Concepts Flashcards
COSO Components of Internal Control
C = Control activities R = Risk assessment I = Information and communication M = Monitoring E = Control Environment
Reciprocal Cost Allocation
Services Rendered by all service departments to each other are recognized
Incremental cost allocation
The cost objects are sorted in descending order by total traceable cost and the common cost is allocated up to the amount of each
Stand-alone cost allocation
The common costs are allocated by weighting the cost of each user as a separate entity
What are the responsibility Centers
- Revenue Center - Responsible for revenue only
- Investment Center - Responsible for revenue, expense, and invested capital (Balance sheet & Income Stmt)
- Profit Center- Responsible for revenue and expense
- Cost Center - Responsible for cost only
Contribution Accounting
Emphasized variable cost and their relationship with revenues, but disassociated fixed costs from department responsibility
Functional accounting
Accumulates costs and assets for each service provided or functions performed
Manufacturing cost
Is the prime cost and manufacturing OH
1. Direct material
2. Direct Labor
3. Manufacturing OH
Indirect materials, Indirect Labor, factory operating cost
These are all of the costs that need to be incurred in order to actually produce the product.
Not include Selling & Administrative cost
Selling & Administrative cost = period cost
what are the 2 components of the static budget variance ?
- The flexible budget variance
2. The sales volume variance
PCAOB Standard #5
It is a principal based
It is design to increase the likelihood that material weakness in internal control will be found before they result in material misstatement of company’s financial statements and at the same time, eliminate procedures that are unnecessary
Manufacturing cost
Is the prime cost and manufacturing OH
1. Direct material
2. Direct Labor
3. Manufacturing OH
Indirect materials, Indirect Labor, factoring operating cost
These are all of the costs that need to be incurred in order to actually produce the product.
Not include Selling & Administrative cost
Selling & Administrative cost = period cost
Investment categories and the reporting value
- Trading Securities = Report at FMV
- Available For Sales Securities = Report at FMV
- Held to Maturity = Report at Amortized Cost
What are the categories of performance measures?
- Profitability measures
- Customer satisfaction measures
- efficiency, quality and time measures
- Innovation measures
What are the transferred price methods?
- Variable cost - Allow buyer to purchase at the selling divisions variable cost. This method only can be use when selling division has excess capacity
- Full (absorption) cost - Ensure selling division will not incurred a loss. Not goal congruence. All cost can be pass to the buying division. Least costly method to administer
- Negotiation- Each division can set their own price. Good when market price are fluctuate a lot. Achieve goal congruence for division but not as a whole
- Market price -Best transferred price
What are the time based classifications?
- Feed Back control - Report information about completed activities. Permit improvement in future performance. Corrective action occurs after fact.
Ex: Inspection of completed goods - Concurrent - Adjust ongoing process. Monitor activities in present.
Ex: Closed supervision on a production line - Feed forward-Anticipate, prevent problem. Require long term perspective
Ex: Organization policy and procedure
what are the control procedures
- Segregation of duties
- Independent checks, verification
- Safeguarding controls
- Pre-numbered forms
- Specific document flows
The Sarbones-Oxley Act of 2002
Required each member of the audit committee to:
- At least one member is a financial expert
- Be an independent member of the issuer’s board of directors
- an independent director is not affiliated with and receive compensation from the issuer.
Sarbone - Oxley Act - Section 404
Required the auditor to attest to and report on management of the entity’s control over financial reporting
Process Costing
Process costing - Is used many identical or similar units of a product or service are being manufacture. Cost are accumulated by department or by process.
The cost of 1 finish good is an average cost
Standard Costing
- Is planned cost for each unit produced
- OH is allocated to unit produce by calculating the pre-determined manufacturing OH rate
- Standard costing enable manager to compare actual costs with the cost should have been for the actual amount produced.
- Manufacturing company used standard costing with flexible budgeting to control DL and DM.
Dividend received under equity method
Cash Dividend received from investee is a return on investment.
Replacement cost under LCM
The replace cost can not be lower than the Floor price or higher than the ceiling price.
Floor price
How is trading security reported?
Unrealized gain/loss are reported in earning on statement of financial position and record at FMV
How is inventory reported under IFRS?
Inventory is measured at lower of cost and NVR.
What inventory method is use for moving average valuation?
Moving Average use Perpetual inventory method
What inventory method is use for Weighted Average valuation?
Weighted Average use Periodic inventory method.
How should the cash dividend recorded under equity method?
The receipt of cash dividend is a credit to investment when declared. Equity Method is not applicable to preferred stock.
Expected value calculation
- The expected value is the long run average outcome
determined by calculating the weighted average of the outcome
Joint Probability
- The probability of an event occurring giving that another event has already occurred.
- Determined by multiplying the probability of the first event by the conditional probability of the second event
What is the order of the cash flow using either indirect or method when preparing cash flow?
- Operating
- Investing
- Financing
How should the property dividend by recognized on the date of the declaration?
When a property dividend is declared, the property is remeasured at FMV and recognized any gain or loss
Loss Contingency
Loss Contingency should be recorded if the event will be probably occur and the loss amount can be reasonably estimated.
What cost should be capitalized in regards to Patent?
Legal fees of obtaining the patent, incidental costs of obtaining the patent, and costs of successful patent infringement suits.
What are the cost include in the present value of the minimum lease payment on a capital lease?
The lessee’s minimum lease payments include minimum rental payments, bargain purchase option, guaranteed residual value, and nonrenewal penalty. Minimum lease payments do not include contingent rentals.
How is deferred tax assets arise?
A deferred tax asset arises when there is either:
1) a revenue that is included in taxable income before it is included in book income, or
2) an expense that is included in book income before it is deductible for tax purposes
What is the effect of the deferred tax assets or deferred tax liability?
Deferred tax assets is a tax benefit, it reduce the tax expense.
Deferred tax liability is a tax expense, it increase the tax expense.
What happen to the company’s equity when dividend declare and dividend pay?
The equity of the company is reduced when the dividend is declared and unchanged at the date of payment.
The current liability is unchanged as all entries are within the equity section.
What are the characteristic of Preferred Stock?
Preferred Stocks has :
- Has priority over common stock with regard to earnings.
- . Has the right to receive dividends in arrears before common stock dividends can be paid.
- Has priority over common stock with regard to assets.
- Has the ability to convert to Common Stock
- Has no voting rights
What are the conditions must be met for revenue to be recognizes under the completion of production method
These three conditions are:
1) the item is readily saleable as soon as it is completed,
2) there is a known market price for the item and there are minimal selling costs, and
3) the units are homogenous (identical to each other).
What does financial flexibility mean?
Financial flexibility refers to the ability of a company to take actions that will alter the amounts and timing of its cash flows so that it is able to respond to unexpected needs and opportunities.
