BEC Wrong Questions

If you know a nation's net domestic product (NDP), you can compute national income (NI) by:

subtracting net foreign factor income earned in the United States and indirect business taxes. Using the income approach, the relationship between GDP, NNP, NI, PI, and DI can be found as follows: GDP - Capital consumption allowance = NDP - Net foreign factor income - Indirect business taxes = NI - Social Security contribution - Corporate income taxes - Undistributed corporate profits + Transfer payments = PI - Personal taxes = DI

During the recessionary phase of a business cycle:

there will be a decline in the number of hours worked in an average week for production workers in the manufacturing sector. The recessionary phase (also called the contraction phase) is a period in which more resources become unemployed and actual output falls below potential output. There will be a decline in the number of hours in the average workweek since output falls. There will be an increase in unemployment claims; however, the natural rate of unemployment will remain unchanged. Cost will have a tendency to fall.

The duties and responsibilities of the database administration include:

A database administrator controls the database, not the data, and duties generally include design of the firm's database, maintaining security measure, and controlling data structure.

How does a change in net investment affect the level of income?

A decrease in net investment will cause a more than proportional decrease in the level of income. In macroeconomics, equilibrium national income is affected by changes in autonomous consumption, net investment, and government expenditures. The actual impact on national income will be multiplied, positively or negatively, by some multiple of the initial change. This is due to the "multiplier effect," which magnifies small changes in C, In, or G into larger overall changes to national income. Thus, a decrease in net investment (In) will decrease national income by a larger amount than the original decline in investment.

In managerial accounting, the term "relevant range" is often used to describe:

The range over which cost relationships are valid

The inflations rate measures:

The rate at which the overall price level increases

Gartshore, Inc., is a mail-order book company. The company recently changed its credit policy in an attempt to increase sales. Gartshore's variable cost ratio for obtaining credit is 70% and its required rate of return is 12%. The company projects that annual sales will increase from the current level of $360,000 to $432,000, but the average collection period on receivables will go from 30 to 40 days. Ignoring any tax implications, what is the cost of carrying additional investment in accounts receivable, using a 360-day year?

$1,512; Cost of holding accounts receivable before credit policy change: $360,000 sales ÷ 360 days = $1,000 average daily sales: 30 days average collection period = $30,000 average A/R balance 12% required rate of return = $3,600 annual interest Cost of holding accounts receivable after credit policy change: $432,000 sales ÷ 360 days = $1,200 average daily sales: 40 days average collection period = $48,000 average A/R balance 12% required rate of return = $5,760 annual interest $5,760 - $3,600 = $2,160 additional annual interest on holding A/R balance. However, by stating the variable cost ratio, the problem implies it expects a distinction made between actual investment in A/R and margin earned. The actual investment by Gartshore is its variable cost, which for a mail-order book company represents cost of goods purchased for sale. That is, there is no change in fixed costs. Consequently, the $2,160 needs to be reduced to represent only the interest on the variable cost portion: $2,160 × 70% variable cost = $1,512.

A bond with face value of $10,000 maturing in two years pays annual interest of 6 percent. The market interest rate at the time of issuance is 5 percent. The bond's price at the time of issuance is closest to:

$10,186; Because the bond pays a higher coupon rate than market rate, it will be issued at a premium to par. The bond's price can be calculated as follows: Year 1 payment: 600 / 1.05 = 571.43 Year 2 payment: (600 + 10,000) / (1.05 ^ 2) = 9614.51 Total Value: $10,185.94

ChemKing uses a standard costing system in the manufacture of its single product. The 35,000 units of raw material in inventory were purchased for $105,000, and two units of raw material are required to produce one unit of final product. In November, the company produced 12,000 units of product. The standard allowed for material was $60,000, and there was an unfavorable quantity variance of $2,500. The materials price variance for the units used in November was:

$12,500 unfavorable; 1. Solve for the actual quantity used Quantity Variance = Standard Rate * (Actual quantity - Budgeted Quantity) $2500 = (60k / 12k) * (Actual Quantity Used - 24,000) Actual Quantity Used = 25,000 2. Solve for materials price variance Price Variance Used = Actual Quantity Used * (Actual Price - Standard Price) Price Variance Used = 25,000 * (($105k / 35k) - ($60k/24k)) Price Variance = $12,500 unfavorable

Management has carefully evaluated the likelihood and impact of events on its foreign operations. In the even of a 3 percent variation in exchange rate, the impact is estimated at $10 million without any action taken by management and $4 million if the company purchases a hedge instrument. The impact of the residual risk of changes in foreign currency exchange on achieving the company's business objectives is:

$4 million; after management purchases the hedge, is the residual risk. Residual risk is the risk that remains after management responds to the risk.

Sonimad manufactures two lumber products from a joint milling process: MSB and CBL. A standard production run incurs joint costs of $300,000 and results in 60k units of MSB and 90k units CBL. MSB sells for $2 per unit and CBL sells for $4 per unit. Continuing with previous data, assume the commercial building lumber is not marketable at split-off but must be further planed and sized at a cost of $200k per production run. During this process, 10k units are unavoidably lost; these spoiled units have no discernable value. The remaining units of commercial building are saleable at $10.00 per unit. The min support braces, although saleable immediately at the split-off point, are coated with tar-like preservative that costs $100k per production run. the braces are then sold for $5 each. Using the NRV basis, the completed cost assigned to each unit of commercial building lumber would be:

$5.625; [This applies to CBL only, as MSB is saleable at $2 each at split off.] 1. CBL sales at split off: 90k Units - 10k Spoilage = 80k Available for Sale Revenue from CBL (80k * $10 per unit) - Processing cost to complete ($200k) = $600k sales value at split off 2. MSB sales at split off: 60k Units * $2 Per unit = $120k 3. Allocation of joint costs: CBL 600k + MSB 120k = 720k CBL Ratio: 600k / 720k = 83.3% 300k Joint costs * 83.3% = $250k 4. Cost per unit for CBL: 250k Joint Costs allocated + 200k Additional Costs = 450k Total Costs 450k Total costs / 80k saleable units = $5.625

During May, Mercer Company completed 50,000 units costing $600,000, exclusive of spoilage allocation. Of these completed units, 25,000 were sold during the month. An additional 10,000 units, costing $80,000, were 50% complete at May 31. All units are inspected between the completion of manufacturing and transfer to finished goods inventory. Normal spoilage for the month was $20,000, and abnormal spoilage of $40,000 was also incurred during the month. The portion of total spoilage that should be charged against revenue in May is:

$60,000 Normal Spoilage (20,000) * Percent Sold (50%) = $10,000 Abnormal spoilage $50,000

The increase in the demand and the supply for a product will cause which of the following: 1. The equilibrium to increase 2. The equilibrium quantity to remain unchanged. 3. The equilibrium price to remain unchanged. 4. The equilibrium quantity to decrease.

1 only; The equilibrium quantity will certainly increase, but the effect on price cannot be determined, it may increase, decrease, or remain unchanged.

Reporting Risks True Statements:

1. Strategic risk include the risk of choosing inappropriate technology. 2. Financial risk include the risk of having financial resources lost, wasted, or stolen.

Supply Chains

1. Supply Chain management is the close linkage and coordination of the activities involved in buying, making, and moving a product. 2. Supply Chain management is involved with the what, when, where, and how much of a product manufacturing and sale.

A preferred stock is sold for $101 per share, has a face value of $100 per share, underwriting fees of $5 per share, and annual dividends of $10 per share. If the tax rate is 40 %, the cost of funds (capital) for the preferred stock is:

10.4%. The stock is issued for a net of $96 per share ($101 less $5 underwriting fee). Because preferred stock dividends are not tax deductible, the cost to the company is $10/share (the tax rate is a distractor). Therefore, the cost of the preferred stock is 10.4%.

A preferred stock is sold for $101 per share, has a face value of $100 per share, underwriting fees of $5 per share, and annual dividends of $10 per share. If the tax rate is 40 percent, the cost of funds (capital) for the preferred stock is:

10.4%; $10 / $96 = 10.4%, preferred stock dividends are not tax deductible.

The stock of Fargo Co. is selling for $85. The next annual dividend is expected to be $4.25 and is expected to grow at a rate of 7%. The corporate tax rate is 30%. What is the firm's cost of equity?

12%; Cost of Equity = (Expected dividend / Current Share price) + Growth Rate

XYZ Company gets a $100,000 revolving credit agreement from the Last National Bank. The 10% interest is to be paid on a discount basis and XYZ is required to maintain $10,000 more in its non-interest bearing account than it ordinarily would. The effective annual interest cost is:

12.5%; $10,000 / $80,000 = 12.5%

Spear Corp. had sales of $2,000,000, a profit margin of 11 percent, and assets of $2,500,000. Spear decided to reduce its debt ratio to 0.40 form 0.50 by selling new common stock and using the proceeds to repay principal on some outstanding long-term debt. After the refinancing, what is Spear's return on equity?

14.7% ; ROE = (NI / Sales) * (Sales / Assets) * (Assets / Equity) ; 0.11 * (2m/2.5m) * (2.5m / (2.5 * .6))

By using the dividend growth model, estimate the cost of equity capital for a firm with a stock price of $30.00, an estimated dividend at the end of the first year of $3.00 per share, and an expected growth rate of 10%.

20.0% Cost of Equity Formula

Which of the following would most likely lead to a rise in cyclical unemployment?

A large decline in wealth; Cyclical unemployment is the unemployment due to the rise and fall of economic activity relative to its long-term trend. A large decline in wealth would cause a shift in the demand curve to the left and for real GDP to fall. The slow down in economic activity will cause cyclical unemployment to rise.

One short-term financing technique that effectively guarantees payment to creditors and is available to entities trying to access trade credit is:

A letter of credit; represents a third party guarantee of obligations incurred by a company. Letters of credit may be used by the company issuing debt (Debt that would otherwise be unsecured) to ensure payment to creditors.

Which of the following is the most likely result of imposing tariffs to increase domestic employment?

A long-run reallocation of workers from export industries to protected domestic industries; one of the desired effects of implementing a tariff is that if imported goods and services become more expensive, companies and individuals will be more likely to product domestically-thereby increasing domestic employments.

Which of the following would cause the demand curve for a commodity to shift to the left?

A rise in the price of a complementary commodity; a rise in the price of a complementary commodity would cause a shift to the left in any demand curve (representing decrease in demand, at all price levels, for that product). With respect to complementary goods, the demand for the primary product is directly impacted by the demand for the complementary goods. For instance, if the price of gasoline goes up, the demand for cars will decrease causing the demand curve for cars to shift left.

Which of the following is most likely to lead to cost-push inflation?

A sharp rise in nominal wages; cost-push inflation is caused by a shift left in aggregate supply. Of the answers provided, only a sharp rise in nominal wages would result in a shift left in aggregate supply.

Economists and economic policy makers are interested in the multiplier effect because the multiplier explains why:

A small change in investment can have a much larger impact on gross domestic product; A multiplier is the ratio of the change in national income (and subsequently national product) to the initial change in autonomous expenditure that brings it about. The central assumption in the multiplier effect is that an increase in autonomous expenditure, in this case investment expenditure, will result in a greater increase in national income (and subsequently national product). Policy setters can stimulate or depress an economy by changing autonomous expenditures, be it investment, government spending or exports.

According to COSO, the difference between inherent risk and residual risk arises because of management's:

Actions to reduce the inherent risk; Inherent risk is the risk to an organization if management does nothing to alter the likelihood or impact of negative event. Residual risk is the risk to an organization after management takes actions to reduce the likelihood or impact of a negative event. So as an equation: Residual risk = Inherent risk - Impact of management actions.

