BEC CPA, CPA (BEC) - Combined + More
Title VIII of Sarbanes-Oxley Act
-Criminal penalties for altering documents -statue of limitations for securities fraud -whistle-blower protection -criminal penalties for securities fraud
Advantages to using short term payables (A/P) for financing are:
1. They are common and easy to get 2. They can be flexible 3. No collateral is required usually 4. Discounts may be offered for early payments
Five (5) forces are -
1. Threat of entry into the market by new competition 2. Threat of substitute goods or services 3. Bargaining power of buyers 4. Bargaining power of suppliers 5. Intensity of rivalry
The U.S Exports make up about -
10% of worldwide exports
Enterprise Risk Management (ERM) Framework
A framework where a process is effected/carried out by an entity's board of directors, management, and other personnel. The process is designed to: - Identify potential events that may affect the entity. - Manage risk to be within its risk appetite, - Provide reasonable assurance regarding the achievement of entity objectives. The position that is best suited to devise and execute risk procedures for a particular department is the individual most able to identify positive and negative events within that department, and manage the associated risk—the department manager.
security
A fungible, negotiable financial instrument that holds some type of monetary value.
The systems steering committee
A steering committee is a group of individuals formed with the intent of overseeing and regulating the Information Technology and system function within an organization. Its primary functions are listed as: Setting policies for various information systems. Ensuring support, guidance, and participation of the top management. Coordinating and integrating information systems to increase goal congruence and avoid goal conflicts. Approving organizational plans and goals. The Systems Steering Committee would be involved in approving long-range plans and overseeing information systems.
Compensation Committee
A subcommittee of the board of directors, consisting of members of the board of directors plus independent or outside directors. The committee is responsible for setting the compensation for the CEO and other senior executives. Typically, this compensation will consist of a base salary, performance bonus, stock options, and other perks.
Audit Committee
A subcommittee of the board of directors, consisting of members of the board of directors, is charged with overseeing the entity's system of internal control over financial reporting, internal and external auditors, and the financial reporting process. Members typically must be independent of management.
Nominating Committee
A subcommittee of the board of directors, consisting of members of the board that is part of the corporate governance of an organization or firm. The nominating committee's job includes considering a firm's potential board of directors and other key management roles.
Weighted Average Cost of Capital (WACC)
A weighted average of the component costs of debt, preferred stock, and common equity.
separates the duties include the following three
A- Authorization B-
Cash Management -
Trying to make sure a firm doesn't have too much cash or not enough. -Too much = inefficient use of resources - Not enough = Causes obvious problems
Rollback and Recovery Method of Backup -
When transactions are backed up as they occur, but there are also "snapshots" backed up so that backup can be rolled back to a certain period of time
Relationship between interest rates and the money supply
an increase in the money supply, causes interest rates to fall (banks borrow more)
investment decisions made using IRR
an investment should be made when the IRR exceeds the hurdle rate IRR > HURDLE RATE
An option
an option is a contract that entitles the owner (holder) to buy (call option) or sell (put option) a stock (or some other asset) at a given price within a stated period of time
TQM (Total Quality Management)
an organization-wide effort to infuse quality into every activity in a company through continuous improvement organization's commitment to customer-focused performance
trading partnership
partnership that buys and sells goods and services commercially
Accounting information systems generally consist of six primary components:
people, procedures and instructions, data, software, information technology infrastructure, and internal controls.
SOX's prohibits
personal loans to executives
What is disaster recovery?
plans for continuing operations in event of destruction... coordinated process of restoring systems, data, after a disaster occurs (usually implies backups)
data-flow diagram
portrays a system's data flow
A system flowchart
portrays a system's data flow and information processing, including hardware.
appraisal costs examples
testing and inspecting incoming materials, final product testing, depreciation of testing equipment
'Cleartext' or 'Plaintext' -
text that can be written or understood versus something like computer language
The discount rate is the interest rate that
the Fed charges banks for loans
flexible budget
budget that can be adjusted to any activity level; it shows how costs vary with production volume Budgeted total costs = (variable cost per unit x activity level) + fixed costs *fixed costs in total are constant over the relevant range of activity level
Traditional overhead rate allocation
budgeted manufacturing overhead costs / estimated cost driver
ERP (Enterprise Resource Planning)
business process management software that allows an organization to use a system of integrated applications to manage the business and automate many back office functions related to technology, services and human resources (systems working together)
cost-push inflation
caused by reductions in short-run aggregate supply. Cost-push inflation could be caused by factors such as an increase in oil prices and an increase in nominal wages
cash conversion cycle?
ccc= ICP+RCP-PDP
factors that shift aggregate demand
changes in expectations, changes in wealth, changes in real interest rates, changes in exchange rates, changes in gov. spending, changes in consumer taxes
factors that shift short-run aggregate supply
changes in input (resource) prices and supply shocks
Once a set of acceptable alternatives is established, a feasibility study can
conduct a cost-benefit analysis
Controllable margin
controllable margin represents the difference between the contribution margin (rev-vc) and controllable fixed costs (those costs that managers can impact in less than one year)
application controls
controls that prevent, detect, and correct transaction errors and fraud in application programs
Joint Product Costs
costs incurred in producing products up to the split-off point (costs incurred before the split-off point are sunk costs, NOT relevant to further processing decisions) joint costs are allocated by an arbitrary means such as by unit volume relationships or relative net realizable values at the split-off point
Prevention Costs
costs incurred to avoid poor-quality goods or services Examples of prevention costs: -Design quality systems -Train employees -Prevent defects from happening. -Quality planning costs -Product-design costs -Process costs -Training costs -Information costs
Appraisal Costs
costs of the inspection and testing to ensure that the product or process is acceptable. costs incurred to assess production processes for quality, evaluate quality levels, and set standards. costs of activities designed to ensure quality or uncover defects.
Product Costs
costs that are a necessary and integral part of producing the finished product
external failure costs
costs that arise when a defect is discovered after the customer receives the service or product
working capital
current assets - current liabilities = working capital
debenture and a distinguishing characteristic of subordinate debentures (method for LT financing)
debenture: an unsecured obligation of the issuing company -maturity date known -LT fixed rate -borrow more and more (debt ^ credit worthiness goes down) subordinated debenture: a bond issue that is unsecured!!! more risk!!! higher rate of return demanded!! and ranks behind senior creditors in a bankruptcy or liquidation scenario
what methods can be used to delay disbursements?
defer payments drafts line of credit zero-balance accounts
external cost example
delivering defective products to the end consumer
Structural unemployment is the result of
difficulties in matching qualified workers with available jobs.
Conversion Cost
direct labor + overhead
explain how discounted cash flow analysis is used in valuation and list several DCF absolute models used
discounted cash flow analysis attempts to determine the intrinsic (true) value of a stock by determining the present value of its expected future cash flows. Once the DCF stock price is determined, it is compared to the stock's market value to determine if it is undervalued, fairly valued, or overvalued DCF models used for valuation: -dividend discount model (DDM) -free cash flow to the firm (FCFF) -free cash flow to equity (FCFE) -residual income (RI)
Under Title XI, Corporate Fraud Accountability, what are the penalties for tampering with a document used in an official proceeding or retaliating against an informant providing information to the SEC?
document tampering will result in fines and/or a prison term of not more than 20 years retaliation against informants providing information to the SEC will result in fines and/or a prison term of not more than 10 years
master budget
documents specific short-term operating performance goals for a period of time, normally one year or less. The plan generally includes an operating (non-financial) budget as well as a financial budget
Heterogeneous products
each product has unique features
e-commerce
electronic business or exchange conducted over the internet
An auditor testing computer controls in a payroll system would most likely use test data containing invalid
employee I.D. numbers. The computer should be programmed to compare employee I.D. numbers with a list of valid, authorized employee numbers.
transaction controls
ensure transactions are performed accurately
Roles within IT: File Librarian -
File and data that isn't online is stored in a file library, and the file librarian controls it
'Stand-by-credit' -
Financing that if available on demand
How to calculate the effective interest rate on a loan when the borrower must maintain a 'compensating balance' -
Find the interest they'll pay and divide that by the amount they are really borrowing to find the effective interest rate
Market Equilibrium -
Point at which a demand curve meets a supply curve
Control Activities -
Policies and procedures implemented to ensure actions are taken towards completing the company's objectives
COBIT Model
Provides framework for the implementation of information technology into the control system of an organization, so the organization understands the risks involved in doing so.
Program Documentation -
Record of the programming logic. This is mainly for use by programmers
What does SOX Require of Public Companies?
SOX requires that public companies - incorporate internal controls to help PREVENT unethical or illegal practices within the organization.
Contribution Margin Formula -
Sales Price - Variable Costs = CM Example: A widget sells for S10, and has a variable price of $6 = $10-$6 =$4 CM per widget Contribution ratio = 40% (4/10=40)
Asset Utilization: Receivables Turnover -
Sales on credit/Average accounts receivable
required sales volume for target profit
Sales(units)=(fixed cost + pretax profit)/CM per unit
Asset Utilization: Fixed Asset Turnover
Sales/Average Net Fixed Assets
Marginal Utility -
Satisfaction derived from each additional unit of a commodity
Utility -
Satisfaction derived from the acquisition or use of a commodity
Ciphertext -
Scrambled text that cannot be understood without using an algorithm and key
Level 2 of determining the fair value under GAAP:
Second highest level and consists of observable quoted prices for similar assets/liabilities in an active market
In which of the following locations should a copy of the accounting system data backup of year-end information be stored?
Secure Off-site Location
selective hedging vs. cross-hedging
Selective Hedging: process of reducing the uncertainty of the value of a transaction or position by entering into an offsetting derivative transaction Cross-Hedging: involves hedging one derivatives instrument's risk with a different instrument by taking another position in a related derivatives contract
Marginal Costs -
The additional cost or revenue from one more unit of output
Contribution Margin
The amount remaining from sales revenues after all variable expenses have been deducted. Sales - Variable Costs
If there is in increase in thee income of market participants -
The demand curve will shift outward, which means more total demand (and vice versa)
Demonstrating the Behavior by Example -
The most effective method of communicating a message of ethical behavior throughout an organization
Budget Planning
The process of forecasting future income, expenses, and savings goals. focuses on estimating the cost of future activity in terms of time, money, or other resources.
Strategy Planning
The process of setting overall objectives, allocating resources, and developing broad courses of action. focuses on decisions that map an entity's long-run operations, considering external forces and internal strengths and weaknesses.
True or False: An auditor testing computer controls in a payroll system would most likely use test data containing invalid employee I.D. numbers. The computer should be programmed to compare employee I.D. numbers with a list of valid authorized employee numbers.
True
BPR (Business Process Reengineering)
the analysis and design of business processes and information systems to achieve significant performance improvements. The purpose of BPR is to simplify the system, make it more effective, and improve the entity's quality and service
Outsourcing
the contracting of services to external providers. Contractual relationship between business and 3rd party (ex: payroll)
contribution approach vs. absorption approach
the difference is the treatment of fixed overhead costs. Under the absorption approach, fixed overhead is part of COGS as a product cost. Under the contribution approach, fixed overhead is a period cost
Interfacing
the direct connection of multiple computer systems
Segregation of IT duties
the duties of systems analysts, computer programers, and computer operators should be segregated
reserve requirement
the percentage of deposits that banking institutions must hold in reserve The reserve requirement is the percentage of deposits banks must have on hand related to loans. Reducing it can ease lending constraints.
Expansion phase of the business cycle
the period of time during which economic activity is increasing; commonly referred to as a boom
Contraction (i.e. recession) phase of a business cycle
the period when fewer goods and services are produced, firms use fewer resources—including labor and unemployment—is on the rise. Profits of firms keep falling, which results in a trough.
