BEC III BLAKE CPA Flashcards
SOX act of 2002
1) Created PCAOB
2) Requires independent annual audit for all public companies
3) Requires that all public companies have an audit committee
Compliance with SOX 404
Compliance that a company designed & implemented their controls & that they are being appropriately evaluated & if there are deficiencies they are communicated.
- Develop documentation of existing internal controls and procedures associated with financial reporting
2) Test the effectiveness of those controls & procedures
3) Provide details on any deficiencies in the controls and/or documentation
Uncertainty in Enterprise Risk management refers to:
The state of not knowing how or if potential events may manifest
Responsibility of Board Member
Fiduciary responsibility
Duty of Care
Duty of loyalty
Duty of obedience
Data Processing Controls - Used to validate the OUTPUT OF DATA
1) Run to run totals (Sum Checks)
2) Data Matching - CONSISTENT ACCROSS VARIOUS SOURCES (
(Date of Invoice & Date of purchase order need to line up)
3) Data sequence checks - IF THERE IS A SEQUENCE NOTHING IS MISSING (EX INVOICES #1, #2, #3 ….)
Supervisory Contrpls
Preventive & Detective
Preventive supervisory controls
Hiring requirements
Proper hierarchy
Segregation of duties
Approval requirements
Detective supervisory controls
Audits or inspections
Reconciliation’s
Employee performance reviews
Budget vs actual analysis
Tracking of KPIs
Change Control - Monitoring of changes to applications
step 1) Work by programmers in test environment
Step 2) Changes reviewed before going live in the application
Flow of information through an Accounting system
Step 1) General ledger - Transactions recorded
Step 2) Trial Balance - Generate Trial Balance from G/L
Step 3) Financial Statements - Create F/S from TB detail
Data Entry input controls
Edit check is another name for data entry input controls
Field Check
Sign Check
Limit Check
Range Check
Size Check
Completeness Check
Validity Check
Closed loop verification
Business process reengineering
Fresh or blank slate
Focused on improving customer value by performing
1) Remove layers in organization
2) Streamline processes with IT
Derivative
A financial contract that derives its value from a performance of another asset. Never derived from its own value.
Has to derive its value from changes or movements in another asset or security
Expected Monetary Value of a Risk Event
Technique used by management to help quantify and compare risk of potential outcomes.
***Probability adjusted cost of a risk
Risk Event
Cost incurred by risk event
X Probability of risk occurring
= Expected Monetary Value
Call option
The right to BUY a specific security at a specific price and date
Hope that Stock increases