Marston Enterprises sells three chemicals: petrol, septine, and tridol. Petrol's unit contribution margin is higher than septine's which is higher than tridol's. Which one of the following events is most likely to decrease the company's overall breakeven point?

An increase in anticipated sales of petrol relative to sales of septine and tridol; An increase in anticipated sales of petrol relative to sales of septine and tridol will decrease the breakeven point. This is because the product mix has changed in favor of the more profitable (higher contribution margin) products. The composite contribution margin is higher, and the breakeven point is lower.

Which of the following statements is true assuming that demand for a product is price elastic?

An increase in price will result in a decline in total revenue; if demand is price elastic, an increase in price will result in a decline in total revenue (negative relationship).

Which one of the following factors might cause a firm to increase the debt in its financial structure?

An increase in the corporate income tax rate; An increase in the corporate income tax rate might cause a firm to increase the debt in its financial structure because interest is tax deductible, while dividends are not tax deductible.

Eco Corporation wants to use the Economic Order Quantity to determine its optimal inventory order amount. To compute this measure, Eco will need to know each of the following, except:

Annual Sales revenue; to compute the economic order quantity, take the square root of 2 times the annual sales (in units) times the cost per purchase order divided by the carrying cost per unit (an amount that frequently includes insurance costs). There is no need to know the annual sales revenue. Insurance costs are a component of carrying costs per unit.

Statistical quality control in a product quality cost system is categorized as a(n):

Appraisal cost

The purpose of the TDRA (top-down risk assessment) is for the company to analyze the internal controls currently in place and to assess the effectiveness of those controls so as to avoid material misstatement in the company's financial reporting. As part of that assessment process, which of the following items would be done?

As part of the TDRA, management will develop a list related to a particular account that would have a reasonable likelihood of material misstatement, focusing on problems that have been encountered in the past and the solutions that were developed to avoid such errors in the future.

Variations between business cycles most likely are attributable to which of the following factors?

Duration and intensity

Which one of the following is an example of just-in-time being used for competitive advantage?

BAC Company has decreased the number of job classifications to just a few; A benefit of just-in-time is a more efficient use of employees with multiple skills.

Which of the following controls most likely would ensure that an entity can reconstruct its financial records?

Backup diskettes or tapes of files are stored away from originals; Backup diskettes or tapes of files stored away from originals would enable an entity to reconstruct its financial records if the originals were destroyed.

When managing transaction exposure in foreign currency, which of the following techniques is not used to eliminate all or part of transaction exposure?

Backward hedge; Translation exposure exists when the future cash transactions of a firm are impacted by exchange rate fluctuations. The problem arises when a firm knows the amount of the foreign currency it will need to complete the transaction but not the amount of domestic currency that will be required to purchase it. Once the degree of transaction exposure is measured, if the firm decides to hedge all or part of the exposure, it must then choose among the various hedging techniques that are available, including future, forward, money market, and currency option hedges.

Which of the following are not considered in the group of internal factors of strengths and weaknesses of a firm?

Bargaining power of the suppliers; Bargaining power of suppliers is considered in the group of external factors or "opportunities and threats" facing the firm and/or industry, no in the group of internal factors of strengths and weaknesses of the firm.

Which of the following statements is incorrect regarding blockchain?

Blockchain technology (which uses what is known as machine-learning technology (MLT)) is primarily used to verify transactions within digital currencies. Originally developed as the accounting method for the virtual currency Bitcoin, blockchain technology uses what is known as distributed ledger technology (DLT), not machine-learning technology, and is primarily used to verify transactions within digital currencies.

Bacchus, Inc., is a large multinational corporation with various business units around the world. After a fire destroyed the corporate headquarters and largest manufacturing site, plans for which of the following would help Bacchus ensure a timely recovery?

Business continuity; A business continuity plan is broader than a disaster recovery plan. It provides for continuation of all areas of the business (e.g. manufacturing operations), not just for recovery of the management information systems.

The materials manager of a warehouse is given a new product line to manage with new inventory control procedures. Which of the following sequences of the COSO internal control monitoring-for-change continuum is affected by the new product line?

Both control baseline and change management; Monitoring of controls is a process designed to assess the quality of internal control performance over time. It involves assessing the design and operation of controls on a timely basis and taking necessary corrective actions. Monitoring: 1. includes a mix of ongoing and separate evaluations. 2. considers rate of change (i.e., change management). 3. establishes baseline understanding. 4. uses knowledgeable personnel. 5. integrates with business processes. 6. adjusts scope and frequency. 7. objectively evaluates.

The materials manager of a warehouse is given a new product line to manage with new inventory control procedures. Which of the following sequences of the COSO internal control monitoring-for-change continuum is affected by the new product line?

Both control baseline and change management; The COSO identifies four stages of the change continuum beginning with control baseline, followed by change identification, change management, and then control validation/update. The control baseline is the starting point at which management can understand the design of the internal control system and whether controls have been put in place to accomplish the organization's internal control objectives. Change management occurs as needed adjustments to the internal control system are implemented. Because a new product line is now under the purview of the manager, this will affect not only the baseline but also the change management sequence.

Who is required to make special certification statements regarding the establishment of Internal control systems on Form 10-k?

Both the principal executive officer and the principal financial officer.

The process of developing plans for a company's expected operations and controlling the operations to help carry out those plans is known as:

Budgeting control; budgetary control is the process of developing plans for a company's expected operations and controlling the operations to help carry out those plans.

Which of the following factors is inherent in a firm's operations if it utilizes only equity financing?

Business risk; Both financial risk and interest rate risk deal with the concept of financial leverage and the cost of debt, and since the firm only utilizes equity financing, these risk types do not apply. Marginal risk is the risk that is assumed by the issuer of a foreign exchange contract or debt (forward contract) in the event that the investor goes bankrupt. It is related to the risk of the last dollar of a transaction defaulting. Business risk is the uncertainty associated with the ability to forecast EBIT (earnings before interest and taxes) due to such things as sales variability and operating leverage. This risk is inherent in equity financing.

Detroit Services Corporation provides services to various companies in the automotive industry. Detroit uses a CRM system. Which of the following statements is correct with respect to CRM systems?

CRM systems provide sales force automation and customer services & the objectives of CRM systems are to increase customer satisfaction and company revenue; CRM (Customer Relationship Management) systems record and manage customer contacts, manage salespeople, forecast sales and sales targets and goals, manage sales leads and potential sales leads, provide and manage online quotes and product specifications and pricing, and analyze sales data.

Which of the following statements is correct regarding financial decision making?

Capital Budgeting is based on predictions of an uncertain future; involves long term commitments for assets acquisition and, often involves long term financing decisions as well.

When calculating company's cost of common stock, an analyst evaluates the following four components: risk-free rate, stock's beta coefficient, rate of return on the market portfolio, and required rate of return on the company's stock. Which of the following measurement models is being used?

Capital asset pricing; The CAPM (capital asset pricing model) is one of the methods used to calculate the required rate of return on retained earnings (equity). The model is calculated as follows: Cost of retained earnings = Risk-free rate + [Beta * (Market return - Risk free rate)]

During a post implementation review of an accounting information system (AIS), a CPA learned that an AIS with few customized features had been budgeted and scheduled to be installed over nine months for $3 million (including hardware, software, and consulting fees). An in-house programmer was assigned as the project manager and had difficulty keeping the project on schedule. The implementation took 18 months, and actual costs were 30% over budget. Many features were added to the system on an ad-hoc basis, with the project manager's authorization. The end-users are very satisfied with the new system. The steering committee, however, is dissatisfied about the scope creep and would like a recommendation to consider before approving initiation of another large project. Based on those findings, the CPA should recommend implementing a:

Change control system; A change control system is put in place for the purpose of authorizing and monitoring changes related to information technology, including software implementation, development, application programs, database admin, etc. Although system implementations often take longer and cost more than originally budgeted, these issues (along with scope creep_ can be minimized with better oversight through an established change control system.

According to COSO, the use of ongoing and separate evaluations to identify and address changes in internal control effectiveness can best be accomplished in which of the following stages of the monitoring-for-change continuum?

Change identification; The baseline understanding of internal control effectiveness is the starting point. Monitoring identifies changes in the environment or internal control system and the entity's ability to manage those changes. To "identify and address changes" is part of change identification. The control baseline is limited to the controls in effect before the change is identified. Change management is the process of implementing needed changes, not identifying them. Control revalidation is a later part of the process after the need for control changes has been identified.

A company implements an enterprise resource planning application to help improve its financial and operational reporting, while gaining other efficiencies related to sales and inventory management. For the implementation, the company hires an individual specializing in preparing the company for the changes through documenting new policies and procedures and developing new training. This is an example of:

Change management; a situation where a company implements new technology and hires an individual to help document new policies and procedures and develop training is an example of change management.

Which of the following does not describe a company's float?

Checks that have been mailed but have not yet been recorded; Float is created when checks are written and not yet processed. This is reflected by the fact that you suppose the check will be cashed, yet the money remains in the account until the transaction takes place. Float is the difference between the company's checkbook balance and the bank's balance. It represents the net effect of checks in the process of collection. Checks written by the firm create disbursement float and reduce the book cash. Checks received and deposited by the firm create collection float and increase the book balance. As checks are cleared, the bank cash position is reconciled to the book cash position.

Cost measurement concepts include the isolation of cost objectives. Each of the items in the following list represents a cost objective, except:

Classification of transactions; account classification is not a cost objective. Account classification is a bookkeeping mechanism used to accomplish cost measurement and assignment of costs to cost objectives. A cost objective can be most anything but, if effective, will always represent the most relevant components of a particular business' decision-making requirements.

A customer notified a company that the customer's account did not reflect the most recent monthly payment. The company investigated the issue and determined that a clerk had mistakenly applied the customer's payments to a different customer's account. Which of the following controls would help to prevent such an error?

Closed-loop verification; Closed-loop verification is a validation method that takes data entered into a system and uses it to retrieve and display other information to verify the accuracy of input data. In this scenario, the customer and the company can both receive system confirmation that the payment was made and applied to the correct place.

A controller is developing a DR plan for a corporation's computer systems. In the event of a disaster that makes the company's facilities unusable, the controller has arranged for the use of an alternate location and the delivery of duplicate computer hardware to this alternate location. Which of the following recovery plans would best describe this arrangement?

Cold site; The arrangement that the controller would be looking for would be a cold site. The reason is the use of an alternate location) either a hot site or cold site) and then the delivery of duplicate computer hardware (that makes it cold site).

Dollar Bus Company has set an objective to fully comply with published bus schedules to ensure consistent on-time service. The company knows that shorter routes per bus minimize delays caused by unforeseen issues. Shorter routes require a greater investment in the fleet. The company currently achieves an 83% compliance rate with the schedule and does not expect a significant increase or decrease in ridership or revenue as compliance improves to 100% but does see revenues fall off significantly when buses are late more that 20% of time. The company's objective setting would logically develop as follows:

Compliance with bus schedule would be reviewed in relation to the risk of lost ridership within tolerable compliance percentages above 80%; Objectives are aligned with risk appetite, which drives risk tolerance levels.

Payables of 33,000 in foreign currency due in 90 days. Foreign investment yields 12.5% Domestic investment yields 5% Use money market hedge to capitalize on foreign and domestic rate differentials.

Compute the amount that must be invested to yield the settlement amount required in 90 days at 12.5% $33,000 / [1+ (12.5% * (90/360))] = $32,000 Compute the cost to get a $32,000 loan in domestic currency. $32,000 * [1+ (5% * (90/360))] = $32,400 Net Savings: $33,000 - $32,000 = $1000 in interest payable $32,400 - $32,000 = $400 in interest expense Net savings of $600

The principal measure of non-diversifiable risk included in the CAPM formula is the beta coefficient. The beta coefficient measure the volatility or risk inherent in an investment by:

Computing the ratio of percentages changes in a stock's price to percentage changes in overall market values during the same period; = (% change in stock price) / (% change in market price)

Which of the following is an incorrect statement about a long-run cost of production?