Database Administrator (DBA)
the person responsible for coordinating, controlling, and managing the database. is a person who usually has overall responsibility for designing and maintaining a database.
Peak phase of the business cycle
the point at which an economic expansion starts to lose steam and go into a decline or contraction
The demand curve shows the relationship between:
the price of a product and the quantity of the product demanded.
Profitability Index (PI)
the ratio of the PV of net future cash inflows to the PV of the net initial investment higher PI more desirable project
Cost of Preferred Stock
the ratio of the preferred stock dividend to the firm's net proceeds from the sale of preferred stock Preferred stock dividend/net proceeds from sale of stock (i.e., market sales price per share less flotation costs)
relevant range
the relevant range of volume for which the assumptions of the cost driver (linear relationship with the cost incurred) are valid and in which the actual value of the cost driver exists
Remote Backup Service -
Allows to back up their information in the cloud
FOH budget (spending) and volume variance
FOH budget (spending) variance: actual fixed overhead - budgeted fixed overhead FOH volume variance: budgeted fixed overhead - standard fixed overhead cost allocated to production* (*based on actual production x standard rate) volume variance: budgeted fixed overhead - applied fixed overhead
Who is the largest exporter of goods and services?
China, then Germany and the United States
4 key management processes of SCM
Plan Source Make Deliver
Elements of the PDCA Cycle
Plan Do Check Act
Stages of the SDLC: Stage 1:
Planning and Feasibility -Technical Feasibility: Is it possible with our current IT system - Economic Feasibility: Do the benefits outweigh the costs? - Operational Feasibility: Will the system work?
Spooling Controls -
When jobs sent to the printer are held in a printing queue, access to this queue is restricted
Participative Budget -
When managers prepare their own budgets and then these budgets are reviewed by their supervisors
Tone at the top is established by an organization's
board of directors, audit committee, and senior management.
Payback Period Approach -
- Determines how many years it will take to recover the initial project investment cost - Calculation: investment cost/annual cash savings =payback
In a free market economy -
- Economic decisions are made by individuals. - there is an independent relationship between consumers and businesses, and what gets produced depends on the preferences of the end-user
Cloud Based System Advantages:
- Enhanced access as long as someone has internet - Lower maintenance costs - Scalability
Control Environment -
"Tone at the top", and management's philosophy toward internal control and responsibility
Examples of Cloud Based Systems:
*Software as a service (Saas): Externally hosted and usually comes with an ongoing fee instead of buying software on a CD and installing it *Platform as a service (Paas): Use of cloud based service to create cloud-based software *Infrastructure as a service (Iaas): Using the cloud to access virtual storage or hardware
PV of ordinary annuity
(1 - PV of $1)/ Interest Rate
Sales Price Variance
(Actual SP/unit - Budgeted SP/unit) x Actual sold units
Sales Volume Variance
(Actual sold units - Budgeted sales units) x Standard contribution margin per unit
Ratios: Quick Ratio or Acid Test -
(Current assets - inventory)/Current Liabilities
cost of equity (R/E) using discounted cash flow method (DCF)
(Div1/P0)+g dividend per share expected at the end of the year (1) DIVIDED BY current market value of price (0) of outstanding common stock PLUS constant growth rate of dividends
Calculate sales in of units to achieve a certain level of income (formula):
(Fixed Costs + Target Profit)/contribution margin per unit example: ($400 fixed costs + 1,000 profit)/$4 contribution margin. So, $1,400/$4=350 units
ROE
(Net income-preferred dividends)/avg. SH equity
coefficient of determination (R^2)
(R^2) is the proportion of the total variation in the dependent variable (y) explained by the independent variable (x) Range lies between zero and one, with a higher R^2 representing a better fit for a regression line
Ordinary Annuity -
(aka annuity in arrears) is a series of equal payments paid at the END of each period
Annuity Due -
(or annuity in advance) is a series of equal payments paid at the BEGINNING of each period
coefficient of correlation (r)
(r) measures the strength of the linear relationship between the independent variable (x) and the dependent variable (y) The range is from -1.00 to 1.00, with -1.00 indicating perfect inverse correlation, 1.00 indicating perfect positive correlation, and 0.00 indicating no correlation
Gross margin
(sales revenue - cost of goods sold)/sales
IT Operations: Bit - Byte - Field - Record - File -
- 'Bit' is a zero or a 1, the smallest piece of computer information - 'Byte' is a group of 8 bits of information, next step up from a 'bit' - 'Field' is a group of bytes that identify one characteristic, such as one customer's phone number - 'Record' is a group of related fields such as one customer's information - 'File' is a collection of records
Difference between "demand" and "quantity demanded" -
- A change in price changes the quantity demanded and causes movement along a demand curve - Change in demand shifts the entire curve either inward (less demand) or outward (more demand)
Demand -
- A substitute commodity meets the same basic need or want as another commodity - When the price of one commodity increases, demand will decrease and shift to other substitute commodities
Why is the foreign sector relevant in macroeconomics -
- Because of imports and exports - Individuals paying taxes to the government isn't studied in microeconomics, but it is in macroeconomics - Foreign sector is relevant in macroeconomics because of imports and exports
Supply -
- Change in quantity supplied is movement along a given supply curve as a result in a change in price - A change in supply is an actual shift of the entire supply curve
Inventory Costs: - Direct Labor
- Cost of labor that goes directly to creating the finished product * Included in both prime costs AND conversion costs
Inventory Costs: - Direct Materials
- Cost of raw materials used to create the finished product
Forms of financing -
- Deferred payment of goods or services - Accounts receivable and accounts payable
Inventory Management -
- Determine and maintain the optimal amount of all inventories
What is discposable income?
- Income After Taxes -The money you have left to spend or save after taxes have been paid -Income remaining after deduction of taxes and other mandatory charges, available to be spent or saved as one wishes. -Personal income less (-) personal income taxes and is divided among consumer spending, interest payments, and savings. Simply put, it is discretionary income leftover after you have spent fund on all necessities or put money into savings.
Disadvantage of Payback Period Approach -
- It ignores the time value of money - It ignores the cash flows received after the payback period - Doesn't measure total project profitability
Monopolistic Competition -
- Market with a large number of sellers where the sellers sell differentiated products, and there are close substitutes for the products. - Firms can enter and exit the market easily - Long-term profits are not possible because if a firm is making profits in the short-run, more firms will enter the market until al l firms are just breaking even
Demand Curves -
- Negatively sloped, with quantity on the X axis, and price on the Y axis. - As demand goes up, the quantity becomes less, and the price increases
Why do companies use capital budgeting techniques -
- No firm has enough money to take on all projects, they use capital budgeting to try and sell the most profitable projects - Firms don't have unlimited management capacity to run all projects
Complementary Commodity -
- One which is used together with another commodity. - When the price decreases for a complementary commodity, demand increases for it and the commodity for which it is complementary
Disadvantages of long-term notes -
- Poor credit means higher interest rates and more restrictive covenants - Violation of restrictive covenants can result in notes being due and can cripple businesses
Job Costing -
- Process of accumulating and applying costs to the production of large or unique items - Costs are accumulated in product-specific WIP accounts - Overhead is applied at a predetermined rate - When a product is finished, the costs flow into finished goods and when sold the costs flow into COGS
Manufacturing Costs -
- Product costs are the costs directly associated with producing the products that generate revenue (COGS) - Period costs can't be matched with specific revenues, also called selling and administrative costs - Inventory Costs
Performance Improvement: Six Sigma -
- Quality improvement approach that focuses on reducing defects and reducing costs - Six Sigma-closely related to TQM (total quality management) and uses similar tolls such as control charts, run charts, pareto histograms, and fish bone diagrams
Risk Avoidance
- Risk Avoidance is a risk strategy that involves choosing NOT to engage in an activity that may ptotentially cause harm or loss to the entity. -Risk avoidance occurs when entity evade risk entirely. It is the act of NOT doing something that could possibly cause a loss or the inactivity of participation in an event that may potentially cause a loss situation.
Cloud Based System Disadvantages:
- Risk of data loss - Increased risk of data being breached by hackers - Overall risk of relying on a service provider instead of housing data internally
'Commercial Paper' -
- Short term, unsecured promissory notes sold by large, very creditworthy firms - Interest rates usually lower - Large amounts be obtained - Compensating balances not required - Unsecured - no collateral
Oligopoly -
- Small number of sellers, and these firms sell either similar or differentiated products - Entry to market is restricted 1. By a cartel or 2. Each seller in an oligopoly is large enough to influence market prices
General Formula for calculating a Cost Variance is -
- Standard Amount - actual amount = difference or variance *a negative number indicates an unfavorable variance and a positive number indicates a favorable variance -Then take that difference and, *if it is a price or rate variance, multiply the difference by the actual quantity *if it is a usage or efficiency variance, multiply the difference by the standard rate
A difference relevant to the risk-assessment process 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
Differences relevant to the risk-assessment that 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 - risk-assessment process in a large entity is more structured than in a small one - an owner-manager of a small entity will normally learn about risks arising from external factors through direct contact with customers, suppliers, and other outsiders, whereas in large entities the process of dealing with external customers, suppliers, and other outsiders is usually segregated into responsibility centers and therefore it is not a part of the entity's primary way of identifying new risk. - In both large and small company's, effective and efficient operations of internal control are the responsibility of the CEO and the top management of the company and their involvement in the risk assessment process does not result in a conflict of interest.
Enterprise Risk Management (ERM)
- The process of managing risk ACROSS an entity is known as enterprise risk management - A process effected by an entity's board of directors, management, and other personnel applied in strategy setting andACROSS the enterprise that is designed to identify potential events that may affect the entity and to manage risks to be within its risk appetite to provide reasonable assurance regarding the achievement of entity objectives
Main components of competitive strategies
-Cost leadership: lowest overall costs -Differentiation: unique features that create loyalty/value -Best cost: low cost leader among rivals and unique features
Tender Offer
-A tender offer is when a company presents an offer to a company's shareholders to buy the shares of a company. -An offer to purchase the stock of a firm targeted for acquisition at a price just high enough to tempt stockholders to sell their shares
As related to Information Technology (IT), what is the order of the system life cycle stages?
-Analysis -design -development -testing -implementation -maintenance
Financial budgets included in master budget
-Cash budget -Pro forma financial statements
Business continuity planning (BCP)
-Helps restore business operations following a disaster. - Disaster recovery is part of business continuity planning and is a major part of an entity's risk management. -A plan for how an organization will recover and restore partially or completely interrupted critical function(s) within a predetermined time after a disaster or extended disruption
Days in Inventory
-Is the average time a company keeps its inventory before it is sold. -Can help show whether a company is operating efficiently or not. -Is a measure related to inventory turnover that shows the average number of days the inventory is held before it is sold. -It can be calculated in two ways: Ending Inventory/(COGS/365) OR (Ending Inventory/GOGS) x 365 Example: Beginning Inventory$400,000 Ending Inventory$260,000 Cost of Goods Sold $2,450,000 260,000/(2,450,000/365) = 38.73 (260,000/2450,000) x 365 = 38.73 (Note:This one quicker to calculate!)
