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Audit > Business > Flashcards

Business Flashcards

1
Q

What are the 3 categories of objectives within the COSO framework?

A

Operations - effectiveness and efficiency
Reporting - reliability, timeliness, and transparency
Compliance - adhere to laws and regulations
(ORC)

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2
Q

What are the 5 components of the COSO framework?

A

Control Environment - tone at the top ethics
Risk Assessment - F/S misstated or fraud
Information & Communication - Fair, accurate, complete, timely
Monitoring - Efficiencies of I/C, report deficiencies
Existing Control Activities - Policies/Procedures to mitigate risks
(CRIME)

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3
Q

The are the components of the “Control Environment” of COSO?

A 
Ethics & Integrity
Board Independence
Organizational Structure
Commitment to Competence
Accountability
(EBOCA)
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4
Q

Regarding effective internal control, what does “present” mean?

A

Components and relevant principles are included in the design and implementation of the internal control system

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5
Q

Regarding effective internal control, what does “functioning” mean?

A

Components and relevant principles are currently operating as designed in the internal control system

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6
Q

What are the components of Enterprise Risk Management (ERM)?

A 
Internal environment
Setting objectives
Event identification
Assessment of risk
Risk response
Activities (control)
Information & communication
Monitoring
(IS EAR AIM)
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7
Q

What are the components of product costs?

A

Direct Materials
Direct Labor
Manufacturing overhead applied

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8
Q

What are period costs?

A

They are expensed as incurred. Examples are S,G,&A and interest expense.

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9
Q

What are prime costs?

A

Direct Labor + Direct Material

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10
Q

What are conversion costs?

A

Direct Labor + Manufacturing overhead

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11
Q

How do you calculate the application of overhead using traditional costing?

A

Budgeted OH costs / Estimated cost driver = OH rate

Actual cost driver x Overhead rate = Applied OH

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12
Q

How do you calculate cost of goods manufactured?

A 
WIP Beg
\+ DM used
\+ DL
\+ MOH applied
- WIP end
= Cost of goods manufactured
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13
Q

How do you calculate cost of goods sold?

A

FG Beg
+ COGM (or net purchases)
- FG End
= COGS

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14
Q

Calculate Equivalent Units using Weighted Average

A

Units completed
+ Ending WIP x % completed
= Equivalent units

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15
Q

Calculate Equivalent Units using FIFO

A

Beg WIP x % to be completed
+ units completed - Beg WIP
+ end WIP x % completed
= Equivalent units

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16
Q

Calculate cost per equivalent unit using both weighted average and FIFO

A

WA:
Beg cost + current cost / equivalent units

FIFO:
Current cost only / equivalent units

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17
Q

How do you calculate the Contribution Approach to the income statement?

A 
Revenue
Less: Variable costs
= Contribution Margin
Less: Fixed Costs
= Net Income
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18
Q

Calculate the contribution margin ratio

A

Contribution margin / Revenue

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19
Q

What is the difference between the contribution and the absorption approach?

A

Fixed factory overhead - treated as a product cost for absorption and a period cost for contribution

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20
Q

Calculate break-even point in units

A

Total Fixed Costs / Contribution margin per unit

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21
Q

Calculate break-even point in dollars

A

Total Fixed Costs / Contribution margin ratio

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22
Q

Calculate target profit before tax

A

Target profit after tax / (1 - tax rate)

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23
Q

Calculate margin of safety in dollars and as a %

A

Total sales - break-even sales = Margin of safety in dollars

Margin of safety in dollars / Total sales = Margin of safety %

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24
Q

What are marginal costs?

