Questions

Question 1

Components of Internal Control

Answer 1

1) control environment - control at the top - ethics; 2) risk assessment - F/S misstated or fraud; 3) Information and Communication - fair, accurate, complete, timely; 4) Monitoring - efficiencies of internal controls, report deficiencies; 5) Existing Control Activities - Policies/procedures to mitigate risk

Question 2

Internal control framework

Answer 2

1) Operating - effectiveness and efficiency of an entity’s operations, ensuring that the assets of the organization are adequately safeguarded against potential lossess; 2) Reporting Objectives - Focus of COSO - reliability, timeliness and transparency; 3) Compliance Objectives - ensures the entity is dhering to all applicable laws and regulations

Question 3

Corporate Fraud Accountability

Answer 3

Tampering with record or impeding an official proceeding - fined and not more than a 20-year prison term; whistle-blower protection - not more than 10 years and fined; altering documents - fined and no more than 10 years in prison; securities fraud - fined and imprisoned not more than 25 years

Question 4

Corporate Fraud Accountability

Answer 4

Knowingly certifies a false financial report $1 mil and no more than 10 years; willfully certifies any statement fined $5 mil and not more than 20 years

Question 5

Control environment components

Answer 5

Commitment to ethical value and integrity, board independence and oversight, organization structure, commitment to competence, accountability

Question 6

Risk assessment

Answer 6

Specify objectives, identify and analyze risks, consider the potential for fraud, identify and assess changes

Question 7

Information and communication

Answer 7

Obtain and use information, internally communicate information, communication with external parties

Question 8

Monitoring activities

Answer 8

Ongoing and/or separate evaluations, communication of deficiencies

Question 9

(Existing) Contorl Activities

Answer 9

Select and develop control activies, select and develop technology controls, deploy through policies and procedures

Question 10

Components of Enterprise Risk Management

Answer 10

IS EAR AIM - internal environment, setting objectives, event identification, assessment of risk, risk response, control activities, information and communication, monitoring

Question 11

Pareto Diagram (Histogram)

Answer 11

Used to determine the quality-control issues that are most frequent and often demand the greatest attention. A Pareto diagram demonstrates the frequency of defects from highest to lowest frequency.

Question 12

Cause-and-Effect (Fishbone) Diagram

Answer 12

Once the most frequent recurring and costly defects/problems are identified by the Pareto diagram, a cause-and-effect diagram may be used to further analyze the defect. Managers use the diagram to identify the sources of problems in the production process by resource and take corrective action.

Question 13

Prime costs

Answer 13

Direct material + direct labor

Question 14

Conversion costs

Answer 14

Direct labor + overhead applied

Question 15

Product costs

Answer 15

Not expensed until product sold-matching principle, inventoriable; components include direct materials, direct labor and manufacturing overhead applied

Question 16

Period costs

Answer 16

I/S only; are expensed in the period in which they are incurred and are not inventoriable; period costs include selling, general, admin expenses, interest (financing) expense

Question 17

Net Realizable Values at Split-off Point

Answer 17

joint cost x (sales value/total sales value); if sales value not available at spit-off then work backwards i.e. sales - further processing cost = net realizable value

Question 18

Contribution Approach (direct costing)

Answer 18

Sales - COGS (DM +DL +manufacturing O/H variable; fixed manufacturing OHis a period cost; does not represent GAAP but useful for internal decision making; fixed O/H & Fixed & variable SG&A are period costs

Question 19

Contribution margin ratio

Answer 19

contribution margin/revenue; contribution margin = revenue - variable costs; contribution margin ratio for contribution/variable/direct method only; absorption/full cost method is gross margin

Question 20

Absorption costing

Answer 20

If production is greater than sales, inventory increases and report higher income under absorption costing than variable costing and vice versa, if sales is greater than production, inventory decrease and income is lower under absorption costing than under variable costing.

Question 21

Breakeven

Answer 21

total fixed costs / contribution margin per unit; contribution margin per unit = (sales - VC)/total units; contribution margin ratio = contribution margin / sales price

Question 22

Setting sales price per unit

Answer 22

(Fixed costs + variable costs + pretax profit) / number of units sold

Question 23

Make vs. Buy

Answer 23

calculate the make cost vs. buy; purchase cost + direct material + direct labor + variable overhead and fixed factory overhead (avoidable cost vs. buy) and compare to the buy price

Question 24

Linear regression

Answer 24

is a method for studying the relationship between two or more variables. One use of linear regression is to predict the value of a dependent variable corresponding to given values of the independent variables.