Business continuity planning
-Is the creation of a practiced logistical plan for recovering and restoring partially or completely interrupted critical operations within a predetermined time after a disaster or extended disruption. -Typically addresses issues such as network security, backup power, and daily backup of files.
leading, lagging, and coincident
-LEADING indicators usually PREDICT economic activity and tend to change before the economy follows that trend -LAGGING indicators generally FOLLOW economic activity and change after an economic trend has already begun -COINCIDENT indicators change at about the SAME TIME as the economic trend
debentures and bonds
-LT -pay coupon, usually semi annually over a number of years -unsecured
absorption costing net income vs. variable costing net income
-No change in inventory: ab. inc = variable inc. -increase in inventory: ab. inc > variable inc. -decrease in inventory: abs. income < variable inc
Quality control costs include:
-Prevention costs are the ones that are incurred to design quality systems, training of employees, etc. to prevent defects from happening. -Appraisal costs include all costs incurred to assess production processes for quality to evaluate quality levels and to set standards. -Internal failure costs are incurred when products are defective and are detected before shipping them to the consumer. -External failure costs are those which are incurred due to delivering defective products to the end consumer.
prevention costs examples
-Quality planning costs -Product-design costs -Process costs -Training costs -Information costs
operating budgets included in master budget
-Sales budget -Production budget -Direct materials budget -Direct labor budget -Overhead budget -Cost of goods sold budget -SG&A budget
What are some components of risk management?
-Setting a foundational basis - for how risk is viewed and addressed throughout the entity -Establishing a process - to support and align objectives with the entity's mission -Considering likelihood and magnitude - of the impact of risks
Risk Appetite
-The amount/degree of risk or uncertainty a company is willing to accept to achieve its goals and objectives. -To avoid undue risk, risk appetite must be in alignment with company strategy.
What are some characteristics of cryptocurrency?
-The most popular cryptocurrency is bitcoin -Cryptocurrency transactions are chronological. -There is no trace or connection between one transaction to another.
Residual income
-The residual income method measures the excess of actual income earned by an investment over the hurdle rate Residual Income = net income - required return (which is net book value x hurdle rate) if the amount of the income from the investment exceeds the computed required return, performance objectives have been met
Per-capita income
-The total national income divided by the number of people in the nation. -GDP divided by population, adjusted for inflation
Balance Scorecard
-a balanced scorecard is a framework used for implementing strategy that converts and entity's strategic objectives into a set of performance measures. -combination of performance measures directed toward the company's long and short term goals and used as the basis for awarding incentive pay
Explain the sections of the cash budget
-cash available: consists of cash balances (cash on hand) and cash collections from sales -cash disbursements: cash outlays associated with purchases and operating expenses -financing: primarily involves using a line of credit to maintain minimum cash balances
3 general stages in which capital investment cash-flows are categorized
-cash flows at the inception of the project -operating cash flows -cash flows from the disposal of the project
purchase of assets
-characterized by a company offering its assets for purchase to another company. Shareholders play no role in such a transaction. -occurs when a portion (or all) of the selling company's assets are purchased by the acquiring company
Methods to Speed Collections
-customer screening -prompt billing -payment discounts -expedite deposits -concentration banking -factoring accounts receivable
Title IV SOX (Enhanced Financial Disclosures)
-disclosures in periodic reports -enhanced conflict-of-interest provisions -disclosure of transactions involving principal stockholders -disclosure of audit committee financial expert
Predictive Analytics Examples
-identifying customers who are most likely to respond to specific marketing campaigns -transactions that are likely to be fraudulent -incidence of crime at certain regions and times
Monopoly
-positive economic profit in the long run -single firm with unique product -significant barriers to entry -the ability of the firm to set output and prices (ex: patents and restrictions against competition-firms are price setters) -no substitute products -strategies include ignoring market share and focusing on profitability from production levels that maximize profits
Economic Value Added (EVA)
-the amount by which company profits (revenues, minus expenses, minus taxes) exceed the cost of capital in a given year -EVA measures the excess of income after taxes earned by an investment over the rate of return defined by the company's WACC -EVA differs from residual income in the following ways: 1. WACC must be used to calculate EVA 2. the income and investment numbers used to calculate EVA are generally adjusted to produce a more accurate analysis of economic profit
what approaches can management take to select the desired rate of return for a project
-use a weighted average cost of capital (WACC) method -assign a target rate for new projects -recommended that the discount rate be related to the risk of the project
Pure/Perfect Competition
-zero economic profit in the long run -a large number of suppliers and customers acting independently -very little product differentiation -no barriers to entry -firms are price-takers (set by market) -strategies include maintaining market share and responsiveness of sales price to market conditions
monopolistic competition
-zero economic profits in the long run -numerous firms with differentiated products -few barriers to entry -the ability of firms to exert some influence over the price but have more control over the quantity produced -significant non-price competition in the market (to promote brand awareness and loyalty) -strategic plans include maintaining the market share but also including a plan for enhanced product differentiation
Categories of business information systems
1) Transaction processing systems 2) Management Information systems (MIS) 3) Decision Support systems (DSS) 4) Executive information systems (EIS)
Financial Reporting Objectives:
1. Align with generally accepted accounting principles 2. The level of detail in which financial information is classified and summarized is important/consequential to financial reporting objectives. 3. Selected accounting procedures are appropriate to the circumstances. 4. Presentation reflects the concept of materiality
Components of ERP: (OLAP and OLTP)
1. An online analytical processing system (OLAP). Provides data warehouse and data mining capabilities into an ERP system 2. Online transaction processing system (OLTP). Records the day-to-day transactions of an organization such as sales, production, and purchasing
IT Functions: IT Internal Controls
1. Application Development 2. Systems Admin & Programming 3. Computer Operations
Audit Committee Responsibilities
1. Appointment of the auditor 2. Compensation of the auditor 3. Oversight of the auditor a. resolve disagreements between management and the auditor b. the auditor reports directly to the audit committee
Process Costing
1. Assign costs to mass-produced and similar products 2. Calculate the equivalent units, which means the number of units that could have been produced 3. Determine the cost per equivalent units 4. Determine the costs of goods transferred out of WIP and then ending WIP inventory
Limitations to Black Scholes -
1. Assumes the stock does not pay dividends 2. Assumes the risk-free rate of return used for discounting remains constant 3. Assumes the option can be exercised only at the expiration date
The three most common standing committees of a public company's Board of Directors are:
1. Audit Committee 2. Compensation Committee 3. Nominating Committee
Policies: Four (4) Critical Accounting Activities that should be separated -
1. Authorization 2. Recording 3. Safeguarding 4. Reconciling, oversight, auditing
Strategy: Porter's 5 Forces -
1. Bargaining Power of Customers 2. Bargaining power of suppliers 3. Threat of new entrants 4. Threat of substitute products 5. Intensity of Competition
Porter's Five Forces
1. Barriers to market entry 2. Market competitiveness (intensity of competition) 3. Existence of substitutes 4. Bargaining power of the customers 5. Bargaining power of the suppliers
Examples of cryptocurrencies
1. Bitcoin (BTC) 2.Ethereum (ETH) 3. Ethereum Classic (ETC) 4. Litecoin (LTC) 5. Stellar (XLM) 6. Zcash (ZEC) 7. Chainlink (LINK) 8. Uniswap (UNI) 9. Bitcoin Cash (BCH)term-692 10. Decentraland (MANA) 11. Yearn Finance (YFI) 12. Maker (MKR) 13. Aave (AAVE) 14. Compound (COMP) 15. The Graph (GRT) 16. Livepeer (LPT) 17. USD Coin (USDC) 18. Dai (DAI)
Advantages to 'stand-by-credit' agreements -
1. Common and easily available if the business is creditworthy 2. Usually no collateral required
motivations for developing international business operations
1. Comparative Advantage: creating economic advantage through specializations 2. Imperfect markets: work around resource or legal barriers to trade 3. Product cycle: establishment of foreign subsidiaries to more efficiently capitalize on foreign demand for domestic products
5 Components of COSO Framework
1. Control Environment 2. Risk Assessment 3. Control Activities 4. Information and Communication 5. Monitoring
Five (5) major components of an internal control system:
1. Control Environment 2. Risk Assessment 3. Information and Communication 4. Monitoring 5. Control Activities
3 categories of IT strategy
1. Corporate-level strategy: encompasses new business opportunities, the closing of old business units, and the allocation of resource among departments 2. Business-level strategy: functions within the broader aims of the corporate strategy is typically not found in small businesses 3. Functional-level strategy: involves establishing strategies for marketing, manufacturing, IT, and finance
Major forms of long-term financing-
1. Long term notes 2. Financial leases (capital leases) 3. Bonds 4. Preferred stock 5. Common stock
The three (3) generic business strategies defined by Michael Porter are -
1. Cost Leadership: entity seeks to be the low cost provider for a market 2. Focus: entity focuses on a narrow segment of an industry and either takes a cost leadership approach or different approach 3. Differentiation: entity seeks to offer a product that has unique features and is higher quality
SOX Act of 2002
1. Created the PCAOB 2. Requires independent annual audit report for all public companies 3. Require that all public companies have an audit committee
Direct Materials Variances (two-way variance analysis)
1. DM price variance= (Actual Price - Standard Price)x Actual Quantity Purchased 2. DM quantity usage variance= (Actual Quantity Used - Standard quantity Allowed)x Standard Price
5 Business Process Management activities
1. Design 2. Modeling 3. Execution 4. Monitoring 5. Optimization
Advantages to Black Scholes -
1. Discounts the exercise price 2. Uses the probability that the option will be exercised 3. Uses the probability that the price of the stock will pay off within the time to expiration
Disadvantages of Preferred Stock -
1. Dividends are expected 2. Dividend payments are not tax deductible 3. Usually a higher cost of capital than bonds
The Sarbanes-Oxley Act defines the criteria for the independence of audit committee members for issuers as:
1. Each member of the audit committee shall be a member of the board of directors of the issuer but shall be otherwise independent 2. audit committee members may not accept any consulting, advisory, or other compensation or fees from the issuer other than pursuant to their role on the board 3. audit committee members may not be an affiliated person (a person who can influence financial decisions) of the issuer or any subsidiary of the issuer.
Seven (7) attributes of "desired" information according to COBIT:
1. Effective 2. Efficient 3. Confidential 4. Integrity 5. Available 6. Compliant 7. Reliable
Benefits of Process Management
1. Efficiency 2. Effectiveness 3. Agility
Four (4) measures of Elasticity -
1. Elasticity of Demand- % change in quantity demand as a result of the % change in price (if a 3% price increase results in a 5% increase in QD, the demand is elastic) 2. Elasticity of supply - Degree to which quantity supplied changes as a result of the % change in price 3. Income Elasticity of Demand 4. Cross elasticity of Demand
Types of Processing Controls:
1. Electronic Audit Trail 2. Run to Run 3. Internal Labels
3 inherent risk of international business operations
1. Exchange rate fluctuation 2. Operating in foreign economies 3. Political risk
4 phases of the business cycle
1. Expansion 2. Peak 3. Contraction 4. Trough
Four (4) electrical systems risks are:
1. Failure or outage 2. Reduced Voltage (brownout) 3. Spike and surges 4. Electromagnetic interference
Balanced Scorecard is viewed from 4 perspectives:
1. Financial 2. Customer: This has to do with the company's success in targeted customer and market segments, NOT customer service 3. Internal business processes 4. Learning, innovation, and growth
Disadvantages of Common Stock -
1. Higher cost of capital than other sources 2. Dividends paid aren't tax deductible
4 business combinations an entity can use to expand its operations?
