Sims Flashcards
current policy of highly mobile workers storing data on laptop hard drives with no central database
minor advantages:
-access and update data without network connection or other effective data communications
several disadvantages:
- data loss if laptop stolen or damaged without backup
- security of data requires passwords or biometric devices
- customer privacy is at risk
- cannot access aggregate data without central database
- computer viruses can corrupt data
- rarely physically secured
- knowledgeable intruder access to confidential data
- regularly stolen from traveling workers
- unauthorized changes to data
mobile database alternative:
-accessible by a laptop, smart phone, or tablet
even when out of range or disconnected
-aggregate information is available to the company
-policies for data format, security, and transmission allow data to be aggregated
-simpler to manage data access policies when storage is centralized.
-secure online storage is available at reasonable cost
-software is readily available to securely synchronize
-costs justified by the benefits central database
COBIT (Control Objectives for Information and Related Technology) seven business control objectives that should be met when designing new it system.
Provide a description of each objective.
available - able to enter, update, process, and retrieve data as needed (minimize downtime to ensure productivity)
compliance - know legal requirements, system captures and communicates requisite information in a timely manner
confidentiality - passwords to limit individuals to only the information they need to maintain privacy of sensitive company information
effective - provides relevant, pertinent, and timely information in the form of easy to read and helpful reports, make work easier not more difficult
efficiency - processed information should streamline workflow not create additional steps or procedures and ensure information is available when needed
integrity - processing is complete, accurate, timely, and free from unauthorized or inadvertent manipulation
reliable - available, secure, maintainable with integrity, free from unauthorized physical and logical access,
- changes made and communicated without affecting availability, security, and integrity.
- design and implement preventive and detective controls to ensure and maintain reliability
- controls examined regularly as the system changes and grows
Becker formula
- Open with restating the question.
- Answer the question(s) in the order they were asked (or address the problems in the order delivered in the scenario).
- Close with the same “Please let me know if I can be of further assistance. I will be available at your convenience.” for each of them.
- Don’t forget a “yours truly” and your name.
- Read all of the WC and then work from the one you know best to the one you know least.
Audit Committees: What You Need To Know
- defined by the Sarbanes-Oxley Act of 2002,
- committee established by and amongst the board of directors
- purpose of overseeing the accounting and financial reporting processes and audits of the financial statements
- subdivision (or smaller group) of individuals on the board
- any business with a board of directors may have an audit committee.
- not-for-profit and government organizations often do
- issuers (publicly-traded companies companies) are required to have an audit committee
- made up of independent outside directors
- volunteer or selected
- management, majority shareholders, and internal auditors are not a part of the audit committee
- at least one financial expert with education or experience to understand GAAP and financial statements
- experience in the preparation or auditing of financial statements of comparable companies
- application of principles in accounting for estimates, accruals, and reserves
- experience with internal accounting controls and audit committee functions
Core responsibilities:
- oversee the financial reporting process
- review quarterly and annual financial reports, disclosures (including MD&A), and management letters with management and the external auditor
- review quality of accounting principles and reasonableness of significant judgments
Monitor Internal control:
- oversees legal and ethical compliance programs and whistleblower hotlines
- monitors effectiveness and efficiency of internal control process,
- oversees performance of internal audit function (internal auditors report directly to audit committee),
- discuss risk management policies and practices with management.
Communication with management, internal auditors, and external auditors:
- direct contact with the external auditor on accounting policies and principles;
- auditing standards require that the external auditor communicate with the audit committee on a variety of subjects.
- mediate and resolve disagreements between the external auditor and management.
Oversee hiring/performance of external auditors:
- hiring the external auditor,
- approving the audit fee,
- preapproving all audit and nonaudit services
- independent auditors cannot perform certain services for audit clients;so, the audit committee must preapprove all services performed by the external auditor
I have read the response to the independent auditor regarding the company’s risk assessment process. The company has mentioned that it will consider the following items in its risk management process: risk assessment, control activities, information and communication, and monitoring.
- four areas that are mentioned are absolutely necessary,
- COSO’s Enterprise Risk Management—Integrated Framework (ERM) has four other components that assist in the achievement of internal control goals.