Concentrate on cutting costs; The long run is a time period where all inputs are variable (i.e., no fixed inputs) and is known as the "planning period," where the entrepreneur or the firm makes decisions such as whether to enter or exit an industry, whether to expand or contract plant capacity, or whether or not to adopt new technology. Once the firm has made the decision concerning plant capacity, they are then "operating in the short run." Cutting costs is much more often a short-run cost of production objective.

If a nation has superior conditions in which to grow coffee beans and firms are able to grow them at very low costs, which of the four major factors that Michael Porter has indicated impact the global competitive environment would allow this nation to fare better with respect to global competitive advantage?

Conditions of the factors of production; if a nation has a strong set of factors of production (such as low cost, high-quality raw material inputs), that are required in a given industry, it will fare better with regard to competitive advantage.

Which of the following steps in the development of a business continuity plan should a company initiate first?

Conduct a business-impact analysis; the appropriate order for developing a business continuity plan for disaster recovery is as follows: Assess the key risks, identify mission-critical applications and data, develop a plan for handling these applications, determine responsibilities for parties involved in disaster recovery, and test the recovery plan.

Which of the following determinants will not cause a change in supply?

Consumer expectations; Consumer expectations do not change the amount manufacturers are willing to supply. A change in supply is caused by a change in one of the supply determinants other than the price of the good. Examples of supply determinants are the price of the resources needed to produce the product, technology, taxes and subsidies, prices of other goods, future price expectations, and the number of sellers in the market.

Quality programs normally include a number of techniques to find and analyze problems. The technique commonly used to determine zero defects and goalpost conformance is called a:

Control Chart; a control chart shows the performance of a particular process in relation to acceptable upper and lower limits of deviation. Performance within the limits is termed statistical control. Processes are designed to ensure that performance consistently falls within the acceptable range of error.

Strategic Business Units (SBUs) are classified into different types based on the responsibility levels assigned to their managers. Which SBU has the least amount of responsibility?

Cost SBU; Managers in a cost SBU only have responsibility for one dimension of financial performance and it is one that they control entirely, the level of costs incurred.

Organizations focus on both financial and non-financial features of their operations to evaluate the degree to which they will be successful in their strategies. These financial and non-financial dimensions of their operations are sometimes referred to as:

Critical Success factors; Financial and non-financial features of an organization that contribute to its success in achieving strategy are referred to as critical success factors and are normally classified as: 1. Financial solvency and return, 2. Customer satisfaction, 3. Internal business processes, and 4. Human resource innovation.

Which of the following statements is correct when a corporation is earning excess profits?

Cumulative preferred stock acts more like equity than participating preferred stock. Participating preferred stock acts more like equity than cumulative preferred stock when a corporation is earning excess profits because the stock does not receive a fixed percentage like debt. When excess profits are earned, the participating preferred stock receives additional dividends.

A company manufactures several lines of automobiles including basic family passenger cars, recreational vehicles, sports cars, small trucks, and luxury cars. As part of its annual planning process, managers of each product line are required to submit estimates for the next five years for sales; changes in staffing levels; radio, television, and newspaper advertising requirements; equipment and building replacements; and new equipment and building needs. Which of the following are you most likely to use to help you estimate the price at which goods might be sold in future years?

Current CPI; Although the consumer price index (CPI) does not have any forecasting capability itself, a forecast of price levels is a necessary component of any business plan. Extrapolating the CPI is often used as an estimate of future prices since it is more stable than the PPI (producer price index).

The three elements needed to estimate the cost of equity capital for use in determining a firm's weighted-average cost of capital are:

Current dividends per share, expected growth rate in dividends per share, and current market price per share of common stock; R(return) = (D1 / P0) + g *Note: to obtain D1 in the formula multiply D0 by (1+g)

Which of the following balanced scorecard perspectives examines a company's success in targeted market segments?

Customer; The customer perspective of a balanced scorecard is concerned with target markets. (e.g., low-price leader).

Which of the following information technology (IT) terms is not matched with its appropriate definition?

Data-mining technology: enables entities to analyze text data from the web, comment fields, books, and other text-based sources to uncover insights not previously identified Text-mining technology (not data mining) enables entities to analyze text data from the web, comment fields, books, and other text-based sources to uncover insights not previously identified. Text mining uses machine learning or natural language processing technology to comb through documents such as emails, blogs, and Twitter feeds to analyze large amounts of information and discover new topics and term relationships. Data mining technology helps examine large amounts of data to discover patterns.

Information processing where each remote computer performs a portion of the processing, thus reducing the processing burden on the central computer or computers, is called:

Decentralized (Distributed) Processing; Decentralized processing anticipates that information processing will occur on numerous remote platforms rather than a central computer or processor.

Osteen industries has experienced a significant drop in its cash reserves. The company is attempting to secure a line of credit from its bank as a precaution. Osteen's most effective argument on its own behalf would be:

Declining cash balances result from aggressive liquidation of accounts payable to capitalize on discounts, as evidenced by an increase in the current ratio; the deterioration of a cash position that increases the current ratio indicates that Osteen is aggressively managing payables and actually improving its liquid position.

If the demand for a normal good is inelastic, then the sales price of the product would increase following a(n):

Decrease in the supply of the product; the the demand is perfectly inelastic, there will be no change in quantity demanded for a change in price. This means that consumers of the product will demand a constant quantity, regardless of the price. If the quantity supplied is reduced (presumably below an equilibrium point where supply equals demand), there will be excess demand for the product and sales price will go up.

Which of the following economic terms describes a general decline in prices for goods and services?

Deflation; defined as a sustained decrease in the general prices of goods and services. It occurs when prices on average are falling over time. Most economists believe deflation is a much bigger economic problem than inflation.

An internal audit manager requested information detailing the amount and type of training that the IT department's staff received during the last year. According to COSO, the training records would provide documentation for which of the following principles?

Demonstrating a commitment to retain competent individuals in alignment with objectives

According to COSO, which of the following is the most effective method to transmit a message of ethical behavior throughout an organization?

Demonstrating appropriate behavior by example; According to the COSO, demonstrating appropriate behavior by example is the most effective method to transmit a message of ethical behavior throughout an organization. The commitment to ethical behavior begins with the tone at the top, and is best established by management's demonstrated commitment to ethical behavior.

Which of the following is not part of the control cycle approach to risk management?

Developing the hedges necessary to mitigate interest rate risk; Key elements of the control cycle approach to risk management include the following: Modeling the expected results using a set of initial assumptions Doing a profit test to determine if the product provides a contribution margin Measuring the actual results Determining, both in quantitative and qualitative terms, an understandable explanation of the differences between expected and actual results Determining what actions need to be taken with respect to the product, including possible adjustments to reserves Using the findings to strengthen the model and update the assumptions as needed with feedback from the process

As a measure of national income, the relationship between personal income and disposable income is best described as follows:

Disposable income is less than personal income as adjusted for personal taxes; disposable income is computed as personal income (the income received by households and noncorporate business) net of personal taxes. Disposable income is the amount left over from personal income that is available either to spend or save.

Which of the following describes the hedging approach to financing?

Each asset is offset with a financing instrument of the same approximate maturity or duration.

Which of the following is considered an application input control?

Edit Check; an application input control that validates data before the data is successfully input. Batches containing transactions with errors, incorrect batch totals, and batches where debits do not equal credits are written to a suspended transaction file. These transactions are then corrected and resubmitted before end-of-month processing can begin.

Suppose a firm borrows $100,000 for one year at 9% with interest being paid on a discount basis. The effective rate on the loan would be:

Effective rate of interest = Interest paid / Usable funds = (9% x $100,000) / ($100,000 - (9% x $100,000)) = $9,000 / $91,000 = .0989 or 9.9% Usable funds = Loan amount - Discounted interest - Compensating balance

Cost-effective and efficient control activities should be developed throughout all levels and functions of an organization. Control activities can be grouped into a number of categories. Which of the following is not a reasonable control activity category?

Employee handbook

A cost that bears an observable and known relationship to a quantifiable activity base is a(n):

Engineered cost; An engineered cost bears an observable and known relationship to a quantifiable activity base.

A company's new time clock process requires hourly employees to select an identification number and then choose the clock-in or clock-out button. A video camera captures an image of the employee using the system. Which of the following exposures can the new system be expected to change the least?

Errors in employees' overtime computation; controls over time and attendance will not be effective in preventing or detecting errors in the computation of employee overtime.

As part of the Sales Order Entry function within the revenue cycle, threats and controls to inventory availability must be assessed. Which of the following is not a control to inventory availability?

Examining excess inventory; Excess inventory is a threat, not a control, to inventory availability. It brings additional carrying costs and may require significant markdowns. Controls over inventory availability include making periodical physical inventory accounts and creating accurate systems for sales forecasting and inventory control.

Which of the following is most useful when risk is being prioritized?

Expected value; Expected value is the sum of the outcomes (payoff) of each event multiplied by the probability of each event occurring. It combines the likelihood of each outcome with the payoff of that outcome, and so is a way of prioritizing alternatives while considering risk. None of the other answer choices consider both the likelihood and payoff of each alternative course of action.

Any business firm that has the ability to control the price of the product it sells:

Faces a downward-sloping demand curve; only the firm in a competitive market is a price-taker facing a horizontal demand curve at the market equilibrium price.

Which of the following is an accurate comparison of fair value and fair market value?

Fair market value defines the seller as hypothetical, whereas fair value assumes a specific seller. The differences between fair market value and fair value are quite substantial: Fair market value implies a willing buyer and seller, whereas the buyer and seller under fair value are not necessarily willing. Fair market value defines the seller as hypothetical, whereas there is a specific seller when using fair value. Fair market value takes advantage of an unrestricted market, whereas fair value uses the principal or most advantageous market.

Price discrimination is accomplished most effectively in markets with which of the following characteristics?

Fairly distinct segments of customers; when customers are distinct, a seller can charge different prices to different groups by justifying that the products they are buying are unique to that specific group. There is also less power from the perspective of the customer because they cannot join together as easily and bargain with the seller.

Providing an adequate supply of money to accommodate the needs of U.S. business is the task of the:

Federal Reserve System; In its role as central bank of the United States, the Federal Reserve System is responsible for the United States' monetary policy. Monetary policy involves controlling the quantity of money in the economy. The Treasury's role is to advise the President and Congress on fiscal policy matters; the Comptroller of the Currency's role involves the administrative details of regulating national banks; the Bureau of Printing and Engraving is in charge of the actual manufacture of currency.

Which of the following risks can be minimized by requiring all employees accessing the information system to use passwords?

Firewall vulnerability; Passwords are used to prevent unauthorized access to an information system. If passwords are required, it minimizes the chance of an intruder accessing sensitive data since the firewall will prevent such access. Collusion is a secret agreement between several parties to obtain advantage by deception; passwords will not control collusion because the parties colluding may share passwords. Data entries are not controlled by passwords. Server functions are duplicated to provide backup; passwords will not reduce the risk of backup failure.

A firm with a higher degree of operating leverage when compared to the industry average implies that the:

Firm's profits are more sensitive to changes in sales volume; operating leverage is the presence of fixed costs in operations, which allows a small change in sales to produce a larger relative change in profits.

A standard costing system is most often used by a firm in conjunction with:

Flexible Budgets

Flowcharting is a useful internal audit tool for evaluating controls in operational units and operations. A problem relating to flowcharts is the time and cost of developing and maintaining them. One means for reducing this cost is through use of which of the following?

