becker BEC b1 final review Flashcards
MCQ-15060
Baker Corp. is quantifying the planned finance charges it will use when extending credit to its customers. To arrive at the charge, the credit department has identified the extent that risk of loss from default and overall liquidity risk increases with the term of the loan, the lost purchasing power from inflation over extended loan terms, and the impact of escalating finance charges on customer sales. The sum of these components at each point of progressively increased loan terms would be collectively described as:
A. Risk appetite.
B. Risk capacity.
C. Risk profile.
D. Risk inventory
Choice “C” is correct. The collective or composite view of different risks (e.g., default and liquidity risks, etc.) at a particular level of the entity (e.g., length of loan) that position management to consider the types, severity, and interdependencies of risk and
how they may affect performance relate to strategy and business objectives (e.g., impact of financing rates on sales) would be described as a risk profile.
Choice “A” is incorrect. The collective or composite view of different risks at a particular
level of the entity as described in the fact pattern represent a risk profile, not risk
appetite. Risk appetite represents the types and amounts of risk, on a broad level, that
an organization is willing to accept in the pursuit of value.
Choice “B” is incorrect. The collective or composite view of different risks at a particular
level of the entity as described in the fact pattern represent a risk profile, not risk
capacity. Risk capacity is the maximum amount of risk that an entity can absorb in the
pursuit of strategy and business objectives.
Choice “D” is incorrect. The collective or composite view of different risks at a particular
level of the entity as described in the fact pattern represent a risk profile, not the risk
inventory. A risk inventory represents all the risks that could impact an entity. The
description of risks assumed by extending credit by type without evaluation of the
impact of performance (such as term of loan) represents a risk inventory
MCQ-15071
Which of the following individuals would be most likely to serve as an expert on an issuer’s
audit committee?
A. Chief financial officer
B. Chief executive officer
C. Board member with experience with a similar issuer
D. Board member who is a CPA
Choice “C” is correct. The audit committee is a subcommittee of the overall board of directors whose members are independent (do not accept compensation from the corporation and who cannot influence financial decisions). Knowledge of the financial expert should include experience in the preparation or auditing of financial statements
for comparative issuers.
Choice “A” is incorrect. The chief financial officer is not independent and would not be
an appropriate choice for audit committee membership even if the chief financial officer
was a member of the board of directors.
Choice “B” is incorrect. The chief executive officer is not independent and would not be
an appropriate choice for audit committee membership even if the chief executive
officer was a member of the board of directors.
Choice “D” is incorrect. Knowledge of the financial expert on the audit committee
should include experience in the preparation or auditing of financial statements for
comparative issuers. Attainment of a CPA license, in and of itself, does not qualify an
individual as an expert for an audit committee.
MCQ-15059
Able Corp. is reviewing the planned finance charges it will use when extending credit to its
customers. To arrive at the charge, the credit department has identified the following
components of the rate including the risk-free rate of return, default risk, liquidity risk, and
inflation. The identified components would best be described as:
A. Risk appetite.
B. Risk capacity.
C. Risk profile.
D. Risk inventory.
Choice “D” is correct. A risk inventory represents all the risks that could impact an entity. The description of risks assumed by extending credit by type represents a risk inventory.
Choice “A” is incorrect. The description of risks assumed by extending credit by type
represents a risk inventory, not a description of risk appetite. Risk appetite represents
the types and amounts of risk, on a broad level, that an organization is willing to accept
in the pursuit of value.
Choice “B” is incorrect. The description of risks assumed by extending credit by type
represents a risk inventory, not risk capacity. Risk capacity is the maximum amount of
risk that an entity can absorb in the pursuit of strategy and business objectives.
Choice “C” is incorrect. The description of risks assumed by extending credit by type
represents a risk inventory, not a risk profile. A risk profile is a composite view of the
risk at a particular performance level related to the risk.
A _______________ represents all the risks that could impact an entity. The description of risks assumed by extending credit by type represents a risk
inventory.
risk inventory
MCQ-15062
Carter Cosmetics is acutely aware of the reputational risk to the organization and its
products from ongoing product evaluations and commentary on social media. Carter is
most likely able to apply the principles of the information, communication, and reporting
component of ERM to leverage the risk of product criticism to an opportunity for competitive
advantage by:
A. Seeking to block unflattering content on social media platforms.
B. Monitoring competitor reviews and issues in comparison to their own as part of
an ongoing process to adapt and improve their product.
C. Advertising heavily on social media platforms to provide an overwhelming
positive presence on social media.
D. Formally adopting the development of positive image on social media as a
business objective.
Choice “B” is correct. Identification of risks and their potential opportunities frequently involves leveraging information technology to support the organization with relevant information that will help the organization become more agile in its decision making and provide competitive advantage. Monitoring social media allows for accumulation of
good and bad information on all industry participants and serves as a basis for converting the risk of bad exposure to the opportunity to improve competitiveness. Leveraging information technology is part of the information, communication, and
reporting component of ERM that intertwines with strategy setting.
Choice “A” is incorrect. Seeking to block unflattering content is a risk response
approach included in the performance component of ERM that seeks to mitigate risk
but does not leverage risk as an opportunity.
Choice “C” is incorrect. Advertising on social media to provide an overwhelmingly
positive presence is a risk response that is part of the performance component of ERM.
An advertising campaign that seeks to minimize or dilute the impact of negative
evaluations is a response to risk, but it does not leverage risk to create opportunity.