- internal environment similar to control environment
- commitment to integrity, ethical values, and competence
- human resources, management, and audit committee
- clear and simple organizational structure and departments held accountable
- affected by external sources (requirements imposed by regulators)
- foundation for all of the other ERM components
- objective setting
- formulate a mission statement or corporate vision
- use it to produce objectives throughout the company,
- foundation to help assess and respond to risks
- strategic, operations, reporting, and compliance objectives
- event identification is similar to risk assessment
- focuses on events rather than threats
- incidents or occurrence (internal or external) that affect implementation of strategy/achievement of objectives
- identify both positive and negative events
- risk response
- avoid, reduce, share, or accept risks
- reduce means implementing additional controls
- cost-benefit analysis may determine that a risk is acceptable
Define CSA and describe how it works. Specifically mention the types of controls that it is best at evaluating and monitoring, and give examples.
Control Self-Assessment (CSA) could help our department better understand and monitor the control environment at our company.
CSA is a process
- operational employees/lower-level managers provide perceptions/impressions about controls
- more effective than questionnaires because it gathers information from more people and can allow anonymity
- can gather in team meetings with a facilitator (and use groupware to hide which responses are theirs) or send out anonymous surveys
- use responses as audit evidence (under the inquiry audit procedure).
CSA works best in evaluating and monitoring “soft controls”—those controls that cannot be evaluated using documentation, confirmation, or recalculation.
-control environment (or internal environment, when assessing risks in Enterprise Risk Management)
employees answer questions about
- management’s integrity and ethical values,
- management’s commitment to competence,
- management’s philosophy and operating style,
- organizational structure,
- human resources policies and practices
Please let me know if you would like more information, or if I can begin the process of integrating CSA into our internal audits.
There are three methods (also called approaches or techniques) that the FASB recommends to determine fair value.
Market approach
- uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business)
- find a similar asset that has sold and use that market value for your asset
- example real estate: the average sales prices of comparable, recently sold homes
Income approach
- convert future amounts (for example, cash flows or earnings) to a single present amount (discounted)
- measurement is based on the value indicated by current market expectations about those future amounts
- if asset will bring in significant cash in the future, it will be worth more now.
- if return is risky, an investor would pay less for the asset
- requires utilization of present value calculations and assumptions about future returns and economic conditions.
Cost approach
- based on the amount that currently would be required to replace the service capacity of an asset (current replacement cost)
- value based on cost to a buyer to acquire an asset of similar use;
- adjust for deterioration and obsolescence
- similar to the economic substitution principle.
- method chosen based on availability of data for calculation and circumstances. .
- reasonable
- more than one method may be used
- results should be evaluated and weighted
- continue using method chosen for future years unless circumstances change and another method more reasonable
business e-mail to the chairman of the board
introduce him to SWOT analysis
purpose of SWOT analysis in strategic planning
factor that each letter in “SWOT” stands for
provide a definition or an example of each factor
Mr. Chairman,
One of the best ways to perform long-term, or strategic, planning is to use SWOT analysis. In strategic planning, we start by determining the company’s mission. This mission will lead us to long-term objectives. The SWOT analysis helps to clarify the factors that are FAVORABLE and UNFAVORABLE to achieving our OBJECTIVES. SWOT tailors our goals according to INTERNAL and EXTERNAL aspects unique to the company.
SWOT analysis involves an examination of four qualities of the business: its strengths, weaknesses, opportunities, and threats.
Business strengths are internal factors: our resources and capabilities that allow us to develop a COMPETITIVE, or comparative, ADVANTAGE over other companies. An example would be our well-known name.
Our weaknesses are also internal factors. These items are the opposite of our strengths and give our COMPETITORS an ADVANTAGE over us. An example would be our inability to keep highly trained staff members for long-term.
Opportunities are external factors that provide chances for us to MAXIMIZE PROFIT. We must look at prospects provided by the environment in which we operate and attempt to take advantage of them. An example would be the closing of our competitor in the next county. (Perhaps we could open into this new market area?)
Threats are external factors that represent DANGERS in the way of achieving our goals. Arising from the environment around us, threats can be situations such as a new sales tax on our product.
I look forward to the next business meeting where we can discuss these matters further.
Sincerely,
Mr. CPA
Tasks from the job description of a staff accountant:
Endorsement, coding, and recording of checks received for deposit
Reconciliation of the accounts receivable subledger to the general ledger
Reconciliation of the accounts payable subledger to the general ledger
Reconciliation of investment and borrowing subledgers to the general ledger
Mailing of checks to vendors
Recording of fixed asset transactions, including updates to the asset master file
Prepare a memorandum discussing the internal control issues.
There are multiple internal control issues related to the tasks that have been assigned to the staff accountant. In a good control system, several incompatible functions should be separated to reduce the potential for errors and irregularities. The four functions that should be segregated are asset CUSTODY, RECORD-KEEPING (ledgers), INTERNAL AUDIT, and AUTHORIZATION of transactions (management decisions).