1. Horizontal Combination: A horizontal combination occurs when companies in the SAME industry join together 2. Vertical combination involves the combination of companies at different stages of the production process 3. circular combination: occurs when different business units with relatively remote connections come together under single management 4. Diagonal combination: occurs when a company that engages in an activity integrates with another company that provides ancillary support for that primary activity
5 Steps of Theory of Constraints
1. Identification of the constraint 2. Exploitation of the constraint 3. Subordinate everything else to the above decisions 4. Elevate the constraint 5. Return to the first step
Flow of resources that consists of four (4) main interrelated flows:
1. Individuals provide resources to businesses (people go to work) 2. Businesses pay these individuals for these resources 3. Businesses provide goods & services to consumers 4. Individuals provide payment to businesses for these goods and services
IT Controls (3):
1. Input Controls: Ensure the transactions entered into the system are valid, complete, and accurate 2. Processing Controls: Ensure that updates and processes work accurately and completely, to detect unauthorized transactions entered into the system 3. Output Controls: Ensure that reports generated from the system are accurate and only distributed to authorized individuals
Four (4) main principles of the Institute of Internal Auditors Code of Ethics Framework are:
1. Integrity 2. Objectivity 3. Confidentiality 4. Competency
Three (3) main types of 'Stand-by-credit' -
1. Line of credit: informal agreement w/bank where bank outlines the max amount that can be charged against LOC 2. Revolving Credit - Similar to LOC but w/ legally binding agreement 3. Letter of Credit - Conditional commitment by a financial institution to pay a third party in accordance with certain terms and conditions
Seven (7) primary themes of Performance Standards -
1. Managing the internal audit activity 2. Nature of work 3. Engagement Planning 4. Performing the engagement 5. Communicating Results 6. Monitoring Progress 7. Resolution of senior management's acceptance of risk
Three (3) main approaches to develop a fair value:
1. Market Approach 2. Income Approach 3. Cost Approach
Three (3) approaches to valuing a business -
1. Market Approach: Business is compared to other similar businesses with similar characteristics in the same industry or market 2. Income Approach: FV is derived from the business's income streams 3. Asset Approach: Individuals assets of the business are added up. Commonly used when a business is liquidated to pay debts
Main Roles of the SDLC are: 1. IT Steering Committee - 2. Lead System Analyst - 3. Application Programmers - 4. End users -
1. Members are selected from different areas across the organization and this committee oversees the development of the system being built 2. This person is in charge of the programming team and is responsible for the overall logic and functionality of the system 3. The programmers who write the programs and work under the lead analyst 4. The employee who will use the system for their day-to-day tasks
transactions to expand operations
1. Merger: two or more entities combine to form a single corporation 2. Acquisition: the acquisition of one company by another involves no new company. Only the acquirer remains after the acquisition 3. Tender offer: in a tender offer, a company makes an offer directly to shareholders to buy the outstanding shares of another company at a specified price 4. purchase of assets: a purchase of assets transaction occurs when a portion (or all) of the selling company's assets are purchased by the acquiring company
Advantages of Preferred Stock -
1. No period payments 2. Lower cost of capital than common stock 3. No maturity date 4. No security required
Advantages of Common Stock -
1. No required periodic payments 2. No maturity date 3. No security required
3 ways federal reserve controls money supply
1. Open market operations: purchase (sell) government securities on the open market 2. Changes in the discount rate: lower (raise) the discount rate 3. Changes in the required reserve ratio: Lower (raise) the required reserve ratio
The four (4) most common market structures -
1. Perfect competition 2. Perfect monopoly 3. Monopolistic Competition 4. Oligopoly
Four main "domains" to the COBIT Model:
1. Planning and Organization: How the IT system helps accomplish business objectives 2. Acquisition and Implementation: How the business acquires and develops IT solutions that address business objectives 3. Delivery and support: How the company can best deliver required IT services including operations, security, and training 4. Monitoring: How the company can periodically assess the IT processes for quality and control
Examples of Input Controls: 1. Default Values - 2. Automated Data Capture - 3. Reasonableness Check -
1. Pre-supplied values to help reduce mistakes such as the date on an order page being auto-filled with the current day's date 2. Bar code reader that allows fast data entry and reduces mistakes 3. Process that compares two fields such as hours worked with paycheck total to make sure both values are reasonable
Competitive Strategies (2 approaches) -
1. Product Differentiation - Competing on the basis of a different product which is usually higher quality as well 2. Cost Leadership - Competing on price and ability to sell high volumes at low prices
Four (4) primary themes of Attribute Standards -
1. Purpose, authority, and responsibility 2. Independence and objectivity 3. Proficiency and due professional care 4. Quality assurance and improvement program
Several risks when a firm outsources production of a good to a foreign supplier -
1. Quality Risks 2. security Risks 3. Currency Exchange Risks
Disadvantages to using short term payables (A/P) for financing are:
1. Require payment in the near future 2. Are specific to use (buying inventory) 3. Any lost discounts increase costs
In macroeconomics, "investing" is:
1. Residential Construction 2. Nonresidential Construction 3. Business Durable Equipment 4. Business Inventory
Secure internet transactions are made possible by 2 main security protocols -
1. SSL (Secure Sockets Layer) 2. S-HTTP (Secure Hypertext Transport Protocol)
Types of Divestitures for an entity to dispose or a component or business activity
1. Sell-off: outright sale of a subsidiary 2. Spin-off: creates a new independent company by separating a subsidiary business from a parent company 3. Equity Crave-out: occurs when a subsidiary is made public through an initial public offering (IPO), creating a new publicly listed company
Types of Output Controls:
1. Spooling Controls 2. Aborted Print Jobs 3. Distribution Logs 4. End user controls
How are technology and an entity's objectives interconnected
1. Strategic Alignment 2. Value Delivery 3. Resource Management 4. Risk Management 5. Performance Management
Within each of the 4 perspectives, the company identifies its:
1. Strategic Goals 2. Critical Success Factors 3. Tactics 4. Performance Metrics
Four (4) Levels of Documentation:
1. System Documentation 2. Program Documentation 3. Operator Documentation or the "run manual" 4. User Documentation
3 common motivations for holding cash
1. Transaction motive: a transaction motive for holding cash concerns having enough cash to meet payments arising from the ordinary course of business 2. speculative motive: a speculative motive for holding cash concerns having enough cash to take advantage of temporary opportunities 3. precautionary motive: a precautionary motive for holding cash concerns having enough cash to maintain a safety cushion so that unexpected needs may be met
What are the 3 main goals of input controls:
1. Validity 2. Completeness 4. Accuracy
Basic COBIT Framework is aimed at figuring out 3 main things:
1. What are the business requirements of an IT system for our business? 2. What IT resources would be necessary to implement such a system? 3. What IT processes do we need to figure out to implement such a system?
SOX disclosures for periodic reports
1. all adjusting entries identified by the public accounting firm reporting on the financial statements 2. the F/S disclose all material off-balance sheet transactions including operating leases, contingent obligations, and relationships with unconsolidated subsidiaries. 3. Pro forma F/S shall include all relevant information and shall not include misleading or untrue information
Balance Scorecard (4 areas)
1. financial/finance, 2. customer satisfaction, 3. internal business processes, 4. learning and growth(HR) Advancement of innovation and human resource development
3 backups to perform recovery lost
1. full backup 2. incremental backup 3. differential backup
IT risk assessment process 6 steps
1. identify threats 2. evaluate probability of threat occurring 3. exposure, potential loss 4. controls that could guard against threats 5. costs and benefits of implementing controls 6. implement cost effective controls
4 factors of globalization
1. improvements in transportation 2. technological advancements 3. deregulation of international financial markets 4. organizational/operational options for international business
SOX includes provisions for management assessment of internal controls.
1. managements assertion that it is responsible for adequate internal control structure 2. managements conclusions regarding its assessment of the effectiveness of the internal control structure and procedures for financial reporting 3. the auditor's attestation regarding managements assessment of internal control
What are the 4 costs of quality?
1. prevention costs 2. appraisal costs 3. internal failure costs 4. external failure costs
3 objectives of an entity's cost accounting system(s)
1. product costing (inventory and cost of goods manufactured and sold) 2. efficiency measurements (comparison to standards) 3. income determination (profitability)
What are the four types of computer security policies
1. program level policy 2. program framework policy 3. issue specific policy 4. system specific policy
SOX penalties on officers who are responsible for material misstatements resulting from their misconduct. Penalties include:
1. refund to the issuer of any bonus or other incentive-based or equity-based compensation during the 12-month period following the first public issuance of the financial document 2. Refund any profits realized from the sale of the securities of the issuer during the 12-month period following the first public issuance of the financial document
There are three main types of IT security controls, including
1. technical, (technology driven) 2. administrative, 3. Physical. Technical controls indicate information technology controls that are either general controls or application controls Administrative control involves segregation of duties among employees Logical controls are embedded in technical, physical and administrative controls
6 principles of technology-driven strategy development
1. technology is a core input to the development of strategy 2. strategy development must be a continual process 3. innovative, emerging business opportunities must be managed separately and differently from core businesses 4. Technology has the power to change long-held business assumptions 5. Technology must be managed to create innovation in existing business and to create new markets and products with emerging technologies 6. IT should be focused on customer priorities, internal efficiencies, and maximization of advantages of the entity
3 categories of exchange rate risk
1. transaction risk (exposure) 2. economic risk (exposure) 3. translation risk (exposure)
annual percentage rate for quick payment discounts
360/(pay period-discount period) x discount %/(100%-discount %)
Examples of Input Controls: 4. Closed Loop Verification - 5. Sequence Check - 6. Hash Total -
4. Reduces data entry errors by retrieving other related information when an input such as a phone number is entered. If the wrong customer comes up, the user knows they type the number wrong 5. Verifies all the numbers in a sequence have been accounted for, such as check numbers 6. Provides a total for a field with no actual meaning, but can be used to prevent errors. Such as adding up the numbers of a customer account number which can b e used later to check for errors
change in demand
A change in demand describes a shift in consumer desire to purchase a particular good or service, regardless of a variation in its price. The change could be triggered by a shift in income levels, consumer tastes, or a different price being charged for a related product. NOTE: Neither of these are on either axis, only price and quantity... which means if there is a factor outside of price and quantity, it will trigger shifts either left or right. Typicaly, Left if the demand is lower due to increased prices and Right if demand is higher on the newly shifted curve if the demand is higher due to decrease in prices.
Change in Quantity Demanded
A change in quantity demanded refers to a change in the specific quantity of a product that buyers are willing and able to buy. NOTE: This change in quantity demanded is caused by a change in the price.
Decision Support System (DSS)
A computer-based information system that provides interactive support for managers during the decision-making process. A DSS is useful for developing information directed toward making particular decisions
What is a control chart and how is it used as a statistical quality-control tool?
A control chart is used to plot a comparison of actual results by batch or other suitable constant interval to an acceptable range -control charts effectively indicate whether there is a trend toward Improved quality conformance or Deteriorating quality conformance
Absorption Costing
A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs on the balance sheet to be capitalized, not immediately expensed.
Absorption Costing (Absorption Approach)
A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs. Revenues LessCOGS = Gross Margin Less Operating Expenses = Net Income
Direct Costing system (i.e. Contribution or Variable Approach)
A costing system that assigns only direct manufacturing costs, not fixed manufacturing costs, to products or services. Also known as variable costing system, marginal costing system, or Contribution Approach. Revenue Less Variable Cost = Contribution Margin Less Fixed Costs = Net Income
How does a decline in the value of a currency relative to the currencies of a nation's trading partners generally affect exports?
A decline in the value of a currency relative to the currencies of a nation's trading partners generally causes an increase in exports, because the nation's goods are cheaper than before the decline.
Is the demand curve shift to the left associated with a + increase or (decrease)?
A demand curve shift to the left is associated with a (decrease)
Is the demand curve shift to the right associated with a + increase or (decrease)?