Flowcharting software could be used to reduce the cost of preparing and updating flowcharts.

Which of the following is a tool that is useful in conducting a preliminary analysis of internal controls in an organization or organizational unit?

Flowcharts are useful in evaluating processes and controls in an organization or unit. They present a pictorial overview of the processes and controls. Ratio and statistical analysis would be useful in a more detailed analysis of potential accounting or operational problems. Gantt charts are used in production scheduling.

Fargo, Mfg., a small business, is developing a budget for next year. Which of the following steps should Fargo perform first?

Forecast Fargo's sales volume

Which of the following quantitative factors, when compared to its industry average, could be an indicator of potential corporate failure?

High fixed cost to total cost structure; when fixed costs are high relative to variable costs and total costs, the company's operating leverage is high. What this implies is that the company must generate enough sales in order to meet its fixed obligations. This equates to higher risk and could cause the company to fail if sales are not high enough.

Managerial performance can be measured in many different ways including return on investment (ROI) and residual income (RI). A good reason for using RI instead of ROI is that:

Goal congruence is more likely to be promoted by using RI. The ROI approach may cause segments that achieve high returns to reject investments that may benefit the company but lower the segment's rate of return

As an organization commits to attracting, developing, and retaining capable individuals, it is supporting which of the following component of COSO's Enterprise Risk Management framework?

Governance and culture

Creating a CERT (computer emergency response team) is considered a corrective control. Which of the following is not a responsibility for a CERT?

Hire an outsider company with expertise in computer emergency issues

Mindy's Restaurants Inc., an international casual dining business, completed a circular business combination of Euro Property Management Co. at year-end. Mindy's currently uses a variety of independent property management companies in the U.S. and in Europe. All of the following would represent valid reasons for this type of business combination, which the exception of:

Helps achieve better economies of scale; is not consistent with a circular combination, which includes the merger of different types of businesses with remote connections under a single management. A horizontal combination of companies within the same industry may be done with the goal of achieving economies of scale.

In addition to increasing the demand for lendable funds, government borrowing to finance large deficits has which of the following effects?

It puts upward pressure on interest rates; higher amounts of government borrowing can put upward pressure on interest rates, as additional debt taken on by the government can cause lenders to be concerned about the borrower's ability to make interest and principal payments. Greater perceived risk by lenders leads to higher required return.

Which of the following is not a way to optimize capital structure?

Maximize the weighted-average cost of capital

Which of the following is a limitation of the profitability index?

It requires detailed long-term forecasts of the project's cash flows. The profitability index is the present value of the cash flows after the initial investment divided by the amount of that investment. Since it is based on the present value of future cash flows, it does require detailed forecasts of the related cash flows.

COSO's 2017 updated ERM framework, Enterprise Risk Management—Integrating with Strategy and Performance, consists of five interrelated components, which are supported by a set of 20 principles. Which of the following is the definition for the Performance component?

Identify and assess risks that may impact the achievement of strategy and business objectives

Which of the following tasks is least likely to be undertaken in the implementation phase of an accounting software application?

Identify inputs and outputs. The implementation phase of an accounting software application would include obtaining and installing hardware, documenting user procedures, training users, and entering and verifying test data. Identifying inputs and outputs would occur in the systems design and development phase, preceding implementation.

Stratford Corporation uses a general ledger system that was developed internally in the mid-1970s. It is having more and more problems finding people who can support this system because the system was written in PL/1, a general-purpose language developed by IBM in the 1960s that was a mix on COBL and FORTRAN and that was not widely used in commercial systems. In addition, the person who designed and wrote the system died of a heart attack in December of 1988. Which of the following statements is correct for Stratford to consider in determining whether/how to replace this system?

If Stratford designs and writes a new general ledger system instead of purchasing a new system from an outside vendor, Stratford will be able to design the system to meet its own specific general ledger requirements.

Caroline Brown, the product manager for a U.S. computer manufacturer, is being asked to quote prices of desktop computers to be used in Kuwait. The Kuwaiti government wants the price quoted in British pounds, for delivery next year. Brown knows that the general price level in the United States is expected to increase by 3%. Her banker forecasts that the British pound will depreciate about 5% this year with respect to the U.S. dollar. If Brown is able to quote 700 pounds for immediate delivery, the price that should be quoted for delivery to Kuwait next year is:

If the price of a desktop computer is presently 700 British pounds, a 3% increase in price will increase it to 721 pounds. If the pound is expected to depreciate by 5%, that is losing 5% of its value against the dollar, the cost of the computer in terms of British pounds will increase further. In this case, it rises by an additional 36 British pounds (5% of 721). The quoted price for delivery to Kuwait next year should be 757 pounds.

The greatest financial threat to an organization that implemented the financial accounting module of an enterprise resource planning (ERP) system from a major vendor exists from errors detected during which of the following times?

Implementation; Enterprise resource planning (ERP) systems integrate all aspects of a company's operations with its information system. If the system is from a major vendor project, then initiation, requirements determination, and table configuration are part of the design phase and should be controlled by the vendor. Errors detected during the design phase do not contaminate the client information. However, once the implementation is begun, the system is under the control of entity employees, and cost uncertainties due to potential implementation errors increase rapidly. Errors detected during implementation require the company to go back and redo the design steps.

Consumers in Microlandia buy only three general types of products, X, Y, and Z. Each product type is weighted in the consumers market-basket based on the quantity of the item that is purchased. Changes in the prices of these items on a year-to-year basis are given below: Average Price per Unit ---------------------- Product Quantity Year 1 Year 2 ------- -------- ------ ------ x 20 $15 $18 y 18 25 28 z 6 40 38 Using Year 1 as the base year, the country's CPI for Year 2 is:

In the first year it cost the consumers $990 to purchase the market-basket of goods ((20 × $15) + (18 × $25) + (6 × $40)). In year 2 it took $1,092 to purchase the same market-basket of goods ((20 × $18) + (18 × $28) + (6 × $38)). Thus, if the base year is 100 = ($990 ÷ $990) × 100, the CPI for the second year would be ($1,092 ÷ $990) × 100 = 110.3.

The controller of Theme Parks Inc. is involved with initially approving accounting estimates for critical balance sheet accounts. On a time permitted basis, the controller's group will then review a sample of accounting estimates each fiscal year for accuracy based on supporting documentation. The procedure in place for accounting estimates at the company would be best described as which of the following?

Inadequate due to a lack of approval on estimate reviews and no regular review periods; based on the scenario facts, the company does not review accounting estimates on a periodic basis (ad hoc basis only). When the estimates are reviewed, they are traced to supporting documentation but are not approved by a manager from the controller's group.

According to the COSO of Treadway Commission, which of the following components of ERM addresses an entity's control over information systems?

Information, communication, and reporting; includes principles associated with leveraging information and technology, which cover modern issues of data overload and, by extension, controls over information systems.

Which one of the following terms best describes a Decision Support System (DSS)?

Interactive System; decision support systems are computer-based information systems that provide interactive support to managers or others during the decision-making process.

If Brewer Corporation's Bonds are currently yielding 8 percent in the marketplace, why would the firm's cost of debt be lower?

Interest is deductible for tax purposes; the cost to Brewer is lower than the market yield rate on debt

According to the Sarbanes-Oxley Act, control monitoring is an implementation of a top-down, risk-based approach for focusing on internal controls. Continuous monitoring ensures all except which of the following?

Intermittent monitoring To comply with the Sarbanes-Oxley Act, control monitoring, not intermittent monitoring, is increasingly the default standard to use automated controls in continuous monitoring. This serves as both a preventive and corrective control. Continuous monitoring ensures operational effectiveness and efficiency, reliability of financial reporting, and compliance with laws and regulations.

Which of the following metrics equates the present value of a project's expected cash inflows to the present value of the project's expected cash outflows?

Internal rate of return; the internal rate of return (IRR) focuses the decision maker on the discount rate at which the present value of a project's cash inflows equals the present value of the cash outflows. The IRR is the rate used to arrive at a net present value of zero.

Which one of the following statements about an executive information system (EIS) is incorrect? The EIS:

Is likely to be one of the most widely used and largest of the information subsystems in a business organization; An EIS provides strategic information tailored to the needs of top management. It is not widely used throughout an organization.

Under the balanced scorecard concept developed by Kaplan and Norton, employee satisfaction and retention are measures used under which of the following perspectives?

Learning and growth; Employee satisfaction and retention are used under the "learning and growth" perspective of the balance scorecard. Employee satisfaction typically correlates with productivity, employee effectiveness, and retention. Retention itself often relates to reduced retraining, increased opportunity for human resource development, and reduced investment in learning curves.

Seacraft Inc. received a request for a competitive bid for the sale of one of its unique boating products with a desired modification. Seacraft is now in the process of manufacturing this product but with a slightly different modification for another customer. These unique products are labor intensive and both will have long production runs. Which one of the following methods should Seacraft use to estimate the cost of the new competitive bid?

Learning curve analysis; used to determine increases in efficiency or production as experience is gained. Both products have long production runs, making learning curve analysis the best method for estimating the cost of the competitive bid.

When evaluating capital budgeting techniques, the payback period emphasizes:

Liquidity; The payback period is the time period required for cash inflows to recover the initial investment. The emphasis of the technique is on liquidity.

Which of the following controls is least likely to be closely associated with assuring the accuracy and completeness of data in computer-processed master files?

Logical access controls; Access controls such as passwords and access logs serve to prevent improper access to and use of programs and files. They do not relate specifically to accuracy and completeness of data.

Under an oligopoly structure, strategic plans focus on:

Maintaining the market share, ensuring product differentiation, and adapting to changes in price and/or production volume

The political business cycle model explains all except one of the following:

Monetary policy adjustments; The political business cycle model explains the business cycle as resulting from interactions between economic policy decisions and political decisions designed to influence voter behavior. Monetary policy is created by the Federal Reserve and is typically nonpolitical.

A non-for-profit organization periodically conducts focus groups of employees, service beneficiaries and governance board members to reevaluate its mission vision and values to determine the accuracy of the strategic statements to refine them where necessary. This activity relates to which component of internet control?

Monitoring; Periodically comparing and updating the mission vision and values of a not-for-profit could best be classified as a monitoring activity.

Lafayette Company is a corporation that conducts international trade between the U.S. and France. it operates several computer systems to account for and control its business. As a matter of corporate policy, it insists that all data entered into its systems pass rigorous data validation tests. Its accounting systems process their transactions in batch although the transactions themselves are actually entered and validated online. Which of the following statements with respect to such data validation is correct?

None; Refresh Batch totals, Valid Code tests, Check digits @ Mock exam 3 testlet 2

Hi Tech Corporation is a California based company that has contracted with a separate company in India to handle its customer service call center. Hi Tech Corporation's practice is most accurately described using the term:

Offshore operations; Offshore operations are the outsourcing of services or business functions to an external party in a different country. Hi Tech's decision to operate its call center out of India is an example of offshore operations.

Egan Co. owns land that could be developed in the future. Egan estimates it can sell the land for $1.2m, net of all selling costs. If it is not sold, Egan will continue with its plans to develop the land. As Egan evaluates its options for development or sale of the property, what type of cost would the potential selling price represent in Egan's decision?

Opportunity; potential benefit lost by selecting a particular course of action. If the land is developed rather than sold, the potential selling price foregone is an opportunity cost.

A company that maintains a strong internal audit function that reports directly to the Board of Directors is applying the ideas from which principle of effective internal control over financial reporting?

Organizational structure; reporting relationships should not undermine the commitment to effective financial reporting and internal control. Maintaining reporting independence of the internal auditor is one way to apply this principle.