Asset CUSTODY and RECORDKEEPING functions should be separated to prevent covering up missing assets in the recording process. The accountant should not have custody of assets when endorsing checks received from customers, as well as coding and recording those checks. The accountant should not RECONCILE the RECEIVABLES subledger to the general ledger and also have CUSTODY of CHECKS received. The accountant should not MAIL CHECKS to vendors and also RECONCILE the accounts PAYABLE subledger to the general ledger. The accountant should not have CUSTODY of CHECKS to vendors, which should be separated from RECORDING of FIXED ASSET TRANSACTIONS.
Someone other than the person who KEEPS THE ACCOUNTS should RECONCILE THE ACCOUNTS. These functions should be separated for RECORDING OF CHECKS and RECONCILIATION OF ACCOUTNS RECEIVABLE subledger to the general ledger. They should also be separated for MAILING OF CHECKS to vendors and RECONCILIATION OF ACCOUNTS PAYABLE subledger to the general ledger. The RECONCILIATION OF INVESTMENT AND BORROWING subledgers to the general ledger should be separate from any RECORDING responsibilities. These weaknesses could be overcome by placing RECORD-KEEPING under the supervision of the CONTROLLER and asset CUSTODY functions under the supervision of the TREASURER.
Write an article for your firm’s newsletter (sent to hundreds of clients each quarter) about the difference between APR and EAR when interest rates are quoted.
Sometimes, when you take out a loan, you are quoted an interest rate. When you read the documentation for the loan, you may notice a different interest rate on the paper! Does this mean that you were lied to? While someone could have been scamming you, it is possible that there are two interest rates associated with the same loan. This is why Congress (per the Truth in Lending Act) requires that the effective annual percentage rate be disclosed to each borrower.
The nominal annual percentage rate (APR) equals the PERIODIC INTEREST RATE (such as for a month) TIMES the NUMBER OF PERIODS PER YEAR. The APR includes ONLY INTEREST (no other costs). Calculating nominal APR involves knowing the interest amount, the amount of the loan, and the amount of time the loan is outstanding.
The effective annual rate (called effective APR or EAR), can include FEES other than interest, such as loan origination fees, late fees, or over-limit fees. The EAR also takes into account the EFFECT OF INTEREST that is COMPOUNDED MORE THAN ONCE A YEAR.
Be aware that the effective interest rate on a loan could be higher than what has been advertised to you!
Your company is considering three different capital investments. You have been asked to provide a rating of the investments according to the payback method and the net present value method.
The payback method for evaluating capital investments involves computing the TIME that is REQUIRED to RECOUP the initial INVESTMENT for the asset. A drawback to the payback method is that it FAILS TO CAPTURE the TIME VALUE OF MONEY. The advantage to this method is that it is EAST TO CALCULATE.
The net present value method DISCOUNTS FUTURE CASH FLOWS TO PRESENT and DETERMINES IF they are GREATER THAN the INITIAL INVESTMENT. Due to the TIME VALUE OF MONEY, money received in the future is not as valuable as money received today. Using our COST OF CAPITAL to DISCOUNT THE CASH FLOWS, we can determine if the cash flows are providing a RETURN that is AT LEAST THE COST OF FINANCING those returns. A drawback to the net present value method is that WE MUST KNOW THE DISCOUNT (cost of capital) rate. The advantage to this method is that it takes into consideration the time value of money.
Your client’s gross profit this past year increased from that of the year before. This company produces and sells only one type of product. While client management is thrilled, you wish to analyze their gross profit variation and discuss why the change occurred.
Begin with the gross profit variance and provide a description of the calculation of the three component parts of gross profit variance (ignoring sales mix, as it does not apply here). Discuss reasons why each of the variances could have occurred. Communicate your largest concern revealed by your analysis.
change in your gross profit is a positive (favorable)
the components of gross profit a
only produce one product, analyze gross profit variance by looking at:
sales price variance,
cost price variance, and
sales volume variance.
sales price variance,
average selling price per unit each year
increased or decreased
overall.
raised prices in response to increased costs to produce each unit.
cost price variance
calculated by subtracting the total cost of goods sold in 20X2 from the cost of goods sold in 20X1
costs went up
unfavorable increase,
could be due to the increased cost of raw materials
sales volume variance
difference in the number of units sold in 20X2 versus 20X1.
same number of units
production capacity,
economy affected the number of customers who were able to purchase
stagnant sales growth
focus on increasing the number of units sold during the current year.
components determine the makeup of the total gross profit variance: sales price variance − cost price variance + sales volume variance = gross profit variance