A

The sum of costs required for a one-unit increase in activity. They include all variable costs and any avoidable fixed costs associated with the decision

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25
Q

Calculate opportunity cost per unit

A

CM in $ forgone / size special order = OC per unit

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26
Q

Calculate budgeted production (also works with budgeted direct materials)

A

Budgeted sales
+ Desired ending inventory
- Beginning inventory
= Budgeted production

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27
Q

Calculate cost of direct materials to be purchased

A

Units of DM to be purchased
x Cost per unit
= Cost of DM to be purchased

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28
Q

Calculate direct labor budget

A 
Budgeted production (in units)
x hours required to produce each unit
= Total number of hours needed
x Hourly wage rate
= Total wages
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29
Q

What are the main 4 types of variances for RM and DL?

A 
Price variance (DM)
Usage variance (DM)
Rate Variance (DL)
Efficiency variance (DL)

PURE

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30
Q

How are the 4 types of variances calculated?

A

Difference x actual
Difference x standard
Difference x actual
Difference x standard

DADS DADS

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31
Q

What are the 4 types of responsibility segments?

A

Cost SBU
Revenue SBU
Profit SBU
Investment SBU

CRPI

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32
Q

Calculate Net Initial Outflow

A

Invoice + Ship + Installation
+ Increase in WC
- Cash proceeds on sale of old (net of tax)
= Net Initial Outflow

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33
Q

Calculate Discounted Cash Flow

A

1) Calc after-tax CF = Annual net cash flow x (1 - Tax Rate)
2) Add deprec benefit = Deprec x tax rate
3) Mutiply result by appropriate PV of an annuity
4) Subtract initial cash outflow
= NPV

34
Q

Calculate Profitability Index

A

PV of net future cash inflow / PV of net initial investment

35
Q

Calculate Degree of Operating Leverage

A

% Change in EBIT / % Change in Sales

36
Q

Calculate Degree of Financial Leverage

A

% Change in EPS / % Change in EBIT

37
Q

Calculate Degree of Combined Leverage

A

% Change in EPS / % Change in Sales
OR
DOL x DFL

38
Q

Calculate WACC

A

(Cost of equity x % equity in capital structure) + (weighted avg cost of debt x % debt in capital structure)

39
Q

Calculate ROI

A

Income / Investment Capital
OR
Profit Margin x investment turnover
Note: The higher the denominator, the lower the return

40
Q

Calculate Return on Total Assets

A

Net Income / Avg total assets

41
Q

Calculate Economic Value Added

A

Step 1: Investment x Cost of capital = Required return

Step 2: Income after taxes - Required return = EVA

42
Q

Calculate the Quick Ratio

A

Cash + Marketable Securities + Receivables / CL

43
Q

Calculate APR of quick pmt discount

A

(360 / Pay period - Discount period) x (Discount / 100 - Discount %)

44
Q

What is the Cash Conversion Cycle Formula?

A

Inventory conversion period + Receivables collection period - Payables deferral period

45
Q

Calculate Inventory Conversion Period

A

Step 1: COGS / Avg Inventory (= Inv Turns)

Step 2: 365 / Inventory Turnover

46
Q

Calculate Receivables Collection Period

A

Step 1: Sales / Avg AR (= AR turns)

Step 2: 365 / AR Turnover

47
Q

Calculate Payables Deferral Period

A

Step 1: COGS / Avg AP (= AP Turns)

Step 2: 365 / AP Turnover

48
Q

Calculate Reorder Point

A

Safety stock + (lead time x sales during lead time)

49
Q

Calculate Economic Order Quantity

A

Sq Rt of: (2 x annual sales x order cost) / carrying cost per unit

50
Q

Calculate Internal Rate of Return (IRR)

A

Investment / Cash flows

51
Q

Calculate Capital Asset Pricing Model (CAPM)

A

Cost of Capital = Risk-free rate + Beta (Market Rate - Risk-free Rate)

52
Q

Calculate T-Bill market rate

A

Risk-free rate + Inflation premium

53
Q

Calculate Times Interest Earned

A

EBIT / Total Interest Expense

54
Q

What are the steps in the systems development life cycle?

A 
systems Analysis
Design (conceptual & physical)
Implementation
Training
Testing
Operations and maintenance
(A DITTO)
55
Q

What are the 7 information criteria for business requirements?