The ability of an entity to withstand the impact of large-scale events refers to:

Organizational sustainability; the ability of an entity to withstand the impact of large-scale events.

An analyst is reviewing a company's balance sheet and footnotes how accounting estimates were factored into these line items. Which of the following would represent a questionable methodology for using accounting estimates by the company?

Outcome of similar litigation settlements for contingent lawsuits (liabilities); using the outcome of similar litigation settlements would be a questionable methodology for using estimates on the company's balance sheet. An acceptable approach is to use an estimate of probable future losses pertaining to that specific lawsuit settlement.

Which of the following organizations was established by the Sarbanes-Oxley Act of 2002 to control the auditing profession?

PCAOB

Who are the intended users of a Service Organization Control (SOC) 2 report?

Parties that are knowledgeable about the nature of the service provided by the service organization; SOC 2 reports are restricted and are only for parties that are knowledgeable about the nature of the service provided by the service organization. SOC 1 reports are for management of the service organization, user entities, and user auditors. SOC 3 reports have no restrictions and can be distributed to anyone.

Which of the following statements is correct regarding the requirements of the Sarbanes-Oxley Act of 2002 for an issuer's board of directors?

Per Sarbanes-Oxley, an issuer's board must establish an audit committee composed entirely of members who are independent and not influenced by management.

The 2004 ERM (enterprise risk management) framework lists a number of components, one of which is event identification. Which of the following is not used by managers for event identification?

Perform an external analysis; Some of the more common techniques entities use to identify potential events include using comprehensive lists of potential events, performing an internal (not external) analysis, monitoring leading events and trigger points, conducting workshops and interviews, performing data mining and analysis, and analyzing business processes.

The Sarbanes-Oxley Act of 2002 requires that the members of the audit committee of a public company be independent. Receipt of which of the following would destroy independence within the meaning of the law?

President's Salary Yes Board Member's Salary No; Audit committee members must be members of the public company's board of directors and may receive compensation for their service on the board. However, they cannot accept compensation from the public company or be affiliated with it in any other way. Thus, an audit committee member may receive compensation for serving as a director, but not for being the company's president. Receipt of a president's salary would destroy independence.

The system development life cycle (SDLC) consists of five phases, with multiple steps in each phase. Which of the following is not the correct match of the step to its phase?

Physical design: develop detailed specifications that describe system requirements; Development of detailed specifications that describe what the system should accomplish and how it will be controlled are part of the conceptual design phase; all other steps are appropriately matched to their phase.

An organization relied heavily on e-commerce for its transactions, Evidence of the organization's security awareness manual would be an example of which of the following types of controls?

Preventative; preventative controls are controls that are designed to prevent potential problems from occurring.

You walk into a little boutique in the nearby mall. As you walk up to the cash register with an item that you wish to purchase, you notice that there appears to be only one employee in this small store. With a limited number of personnel in the store at any given time, what would be the best internal control procedure to provide a reasonable guarantee that all cash sales are being rung up properly and cash put in the cash drawer?

Post a sign in a visible spot near the checkout counter that states, "If you do not get a receipt, your purchase is free."

The relevance of a particular cost to a decision is determined by:

Potential effect on the decision; the relevance of a particular cost to a decision is determined by potential effect on the decision. Relevant costs are expected future costs that vary with the action taken. All other costs are assumed to be constant and thus have no effect on the decision.

Which of the following conditions is most true during a recession:

Potential output will exceed actual output

Which of the following is not a characteristic of a monopoly?

Price taker; Monopolies tend to set prices within their elastic range. Characteristics of monopolies include little to no competition (strong barriers to entry such as economies of scale, legal barriers such as patents, control of existing resources), government oversight, and little incentive to improve or innovate when a monopoly is held.

All of the following actions are valid tools that the Federal Reserve Bank uses to control the supply of money, except:

Printing money when the money supply appears low; the treasury prints money. The Federal Reserve can sell/buy government securities, raise or lower discount rate, or change the reserve ratio.

The Treadway Commission was established to study factors that lead to fraudulent financial reporting. The Treadway Commission was established by:

Private sponsoring organizations; The private "sponsoring organizations" included the five major financial professional associations in the US: AAA, AICPA, FEI, IIA, and IMA.

A project's net present value, ignoring income tax considerations, is normally affected by the:

Proceeds from the sale of the asset to be replaced; a project's NPV is a function of current and future cash flows, including proceeds from the sale of the old asset

Which of the following inputs would be most beneficial to consider when management is developing the capital budget?

Profit center equipment requests; In developing its capital budget management would find the employee input associated with equipment requests from various profit centers most helpful. Departmental requests, appropriately justified, would provide key insights into the capital requirements of the business that are not otherwise known.

Many people play strategic roles in systems development. Which of the following roles is not correctly matched to one of its functions?

Project development team: plan and provide oversight to the information systems function; Planning and providing oversight to the information systems function as a job for the information systems steering committee. This committee typically crosses function and divisional boundaries and is therefore best suited to coordinate all IT projects.

In terms of mitigating financial risk from a regulatory perspective, there is a strong need for increased cooperation between national jurisdictions. Which of the following would not increase that cooperation?

Publicly report micro-risk indicators; There is a strong need for increased cooperation between national jurisdictions that would develop an agreed-upon risk management policy for key market-wide risk indicators; manage and monitor risk indicators within that policy; publicly report macro-risk (not micro-risk) indicators; and facilitate risk identification and communication with appropriate decision makers, at both national and international levels.

Which of the following is not one of the benefits expected to be derived from implementation of COSO's 2017 updated ERM framework, Enterprise Risk Management—Integrating with Strategy and Performance?

Reduced enterprise resiliency; The following benefits can be achieved when entities integrate the 2017 Enterprise Risk Management (ERM) framework throughout their organization: Enhanced (not reduced) enterprise resilience Increased range of opportunities Improved identification and management of risk entity-wide Increased positive outcomes; reduced negative surprises Reduced performance variability Improved resource deployment

Which of the following is an example of prevention costs?

Redesign of processes

Engaging in traditional electronic data interchange (EDI) provides which of the following benefits?

Reduced likelihood of stockout costs; EDI is the exchange of business transaction documents from one computer to another. Because this exchange is significantly faster than paper exchanges, inventory can be reordered (and ultimately received) much faster than with traditional ordering systems. As a result, an inventory stockout becomes much less of a risk.

Micro Manufacturers uses a performance reporting system that combines both financial and non-financial measures to evaluate division performance. All of the following measure operational efficiency, except:

Residual income; measures profitability in excess of a target rate of return. Operational efficiency is not considered.

Corbin Corporation is evaluating the sample sizes associated with periodic tests of the existence of a fleet of taxis. Cash receipts associated with fares deposited daily are periodically reconciled to both the fares charged and the taxi's odometer readings. With respect to monitoring controls over cash vs. vehicles, Corbin will likely:

Review cash on an ongoing basis and fixed assets on a less frequent periodic basis; The monitoring of internal control effectiveness is performed based on the significance of the risk being controlled. Cash has more risk than vehicles and thus needs to be monitored more frequently.

Market Rate of Interest on a one-year U.S. Treasury bill is comprised of:

Risk Free Rate of Return and Inflation Premium

If an investor's certainty equivalent is greater than the expected value of an investment alternative, the investor is said to be:

Risk Seeking; If an investor's certainty equivalent, the point at which the investor is indifferent to risk, exceeds the expected return on an investment, then the investor is actually seeking lower return of higher risk, This behavior represents risk seeking behavior.

According to COSO, which of the following components addresses the need to respond in an organized manner to significant changes resulting from international exposure, acquisitions, or executive transitions?

Risk assessment; An entity's risk assessment process for financial reporting purposes is its identification, analysis, and management of risks relevant to the preparation of financial statements that are fairly presented in conformity with GAAP. Risk assessment identifies and analyzes significant change. The organization should identify changes that could affect the current control system, such as changes in the external environment, changes in the business model, and changes in leadership.

According to the Committee of Sponsoring Organizations (COS) of the Treadway Commission, which of the following components of the internal control integrated framework addresses an entity's financial reporting objectives?

Risk assessment; includes principles such as financial reporting objectives, risks and fraud risk.

Managers that anticipate greater return for greater risk are referred to as having what attitude toward risk?

Risk averse; describes managers who demand more return on an investment as risk increases.

Which of the following does not properly match a Service Organization Control (SOC) report to its underlying professional standard?

SOC 1 report: AICPA Guide, Reporting on Controls at a Service Center Relevant to Security, Availability, Processing Integrity, Confidentiality, or Privacy The AICPA Guide, Reporting on Controls at a Service Center Relevant to Security, Availability, Processing Integrity, Confidentiality, or Privacy, is the professional standard for SOC 2 reports, not SOC 1 reports.

After the goals of the company have been established and communicated, the next step in the planning process would be the development of the:

Sales Budget; the sales budget is usually the first budget prepared

The Sarbanes-Oxley Act changed the way financial reports are treated. What section of the act requires the CEO to review the financial statements?

Section 302; of the Sarbanes-Oxley Act requires that CEOs and CFOs certify the accuracy of the financial statements and the reliability of internal controls prior to the statements being signed.

Unlike business process reengineering, business process management

Seeks incremental change

A company evaluating the advantages and disadvantages of short-term and long-term financing options would note which of the following characteristics to be true?

Short term financing: Decreased interest rate risk Long term financing: Increased credit risk Short-term financing options result in lower interest rates but higher interest rate risk because rates will fluctuate more dramatically for short-term issues. On the other hand, with long-term financing, credit risk will decrease because the company will seek refinancing less frequently and thereby have less credit risk or opportunity that the rates associated with debt will be changed unfavorably or that financing will be denied altogether.

Jose Para is an application programmer employed by the law firm of Am, Bulance, & Chasr. AB&C is a relatively small firm with a small number of application programmers for its mainframe computer system, so Jose also acts as the system programmer for that system. Which of the following statements is correct for AB&C?

Since Jose is the system programmer, Jose can more than likely override any system security and provide himself with unlimited access to application programs and data; Since Jose is the system programmer, he can more than likely override any system security and provide himself with unlimited access to application programs and data and would likely be able to hide such access. One employee acting as both a system programmer and an application programmer is a serious internal control weakness that is very difficult to overcome.

Which of the following types of unemployment typically results from technological advances?

Structural unemployment arises because of changes in technology and international competitiveness, which change the skills required to perform jobs and/or change the location of jobs. Cyclical unemployment occurs during declines in the business cycle, and unemployment should be reduced as the economy recovers. Frictional unemployment occurs due to normal labor turnover such as people seeking employment in a higher-paid occupation or another location.

What type of unemployment is shown when individuals do not have the qualifications or skills necessary to fill available jobs?

Structural unemployment occurs when the jobs available do not match the skills of the unemployed individuals or when the individuals do not live where jobs are available with their skills.

Change management and control procedures help to control information system changes. Which of the following is not an example of a change management control?

Study the existing information systems.

Several surveys point out that most managers use full product costs, including unit fixed costs and unit variable costs, in developing cost-based pricing. Which one of the following is least associated with cost-based pricing?

Target pricing is least associated with (full) cost-based pricing. Cost-based pricing is associated with: Price stability Price justification Fixed-cost recovery

The optimal imputed interest rate used in the residual income approach to performance evaluation can best be described as the:

Target return on investment set by the company's management; the optimal imputed interest rate used int he residual income approach can best be described as the target return on investment set by the company's management.

Which of the following is not a forecasting technique used by firms to predict exchange rate movement?

