable between a corporation and a director?
If their is a conflict of interest **unless**:
The contract is approved by the board
**or**
The contract is fair
37
What is financial risk?
The risk that debtor will default on loan.
38
When would a lease be recorded as a finance lease?
Must meet **one** of the following:
39
What are some general characteristics of equity and debt financing?
40
How is firm value calculated?
FCFF = Free Cash Flow to Firm
41
How is WACC calculated?
42
How is the weighted average interest rate calculated?
43
How is the after-tax cost of debt calculated?
\*Use the effective interest rate **not** the stated rate, **unless** they are the same
44
What are the advantages of using debt financing?
45
How is the cost of preferred stock calculated?
46
How is CAPM calculated?
\*Cost of retained earnings
47
How is DCF calculated?
\*Cost of retained earnings
48
How is the Bond Yield Plus Risk Premium (BYRP) calculated?
\*Cost of retained earnings
49
How is the dividend payout rate calculated?
DPS = Divident per share
50
How is the retention rate calculated?
51
How is the growth rate calculated?
52
How is return on sales calculated?
53
How is return on investment calculated?
54
How is return on assets calculated?
55
How is return on equity calculated?
56
How is averaged invested capital calculated?
57
How is the value of a levered firm calculated?
58
How is the total debt ratio calculated?
59
How is debt-to-equity ratio calculated?
60
How is the equity multiplier calculated?
61
How is the times interest earned ratio calculated?
62
How does appreciation/depreciation affect net inflows/net outflows?
63
How is the current ratio calculated?
64
How is the quick ratio calculated?
65
How is the cash conversion cycle calculated?
66
How is inventory turnover calculated?
67
How is days in inventory calculated?
Also
365
÷
Inventory turnover
68
How is AR turnover calculated?
69
How is days sales in AR calculated?
70
How is AP turnover calculated?
71
How is days of payables outstanding calculated?
72
How is working capital turnover calculated?
73
How is the reorder point calculated?
74
How is the economic order quanity calculated?
**E.S.O.C.**
75
What are the 4 key management processes or activities pertaining to the supply chain operations reference (SCOR)?
* plan
* source - selecting vendors
* make
* deliver
76
How is the APR of quick payment discount calculated?
77
How to calculate the present value of an ordinary annuity?
78
How is the present value of a perpetuity calculated?
79
How is economic return calculated?
80
How is the value of equity calculated, using the dividend growth model?
81
How to calculate the dividend several years in the future?
82
How is the PE ratio calculated?
83
How is the trailing P/E ratio calculated?
84
How is PEG ratio calculated?
85
How is the value of equity calculated, using PEG ratio?
86
How is the price-to-sales ratio calculated?
\*sales per share
87
How is the value of equity calculated, using the price-to-sales ratio?
88
How is the price-to-cash flow ratio calculated?
\*cash flow per share
89
How is the value of equity calculated, using the price-to-cash flow ratio?
90
How is price-to-book ratio calculated?
91
How is the value of equity calculated, using the price-to-book ratio?
92
What are the 4 ways to value PPE (tangible assets)?
**C.A.L.M.**
* cost method
* appraisal method
* liquation value method
* market value method - replacement/net realizable value
93
What are the 3 ways to value intangible assets?
**M.I.C.**
* market approach
* income approach - DCF
* cost approach
94
How is the NPV calculated?
95
How is the profitability index calculated?
96
How is the purchase versus lease decision made?
97
How is the payback period calculated?
98
How is the present value of a dollar calculated?
99
What would be a good reason to issue more equity rather than debt?
An **increase** in P/E ratio.
100
What is the market risk premium?
It's the systemic risk associated with the overall stock market.
101
How can the optimal mix of debt and equity be determined?
The mix that has the **lowest** WACC.
102
What is the degree of total leverage (DTL)?
The combination of debt service cost & fixed cost an entity assumes.
103
How is beta coefficient calculated?
104
What is a basis point?
Basis point \* 0.0001
105
What are some characteristics of commerical paper?
* has interest rate **higher** than T-bill
* maturity less than 270 days
* not an active secondary market
* sold through variety of intermediaries
106
How do floating-rate bonds work?
Automatically adjust return to produce a constant market value.
107
How is operating leverage calculated?
Ratio of fixed cost to variable cost.
108
What is the optimal level of inventory dependent on?
109
What is material requirements planning?
Plans inventory to control levels of materials usage.
110
What would make a company carry less inventory?
111
What is the economic order quantity method?
Anticipates orders at the point carrying cost are nearest to restocking costs.
112
What are the assumptions for EOQ?
* periodic demand is known
* carrying cost per unit is anticipated to be constant
* cost of placing an order is anticipated to be constant
113
What typcially affects the level of safety stock?