A demand curve shift to the left is associated with a +increase
Positive pay
A disbursement service used to combat payment (primarily check, but increasingly ACH) fraud, wherein a company transmits a file of payment information to the disbursement bank either at or before the time of the physical distribution of checks or anticipated ACH debits. The bank matches check serial numbers and dollar amounts of checks presented for payment against the issue database and pays only those checks or ACH transactions that match all relevant criteria. Any exceptions are conveyed to the company for its decision whether to pay or return the item. Positive Pay is a system that matches details like account and check numbers presented for payment with a previously authorized list of checks and accounts. It is a proven fraud detection tool.
What is a feasibility study?
A feasibility study determines if the proposed solution is feasible and achievable from an economic (i.e. financial), technical, and organizational standpoint.
Feasibility Study
A feasibility study determines whether a proposed system is practicable from the following standpoints: -Technical standpoint -Operational standpoint -Economical (i.e. financial) standpoint
Cross Elasticity
A measure of the responsiveness in quantity demanded of one good to changes in the price of another good. Ce= %change in number of units in X demand (supplied) / %change in price of Y
the contractionary phase of a business cycle
A phase or period when economic output declines. During this phase or period, the economy produces fewer goods and services than before. As a result, when fewer goods and services are produced, firms use fewer resources—including labor and unemployment—is on the rise. Profits of firms keep falling, it results in a trough. The contractionary phase in a business cycle is when aggregate demand is on the decline, which leads to lower production, a fall in profits, fewer jobs, and unemployment.
complete disaster recovery plan
Alternate processing site, . backup and offsite storage procedures, identification to applications, test of the plan is correct.
What is a control baseline?
A reasonable starting point for monitoring.
Recession
A recession is characterized by decreasing levels of economic activity. A decrease in stock prices, building permits, and commercial loans would characterize a recession, which is normally not the best time for a business owner to move forward on a planned expansion.
What is a security?
A security is an investment that represents either an ownership stake or a debt stake in a company.
Source code comparison program
A source code comparison program is used by the auditor to compare the current version of the client's accounting system with the source code. If no changes were authorized, the two versions should be identical; any differences are investigated. A source code comparison program could be used to compare the original code written for a specific program to the current code in use for that program. Thus, it would make note of any differences in the program from the time it was originally written.
Accounting Information System (AIS)
A system that a business uses to collect, store, manage, process, retrieve, and report its financial data. A transaction processing system that provides information to management for use in measuring, planning, and controlling an entity's activities, using historical and budgeted amounts, usually financial. A system that collects, records, stores, and processes data to produce information for decision makers. It includes people, procedures and instructions, data, software, information technology infrastructure, and internal controls and security measures.
Interactive System
A system that quickly responds to user input, as opposed to a system with punch-card entry, for example. A system that allows each user to interact directly with the operating system. A system that allows direct communication between user and computer.
progressive tax
A tax for which the percentage of income paid in taxes increases as income increases (i.e. as your income progresses, so does you income taxes) tax rate that increases (or progresses) as taxable income increases. It imposes a lower tax rate on low-income earners and a higher tax rate on those with a higher income. This is usually achieved by creating tax brackets that group taxpayers by income range. takes a larger percentage of income from high-income groups than from low-income groups and is based on the concept of ability to pay. A progressive tax system might, for example, tax low-income taxpayers at 10 percent, middle-income taxpayers at 15 percent and high-income taxpayers at 30 percent.
Natural Language Processing (NLP)
A technology that converts human language (structured or unstructured) into data that can be translated then manipulated by computer systems; branch of artificial intelligence. The ability of a computer system to understamd spoken human language. was developed so users could communicate with the computers in human language. is an input-output tool.
5 common risk responses
Avoid Share Accept Pursue Reduce
Advantages and Disadvantages of Short-Term financing (matures within a year)
Advantages: -increased liquidity -increased profitability -decreased financing costs -higher levels of temporary working capital Disadvantages: -higher interest rate risk -decreased capital availability
Activity-based costing (ABC)
ABC is a costing theory that assumes that resource-consuming activities cause costs and that costs should be assigned to benefiting products based on the activities performed and the resources consumed. ABC systems often divide costs into multiple activity centers and identify the activities that drive the costs in each cost center. costs are then assigned based on the volume of cost drivers at the determined rate per cost driver. -a technique to assign product costs based on links between activities that drive costs and the production of specific products
spoilage
Abnormal spoilage: charge to income of the current period Normal spoilage: increase the cost of the product produced (ex: inventory)
Year End Inventory under Absoption and Variable Costing
Absorption cost = higher as the cost will be a part of inventory that gets expensed overtime to be consistent with the matching principle. Note: which is why this one is recquired/used under GAAP) Variable Cost = lower since the cost is not applied to product cost, but immediately posted as the cost during the period ie. a period cost.
employee master files
Access to the employee master files should be limited to authorized employees in the personnel department only. This is an effective separation of duties.
The SOX Act 2022
Act that generally applies to the following: -Large US Corporations that have registered debt with the SEC -Large US Partnerships that have registered securities with the SEC -Non US Corporations that have registered debt with the SEC -Non US Corporations that have registered securities with the SEC
Advantages and Disadvantages of Long-Term financing
Advantages: -decreased interest rate risk (lock in rate now for 30 years) -increased capital availability -higher levels of permanent working capital Disadvantages: -decreased liquidity (non current assets are less liquid) -decreased profitability (higher financing cost) -increased financing costs (more expensive)
DRP (Disaster Recovery Plan):
Allows organizations to make a plan for disasters and recover from them. The top priority is "mission critical" activities. The lowest priority is given to "task critical" activities
Steering Committee
Advisory group that provides support, guidance, and oversight of particular issues or projects. Members of steering committees meet and collaborate to define, prioritize and control projects.
The U.S Exports more -
Agricultural products and services than it imports
Quality Management: Just-in-Time (JIT) System -
Aimed at reducing activities that do not increase the value of the product to the customer
Exit Price -
Amount that you would receive to sell an asset or be paid to transfer a liability in an arm's length transaction. According to GAAP, valuation can only be based on exit price. Location and condition are taken into account when determining price
Imports and Exports are included when calculating -
An Economy's GDP
Trojan Horse -
An application that appears legitimate but performs some other illicit activity
Cost Center -
An area where costs are accumulated and then distributed to products
Risk Strategy
An entity's plan for dealing with risk within its risk appetite.
Stages of the SDLC: Stage 2:
Analysis - Requirements definition: This formally identifies what the system must accomplish
SWOT Analysis -
Analyzes a company's strengths and weaknesses in the context of the company's external factors: 1. Strengths 2. Weaknesses 3. Opportunities 4. Threats
Competitive Analysis: Economic Depression -
Annual cash investment required to replace fixed assets
Relevant Costs: Avoidable Costs -
Are costs that can be avoided by choosing one alternative over the other
Why should a control baseline be updated?
As part of a change management process.
Section 404(b) requires a publicly held company's __________to attest to, and report on, management's assessment of its internal controls.
Auditor
Asset Utilization: Days sales in receivables or average collection period -
Average accounts receivable/Average sales per day
Point of Sale System (POS) -
Combines online and real-time processing at a central location
Governance & Culture ("DOVES")
D-desired culture O-oversight from board V-values commitment E-employees (capable) S-structure established
Prime Cost
Direct Materials + Direct Labor
Ending Inventory Formula
Beginning Inventory + Purchases - Cost of Goods Sold = EI
Goods Sold Formula
BI + Purchases = COGAFS - EI = COGS OR... BI + WIP Completed = GAFS - EI = COGS
Risk in Business information system
BIS: 1. strategic risk: includes risk of choosing inappropriate technology 2. operating risk: includes risk of doing the right things in the wrong way 3. financial risk: risk of having financial resources lost, wasted, or stolen 4. information risk: risk of loss of data integrity, incomplete transactions, or hackers
An increase in a _____________________________account can result in a surplus when more money enters a nation than leaves it, or a deficit reduction occurs when more money leaves a nation than enters it.
Balance of payments (BOP) Example: Loans to Canadians by foreigners result in money entering Canada. Purchases by Canadians of foreign goods and dividends paid to foreigners are outflows of money.
Bank reconciliations
Bank reconciliations are periodic reconciliations through which errors relating to check deposits and issuances can be uncovered and corrected on a timely basis. Appropriate amounts are provided from the bank statement for comparison to entries in the books. Bank reconciliations can uncover differences in balances between bank statements and cash balance on the entity's books due to reasons like human errors, deposits in transit, outstanding checks, and interest earned/bank charges paid but not entered in books.
Transaction Processing System (TPS)
Basic business system that serves the operational level and assists in making structured decisions (record the routine, daily transactions necessary to conduct business)
Why does inflation distort reported income?
Because depreciation is not reflective of current fixed-asset replacement costs
International Trade -
Becomes a bigger and bigger part of the worldwide economy every year, including becoming a larger and larger part of U.S economic activity
DM usage budget equation
Beg. inventory at cost + Purchases at cost - End inventory at cost = DM usage
The discount rate is the rate the Fed charges to banks for -
Borrowing money from the feds. If banks pay lower interest, then banks are out opening more loans, which increases the money supply
What does risk management focus on?
Both Internal AND external events that may impact objectives.
Direct labor budget
Budgeted production (units) X hours required to produce each unit = Total number of hours needed X hourly wage rate = Total Wages
Documentation -
Building the systems and software of an entire IT system requires documentation in order to evaluate the system, train employees on using the system, re-create or redeploy the system after a crisis, and for auditors to use during audits
Economic activity is continuously characterized by fluctuations known as _________________________________ which reflect the rise and fall of economic activity.
Business Cycles
BPR vs BPM
Business Process Reengineering represents the techniques used by an organization to help rethink how work should be done to significantly improve customer satisfaction and service, reduce operating costs, and enhance competitiveness. BPR = RADICAL change BMP = INCREMENTAL change
Cost Volume Profit Analysis: Contribution Margin -
Businesses use the CM to figure out the portion of revenues that are available to cover fixed costs, which is another way of saying calculating the breakeven point.
CM ratio
CM ratio = CM/rev
Asset Utilization: Inventory Turnover
COGS/Average Inventory
the currency option hedge used to mitigate transaction exposure to exchange rate risk for payables
CALL OPTION: option to BUY a foreign currency at a pre-negotiated price; mitigates payable exchange rate risk. PUT OPTION: option to SELL a foreign currency at a pre-negotiated price; mitigates receivables exchange rate risk
calculate the cost of retained earnings using the capital asset pricing model (CAPM)
CAPM Formula: Market Rate of Return Less: Risk Free Rate = Difference x Stock's Beta =Amount Add: Risk Free Rate =Cost of Retained Earnings Using CAPM Model Example: Stock's beta: 0.95 Risk-free rate: 7.48% Market rate of return: 11.70% Formula: Risk free rate + (Beta*(Market Return-Risk Free Rate)) 7.48 + [0.95 x (11.70 - 7.48)] 7.48 + (0.95 x 4.22) 7.48 + 4.01 = 11.49% or 11.70 (Market Rate or Return) -7.48 (Risk Free Rate) ------------------------- =4.22 (Market Premium) x .95 (Beta) -------------------------- =Total +7.48 (Add Back Risk Free Rate) ---------------------------- = 11.49 (Cost of Retained Earnings)
cash conversion cycle (CCC)
CCC= inventory conversion period + receivables (A/R) collection period - payables (A/P) deferral period
4 methods for valuing TANGIBLE assets (property, plant, and equipment)
COST METHOD: the value of the assets is based on the original cost paid MARKET VALUE METHOD: the value is determined based on Replacement cost or net realizable value (NRV) APPRAISAL METHOD: a professional appraiser determines the value of the assets LIQUIDATION METHOD: the liquidation value represents the amount the company would get upon sale in an active market
Expected Value -
Calculated by calculating the weighted average of the outcomes to determine the long-run average outcome
Using inventory and Receivables -
Can be used as short-term financing by pledging or factoring inventory and/or receivables - Firm can pledge a portion or all of its inventory as collateral for short term loan - Firm can 'factor' A/R (selling the receivables at discount to get cash sooner than waiting for customers to pay)
1. Storage costs 2. Insurance costs 3. Opportunity costs of inventory investment 4. Lost inventory due to obsolescence or spoilage *the lower the carrying costs of inventory, the more inventory companies are willing to carry. Additionally: Carrying costs include handling, interest on invested capital, storage costs, and obsolescence.