Technical forecasting; There is no such category as quantitative forecasting. Technical forecasting, fundamental forecasting, and market-based forecasting are all quantitative forecasting techniques. Technical forecasting involves the use of historical exchange rate data to predict future values. Fundamental forecasting is based on the presumed relationship between exchange rates and economic variables. Market-based forecasting starts from the premise that financial markets provide an unbiased estimate of future events and uses either the spot rate or the forward rate.

Arnold Astor, CPA, is a local tax practitioner who has been asked to sit on the Board of BigLarge Corporation, a multinational issuer. Astor has never had any involvement either as an employee or as an auditor with publicly traded companies but does teach an accounting principles class at the community college. Under the provisions of the Sarbanes-Oxley Act of 2002:

The Board of Directors would likely evaluate Astor's qualifications to serve on the audit committee and be designated as a financial expert based on a mix of knowledge and experience; qualifications as a financial expert is a judgmental issue is typically made by the Board of Directors. The Sarbanes-Oxley Act is silent as to what group has the authority to designate an individual a financial expert but in practice, the board most often makes that decision. The Act provides some guidance but does not prescribe specific qualifications.

According to COSO, which of the following differences relevant to the risk-assessment process is most likely to exist between a large entity and a small entity?

The CEO of a small entity is more likely than the CEO of a large entity to be attuned to risks arising from internal factors through hands-on involvement with all levels of personnel. Larger entities are challenging to manage because a CEO is more likely to primarily work with director reports (CFO, CIO, etc.) rather than working hands-on with all personnel, simply because of the scope of the operation.

Which of the following nonvalue-added costs associated with manufactured work in process inventory is most significant?

The cost of moving, handling, and storing any individual product

Which of the following nonvalue-added costs associated with manufacture work in process inventory is most significant?

The cost of moving, handling, and storing any individual product; value added costs are those resource uses that provide value to the customer. The cost of inventorying products, generally moving, handling and storing the, does not add value to the product and is generally considered one of the most significant non-value activities/costs that a manufacturer should reduct because it can be controlled.

A member of the board of directors of Central Communications Co. is offered a license by a third party to operate a cellular phone system. The director does not present this offer to the board of directors for approval but informally mentions it to a fellow board member, who does not think it will be a problem. The director buys the license. Which of the following statements is correct regarding the director's actions?

The director breached a duty of loyalty by usurping a corporate opportunity; the director put personal interests ahead of corporate interest.

Which of the following formulas should be used to calculate the economic rate of return on common stock?

The economic rate of return is a percentage measure of the total return received by the investor. This is determined by the following formula: [Dividends received + (Ending price - Beginning price)] ÷ Beginning price

Which of the following statements is correct regarding an economy at the peak of the business cycle?

The economy will be at the natural rate of unemployment; at the natural rate of unemployment, there is frictional, structural, and seasonal unemployment; cyclical unemployment is at 0 percent, which implies that the economy is operating at its highest potential level.

Ralph was thinking about how to approach developing his investment philosophy. He thought about something he had learned in an investments class he had taken at the local university. He recalled a discussion about something called the efficient market hypothesis and remembered that at the time he really was taken by the idea that "you can't beat the market" in the long run. He wanted to incorporate that concept in his philosophy when he talked to his investment manager. This idea suggests that Ralph believes in the ________ form of the efficient market hypothesis.

The efficient market hypothesis relates to the degree to which past or current information is incorporated in and/or influences the current market prices of securities. The strong form of the hypothesis states that all available information is incorporated in the current market prices of securities, and thus the investor cannot find undervalued securities and would be unable to make choices that would allow him or her to outperform the market index in the long run. The semi-strong form of the hypothesis assumes that all readily available information is incorporated into current market prices of securities and that fundamental analysis would be unlikely to identify inaccurately valued securities. The weak form of the hypothesis assumes that current market prices reflect all past prices and information, and therefore this information cannot be used for predictive purposes.

The discount rate used when preparing a business valuation when employing an income approach is critical. Which of the following statements about discount rates is true?

The higher the risk, the higher the discount rate, and the lower the present value of the subject company; The higher the perceived risk involved in a particular investment, the greater the return that an investor would demand on that investment; therefore, the higher the discount rate used, the lower the present value.

Which of the following statements regarding the existence of substitute products is true?

The impact of substitutes will have more of an effect on the competitive environment of a firm if the substitutes are readily available for customers to obtain.

Given the following data, what is the marginal propensity to consume? Level of Disposable Level of Income Consumption 1. $40,000 $38,000 2. 48,000 44,000

The marginal propensity to consume is the percentage of additional income that can be expected to be consumed. Disposable income increased ($48,000 - $40,000) or $8,000. Consumption increased ($44,000 - $38,000) or $6,000. This means that of the additional $8,000 of income, $6,000 will be consumed or 75% of the increase in income. Therefore the marginal propensity to consume equals .75.

When does competition not become an even stronger force impacting the profitability of a firm?

The market is fast-growing; as it is not a factor that would cause market competitiveness to be stronger.

Which of the following is an invalid assumption of the Black-Scholes option pricing model?

The options can be exercised any time before maturity; this does not represent a valid assumption of the Black-Scholes option pricing model. A primary assumption of this model is that the options are European-style, which can be exercised at maturity. In contrast, American-style options can be exercised any time before maturity.

Which of the following is correct regarding the consumer price index (CPI) for measuring the estimated decrease in a company's buying power?

The products a company buys differ from those a consumer buys and therefore the CPI is not the appropriate index for estimating the decrease in a company's purchasing power. The CPI is determined on a monthly basis by the prices of a particular market basket of goods purchased by consumers and does not include prices of goods purchased specifically by companies. The producer price index measures the average change over time in the selling prices received by domestic producers for their output and that purchasers pay for their inputs and thus is the appropriate index for measuring the decrease in a company's purchasing power.

A user noticed that the accounts receivable update program was not providing a listing of outstanding accounts. The user asked a programmer to modify the program so that the report would be generated with each run and had the request authorized by change management. The programmer obtained a copy of the program and made the required changes. She then tested the program in the test environment and was satisfied that it worked correctly. The programmer returned the program to the system librarian to return it to the production library. Which aspect of this process violated a proper segregation of duties?

The system librarian accepted the program into the production library after it had been tested by the programmer. The system librarian should only accept a modified program that has been properly tested by someone independent of the programmer to make sure that no unauthorized changes have been made.

Which of the following does not describe the relationship between unemployment and the business cycle?

The unemployment rate as a leading indicator; Unemployment is a lagging indicator, and the unemployment rate does not begin to decline significantly until the economy is well into a downturn. Unemployment can expand through the bottom of a recession.

Which one of the following is correct regarding a relevant range?

Total fixed costs will not change; the relevant range is the range within which the relationship between a cost and its cost driver remain valid. Within this range the fixed cost will remain fixed and the cost per unit will not change.

The maximization of throughput is an inherent concept in which of the following management philosophies

Theory of Constraints

Which of the following responses is not an advantage to a corporation that uses the commercial paper market for short-term financing?

There are no restrictions as to the type of corporation that can enter into this market. Commercial paper is a short-term note payable which is unsecured and usually discounted. It is issued in large denominations with maturities ranging from 2 to 270 days. There are several advantages to a corporation using commercial paper for short-term financing. The commercial paper market provides more funds at lower rates than other methods available. There is no required compensating balance at a lending bank. There is a broad and efficient distribution and the borrower's name becomes more widely known through this market. What is not an advantage to a corporation that uses the commercial paper market is the statement "there are no restrictions as to the type of corporation that can enter into this market." This is false. Commercial paper is issued in denominations of $100,000 or more and is almost always backed by bank lines of credit. This limits the access to this market to large corporations only.

Which of the following is not one of the effects of rapid technological change on nations in the global economy?

There is a high degree of global labor arbitrage as unskilled workers move to the nations with the highest degree of technological change to take advantage of the job opportunities made possible by the new technology; The pace and nature of recent technological changes has been one of the driving forces behind much of the success globalization efforts have achieved. There has been a "brain drain" with skilled workers migrating to countries with advanced IT, and where anti-immigration sentiment limits this migration, there is a tendency for the technology—particularly R&D—to migrate to the location of the skilled workers.

Which one of the following would not be included as a reason for a company to use EFT (electronic funds transfer) with an EDI (electronic data interchange) system?

To take advantage of the time lag associated with negotiable instruments Time lag is the amount of time it takes a regular check to arrive at the payee, be deposited, and clear through regular banking channels. All of these processes are eliminated with EFT. EFT can reduce the payment time and allows for control of payments and transfers among accounts. Integration of EDI and EFT eliminates the requirements to manually input transaction data and introduce errors during the process.

Assumptions underlying cost-volume-profit analysis include all of the following, except:

Total costs are directly proportional to volume over the relevant range.

Under COSO, management monitors controls for which of the following reasons?

To consider whether controls are operating as intended; Monitoring evaluates whether each of the five internal control components (and principles within each component) is present and operating as intended. Deficiencies are communicated to those responsible for corrective action (e.g., senior management, board of directors). To consider whether the controls are operating as intended is an appropriate reason for management to employ a process for monitoring controls; the remaining answer choices are not.

A hospital is comparing last year's emergency rescue services expenditures to those from 10 years ago. Last year's expenditures were $100,500. Ten years ago, the expenditures were $72,800. The CPI for last year is 168.5 as compared to 121.3 10 years ago. After adjusting for inflation, what percentage change occurred in expenditures for emergency rescue services?

To convert a dollar amount from one price level to another, multiply it by the ratio of the price level you are converting to divided by the price level you are going from. So, the 10-year-old expenses of $72,800 are multiplied by the fraction 168.5/121.3, which gives expenses converted to current dollars of $101,128. Subtracting last year's expenditures of $100,500 from the previous period price-level adjusted prior expenditures of $101,128 gives a reduction in expenditures of $628. Dividing this $628 reduction by the previous period price-level expenditures of $101,128 gives a decrease of 0.6%.

Why is a well-defined organizational structure important?

To define lines of authority; Organizational structures help no one unless they are well-defined. The structure helps define lines of authority, so an organization does not have too many people in management. This structure creates working relationships between the various employees in the organization.

Which of the following is not one of the key objectives of supply chain management?

To ensure that internal transfer prices comply with IRS regulations

What is the main primary objective of data security controls?

To ensure that storage media are subject to authorization prior to access, change, or destruction.

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

To maintain a safe level of carbon dioxide emissions during production; compliance with applicable laws and regulations

What would be the primary reason for a company to agree to a debt covenant limiting the percentage of its long-term debt?

To reduce the interest rate on the bonds being sold A debt covenant would not have any effect on risk for current bondholders or on the price of the company's stock.

DQZ Telecom is considering a project for the coming year which will cost $50 million. DQZ plans to use the following combination of debt and equity to finance the investment: Issue $15 million of 20-year bonds at a price of 101, with a coupon rate of 8%, and flotation costs of 2% of par. Use $35 million of funds generated from earnings. The equity market is expected to earn 12%. U.S. Treasury bonds are currently yielding 5%. The beta coefficient for DQZ is estimated to be .60. DQZ is subject to an effective corporate income tax rate of 40%. Assume that the after-tax cost of debt is 7% and the cost of equity is 12%. Determine the weighted average cost of capital.

To solve this problem, a weighted average of the two different interest rates for the two different forms of capital needs to be calculated. $15 million of the $50 million will be debt with an after-tax cost of 7%. $35 million of the $50 million will be equity with a cost of 12%. $15 million / $50 million x .07 = .021 + $35 million / $50 million x .12 = .084 ---- Weighted average .105

Duffy Company routinely allows any payables that do not offer a discount to age to 30 days. Duffy's commercial suppliers have accepted this practice and Duffy has not experienced any adverse credit rating (e.g., placement on C.O.D., etc.) Duffy is effectively using the liquid asset management technique known as:

Trade Credit; Deferral of payments to creditors is called trade credit and is a spontaneous form of working capital financing.

