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Accounting 304 > Midterm 1 > Flashcards

Midterm 1 Flashcards

1
Q

COSO Objectives

A
  1. Operations - efficient and effective
  2. Reporting - internal and external, reliable
  3. Compliance - adhere to laws
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2
Q

COSO Components

A
  1. Environment - standards, “tone at top”
  2. Risk assessment - identify and analyze risk
  3. Control activities - actions to mitigate risk
  4. Info & communication - enable understanding
  5. Monitoring - ongoing evaluation of components
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3
Q

Agency theory problems

A
  1. Information asymmetry

2. Goal incongruence / conflicts of interest

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4
Q

Principal wants…

A

Effort on tasks

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5
Q

Agent wants…

A

Money and leisure

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6
Q

Informal controls bind….

A

In the absence of formal controls

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7
Q

Within COSO, which of the following components is designed to ensure that internal controls continue to operate effectively?

A

Monitoring

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8
Q

According to COSO, an effective approach to monitoring internal control involves all except:

A

Increasing the reliability of the financial reporting and compliance with laws

Effective approach: monitoring, monitoring procedures and reporting results with follow up action

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9
Q

According to COSO, which of the following is a compliance objective?

A

To maintain a safe level of carbon dioxide emissions during production (law)

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10
Q

According to COSO, what is the most effective way to set ethical behavior standards?

A

DEMONSTRATE appropriate behaviors

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11
Q

Control activities:

A
  1. Authorization of transactions
  2. Segregation of duties
  3. Adequate records and documents
  4. Security of assets and documents
  5. Independent checks and authorizations
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12
Q

What is risk?

A

The possibility of a crisis

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13
Q

Audit risk =

A

Inherent risk x control risk x detection risk

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14
Q

To describe risk you must know:

A
  1. The possible outcomes
  2. The value of each outcome
  3. The probability of each outcome
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15
Q

Risk =

A

P(loss) x I(loss)

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16
Q

Overall risk =

A

Risk(loss1) + risk(loss2) ….

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17
Q

Prospect theory

A
  1. Reference point (relative to the potential for loss)
  2. Loss = risk seeking , gain = risk averse
  3. 1 unit of loss > 1 unit of gain
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18
Q

Business process:

A

Sequence of work steps completed in order to produce a desired result

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19
Q

KNOW THE FLOW CHART SHAPES

A

.

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20
Q

Revenue cycle :

A
  1. Take customer’s order
  2. Check and approve customer credit
  3. Check available inventory
  4. Shipping
  5. Billing
  6. Cash collections
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21
Q

Billing :

A
  1. Invoice for customer

2. Updating AR

22
Q

Open invoice method :

A

Customers pay what is in each invoice

23
Q

Balance forward method :

A

Customers pay what is on monthly statement

24
Q

Automated clearing house network

A

A way to do electronic funds transfer from customer to business

25
Q

Purchasing process:

A
  1. Prepare requisition and purchasing order
  2. Notify vendor of needs
  3. Receive goods
  4. Record payable
  5. Pay invoice
  6. Update all records
26
Q

Purchasing risks:

A

Invalid transaction
Wrong amount recorded
Recorded late / to wrong account

27
Q

Ordering risks :

A

Kickbacks / rebates
Purchase unneeded items
Purchase at inflated prices
Purchase goods with poor quality

28
Q

Hiring process:

A
  1. Staffing requisition created
  2. Advertise position & receive applications
  3. Conduct interview and hire employee
  4. New hire paperwork completed and entered into system
29
Q

Recording time:

A
  1. Time sheets provided
  2. Time sheets completed
  3. Payroll department received sheets
  4. Time entered into system
30
Q

Payroll processing :

A
  1. Time information is put into HR system
  2. HR calculates payroll
  3. Payroll recorded to general ledger
31
Q

Payroll risks:

A

Fraud risk
Ghost employees
Not able to pay employees

32
Q

Theoretical capacity:

A

Amount of production possible under ideal conditions with no time for maintenance, breakdowns, or absenteeism

33
Q

Normal capacity :

A

The expected actual volume for the period

34
Q

Practical capacity :

A

The amount of production possible assuming only the expected time for scheduled maintenance and normal breaks and vacations

35
Q

Budgeted / expected capacity :

A

The long run expected volume produced

36
Q

Cost of quality =

A

Cost of good quality + cost of bad quality

37
Q

Cost of good quality =

A

Prevention costs + appraisal costs

38
Q

Cost of bad quality =

A

Cost of internal failure + cost of external failure

39
Q

Internal failure :

A

Scrap
Rework
Reinspection

40
Q

External failure :

A

Warranty repairs
Product liability
Marketing costs
Lost sales

41
Q

Ways to reengineer :

A 
Combining several jobs into one
Letting workers make decisions
Parallel activities
Multiple versions of the same process
Defer monitoring
Minimize reconciliation 
Single point of contact
Hybrid centralize / decentralization
42
Q

Classification of controls :

A
  1. Preventive or detective
  2. Key or secondary
  3. Frequency of control
43
Q

Preventive controls :

A

Defer problems before they arise

Hiring qualified personnel..

44
Q

Detective controls :

A

Discover problems as they arise

Double check calculations…

45
Q

Key controls:

A

The controls that a process relies upon the most

Matching up documents

46
Q

Secondary controls :

A

Controls that provide additional assurance that a process is achieving its objectives

Using pre numbered documents

47
Q

Frequency of controls :

A

Determine how often the control should be done

Bank reconciliation done monthly

48
Q

Which is the first document prepared in the purchasing process ?

A

The purchase requisition

49
Q

The same employee should not be allowed to…

A

Prepare voucher packets and sign checks

50
Q

If a company sold defective goods, the return would be accepted by….

A

The receiving clerk

51
Q

What is a benefit of EDI?

A

Shorter inventory cycle time

52
Q

What is COSO?

A

Guidelines on risk management and internal control

Accounting 304 (3 decks)

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