Carrying costs include:
Zero-Balance Account -
Cash management tool that removes any excess cash at the end of each day and moves it to another account
What is the importance of making changes early in the system life cycle?
Changes are less expensive to make early in the system life cycle.
examples of commodities
Commodities include VALUABLE -agricultural products: such as wheat and cattle, -energy products: such as oil and natural gas, -metals: such as gold, silver and aluminum. -There are also "soft" commodities, or those that cannot be stored for long periods of time, which include sugar, cotton, cocoa and coffee.
Consumer Price Index -
Compare relative price changes over time. It's what the federal government uses to measure inflation
Net Present Value Approach -
Compares the present value of expected cash flows of the project to the initial cash investment in the project. With this model, if the net present value is zero or positive, then the project is considered economically feasible
Master Budget -
Comprehensive plan for all activities of a company
Local Area Network (LAN) -
Confined to a small geographic area such as one office or even just one floor
Conformance costs and nonconformance costs (achieving quality standards)
Conformance costs=costs associated with maintaining existing quality standards, include both prevention and appraisal costs Nonconformance costs=costs associated with correcting nonconformance with existing quality standards, include internal failure and external failure costs
Who changes the tax rate?
Congress
Structural Unemployment -
Consists of workers who have lost their jobs due to the need for their job being greatly reduced or eliminated, which includes as a result of technology
Kaizen
Continuous improvement!!!! Efforts that improve the efficiency and effectiveness of organizations through greater operational control. Kaizen occurs during the manufacturing stage
Prime Costs -
Direct labor and direct materials grouped together
Direct Costing is another word for
Contribution Approach. Revenue - Variable Cost ___________________________ = Contribution Margin - Fixed Costs ____________________________ = Net Income
Contribution Margin Ratio
Contribution Margin / Sales
Existing Control Activities (CA T P)
Control Activities Technology controls Policies and procedures
The following examples of internal audit activities are related to which of the 5 COSO Internal Control Framework Components? - Surprise visits that specifically focus on assessing the tone at the top of high-risk subsidiaries, business units, and locations. -Analysis of calls made to a confidential whistle-blower tip line. - Analysis of the results of ethics surveys of company employees.
Control Environment
Monetary Policy -
Controlled by the Federal Reserve and deals with achieving national objectives through control of the money supply
Run to Run -
Controls are counts that monitor the number of units in a batch as they move from one procedure to another
Corrective Controls -
Controls meant to reverse the effects of an error
Application Controls -
Controls over the data input and processing meant to ensure the accuracy, completeness, and validity of transactions processing
Company-level controls
Controls that exist at the company level that have an impact on controls at the process, transaction, or application level. NOTE: generally includes periodic discussions with key management, reviewing company-wide policies, and reviewing company planning and budgeting reports.
Preventative Controls -
Controls that prevent an error before it occurs
Roles within IT: Data Control -
Controls the flow of documents in and out of computer operations
List and define the types of responsibility segments (or strategic business units-SBU's) that are used to establish business performance measures
Cost SBU -managers are held responsible for controlling costs Revenue SBU -managers are held responsible for generating revenues Profit SBU -managers are held responsible for producing a target profit Investment SBU -managers are held responsible for return on investment
Inventory Costs: - Factory Overhead
Cost of indirect labor, indirect material, and other miscellaneous costs 1. Absorption costing assigns all 3 above factors to inventory. Absorption costing is required for external reporting purposes 2. Under direct costing, only variable manufacturing costs are treated as product costs, everything else is a period cost
Example of a tool a systems analyst uses in selecting the best system
Cost-benefit analysis
internal failure costs
Costs are incurred when products are defective and are detected before shipping them to the consume! costs resulting from defects that are discovered during the production of a service or product
Relevant Costs: Sunk Costs -
Costs in the past and are irrelevant for decision making going forward
Variable costs
Costs that DO change and DO vary, along with the change (increase or decrease) in production or sales level.
Quality Management: Prevention Costs -
Costs that are aimed at reducing activities that do not increase the value of the product to the customer
Relevant Costs:
Costs that have different future costs and benefits
Fixed Costs -
Costs that remain constant regardless the # of units produced
Fixed costs
Costs that remain the same/do not change or vary, regardless of the change (increase or decrease) in production or sales level.
Variable Costs -
Costs that vary in direct proportion with the number of units produced. Such as a special part that goes on every product. If there's 100 units produced you have to buy 100 of these parts, if 1,000 units then 1,000 parts
Tone at the top helps a company do the following:
Create a compliance-supporting culture that is committed to ERM Navigate gray areas where no specific compliance rules or guidelines exist Promote a willingness to seek assistance and report problems before it is too late for corrective action. All these are positive steps that a company should take, and these will trickle down all the way to the mail room. However, tone at the top does not help or ensure a company adheres to fiscal budgets and goals.
Biggest Risk with moving operations off-shore -
Culture/language issue
Ratios: Current Ratio -
Current assets/current liabilities
Quality Management: Nonfinancial Measure about product quality include -
Customer returns and allowances, and number and types of customer complains. If a product has a high return rate, it is a good sign of low quality
Conversion Costs -
Direct labor and factory overhead
DL Variances
DL rate variance and DL efficiency variance 1. DL rate variance= (Actual labor rate-Standard labor rate)x Actual hours worked 2. DL efficiency variance= (actual hours worked-standard hours allowed)x Standard labor rate
Monitoring control effectiveness
DOES NOT provide comfort on whether controls operate effectively at a specific point in time, However, -DOES have influence over additional detail testing that may be necessary -DOES include the control environment
Capital Budgeting -
Deals with investments that have the prospect of long-term benefits
why do creditors use debt covenants in lending agreements, how does this impact the issuer
Debt covenants are stipulated in lending agreements to protect the creditors' interests by limiting or prohibiting certain actions of the debtors that may be harmful to the creditors interests (ex: issuing more debt) debt covenants are disadvantageous to the issuer (the debtor), as they may restrict certain management activities (ex: selling assets)
Risk
Degree of uncertainty of return on an asset; in business, the likelihood of loss or reduced profit. Risk boils down to uncertainty about what is or what might happen. Uncertainty is reality in many ways, and it is something that every entity needs to manage and minimize. Risk is associated with the chance of unknown events occurring that can or might have either a positive or negative impact on the entity.
Demand shift to the LEFT means
Demand shift to the LEFT means decrease in demand. Example: A decrease in average household income.
Demand shift to the RIGHT means
Demand shift to the RIGHT means increase in demand Demand shift to the RIGHT means more of the good or service are demanded even though there's no change in price. When the economy is booming, buyers' incomes will rise. They'll buy more of everything, even though the price hasn't changed. A shift to the right indicates increased demand at all price levels. An increased population increases overall demand. Or an Increase in Income.
Stages of the SDLC: Stage 3:
Design: Systems Model: The interactions among systems and users is flowcharted
Detective Controls -
Designed to detect an error after it has occurred
Roles within IT: System Analysis -
Designs and Analyzes computer systems, and they usually lead a team of programmers
Cost Approach -
Determines what it would cost to construct a replacement item
Stages of the SDLC: Stage 4:
Development
Node -
Device connected to a computer network
Cyclical Unemployment -
Difference between 'total unemployment' and 'natural unemployment'. it's the loss of jobs due to a downturn in the economy
GDP Gap -
Difference between Real GDP and Potential GDP
Working Capital -
Difference in a firm's current assets and its current liabilities. Objective is to meet the operating needs of the company such as purchasing inventory and having enough cash to meet obligations as they become due
a purchasing manager most likely influence
Direct materials price. A purchasing manager is involved in materials purchasing decisions and is concerned with the price of materials purchased. Note:the purchasing manager is not in a position to manage how efficiently materials are used (materials quantity) or manage the aspects of labor (either labor rates or labor efficiency).
Cost of Carrying Inventory -
Directly related to how much inventory a company should keep on hand - If the cost rises, the company should carry less inventory, and vice versa
diversifiable & nondiversifiable risk
Diversifiable risk: UNSYSTEMATIC RISK, NONMARKET, FIRM SPECIFIC Nondiversifiable risk: SYSTEMATIC, MARKET RISK
User Documentation -
Documentation that helps an untrained user be able to understand and use the system
DuPont ROE
DuPont ROE= net profit margin* asset turnover* financial leverage Net profit margin= net income/sales asset turnover= sales/total assets financial leverage= avg. total assets/equity
Frictional Unemployment -
Due to workers being in transition between jobs or relocating
Times Interest Earned
EBIT/ interest expense
Advantage of Payback Period Approach -
Easy to use and understand
An inventory-control technique/model that identifies the optimum number of items to order, which in turn minimizes the total ordering and holding costs associated with inventory purchases. EOQ = square root of: [2SD] / H, where (S= Supply cost, D = Demand and H = Holding Cost)
Economic Order Quantity (EOQ) Model
_________________ Occurs when companies experience cost advantages when production becomes efficient, as costs can be spread over a larger amount of goods.
Economies of scale
Interest rate that a borrower ACTUALLY pays on a loan.
Effective interest rate
Elasticity vs. Inelasticity
Elasticity occurs when demand responds to changes in price or other factors. (Visual: Rubberband changes... it constricts and stretches as it responds to responds to changes in price or other factors ) Inelasticity of demand means that demand remains constant even with changes in economic factors. (Visual: Rubberband stays the same -- responds very little or not at all to the changes in price or other factors)
EFT
Electronic Funds Transfer; exchange of money by sending bank records via a computer network
Processing Controls -
Ensure that updates and changes to the master file are accurate and authorized
Objective Setting -
Ensures the company sets its objectives at the 4 specified levels (strategic, operational, reporting, and compliance)
ERM
Enterprise Risk Management is the culture, capabilities, and practices integrated with strategy-setting and performance, that organizations rely on to manage risk in creating, preserving and realizing value
As related to a company's liquidation process, although Commercial Paper is short-term debt, it has a higher priority over
Equity claims. Note: Equity claims, such as high-yield stocks, are risky Common stock and stock options are riskier than commercial paper.
equivalent units and total cost calculated using the FIFO method?
Equivalent units= (beginning WIP x %to be completed) + units started and completed + (ending WIP x %completed) total costs= cost incurred during the current period
equivalent units and total cost calculated using the Weighted Average Method
Equivalent units= units completed and transferred out + (end WIP x %completed) total costs=costs in beg. WIP + costs incurred during the current period
Fiscal Policy -
Established by Congress and deals with spending and taxes
As related to IT, Examples of activities The Board of Directors would participate include:
Establishing long-term strategy and objectives to which their information technology system should be aligned. Ensuring that suitable information technology resources and skills are available to meet the company's strategic objectives. Maintaining awareness of current technology used by the organization to assure its efficiency and effectiveness for financial reporting. Note: An issuer's board of directors is entrusted with the responsibility of creating a conducive environment in the organization to support the adoption of technology. As such, it is expected to create and enforce strategies to align the organizational goals with IT goals. Resources are to be made available while also making the stakeholders, both internal and external, aware of current technology.