Siaggas Corporation, a Greek shipping company, will need to purchase $1,000,000 in United States dollars with euros in six months. The risk exposure faced by the company that the value of the euro will fall in relation to the US dollar is most precisely referred to as:

Transaction exposure; The risk associated with the time delay between entering into a contract and settling it, the greater the time difference, the higher the transaction risk

The U.S. balance of trade is decreased by:

U.S. imports; The balance of trade comprises a subdivision of the balance of payments on current account. The balance of payments on current account includes all payments made because of current purchases of goods and services. The balance of trade is that part of the current account that denotes the difference between the dollar value of imports and exports in a given year. A favorable balance of trade occurs when exports exceed imports. Increases in U.S. imports will decrease the U.S. balance of trade.

Which of the following transactions would increase the current ratio and decrease net profit?

Vacant land is sold for less than the net book value; the current ratio is current assets divided by current liabilities. The sale of land would increase cash and there for current assets without increasing current liabilities. Furthermore, the sale of land at a loss would decrease net profit.

Which of the following input controls would prevent an incorrect state abbreviation from being accepted as legitimate data?

Validity check; A validity check is an edit test in which an identification number or transaction code is compared with a table of valid identification numbers or codes maintained in computer memory. As an example, the system would compare an incorrect state abbreviation of "PS" with all possible valid state abbreviations and determine that it is not an abbreviation for one of the 50 states.

The IT Governance Institute identifies five focus areas for IT governance, including which of the following:

Value delivery

Which one of the following is not a benefit of the implementation of the Just-in-time management strategy?

Variability increase; just-in-time is not designed to produce variability but to accommodate production cycles and reduce carried inventory by delivering goods to manufacturing process just-in-time.

Which of the following is not a characteristic of Total Quality Management (TQM)?

Waste Reduction; TQM focuses on customer needs, continuous improvement, and quality circles. Was reduction is characteristic of lean manufacturing, not TQM.

An oligopolist faces a "kinked" demand curve. This terminology indicates that:

When an oligopolist lowers its price, the other firms in the oligopoly will match the price reduction, but if the oligopolist raises its price, the other firms will ignore the price change.

When there is equilibrium in a monopolistically competitive industry, a firm:

Will operate inefficiently with price greater than marginal revenue; Given free entry and exit in a monopolistically competitive industry, firms only earn normal profits in the long-run. However, since the firm faces a downward-sloping demand curve with MR < P, the long run equilibrium is at a point where ATC is greater than minimum ATC.

Which of the following statements is correct regarding the difference between the absorption costing and variable costing methods?

When production is greater than sales, absorption costing income is greater than variable costing income. Production in excess of sales results in increases in inventory that include capitalization of fixed product costs that are immediately expensed under variable costing. Since costs that are used in the determination of net income for variable costing are accounted for in inventory for absorption costing, absorption costing will produce higher net income than variable costing when production is greater than sales.

Which of the following observations regarding the valuation of bonds is correct?

When the market rate of return is less than the stated coupon rate, the market value of the bond will be more than its face value, and the bond will be selling at a premium.

Which of the following observations regarding the valuation of bonds is correct?

When the market rate of return is less than the stated coupon rate, the market value of the bond will be more than its face value, and the bond will be selling at a premium; the bond will sell at a premium when the stated coupon rate on the bond is greater than the market interest rate on the bond at a given date.

Under ABC, the allocation of costs to particular cost objectives allows a firm to analyze all of the following except:

Why the sales of a particular product have increased.

Corporate officers of issuers make a number of assertions regarding internal controls under the provisions of the Sarbanes-Oxley Act of 2002. Among those assertions is that internal controls are evaluated:

Within 90 days prior to the report.

When a firm finances each asset with a financial instrument of the same approximate maturity as the life of the asset, it is applying:

Working capital management; Appropriate working capital management matches the maturity life of each asset with the length of the financial instrument used to finance that asset.

Which of the following cash management techniques focuses on cash disbursements?

Zero-balance account; Lockbox system Zero-balance account Preauthorized checks Depository transfer checks Question #401381 Incorrect A zero balance account (imprest fund) is a checking account that normally carries a zero balance. When a large number of checks will be written at once (such as for payroll), the net amount of the checks is deposited in the account. As the checks clear, the balance in the account equals the outstanding checks, and when all have cleared, the balance in the account is again zero. It is a common control on cash disbursements. A lockbox system is used with cash deposits, not cash disbursements. Preauthorized checks are not a cash management technique; they speed the issuance of checks for small payments. Depository transfer checks are official bank checks used to move funds from one account to another within the banking system; they are not used as a cash disbursement management technique.

An internal auditor is considering a client's organizational structure as it affects the ethical climate established by company management. Each of the following considerations is valid in this regard, except:

a company that is highly centralized will have a more diverse ethical culture than a company that is decentralized. An organizational structure defines lines of authority, responsibility, and reporting. Centralized organizational structures tend to rely on one or a few individuals to make decisions and provide direction for the company, while decentralized organizations tend to rely on a team environment with multiple decision-making levels within the organization.

A compiler is:

a program that converts high-level programming language into machine language. A compiler is a program that transforms source code written in programming languages into object code (or machine language) in order for the CPU to execute the program. Most popular programming languages such as COBOL, FORTRAN, and RPG are classified as high-level programming languages. A compiler is software, not hardware.

Aggregate demand is defined as:

a schedule or curve that shows the amount of real GDP or output that buyers collectively desire to buy at every price level. Aggregate demand is the amount of goods and services—the amount of real national income—that will be purchased at each possible price level. There is an inverse relationship between the price level and real GDP (gross domestic product).

Mitigating financial risk at the firm level includes all of the following except:

an ability to track risk in the regulated financial sector. Mitigating financial risk at the firm level includes an ability to track risk in the unregulated sector (not the regulated financial sector, which is already tracked), as well as incorporating a risk margin for extreme or outlier events; creating provisions for independent signoff of liability; and creating specific requirements for financial condition reporting.

Income and employment tend toward an equilibrium level where:

aggregate supply equals aggregate demand and intended savings equals intended investment. Aggregate supply equaling aggregate demand is one criterion for market equilibrium. Another criterion is that consumers and businesses agree on what they will save and invest respectively. Although actual savings will always equal actual investment, this, however, does not guarantee an equilibrium level of income and employment. If businesses note that their intended investment levels produce too high or too low of inventory levels, the market will not be in equilibrium, since too little or too much has to be purchased. Therefore, until these imbalances are cleared up, the economy will not be in equilibrium. (Note that actual investment does not usually equal intended investment.)

Brad CPA has been approached by a small-business client and asked to provide a list of potential internal controls for his small office. Brad included such things as segregation of duties, authorization for return and adjustments, the use of hash totals as an information processing control, additional employee training, the preparation of a formal company manual, and reconciliations. After reviewing the list, the small-business owner had raised concerns related to the implementation of some of the suggestions. All of these concerns were potentially valid except:

all members of the small staff of the company were longtime, trusted employees.

Gross domestic product can be measured using ________ approach.

an income or expenditure Calculation of gross domestic product can take either an income or expenditure approach. Done correctly, the same result should occur. The income approach sums items such as wages, rental income, dividends, and other similar items. In contrast, the expenditure approach sums personal consumption, investment, net exports, and governmental acquisitions.

The strategy and objective-setting component of COSO's Enterprise Risk Management framework is supported by the principle of:

analyzes business context (SOAR)

During the annual audit, it was learned from an interview with the controller that the accounting system was programmed to use a batch processing method and a detailed posting type. This would mean that individual transactions were:

assigned to groups before posting, and each transaction had its own line entry in the appropriate ledger. Batch processing is updating master files periodically to reflect all transactions that occurred during a given time period. To do this, transactions are grouped in batches and processed as a batch. The other answer choices are incorrect because: each transaction can have its own line entry in either batch or continuous processing and each transaction is posted to the ledger account as a part of the detailed posting of the batch, not just in a total.

A government is most likely to reduce taxes on investments when:

capital spending is expected to be unusually low. When capital spending is expected to be unusually low, the government might pass a tax cut in order to stimulate the economy. Tax cuts allow people who want to consume more to use their tax cut "savings" for that purpose; people who want to save more can use theirs to buy up the new government bonds. This is the perfect scenario during a recession, when prior over-investment has resulted in bloated inventory levels and poor private investment opportunities. For the other three answer choices listed, consumers will already be spending and a stimulus is not needed.

An organization's computer help-desk function is usually a responsibility of the:

computer operations unit; Help desks are usually a responsibility of computer operations because of the operational nature of their functions, e.g., assisting users with systems problems involving prioritization and obtaining technical support/vendor assistance. Applications development is responsible for developing systems. After formal acceptance by users, developers typically cease having day-to-day contact with a system's users. The responsibility of systems programming is to implement and maintain system-level software such as operating systems, access control software, and database systems software. The responsibility of user departments is to interact with application systems as planned. User departments typically do not have the expertise necessary to solve their own systems problems.

When performing a fair value valuation, John CPA has found a quoted market price for a similar asset to the one held by the reporting organization. There are some questions, however, related to the condition of the asset being valued in comparison to the similar asset. John should:

consider this a Level 3 fair value measurement if the potential adjustments necessary due to the condition of the assets being valued merit the classification of an unobservable input. Per FASB ASC 820, there are three groups of inputs used when developing fair value: Level 1: directly observable inputs of identical items, such as quoted active market prices Level 2: directly or indirectly observable inputs of similar items Level 3: unobservable inputs In John's valuation situation, the quoted market price is for the allegedly similar asset; therefore, this can be no more than a Level 2 fair value measurement. However, since there is a question as to the similarity of the conditions between the subject asset and the comparable, John will need to consider whether these questions related to the condition of the subject asset are significant enough to lower the fair value measurement to a Level 3.

The primary sources of funds for sovereign wealth funds would be:

earnings from commodity-based exports and trade surpluses driven by the export of manufactured goods. The primary sources of funds for sovereign wealth funds are export earnings from commodity (energy)-based exports and the trade surplus generated by the export of manufactured goods. The trade surplus is often tied to the country having a weak currency that causes a country's goods and services to be priced lower in terms of a foreign currency. Additionally, increases in commodity prices have shifted the terms-of-trade in favor of nations exporting goods from extractive- and commodity-based industries.

A company's internal controls are established to provide protection for the company's assets as well as to detect fraud. An internal control allows for the firm's resources to be all of the following except:

designed. A financial transaction control is a procedure that is developed to discover and/or prevent errors, misappropriations, or policy noncompliance in a financial transaction process. Such a control will aid an organization in achieving specific goals and objectives. It is an internal control that allows for a firm's resources to be properly: used, monitored, and measured.

Change management controls are used to make sure a system can be adequately maintained. One of the suggested change management controls is to create a quality assurance (QA) function to:

determine if changes achieved their stated objectives. A quality assurance function is designed to: make sure all standards and procedures are followed. make sure changes do not skip any appropriate system development steps (development, testing, and implementation). test all hardware, infrastructure, and software changes extensively in a separate, nonproduction environment before the change is put into live production mode. determine if changes achieved their stated objectives. keep management and those who requested the change informed of all changes. update all documentation and procedures after a change is implemented.

Enterprise risk management includes all of the following except:

diversification risk; Enterprise risk management includes items such as business risk, operations risk, supply-chain risk, product liability risk, and political and economic risk. Diversification risk is not a component of enterprise risk management.

