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Written Communication Flashcards

1
Q

What does Section 404 of the Sarbanes-Oxley Act require?

A

It requires each annual report of an issuer to contain an internal control report

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2
Q

The internal control report associated with Section 404 of SOX must state?

A
  1. Management’s responsibility for establishing and maintaining an internal control structure and procedures for financial reporting
  2. An assessment, at the end of the issuer’s fiscal year, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting
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3
Q

The benefits of Section 404 include:

A
  1. Greater control consciousness by the organization’s people due to management’s emphasis on integrity and ethical values
  2. A reduction in fraud
  3. Stronger corporate governance
  4. Improved external audit performance
  5. Higher-quality financial reporting
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4
Q

Attestation must be in accordance with:

A

Standards for attestation engagements issued or adopted by the Public Company Accounting Oversight Board

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5
Q

Section 404 provides incentives for management to:

A

Improve the effectiveness of internal control and quality of financial reporting

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6
Q

Changes in Section 404 will tend to affect:

A

The entity’s control environment and corporate culture (especially management’s attitude about integrity and ethical values)

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7
Q

Other sections of Section 404 support high-quality financial reporting by:

A
  1. Making it unlawful for a director or officer to fraudulently influence the conduct of an audit
  2. For anyone to knowingly destroy or create documents to impede an investigation
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8
Q

According to Section 404, each issuer must disclose:

A
  1. Whether it has adopted a code of ethics for its senior financial officers and the contents of this
  2. Immediately disclose on Form 8-K any change in, or waiver of, the code of ethics
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9
Q

What are quantitative techniques?

A

Quantitative techniques are available to model information that will help a user determine possible outcomes and preferred courses of action

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10
Q

What is regression analysis?

A

Regression analysis is the process of deriving a linear equation that describes the relationship between two variables

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11
Q

What can be an examples of variables used in linear equation?

A
  1. Advertising costs

2. Sales revenue

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12
Q

What is simple regression used for?

A

One independent variable

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13
Q

What is multiple regression used for?

A

More than one independent variable

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14
Q

What is regression analysis useful for?

A

Budgeting and cost accounting purposes

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15
Q

What are limitations of regression analysis?

A
  1. It does not determine casuality. As in, if two variables move together, the relationship can be due to another factor
  2. Valid only across a relevant range identified by user
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16
Q

What are assumptions of regression analysis?

A
  1. Past relationships can be projected onto the future
  2. The distribution of the dependent variable around the regression line is constant for different values of the independent variable
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17
Q

What is Form 8-K?

A

Filing used to announce current occurrence of significant corporate events

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18
Q

Where is Form 8-K used?

A

In the United States

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19
Q

Where is Form 6-K used

A

By Foreign Private Issuers (FPI)

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20
Q

Employee compensation costs for awards classified as equity are recognized?

A

Over the requisite service period

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21
Q

What is the requisite service period?

A

A period during which employees must perform services

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22
Q

What is the beginning of the requisite service period called?

A

The grant date

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23
Q

What establishes the grant date?

A
  1. A mutual understanding of key terms of the award has been reached
  2. The employer is obligated if the employee performs the requisite service
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24
Q

What is the typical entry to recognize compensation expense?

A

Debit Compensation Expense and Paid-In Capital – Share Options. Credit Common Stock and Paid-In Capital–Excess of Par.

25
Q

If options expire or employee rights are forfeited, what is the entry?

A

A reclassification from paid-in capital – share options to paid-in capital – forfeitures and expirations

26
Q

The requisite service period is usually?

A

The vesting period

27
Q

What is an extremely common application of simple regression?

A

The estimation of a mixed cost function (i.e., with a fixed cost component and variable cost component)

28
Q

What is the business judgment rule?

A

Protects a director or officer from personal liability for honest mistakes of judgment

29
Q

The audit committee must be comprised of how many independent members?

A

At least THREE independent members

30
Q

How many members of the audit committee must be a financial expert?

A

At least one member must be a financial expert

31
Q

Management is responsible for:

A
  1. Preparation and fair presentation of financial statements

2. Designing, implementing, and maintaining internal controls

32
Q

What is a clawback policy?

A

Public companies define how to recover performance-based executive compensation

33
Q

What is a trough?

A

When economic activity reaches its lowest point

34
Q

What is a recovery?

A

When output and employment rises in an economy

35
Q

What is a recession?

A

When real GDP falls and unemployment rises

36
Q

What is a peak?

A

The economy is:

a) At or near full employment and
b) At or near maximum output for current level of resources and technology

37
Q

What is a revolving line of credit?

A

A bank or merchant offering an always available amount of credit for an undetermined amount of time

38
Q

What is a payment float?

A

Time between transmission from purchaser and receipt of payment by seller

39
Q

What is a conservative financing policy?

A

Seeks to minimize liquidity risk by financing temporary working capital mostly with long-term debt and equity.

40
Q

What is an aggressive financing policy?

A

Reduces liquidity and accepts a higher risk of short-term cash shortages

41
Q

What is maturity matching?

A

A firm should offset each element of its temporary working capital with a short-term liability with the same maturity

42
Q

What creates spontaneous financing?

A

When current liabilities, such as trade payables or accruals, occur naturally in the course of business

43
Q

What can be spontaneous financing?

A
  1. Trade Credit
  2. Salaries
  3. Wages
  4. Interest
  5. Dividends
  6. Taxes Payable
44
Q

What other type of current liability can be spontaneous financing?

A

Accrued Expenses

45
Q

What is commercial paper?

A

A form of short-term financing which is a short-term notes payable issued by corporations

46
Q

What are the denominations of commercial paper?

A

Usually $100,000 or more

47
Q

What does long-term financing include?

A

Long-Term Debt and Equity

48
Q

What is permanent financing?

A

Liquid current assets that must be maintained to meet the firm’s minimum needs (regardless of activity or profitability)

49
Q

What is temporary financing?

A

As the firm’s needs for current assets change, working capital is increased or decreased

50
Q

Why would a request to change an engagement to a review occur?

A
  1. Change in circumstances affecting the entity’s requirements
  2. Misunderstanding of the nature of one of the services
  3. Restriction
51
Q

Before an accountant considers from changing an engagement to a review, what should they consider?

A
  1. The reason for the entity’s request

2. The additional cost and effort required to complete the original engagement

52
Q

What are ordinarily reasonable reasons why someone would want to change an engagement to a review?

A
  1. Change in circumstances that affect the entity’s requirement for the service
  2. Misunderstanding about the nature of a service
53
Q

What is a scope limitation?

A

The possibility that the information affected is incomplete, inaccurate, or other insatisfactory

54
Q

If an accountant has been prevented from contacting the entity’s attorneys during an audit, what happens?

A

The accountant is precluded from issuing a review report

55
Q

When can an accountant accept a change from an engagement to a review?

A
  1. The change is reasonably justified

2. Complies with the standards applicable to the changed enagement

56
Q

A report on a changed engagement should not mention?

A
  1. The original engagement
  2. Any auditing or review procedures performed
  3. Scope limitations that led to the changed engagement
57
Q

What is an invoice?

A

A bill that is received from a purchaser of goods or services

58
Q

What is a voucher?

A

An internal document used in an A/P department to collect the necessary documentation and approval before paying a vendor invoice

59
Q

Vouchers should not be prepared for payment until?

A

They have corresponding purchase orders and receiving reports

BEC Flashcards (1 decks)

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