Question 25

Coefficient of Correlation

Answer 25

measures the strength of the linear relationship between the independent variable (x) and the dependent variable (y). Range from -1.00 to 1.00

Question 26

Coefficient of determination (r2)

Answer 26

is the proportion of the total variation in the dependent variable (y) explained by the independent variable (x). Value lies between zero and one. The higher R2, the greater the proportion of the total variation in y that is explained by the variation in x. The higher R2, teh better the fit of the regression line.

Question 27

Learning curve calc

Answer 27

example 50 hours to produce unit assuming 70% learning curve; average time it takes to produce 2 units = 50 hours x .70 = 35 hours, total time 35 hours x 2 units = 70 hours; average time 4 units = 35 hours x .70 = 24.5 hours; total time for 4 units = 24.5 hours x 4 units = 98 hours

Question 28

Balanced Scorecard

Answer 28

Gathers information on multiple dimensions of an organization's performance defined by critical success factors necessary to accomplish the firm's strategy. Critical success factors are classified as: Financial - respnsibility segment/SBU; Internal business processes - efficient/effective operations; Customer satisfaction - customers happy; Advancement of innovation and human resource development (learning and growth) - employees happy

Question 29

Major advantage of NPV over IRR

Answer 29

Different rates may be used for different time periods using the NPV method. NPV is considered to be superiod to IRR because it is flexible enough to consistently handle either uneven cash flow or inconsistent rates of return for each year of the project.

Question 30

Advantages & Limtations of the NPV Method

Answer 30

The NPV method is flexible and can be used when there is no constant rate of return required for each year of the project. NPV is limited by not providing the true rate of return on the investment. NPV purely indicates whether an investment will earn the "hurdle rate" used in the NPV calculation.

Question 31

IRR

Answer 31

Focuses the decision maker on the discount rate at which the present value of the cash inflows equals the present value of the cash osutflows (usually the initial investment).

Question 32

Limitations of IRR

Answer 32

Unreasonable reinvestment assumption; cash flow from the ivnestment are assumed in the IRR analysis to be reinvested at the internal rate of return. IRR method is less reliable than the NPV method when there are several alternating periods of net cash inflows and net cash outflows. IRR focuses on % vs. $.

Question 33

Payback period method

Answer 33

Time required for the net after-tax cash inflows to recover the initla investment in a project. The payback period method focuses decision makers on both liquidity and risk. The payback period method measures the time it will take to recover the initla investment in the project, thereby emphasizign the project's liquidity and the time during which return of principal is at risk. The greater the risk of the investment, teh shorter the payback period that is expected (tolerated) by the company.

Question 34

Payback period forumula

Answer 34

Net initial investment (outflow) / increase in annual net after-tax cash flow

Question 35

Non-uniform cash flow (use cumulative approach)

Answer 35

The standard payback formula shown above applies to uniform annual cash inflows. If cash flows are not uniform (i.e. they vary from period to period over the life of the project), a cumulative approach (rather than the standard payback formula) to determine the payback period is used.

Question 36

Limitations of the payback method

Answer 36

Time value of money is ignore (see discounted payback), project cash flows occuring after the initla investment is recovered are not considered, reinvestment of cash flows is not considered, total project profitability is neglected

Question 37

Discounted payback method (improvement)

Answer 37

This variation computes the payback period using expected cash flows that are discounted by the project's cost of capital (the method considers the time value of money). Discounted payback is also referred to as the breaeven time method (BET).

Question 38

Cost of Retained Earings

Answer 38

equal to the rate of return required by the firm's common stockholders. A firm should earn at least as much on any earnings retained and reinvested in the business as stockholders could have earned on alternative investments of equivalent risk.

Question 39

Three common methods of computing the cost of retained earnings

Answer 39

Capital asset pricing model (CAPM), discounted cash flow (DCF), bond yield plus risk premium (BYRP)

Question 40

Capital Asset Pricing Model (CAPM)

Answer 40

The cost of retained earnings is equal to the risk-free rate plus a risk premium; the risk premium is equal to the systematic (nondiversifiable) risk associated with the overall stock market; The beta coefficient is a numberical representation of the volatility (risk) of the stock relative to the volatility of the overall market.