A 
Integrity
Confidentiality
Efficiency
Reliability
Availability
Compliance
Effectiveness
(ICE RACE) Know it cold and learn it fast
56
Q

What are the domains of the COBIT framework?

A 
Plan and Organize
Acquire and Implement
Deliver and Support
Monitor and Evaluate
(PO AIDS ME)
57
Q

Calculate real GDP

A

(Nominal GDP / GDP deflator) x 100

58
Q

What is the order of the business cycle?

A 
Expansionary Phase
Peak
Contractionary Phase
Trough
Recovery Phase
(Every Peak Contracts Through Recovery)
59
Q

What are the factors that shift aggregate demand?

A 
Taxes
Wealth
Interest rates
Consumer confidence
Exchange rates
Government spending
(TWICE Government)
60
Q

Calculate the Multiplier Effect

A

Multiplier = 1 / (1 - MPC) or MPS

61
Q

Calculate the Expenditure Approach of measuring GDP

A 
Government purchases of goods & services
gross private domestic Investment
personal Consumption expenditures
net Exports (or subtract net imports)
(GICE)
62
Q

Calculate the Income Approach of measuring GDP

A 
Income of proprietors
Profits of corporations
Interest (net)
Rental income
Adjustments for net foreign income and misc items
Taxes
Employee compensation
Depreciation
(IPIRATED)
63
Q

Calculate the unemployment rate

A

of unemployed / total labor force x 100

64
Q

Calculate the inflation rate using the Consumer Price Index (CPI)

A

CPI (this period) - CPI (last period) / CPI last period x 100

65
Q

Calculate the real interest rate

A

Nominal interest rate - inflation rate

66
Q

Calculate the nominal interest rate

A

Real interest rate + inflation

67
Q

What are the factors that shift demand?

A

Changes in Wealth
Changes in the price of Related goods
Changes in consumer Income
Changes in consumer Tastes or preferences
Changes in consumer Expectations
Changes in the Number of buyers served by the mkt
(WRITEN)

68
Q

What are the factors that shift supply?

A 
Changes in price Expectations
Changes in production Costs
Changes in price or demand for Other goods
Changes in Subsidies or taxes
Changes in production Technology
(ECOST)
69
Q

Calculate the Point Method of price elasticity of demand

A

% change in qty demanded / % change in price

Note:
new demand - old demand / old demand = % change

70
Q

Calculate the Point Method of price elasticity of supply

A

% change in qty supplied / % change in price

71
Q

Calculate cross elasticity

A

% change in # of units of X demanded (supplied) /

% change in price of Y

72
Q

Calculate income elasticity of demand

A

% change in # of units of X demanded / % change in income

73
Q

Calculate marginal cost

A

Change in total costs / change in quantity

74
Q

Calculate average fixed, variable, and total costs

A 
AFC = FC / Q
AVC = VC / Q
ATC = TC / Q
75
Q

When will a firm operate best?

A

When marginal revenue equals marginal cost

76
Q

What are Porter’s 5 forces? (forces that have a significant impact on the competitive environment and profitability of a firm)

A

1) Barriers to market entry
2) Market competitiveness
3) Existence of substitute products
4) Bargaining power of the customers
5) Bargaining power of the suppliers

77
Q

What is the pneumonic for Process Management?

A

Plan - Design the planned process improvement
Do - Implement the process improvement
Check - Monitor the process improvement
Act - Continuously commit to the process and reassess the degree of improvement

78
Q

What is the penumonic for Quality Reporting?

A

Appraisal - costs incurred to identify defective products or services
Prevention - cost incurred to prevent defective products or services
Internal failure - cost of defective parts or lost production time
External failure - cost of returns and lost customer loyalty

79
Q

Calculate the effective interest rate

A

(1 + (i/p))^2 - 1

80
Q

Calculate simple interest

A

P x i x n

81
Q

Calculate compound interest

A

P x (1 + i)^n

Audit (4 decks)

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