Choice “D” is incorrect. Formal adoption of a business objective that describes
aspirational goals for positive social media presence as part of strategy and objective
setting is a strategy and is not a mechanism for leveraging risk to create opportunity
MCQ-15064
A corporate board regularly convenes in a full meeting of all members that considers and
approves recommendations made by various board committees that meet to consider such issues as nominations of new board members, audit issues, finance topics, and marketing initiatives. Board committees, in turn, evaluate and approve staff proposals regarding strategy, budgets, contracts, products, etc. that rise to the level of board consideration.
Applying the Internal Control Integrated Framework, the corporation’s practices would
demonstrate the application of the internal control principle of:
A. Control environment.
B. Board independence and oversight.
C. Organizational structure.
D. Commitment to competence.
Choice “B” is correct. The board independence and oversight principle within the corporate governance component anticipates a corporate governance structure that oversees the development and performance of controls including establishing oversight responsibility and providing oversight for the system of internal controls. A layered
structure of board and board committee oversight over staff initiatives demonstrates the principle of board independence and oversight.
Choice “A” is incorrect. Although the control environment component of the internal
control framework includes the demonstrated principle of board independence and
oversight, the control environment is a component, not a principle.
Choice “C” is incorrect. A layered structure of board and board committee oversight
over staff initiatives demonstrates the principle of board independence and oversight,
not organizational structure. Organizational structure includes management’s design of
reporting lines that limit authority and responsibility, not the board’s independent design
and oversight.
Choice “D” is incorrect. A layered structure of board and board committee oversight
over staff initiatives demonstrates the principle of board independence and oversight,
not commitment to competence. The commitment to competence is associated with the
commitment to hire, develop, and retain competent employees.
The Dexter Corp. is evaluating its revenue accounts for risk of overstatement. The company
manufactures and sells heavy equipment and has material sales at year-end. The company
ships FOB destination. The most likely risk of misstatement resulting from poor cutoff
controls would be:
A. Overstatement of revenues from sales recorded prior to year-end for shipments
delivered after year-end.
B. Overstatement of revenues for sales recorded after year-end for shipments
delivered before year-end.
C. Overstatement of revenues for sales recorded before year-end for shipments
delivered before year-end.
D. Overstatement of revenues of sales recorded after year-end for shipments
delivered after year-end.
Choice “A” is correct. Risk of misstatement associated with poor cutoff controls would result from overstatement of revenues recorded prior to year-end for shipments delivered after year-end. Goods shipped FOB destination would not pass to the buyer
until the goods are received. Sales recognized prior to receipt of the goods by the buyer would be overstated.
Choice “B” is incorrect. Risk of misstatement associated with poor cutoff controls would
result from overstatement of revenues recorded prior to year-end for shipments
delivered after year-end. Recording sales in the period after deliveries shipped FOB
destination would understate revenue.
Choice “C” is incorrect. Risk of misstatement associated with poor cutoff controls would
result from overstatement of revenues recorded prior to year-end for shipments
delivered after year-end. Recording sales and deliveries shipped FOB destination in
the same period would appropriately match revenues with transfer of title.
Choice “D” is incorrect. Risk of misstatement associated with poor cutoff controls would
result from overstatement of revenues recorded prior to year-end for shipments
delivered after year-end. Recording sales and deliveries shipped FOB destination in
the same period would appropriately match revenues with transfer of title.
The Easton Corp. has 200,000 individual accounts receivable accounts that total a little
over $1,000,000. The company’s internal control procedures direct the general ledger
accountant to reconcile the accounts receivable subsidiary to general ledger control
accounts monthly. At year-end, the general ledger shows a balance of roughly $1,500,000
and an approximate $500,000 unidentified reconciling item that has been carried for eight
months. Specific controls related to accounts receivable might best be characterized as:
A. Present and functioning.
B. Present but not functioning.
C. Ineffectively designed but functioning.
D. Neither effectively designed nor functioning
Choice “B” is correct. The Easton Corp. has designed controls that are present and implemented, however, the controls are not functioning. The reconciliation is not operating effectively. The design of the control would not tolerate an unexplained and
unresolved difference between the general ledger and the subsidiary equal to one-third
of the general ledger balance.
Choice “A” is incorrect. The Easton Corp. has designed controls that are present and
implemented, however, the controls are not functioning. The assertion that the controls
are functioning is not correct. The reconciliation is not operating effectively. The design
of the control would not tolerate an unexplained and unresolved difference between the
general ledger and the subsidiary equal to one-third of the general ledger balance.
Choice “C” is incorrect. The Easton Corp. has designed controls that are present and
implemented, however, the controls are not functioning. The reconciliation of the
subsidiary ledger to the general ledger is an effective means of independently
determining the internal consistency of accounts, however, the controls are not
functioning. The reconciliation is not operating effectively. The design of the control
would not tolerate an unexplained and unresolved difference between the general
ledger and the subsidiary equal to one-third of the general ledger balance.
Choice “D” is incorrect. The Easton Corp. has designed controls that are present and
implemented, however, the controls are not functioning. The reconciliation of the
subsidiary ledger to the general ledger is an effective means of independently
determining the internal consistency of accounts. The answer provided is correct in its
assertion that the controls are not functioning. The reconciliation is not operating
effectively. The design of the control would not tolerate an unexplained and unresolved
difference between the general ledger and the subsidiary equal to one-third of the
general ledger balance
