Not familiar Flashcards
What is the formula to calculate the cost of not taking the discount?
{[Discount Percentage) / (100%- Discount %)] x (Days in the Year)]} / (Total Payment Period - Discount Period)
Name common types of risk
Business Hazard Financial Operational Strategic Legal Compliance Political Inherent Residual
Regarding mitigation, how can a firm accept the risk?
The firm accepts the risk of loss by doing nothing except managing its operations around the possible loss
What is the general markup % formula?
Markup %= (Profit + total costs to be covered) / (Cost basis per unit x volume)
What is financial flexibility in capital investment analysis and how does the payback period affect it?
Financial flexibility is the freedom for a company to use its resources to explore and invest in other opportunities
By reducing Payback period, flexibility is increased, which effectively reduces the risk of missing out on desirable future events in which the organization may want to invest
What are two advantages that the traditional Payback method has compared to the NPV or IRR methods?
- The payback method address how long it takes to return the original investment
- The payback method allows managers to consider the exposure and flexibility of the investment
What are the six facets of a successful whistleblower framework?
- Training on whistleblowing
- Everyone needs to feel safe in a whistleblowing framework
- Anonymous helplines are then set up
- Employees should be encouraged to report both concerns and grievances
- An independent analysis is set up to distinguish serious grievances that must be addressed
List the four views of social responsibility depicted in Carroll’s CSR Pyramid starting at the base and working upward
- Economic Responsibility
- Legal Responsibility
- Ethical Responsibility
- Philanthropic Responsibility
what are three business processes that can be used to establish an internal control system around the ethical behavior in the org?
- Business process reengineering BPR
- Total quality management TQM
- Continual process improvement CPI
For most orgs, what are the three core operational processes to reengineer as describes by IMA’s Statement on Management Accounting, “Values and Ethics: From Inception to Practice” (Step 6)
- Research and development (R and D) processes
- Production processes
- Post-sale service processes
What are key assumptions of the Black-Scholes Model?
- The stock pays no dividends during the options life
- The option is a European Option
- The stock is traded in an efficient market
- There are no transaction costs, taxes, or commissions
- The risk-free rate exists is constant across the life of the option and is the same for all maturity dates
- The underlying stock’s returns are normally distributed
What are the three core HR processes in which to invest for the Operational Development of Ethical Practice phase of the framework based on IMA’s Statement on Management Accounting, “Values and Ethics: From Inception to Practice”
- Carefully hiring employees who are personally committed to the professional ethics
- Deploying solid training in professional ethics
- Establishing effective incentives to practice professional ethics
What are the key assumptions of the Binominal Model?
- Investor is risk-neutral
- The underlying stock’s price can only either decrease or increase with time
- The possibility of arbitrage is zero
- The market is perfectly efficient
- The duration of the option is shortened
The value of a business is estimated as the sum of what three factors?
- Present value of future cash flows over three to five years
- Prevent value of all future cash flows thereafter (terminal value)
- Present value of non-operating assets
What is a split up?
A split up is when one firm splits into two separately run firms Each firm is a standalone firm with independent management and boards of directors.
What is a split up?
A split up is when one firm splits into two separately run firms Each firm is a standalone firm with independent management and boards of directors.
What is an equity carve out?
An equity carve-out is similar to a spin-off but the firm sells only a minority interest in the new firm instead of selling the entire ownership stake. The new firm is its own entity but the parent firm retains a controlling interest.
What is a spin off?
A spin-off takes place when a firm forms a new company out of a portion of its current divisions or product lines and ownership of the new company is dispersed through an IPO.
What is a divestiture?
A divestiture is when a company reduces or eliminates a portion of the company
What’s the different between a horizontal merger, a vertical merger, and a conglomerate merger?
Horizontal= two firms in the same industry combine Vertical= when two companies that make parts for a finished good combine Conglomerate= when two companies combine from different industries
What is an example of a tax shield?
A tax shield is the reduction in income taxes companies can receive by deducting interest payments on the debt from their taxes. However, companies can not deduct dividend payments. This tax shield for interest payments reduces the cost of debt, thus resulting in a lower cost of capital to the firm.
What is the difference between a forward contract and a future contract?
A forward contract between two parties requires one party to buy or sell a specific asset on a specified day at a predetermined price. Delivery of the underlying asset occurs on the contract’s delivery date.
A future contract is an agreement actively traded on organized exchanges and usually does not carry the expectation of actual delivery of a physical asset, but rather the parties exchange the monetary value of the contract.
What is political risk?
Political risk is the risk that political influence and decisions may affect the profitability and effectiveness of an org
What is industry risk?
The industry is the risk associated with the factors specific to a given industry
What is foreign exchange risk or currency risk?