Question 41

CAPM

Answer 41

risk free rate + beta (market - risk free rate)

Question 42

Cost of retained earnings using discounted cash flow (DCF) method

Answer 42

(D1 / P0) + g

Question 43

Cost of retained earnings using the bond yield plus risk premium method

Answer 43

pretax cost of long-term debt + market risk premium; pretax cost of long-term debt or firm's own bond yield

Question 44

ROI

Answer 44

income / investment capital; investment capital is D +E or ROI = profit margin x investment turnover; profit margin = income/sales; investment turnover = sales / invested capital

Question 45

Factoring Accounts Receivable

Answer 45

turning over the collection of accounts receivablet o a third-party factor in exchange for a discounted short-term loan. Cash is collected from the factor immedicately rather than from the customer according to the credit terms.

Question 46

Systems development life cycle (SDLC)

Answer 46

Systems Analysis,, Design (Conceptual and Physical), Implementation and Conversion, Training, Testing, Operations and maintenance

Question 47

Information criteria (ICE RACE)

Answer 47

Integrity - accuracy, comepleteness, and validity; confidentiality - protection of sensitive information; efficiency - low cost without compromising effectiveness; reliability - information represents what it purports to represent; availability - providing curent and future information as required; compliance - comply with policies, laws, regulations and contractual arrangements; effectiveness - relevant or pertinent to a business process, and delivery in timely, correct, consistent, and useful manner

Question 48

COBIT Framework

Answer 48

PO AIDS ME; Direct PO Plan and Organize, Solution AI Acquired and Implement; Service DS Delivery and Support, Ensure direction followed ME Monitor and Evaluate

Question 49

System Analyst

Answer 49

Internally Developd System - determine system requirements, designs the overall application system, determines the type of network needed; Purchased systems - integrates with existing internal and purchased applications, provides training

Question 50

Computer Programmer

Answer 50

Application programmer/software developer - writng and/or maintaining application programs; system programmer - installing, supporting, monitoring, and maintaining the operating system, perform capacity planning functions.

Question 51

Computer Operator

Answer 51

Scheduling and running processing jobs, can be automated, and in large computing environments, must be automated

Question 52

IT Supervisor

Answer 52

Manage IT department

Question 53

File Librarian

Answer 53

Store and protect programs and tapes from damage and unauthorized use, large computing environment, much of this work is automated

Question 54

Data Librarian

Answer 54

Custody of and maintains the entity's data and ensures that production data is released only to authorized individuals when needed.

Question 55

Security Administrator

Answer 55

Responsible for the assignment of initial passwords and often the maintenance of those passwords.

Question 56

Database Administrator (DBA)

Answer 56

Responsible for maintaining and supporting the database software and performing certain security functions. Database administrators differ from data administrators; a database administrator is responsible for the actual database software, while a data administrator is responsible for the definition, planning, and control of the data within a database

Question 57

Network Administrator

Answer 57

Support computer networks through performance monitoring and troubleshooting.

Question 58

Web Administrator

Answer 58

Responsible for information on a website

Question 59

Data input Clerk

Answer 59

Prepare, verify and input data to be processed however, that function is increasingly being distributed to end users.

Question 60

Hardware Technician

Answer 60

Sets up and configures hardware and troubleshoots any resulting hardware problems

Question 61

End User

Answer 61

Workers in an organization who enter data into a system or who use the information processed by the system

Question 62

Segregation of duties within IT

Answer 62

System Analysts (system & hardware designers) vs. computer programers (software designers); computer operators vs. computer programers - person performing both functions could make unauthorized and undetected program changes; Security administrators vs. computer operators and computer programmers - if security administrators were also a programmer or an operator for that system, that person could give himself/herself or another person access to areas they are not authorized to enter.

Question 63

Son-Father-Grandfather concept

Answer 63

Most recent file is called the son, the second most recent file is called the father, and the precedign file is called the grandfather. The backup process includes reading the previous file, recording transactions being processed, and then creating a new updated mater file. Always at least two backup files that can be used to re-create the destroyed file.

Question 64

Uninterrupted Power Suppy (UPS)

Answer 64

A device that maintains a continuous supply of electtrical power to connected equipment. A UPS is also called battery backup.