Control Environment (EBOCA)
Ethics Board independence and oversight Org. structure Commitment to competence Accountability
Who has experienced the largest decline in share of worldwide output in the last 40 years?
Europe
Probability Analysis -
Evaluates the likelihood of a specific event when several outcomes are possible
Event Identification -
Events that might affect the organization's ability to meet its objectives
Six Sigma DMAIC
Existing product and business process improvement 1. *D*Define the problem 2. *M*Measure key aspects of current process 3. *A*Analyze the data 4. *I*Improve or optimize current processes 5. *C*Control
The expected value is calculated by multiplying each of the possible outcomes by the likelihood that each outcome will occur, and then summing all of those values. By calculating expected values, investors can choose the scenario most likely to produce the outcome they seek. To compute the expected value, the various values are multiplied by their probabilities and then added together. Simply multiply each value of the random variable by its probability and add the products.
Expected value formula
Mission Statement -
Expresses the purpose and scope of activities of an entity. Creating a mission statement should be the first step in the strategic planning process
When more overhead costs are applied to a product then are actually incurred -
Factory overhead is over-applied. When this happens, product costs have been OVER-stated, and COGS will be decreased to correct it
When less overhead costs are applied to a product than actually incurred -
Factory overhead is under-applied. When this happens, product costs have been UNDER-stated, and COGS will be increased to correct it
Breakeven Formula -
Fixed Costs/Contribution Margin Example: If you have fixed costs of $400, you'd need to sell 100 units to breakeven (400/$4 per unit = 100 units)
Performance Improvement: Demand Flow Approach -
Focuses on linking process flows and managing them based on customer demand
When to choose NPV over IRR
For independent projects, NPV and IRR criteria lead to the same "accept" or "reject" decisions. However, when considering mutually exclusive projects, an entity may choose only one project. In this process, it is possible for the NPV and IRR criteria to assign different rankings to mutually exclusive projects. And, sometimes, If the two projects differ in size or timing of cash flows, NPV and IRR will give conflicting results. When NPV and IRR give conflicting rankings, projects with the highest NPV should be chosen as NPV is in line with the objective of the shareholder's wealth maximization. For example, consider the following two projects: Project A - IRR = 11% and NPV = $210K Project B - IRR =12% and NPV = $195K Of the given Projects, Project A has the highest NPV of $210,000 so Project A would be most advantageous to the company.
Purpose of 'Porter's 5 Forces' -
Framework to assess the competitive environment of an industry
Mirrored Site
Fully redundant facility - this has the highest cost
fundamental law of demand, and factors that shift the demand curves
Fundamental law of demand: The Price of a product (or service) and the Quantity demanded of that product (or service) have an Inverse relationship Factors that shift the demand curves are represented by the mnemonic "WRITEN" and are changes in Wealth Related goods Income of consumers Taste or preferences Expectations Number of buyers in the market
Fundamental law of supply and factors that shift the supply curve
Fundamental law of supply: price and quantity supplied are positively related. The higher the price received for a good, the more quantity sellers are willing to produce Factors that shift supply curves are represented by the mnemonic ECOST and include: Expectation price changes of the supplying firm Costs of production Other goods demanded Subsidies or taxes Technology
Relevant Costs: Irrelevant Costs -
Future costs which don't change based on different alternatives
5 components of ERM
G-governance and culture O-objective setting/strategy P-performance R-review and revision O-ongoing information, communication, and reporting
Deflation -
General decrease in prices and interest rates
Inflation -
General increase in prices and interest rates
System Documentation -
Gives an overview of the programs and data, and how the system programs work together
Preferred Stock -
Gives an ownership interest in a corporation with certain preferences over common stock. Preferred Stock has characteristics of both bonds and common stock
Common Stock -
Gives basic ownership of interest in a corporation and usually has voting rights
Gordon Growth Dividend Discount Model
Gordon growth DDM assumes that a stock will pay future dividends that grow at a constant rate through perpetuity Pt=D(t+1)/(R-G) current price (price at period "t") D(t+1)= dividend one year after period "t" R=required return
In a free market economy -
Government regulation should be the least important factor in determining resource allocation
Roles within IT: System Administrators -
Grants access to system resources and manages activities within the system
Cost Pools -
Group of costs that are associated with a specific cost center
Cartel -
Group of firms that conspire together to fix prices
Output Controls -
Help ensure that reports are accurate and distributed to authorized users
Inventory under absorption costing will be
Higher
Lock Box System -
Improves control over cash because customer payments are made directly to the bank where the lockbox is and the bank employees are the only ones who deal with cash
Level 1 of determining the fair value under GAAP:
Highest and most reliable. Consists of having observable quoted market prices for identical assets/liabilities in an active market, such as stock prices listed on the stock exchanges BEST evidence for fair value
inventory conversion period
ICP= 365/inventory turnover inventory turnover= COGS/Avg. inventory
Online Real Time Processing (OLRT) -
Immediate transactions take place as they occur, such as an internet order
As related to Information Technology (IT), which of the system life cycle stages, is it the most expensive to correct system errors?
Implementation Note: Any kind of change, including correction of an error, is less expensive to make early in the system life cycle. The life cycle order is analysis, design, development, testing, implementation, and maintenance.
Stages of the SDLC: Stage 6:
Implementation - Parallel Implementation: The old system and new system are run side by side until its clear the new system works Cold Turkey: The old system is dropped and the new system is implemented all at once Phased Implementation: The new system is implemented in phases Pilot Implementation: Users are divided into small groups and one group at a time implements the new system
Client -
In a computer system is a computer used by an end-user that doesn't supply network resources
Perfect Competition -
In a perfectly competitive market, there is a large number of buyers and sellers, and so no single trader could have a significant impact on market prices. In this market, the demand curve would be perfectly horizontal
Economic Order Quantity Formula -
Method that aims to determine the order size that will minimize the total inventory cost, both cost and carrying cost
Application Control Examples
Include completeness and validity checks, identity, authentication, authorization, input controls, and forensic controls are all examples of application control. Logic Tests are an example of application control. As logic tests are a test of reasonableness. It checks data to see whether data is in two or more fields is consistent.
Competitive Analysis: Return on Investment (ROI) -
Income/average invested capital -A simplified version is net income/total assets -the "DuPont" method of ROI is profit margin x asset turnover
Advantage of ERP:
Increased efficiency in evaluating data to make decisions
Audit committee members of issuers are required, under the Sarbanes-Oxley Act of 2002, to maintain which of the following traits? Integrity. Diligence. Independence. Proficiency.
Independence
payback method formula (payback period)
Initial Investment / Increase in annual net after-tax cash flow
COSO -
Integrated framework for internal controls
Compound Interest -
Interest earned on both the initial principal, and also the interest on the unpaid accrued interest from prior periods
In a large public corporation, who are the ones who should be evaluating internal control procedures -
Internal Audit Staff
JIT
Inventory DOES NOT add value. Just-in-time management anticipates achievement of efficiency by scheduling the deployment of resources JIT to meet customer or production requirements Just in Time. A system that eliminates work-in-process (WIP) inventory by scheduling arrival of parts and assemblies for an operation at the time they are needed and not before.
Variance Analysis -
Involves developing standards for production such as materials, labor, and overhead, and then comparing actual results to budgeted results which creates variances between standard costs and actual costs -Nonmaterial variances are written off to COGS -Material variances are allocated to WIP, finished goods, and/or COGS
Separation of Duties
Involves dividing tasks and responsibilities among individuals or teams to prevent errors, fraud, and other financial misconduct. Is the concept of having more than one person required to complete a task that include: A- Authorizing transactions, R - Recording transactions, C- maintaining custody/control A well designed plan of internal control separates the duties of authorization, record keeping, and custody of assets. For example: Employees should separate ARC activities from related assets! Authorization to purchase assets Record keeping of assets (i.e. posting the purchase transaction to GL) Maintaining custody of assets Incompatible functions place a person in a position to both perpetrate and conceal errors or fraud in the normal course of her/his duties. Note: Marketing the sale of the assets is unrelated, so they could market the sale of the assets without being in a position fo perpetrate and conceal errors and fraud.
Performance Improvement: Lean Manufacturing -
Involves using flexible equipment, fast setup times, and highly skilled labor. Usually means producing small batches of unique products with highly skilled labor
Telecommuting
Involves working outside of a traditional office, remaining connected by the Internet, phone, et cetera. Work from home, making use of the Internet, e-mail, and the telephone. (i.e. working remotely)
Compensating Control -
Is a control that accomplishes the same objective as another control
Activity-based Costing (ABC Costing) -
Is looking at multiple cost drivers to better understand what drives the cost of the business Cost reduction in ABC costing is accomplished by identifying activities that do not add value and eliminating them
Enterprise Risk Management (ERM)
Is the process of managing risk across an entity.
Financial accounting
Is used for external purposes to the business. Must adhere to GAAP and therefore utilize defined historical cost principles.
Can cryptocurrency be bought on the stock exchange?
It cannot be bought on the stock exchange. And it has its own exchange platform.
Inherent Limitations of Internal Controls
It does not matter how good any single element of an internal control system might be, an internal control system can never be perfect, due to inherent limitations such as: 1. human error 2. changes in circumstances 3. errors in judgment 4. cost constraints 5. collusion 6. management override
Job Costing vs. Process Costing
Job costing: each unit/batch is unique and easily identifiable costs are determined by each job (trace to specific job/product) vs Process costing: continuous mass-produced identical units are manufactured, and costs are determined by activity/process/department (average over a batch) ex: we process crude oil into gasoline
Manufacturing Overhead Applied Vs Incurred
Jobs completed during the period should be charged with the manufacturing overhead APPLIED, not the manufacturing overhead incurred. Note: Some overhead costs are not incurred uniformly during the year. Therefore, applying overhead to production using a predetermined annual overhead rate helps prevent some jobs from being overcosted and others from being undercosted. Direct materials issued to production: $90,000 +Direct labor costs: $107,000 +Manufacturing overhead applied: 113,000 =Total manufacturing costs: $310,000 Add: Beginning WIP $0 =Total costs in WIP: $310,000 Less: Ending WIP $0 Cost of jobs completed during Period: $310,000
Attribute Standards:
Key characteristics of organizations and individuals performing internal audit activities *An external assessment of the internal audit function must be done every 5 years
Roles within IT: Data Entry Clerk -
Keys in data to the system
Economic resources that are scarce -
Labor, Capital, and Natural Resources
Hypertext Markup Language (HTML) -
Language for web pages
Market Risk (systematic risk) -
Large scale risk of markets and natural disasters that all businesses face. The risk can be mitigated to a small degree by some types of insurance
import quotas
Limits placed on the quantity of imports a nation will allow for a specific product limitations set by a government on the amount of a product allowed to enter or leave a country They indirectly raise prices by decreasing the supply
Strategic Alignment
Linking business and IT so they work well together
Electronic Audit Trail -
List of transactions written to a log as they are processed which provides a trail for transactions
Bonds -
Long-term promissory notes that pay the lender (people who buy bonds) a fixed rate of interest each year as well as repaying the face value of the bond at maturity
Strategic Risk -
Long-term risk a business faces by having competition. The risk is best controlled by strategic planning and optimizing operations
3 methods for valuing INTANGIBLE assets (patents, trademarks, intellectual property, etc.)