114
What is the common flow of cost identified by a cost object?
115
What is the objective of cost accounting systems?
116
How are prime cost and conversion costs calculated?
117
How is the application of overhead accomplished using the traditional costing method?
118
What are the steps to process costing?
119
What is the flow of inventory from raw materials to finished goods?
120
How is equivalent units calculated under the weighted average and FIFO methods?
121
How is cost per equivalent unit calculated under FIFO and weighted average?
122
How to calculate sales value at split off when sales value is not available?
123
What are the 4 types of quality costs?
124
What are the components of ROI?
125
How is the net profit margin calculated?
126
How is asset turnover calculated?
127
How is financial leverage calculated?
128
How is DuPont ROE calculated?
Or:
ROA
**times**
Financial leverage
129
How is tax burden calculated?
130
How is interest burden calculated?
131
How is the EBIT margin calculated?
132
How is the DuPont Extended ROE calculated?
133
How is residual income calculated?
134
How is economic value added calculated?
135
How is float calculated?
Balance of checks outstanding
**minus**
Deposits outstanding
136
How is the net cost of factoring calculated?
137
What is a way to ensure liquidity and reduce the risk of cash shortages?
Matching the maturies of current assets and liabilities.
or
Matching cash inflows with cash outflows.
138
What is the cost of a compensating balance?
Compensating balance
**times**
Cost to borrowing
139
What are the methods to turn AR into cash?
140
What are three motives for holding cash?
* transaction - ordinary course
* speculative - opportunities
* precautionary - safety cushion
141
What is the cost of carrying AR?
Annual sales
**times**
Variable cost of creating receivables
**times**
Cost of capital
**times**
Collection period ÷ Annual period
142
Why would a company offer discounts on AR?
* competitive pressures
* improve cash flow
143
What can decrease days in AR?
144
What ratio is preferred when there are very little or negative earnings?
Price-to-sales ratio
145
What are the assumptions of the Black-Scholes option pricing model?
* stock pays no dividends
* no taxes or transaction costs exist
* stock prices behave in random manner
* risk-free rate and volatility are constant
* exercisable only at maturity (European-style)
146
What are the primary differences between the binomial (Cox-Ross-Rubinstein) model and the Black-Scholes model?
* consideration of option over a period of time, instead of a point in time
* binomial can be used for stocks that pay dividends w/o modifying the model
147
Which method is the least attractive for estimating value of PPE?
Industry consensus
148
What factors effect the equipment replacement decision?
149
Which method is used for capital rationing?
profitability index
Positive NPV projects are chosen then ranked by the PI.
150
What rate are other projects assumed to be reinvested at in NPV capital budgeting?
The discount rate used in the analysis.
151
If the discount rate of a project is greater than IRR, then:
If the discount rate of a project is less than IRR, then:
If the discount rate of the project is equal to IRR, then:
**Greater than:**
Negative NPV
**Less than:**
Positive NPV
**Equal to:**
NPV is 0
152
How is IRR calculated?
The higher the factor the lower the IRR.
153
What are the components of a simple regression?
154
What is the coefficient of determination, R-squared?
% of variation in dependent variables explained by the variation in the independent variable.
155
What is the equation for the absorption approach?
156
What is the equation for the contribution approach?
157
How is the contribution ratio calculated?
158
What is considered to be a product cost or period cost under the absorption or contribution approach?
159
What are the steps to compute the difference between the absorption and contribution approach?
160
How is the breakeven point in units calculated?
161
How is breakeven point calculated in dollars?
Total fixed costs
**÷**
Contribution margin ratio
162
How do you calculate the number of sales needed to produce a certain profit?
163
How do you calculate the dollar of sales needed to produce a certain profit?
Fixed cost + Pretax profit
**÷**
Contribution margin ratio
164
How do you calculate the sales price you should charge for a given volume of activity?
165
How is the margin of safety calculated in dollars?
166
How is the margin of safety percentage calculated?
167
How is the target cost calculated?
168
How is the operating cash flow ratio calculated?
169
How is budgeted production calculated?
170
How is the number of units to be purchased calculated?
171
How is the cost of direct materials to be purchased calculated?
172
How is the cost of materials used calculated?
173
How are standard direct costs calculated?
174
How are standard indirect costs calculated?
175
How is the:
DM price variance
DM quantity usage variance
DL rate variance
and
DL efficiency variance calculated?
176
Describe the flow of the direct materials and direct labor price and quantity variances (rate and efficiency variances).
177
How are the four overhead variances calculated?
178
How is the application of overhead accomplished in standard costing?
179
How is the sales price variance calculated?
180
How is the sales volume variance calculated?