The risk that economic value will be lost due to fluctuations in exchange rates.
What is credit risk or default risk?
Credit risk or default risk is the risk that a borrower will not repay the investor as promised
What is systematic risk?
Systematic risk is the risk that arises from high-level economic cycles and political environments. Systematic risk is affected by macroeconomic factors
What is unsystematic risk?
Unsystematic risk is a broad term that encompasses any type of risk which may affect the returns of a company’s stock. It comes from company-specific factors
How is the volatility of a return measured?
The volatility of a return is measured as the standard deviation (range of potential outcomes for the return) A large SD means that the return could take place over a broad range of outcomes (more risky). A small SD means that the return outc ome is likely to take place closer to the expected value (less risky)
What is sustainable income?
Sustainable income starts with actual reported income and then excludes any unsusual intems or onetime events that were reported in revenues epenses gains and losses. Their exclusion brings reported income amount to a number that can now be used to predict future results
“Operational Development of Ethical Practices” (Step 6 in the framework based on IMA’s Statement on Management Accounting, “Values and Ethics: From Inception to Practice”) has three aspects to perform. What are they?
Investments in the three core HR processes to institute a focus on professional ethics
Careful review as necessary, a reengineering of the core operational processes in the org
Partnering with external suppliers to ensure that the supply chain process has clear ethical orientation
Based on IMA’s Statement on Management Accounting, “Values and Ethics: From Inception to Practice,” what is the difference between Step 3 “Develop a statement of values (principles) and Step 4, “Develop a code of conduct (standards)?
Principles as mentioned in Step 3, describe the value of the organization and essentially determine what the organization is expected to become. Standards, as mentioned in Step 4, describe the conduct of the organization and essentially determine what the organization is expected to do in every decision setting
Principles=values
Standards= Conduct
What are the eight steps in the framework to establish a system of ethical conduct based on IMA’s statement on Management Accounting, “Values and Ethics: From Inception to Practice”)
- Where are we today in ethical thinking?
- Where do we want to be?
- Develop a statement of value (principles)
- Develop a statement of conduct (standards)
- Leadership development of ethical practices
- Operational development of ethical practices
- Monitor ethical behavior and measure results
- Gather feedback and make improvements
What is a key characteristic of effective ERM?
The alignment of employee behavior with an ethical code of conduct
How is the U.K Bribery Act different from the U.S Foreign Corrupt Practices Act?
- Expands the focus of bribes paid to any persons or orgs
- Makes it illegal to both pay and accept bribes
- Expands the control focus beyond accounting systems
- Expands its scope to include any foreign org
- Forbids facilitating payments even for routine operations
- Allows prison terms as high as ten years and unlimited fines for both individuals and orgs
What the three conditions that create incentives for fraud as represented in the Fraud Triangle?
Financial pressure, opportunity, rationalization
When considering the Fraud Triangle, what is the difference between Negative and Positive Financial Pressure?
Negative financial pressure is taking place when a person or group is in a bad financial situation that does not appear to be resolvable using a legal route that isnt somehow humiliating
Positive financial pressure is taking place when an person or group is facing great financial opportunity that doesnt appear to be accessible using legal route available
When considering the Fraud Triangle, what are two examples of conditions that crease incentives for fraud through opportunity?
- Lack of strong internal controls in the org
- When a person or group has extraordinary ability or is in an extraordinary position to commit fraud
Describe Rationalization when considering the Fraud Triangle?
When fraudsters rationalize the fraud with their own internal moral compass. Often the individual or group will see themselves as a “Victim”. Alternatively, the individual or group will strengthen the rationalization based on external “need” factors
What are the steps for dealing with an ethical dilemma or situation as described in IMA’s statement of ethical professional practice?
- Take action
- Evaluate personal risks to yourself
- Follow your orgs policies
- Discuss with your immediate supervisor
- If your supervisor is involved, go to the next manager level
- Don’t hesitate to use IMA’s Ethics Helpline to receive anonymous guidance
- Consult your attorney
- If needed, resign from your org
What is the U.S. Foreign Corrupt Practices Act?
The FCPA was established in 1977 to define and enforce against bribery of foreign officials. Essentially, it forbids any “American” to pay bribes to a foreign government or representative to obtain contracts or secure business.
What is the U.K bribery act?
Established in 2010, applies to businesses and individuals in the UK. Broader in scope than FCPA and imposes more severe penalites.
Describe how IMA members uphold the standard of Confidentiality as described in the IMA Statement of Ethical Professional Practice
- Keep information confidential except when disclosure is authorized or legally required
- Inform all relevant parties regarding appropriate use of confidential information. Monitor to ensure compliance
- Refrain from using confidential information for unethical or illegal advantages