Entity-level internal controls mitigate financial reporting risks. All of the following are examples of such controls except:

documentation of future internal controls; Examples of entity-level controls that do mitigate this risk include a company policy and procedure manual, the existence of an independent internal audit department, controls related to the period-ending procedures, variance analysis procedures, and oversight by senior management.

All of the following statements in regard to working capital are correct, except:

financing permanent inventory buildup with long-term debt is an example of an aggressive working capital policy. Working capital consists of the current assets and current liabilities of a firm. An aggressive working capital policy would focus on high profitability potential, despite the cost of high risk and low liquidity. Although financing permanent current asset increases with long-term debt rather than short-term debt is wise, this is not an example of an aggressive working capital policy. An aggressive policy would work to reduce current assets, in relation to current liabilities.

The processing in knowledge-based systems is characterized by:

heuristics; Knowledge-based systems use symbolic processing based on heuristics, rules-of-thumb. Algorithms are defined procedures, characteristic of typical computer programs. Deterministic procedures are procedures, implemented in computer programs, that permit no uncertainty in outcomes. Simulations are computer programs that prepare results as if a set of assumptions were true.

According to COSO, the four categories of entity objectives in the enterprise risk management framework include each of the following, except:

implementation of internal controls; The four categories of entity objectives in the enterprise risk management framework are: 1. strategic (high-level goals, aligned with and supporting the entity's mission), 2. operations (effective and efficient use of its resources), 3. reporting (reliability of reporting), and 4. compliance (compliance with applicable laws and regulations).

Suppose that a monopolist calculates that at the current level of sales and output, marginal costs is $3 and marginal revenue is $5. Under these conditions, profits could be increased by:

increasing output and decreasing price; The monopoly can increase profits by increasing output and decreasing price as long as MR > MC (marginal revenue is greater than marginal costs). The firm will maximize profits by continuing to the point where at the given output MC = MR.

According to COSO, an effective approach to monitoring internal control involves each of the following steps, except:

increasing the reliability of financial reporting and compliance with applicable laws and regulations.

COBIT applies to:

information technology; COBIT is an integrated framework for internal control for information technology systems. It assists with the design and implementation of control activities for 34 processes and four domains using information technology resources (such as applications and people) that help ensure business goals and requirements (such as confidentiality and reliability) are met.

The payback reciprocal can be used to approximate a project's:

internal rate of return if the cash flow pattern is relatively stable; Payback reciprocal = 1/Payback period Where: Payback = Net cash invested/Annual cash inflow If the cash flow pattern is relatively stable, the payback reciprocal number serves as a good approximation of a present value of an annuity table factor. Using the payback number and a PV of an Annuity table, it becomes a relatively simple matter to look up an interest rate corresponding to the appropriate number of years' life of a project. This interest rate will be a close approximation of the internal rate of return.

An agreement between a small firm and a bank that permits the firm to borrow varying amounts of funds as needed over a specified time period is called a:

line of credit; A line of credit is an agreement between a borrower and a bank or other financial source that permits the borrower to obtain credit up to a maximum specified amount over a designated time period. It permits funds to be borrowed as needed and typically interest is computed monthly on the average balance owed.

A partial set of standard characteristics of a real-time system is:

online files, prompt input from users, and an extensive communication network.

In one company, the application systems must be in service 24 hours a day. The company's senior management and information systems management have worked hard to ensure that the information systems recovery plan supports the business disaster recovery plan. A crucial aspect of recovery planning for the company is ensuring that:

organizational and operational changes are reflected in the recovery plans; A crucial aspect of recovery planning for the company is ensuring that organizational and operational changes are incorporated in the plans because such changes have the potential to make the recovery plans inapplicable. It is vital that changes to systems be tested thoroughly before being placed into production, but that is not a part of recovery planning. A good recovery plan would specify how operational staff might be replaced should the need arise, but their replacements might not be management personnel. Being able to predict workload changes accurately permits a company to minimize its information systems facility costs, but that is not a part of recovery planning.

Fixed exchange rate systems show all of the following characteristics except:

pegging a nation's currency to the U.S. dollar. In a fixed rate exchange system, the governments determine specific boundaries within which they will allow their currency's exchange rate to fluctuate. Although a government cannot do anything directly to stop changing patterns of the supply and demand for its currency it can alter the value of its currency in international financial markets. Although a government could fix its currency to the U.S. dollar, the U.S. dollar is a floating currency, and therefore is a managed float and not a fixed exchange rate system.

Supply chain sustainability includes all of the following except:

political impact. Supply chain sustainability deals with the growing incorporation of social concerns and the environment in supply chain value creation. A political event could affect the supply chain, but it is not a sustainability issue. Supply chain sustainability includes social responsibility, economic stability, health and safety, stakeholder interests, and environmental impact.

The consumer price index (CPI) calculation includes all the following biases except:

poverty bias; The CPI calculation includes new goods bias, quality change bias, and commodity substitution bias. Poverty bias is not an economic term. Biases in the CPI calculation include the new goods bias (new goods constantly replace old goods, and the index does not compare both the price and quality between the old and new goods); quality change bias (the quality of many items improves each year and the improvement must be compared to the increase in price of the good); commodity substitution bias (consumers have a tendency to cut back on the consumption of relatively more expensive goods and substitute relatively cheaper goods as prices rise); and the outlet substitution bias (as prices increase, there is a tendency for more people to shop at discount stores, and in recent years, online shopping has allowed consumers to search for lower prices for many products).

The Enterprise Risk Management—Integrated Framework of the Committee of Sponsoring Organizations (COSO) is best defined as a:

process effected by an entity's board of directors, management, and other personnel; "A process effected by an entity's board of directors, management, and other personnel" is correct because the board of directors has overall responsibility for managing enterprise risk and can delegate parts of the process to entity personnel.

A written policy and procedure manual should contain:

proper business practices; Policies and procedures help the employee understand the organization's policies for operation and the procedures that are followed to meet the policies. The policies and procedures include such things as the proper business practices, the purpose of the organization, responsibilities, and definitions.

Section 404 of the Sarbanes-Oxley Act of 2002 (SOX) requires that all publicly traded firms establish internal controls related to financial reporting that are documented, tested, and maintained. The purpose of these controls is to reduce the probabilities of corporate fraud. In order to be in compliance with SOX 404, a company needs to:

provide details on any deficiencies in the existing internal controls and/or documentation; In order to be in compliance with SOX 404, a company needs to: develop documentation of existing internal controls and procedures associated with financial reporting. test the effectiveness of those controls and procedures. provide details on any deficiencies in the controls and/or documentation.

Internal auditors play a role in assessing an organization's risk management by determining if:

relevant risk information is captured and communicated in a timely manner. Determining whether risk management processes are effective is a judgment resulting from the internal auditor's assessment that: organizational objectives support and align with the organization's mission, significant risks are identified and assessed, appropriate risk responses are selected that align risks with the organization's risk appetite, and relevant risk information is captured and communicated in a timely manner across the organization, enabling staff, management, and the board to carry out their responsibilities.

The internal audit function must determine whether risk management processes are effective. This judgment results from the internal auditor's assessment of all of the following except:

relevant risk information is captured and communicated only to the board of directors in a timely manner; Relevant risk information is captured and communicated in a timely manner across the organization (not only to the board of directors), enabling staff, management, and the board to carry out their responsibilities.

The law of diminishing returns does not hold that:

resources are variable; The law of diminishing marginal returns states that as a firm adds additional units of a variable resource to a fixed resource, output (marginal product) will first increase at an increasing rate, then it will then increase at a decreasing rate, and at some point may become negative.

An investment advisor is working with a client to be sure that he understands the client's needs and preferences as he develops recommendations for the client's portfolio. As he speaks with the client, he ascertains that the client is willing to accept a reasonable level of risk in her portfolio. He further determines that the client expects to be fairly compensated for the level of risk that is assumed by a commensurate increase in value to her portfolio. The investment advisor believes that his client is:

risk adverse; The definition of a risk-adverse investor is one who is willing to take risk but believes that they will be reasonably compensated for the level of risk being taken. The security market line is a theoretical construct that provides a graphic representation of the expected return of a particular security as a function of beta, i.e., nondiversifiable risk.

According to COSO, a primary purpose of monitoring internal control is to verify that the internal control system remains adequate to address changes in:

risks; Monitoring of controls is a process designed to assess the quality of internal control performance over time, verifying that the internal control system remains adequate to address changes in risk. It involves assessing the design and operation of controls on a timely basis and taking necessary corrective actions.

Each day, after all processing is finished, a bank performs a backup of its online deposit files and retains it for seven days. Copies of each day's transaction files are not retained. This approach is:

risky, in that restoring from the most recent backup file would omit subsequent transactions. The practice is risky in that restoring from the most recent backup file would omit transactions occurring since the backup was taken. The practice of not retaining daily transaction data is unsound in that the bank has only end-of-the day totals, and it loses a day's transactions for each backup that is unreadable. The practice of not retaining daily transaction data certainly minimizes complexity but at the expense of losing transaction data if the online file must be restored from the backup. Checkpoint/restart information is not needed since the backups are taken at midnight after all processing is finished for the day.

Internal controls are designed to provide reasonable (but not absolute) assurance that objectives are achieved and compliance to laws and regulations is obtained. Control objectives related to financial reporting, operational efficiency, and law and regulation compliance include all of the following except:

sufficient funds are on hand to meet current and long-term obligations.

If you were to see the formula (Portfolio return - Risk-free rate) ÷ Standard deviation, you would be dealing with:

the Sharpe measure; The formula for the Sharpe measure for portfolio performance is (Portfolio return - Risk-free rate) ÷ Standard deviation. The formula for the Treynor index for portfolio performance is (Portfolio return - Risk-free rate) ÷ Beta. The formula for the Jensen measure of portfolio performance measure of return on portfolio is Risk-free rate + ((Return on market index - Risk-free rate) × Beta).

The primary difference(s) between selecting the binomial (Cox-Ross-Rubinstein) model for valuing stock options versus the Black-Scholes option pricing model is:

the consideration of the option over a period of time and it can be used for stocks that pay dividends without model modification; the binomial (Cox-Ross-Rubinstein) model is actually a variation of the Black-Scholes option pricing model. There are two primary differences with the Black-Scholes model including the consideration of the option over a period of time using American-style options and it can be used for stocks that pay periodic dividends without modifying the model (which would be necessary using the Black-Scholes model).

Using standard procedures developed by information center personnel, staff members download specific subsets of financial and operating data as they need it. The staff members analyze the data on their own personal computers (PCs) and share results with each other. Over time, the staff members learn to modify the standard procedures to get subsets of financial and operating data that were not accessible through the original procedures. The greatest risk associated with this situation is that:

the data obtained might be incomplete or lack currency; Staff members may not be aware of how often they need to download data to keep it current, or whether their queries, especially the ones they modified, get all the information. Downloading data does not affect the data definitions. The staff members are downloading data only, not uploading, so the staff is unlikely to corrupt the mainframe data. The downloading procedures could replace previously downloaded files on the staff members' PCs.

A ratio that examines the percentage change in earnings available to common stockholders that is associated with a given percentage change in earnings before interest and taxes is a measure of:

the degree of financial leverage; This ratio basically compares the change in earnings after interest and taxes to the change in earnings before interest and taxes. The higher this ratio, the greater the return available to companies who finance their asset purchases with debt.

Which of the following is not true? Relational databases:

use trees to store data in a hierarchical structure; Hierarchical databases use tree structures to organize data; relational databases use tables. Relational databases are flexible and useful for unplanned, ad hoc queries, do store data in table form, and are maintained on direct access devices.

A senior executive of an international organization who wishes to demonstrate the importance of the security of company information to all team members should:

visibly participate in a global information security campaign.