MARKET APPROACH: actual arm's-length transactions in a similar market are used as a reference for the asset to be valued INCOME APPROACH: future expected cash flows over the useful life of the asset are discounted to present value COST APPROACH: the value of the asset is determined based on replacement cost or reproduction cost
Centralized System -
Maintains all data and performs all processing at a central location
Roles within IT: System Programmers-
Maintains and updates operating systems and hardware
Stages of the SDLC: Stage 7:
Maintenance: User groups and help desks are used to monitor and assess issues as time goes on
Value Delivery
Making sure that the IT department does what's necessary to deliver the benefits promised at the beginning of a project or investment.
SEC assigns responsibility for the evaluation of the effectiveness of internal controls over financial reporting to
Management
Sarbanes-Oxley Act of 2002 (SOX) requires that _______________________________ of public companies assess the effectiveness of the internal control of issuers for financial reporting.
Management
Principals-based approach of COSO framework
Management judgment
The U.S Imports more -
Manufactured goods and industrial materials than it exports
Manufacturing Overhead under Absoption and Variable Costing
Manufacturing Overhead under Absoption costing will be included in product cost and under period cost for Variable Costing
Microeconomics vs. Macroeconomics
Micro-studies of the economy on a smaller scale (personal / local) Macro-studies of the economy on a large scale (nations / world) Microeconomics is the study of economics at an individual, group or company level. Macroeconomics, on the other hand, is the study of a national economy as a whole.
refers to firms with the largest market share in a particular market
Market leadership
Black Scholes -
Mathematical formula for valuing stock options
Potential GDP -
Maximum output that can occur in the domestic economy without creating upward pressure on the general level of prices
Performance Standards -
Meant to measure the effectiveness of the internal audit function
Ratios: Liquidity Ratios -
Measure a company's ability to meet its short term obligations
'Beta' -
Measure of how volatile an investment is compared to the rest of the market, or comparable items. Beta of 1 - equal Beta of 0.5 - half as volatile as comparable items Beta of 1.5 - one half more volatile than comparable items
Net Gross Domestic Product (Net GDP) -
Measures GDP less capital consumption during the period (GDP - Depreciation)
Asset Turnover Ratio
Measures how efficiently a business uses its average total assets to generate sales. Net sales / Average total assets.
Personal Disposable Income (PDI) -
Measures the amount individuals have to spend calculated as personal income - income taxes
Elasticity -
Measures the change in market factor as a result of a change in another market factor
Correlation Coefficient (R) -
Measures the strength of the relationship between the dependent and the independent variable. This value ranges from -1 (low correlation) to 1 (high correlation)
Real Gross Domestic Product (Real GDP) -
Measures the total output of final goods and serviced produced in the domestic market during thee period using constant prices. It is nominal GDP adjusted for changing prices
Nominal Gross Domestic Product (GDP) -
Measures the total output of final goods and services produced in the domestic market during a period (usually one year) example: A product that is finished and is sitting in finished goods at the end of 2011 should be included in the 2011 GDP
Personal Income (PI) -
Measures the total payments for economic resources received by individuals
Mirroring -
Method of backup that backs up an exact copy to multiple sites
Monitoring
Monitoring is a process that evaluates the quality of internal control performance over time by ensuring that internal controls continue to operate effectively as designed. Monitoring and continuous evaluation provide the following benefits: Provides incentives for employees to perform their duties properly over time. Enables those charged with governance to determine whether the internal control processes continue to operate effectively over time. Allows those charged with governance to identify and correct deficiencies before they materially affect financial statements. NOTE: Monitoring has NOTHING to do with meeting operating and financial expectations!
Monitoring -
Monitoring the company's data and its systems
What will the Federal Reserve do if it wants to expand the economy?
Most likely purchase federal securities and lower the discount rate
Globalization -
Movement toward a more integrated and interdependent world economy
multiplier effect
Multiplier = 1 / (1-MPC) MPC= marginal propensity to consume multiplier = change in real GDP = change in spending The multiplier effect shows how an increase in consumer, firm, or gov. spending produces a multiplied increase in the level of economic activity
The following is necessary to be an audit committee financial expert: criteria specified in the Sarbanes- Oxley Act of 2002
Must have: an understanding of generally accepted accounting principles and financial statements an understanding of audit committee functions experience with internal accounting controls
NPV
NET PRESENT VALUE is the difference between the PV of the cash inflows and outflows from a project
six sigma DMADV. new processes
NEW product or business process development *D*define design goals *M* measure critical to quality issues *A*analyze design alternatives *D*design optimization *V*verify the design
For independent projects, _____ and ______criteria lead to the same "accept" or "reject" decisions.
NPV and IRR
Operating Documentation or the "run manual" -
Necessary information to run the programs, used by computer operators
ROA
Net Income/Avg. Total Assets
Net Profit Margin
Net Income/Sales
Return on Equity (ROE)
Net Income/Total Equity Measure of the rate of return earned by a company on the equity component of its capital structure. It shows how well a company is using its funds to generate earnings
Wide Area Network (WAN) -
Networks that cover large geographic areas, such as a national network
Warm Site:
Place the business can relocate to after a disaster. It contains the hardware but no copies of backed up data
Risk Response -
Observed risks may be avoided, reduced, shared, or accepted
Information and Communication (OIE)
Obtain and use information Internally communicate information External parties communication
Long-Term Financing -
Obtaining funding that won't need to be repaid for a year or more
Future Value (FV) -
Of an amount is the value at a future date of an amount invested now *When doing PV and FV problems, if there is one amount, you use either PV or FV of $1 table. *If multiple amounts, equal payments, use the PV or FV of annuity
Present Value (PV) -
Of an amount, is the value right now of an amount to be received in the future. The amount to be received is discounted using an interest rate to get the "present value" of the amount right now
Cold Site:
Offsite location that has all the physical requirements for data processing, but doesn't have the actual equipment or data
Hot Site:
Offsite location that is completely ready to take over the company's data processing
general controls vs application controls
On the whole, general controls apply to all computerized applications and consist of a combination of hardware, software, and manual procedures that create an overall control environment. Application controls are specific controls unique to each computerized application, such as payroll or order processing.
When considering mutually exclusive projects, how many projects can an entity choose?
Only one project at a time can be chosen.
Ratios: Operating Profit Margin -
Operating Income/Revenue
Competitive Analysis: Residual Income -
Operating income - (investment x req. rate of return)
Debt Utilization: Times Interest Earned -
Operating income/Interest Expense
Operating lease vs Capital lease (lessee)
Operating lease: off-balance sheet financing, the lessee makes rent (expense) payments to a lessor in exchange for the use of an asset for an insignificant portion of its useful life. Capital lease: recorded on the balance sheet the lessee essentially acquires the assets from the lessor either in substance or in legal form with the asset and liability recorded on B/S
Ordering costs include quantity discounts lost, shipping costs, purchasing costs, and, in a manufacturing facility, set-up costs for production runs.
Ordering costs include
Annuity Due Formula
Ordinary Annuity * (1+r)
Account Receivable Management -
Overall goals of accounts receivable management is to maximize profits.
Business Continuity Management (BCM):
Overall process of planning for disasters
payables deferral period
PDP= 365/AP turnover AP turnover= COGS/Avg. AP
changes in QUANTITY demanded is affected by a change in
PRICE
calculate PV of $1
PV= FV / (1+r)^n r= interest rate n= number of years
PV of annuity
PV= PMT x [{1-1/(1+r)^n}/r]
Parenting strategy refers to building corporate synergies through resource sharing and development. Parenting strategy concentrates on building synergies among different businesses within a larger entity, allocating resources among units, and coordinating shared unit functions to take advantage of economies of scale.
Parenting strategy
Speculator
People who invest in a risky venture in the hope of making a large profit. A speculator purposely assumes risk in the foreign exchange market
Average Propensity to Save (APS) -
Percent of disposable income saved *APC + APS = Individual's disposable Income
Average Propensity to Consumer (APC) -
Percent of disposable income spent on consumption goods
End User Controls -
Performing checks on user-created totals and reconciling to separate records
Roles within IT: Data Librarian -
Person who maintains custody of the entity's data
a 'PEST' Analysis is a macro assessment of -
Political: political stability, labor laws, tax policies Economic: Growth rate, interest rate inflation rates Social: population growth, age distribution, education Technological elements of environment: level of research and development, tech infrastructure
A corporate-level strategy(not objective) that minimizes risk by diversifying investment among various businesses or product lines. Portfolio strategy refers to analyzing multiple product lines or businesses like a portfolio or series of investments
Portfolio Strategy
A normal supply curve has a -
Positive Slope
cost of equity (R/E) under bond yield plus risk premium (BYRP)
Pretax cost of debt + market risk premium (market rate-risk free rate)
The Total Quality Management (TQM) process identifies each of the following as a cost of quality:
Prevention costs Appraisal costs Internal failure costs External failure costs
What are the 4 costs of quality in the Total Quality Management (TQM) Process?
Prevention costs Appraisal costs Internal failure costs External failure costs
Denial of Service Attack -
Prevents legitimate users from accessing the system by flooding the system with requests. The attack is meant only to disable the system, not gain access to it
Price Elasticity of Demand (Ed)
Price elasticity of demand (Ed) measures responsiveness of demand to changes in price. % Change in Quantity/% Change in Price. Note: On a line Graph, The most elasticity is represented by the line with the mildest slope. In other words, the line with the mildest slope has the most change in quantity demanded for the same change in price.
What does prioritization of monitoring procedures include?
Prioritization of monitoring procedures includes: -A control baseline for effective and efficient monitoring.
Joint Probability -
Probability of an even occurring after another event has already happened. It is determined by multiplying the first even by the conditional probability of the second event
Feedback Controls -
Procedures where the results of a process are evaluated and if the results are undesirable, the process is adjusted to modify the results
Project Management: Crashing -
Process of adding resources to shorten selected activity times on the critical path
Valuation -
Process of assigning value to assets and liabilities
What is risk management?
Process of identifying and managing potential risks.
Risk Assessment -
Process of identifying and managing skills
Value-added activities -
Processes that contribute to the products value
Activities -
Processes that creates products
Non value-added activities -
Processes that do not contribute to a product's value
product costs include
Product cost refers to the costs incurred to create a product, including: - Direct materials (DM) (i.e. Purchase of Inventory) - Direct labor (DL) (i.e. Wages) - Manufacturing (i.e. factory) overhead (i.e.variable factory OH) - Consumable Production Supplies (i.e. machine setup costs)
Backdoor -
Program that lets a hacker bypass the regular security process such as a password
Anti-Retaliation Provision -
Protects whistleblowers from losing their job. It is illegal to punish a whistleblower to provides truthful information about any federal offense.
Extensible Business Reporting Language (EXBRL) -
Protocol for encoding and tagging business and accounting specific information in electronic form
Extensible Markup Language (XML) -
Protocol for encoding documents in a machine readable form
File Transfer Protocol (FTP) -
Protocol used for transfer applications
Advantages of long-term notes -
Provides capital to accomplish business objectives
Depression
SEVERE RECESSION A long-term economic state characterized by unemployment and low prices and low levels of trade and investment
What organization was established by the Sarbanes-Oxley Act of 2002 to control the auditing profession
Public Company Accounting Oversight Board (PCAOB) NOTE: The Sarbanes Oxley Act (SOX) of 2002 was enacted by the US government to enhance corporate responsibility, financial disclosure, and to battle corporate and accounting fraud. SOX also created the Public Company Accounting Oversight Board (PCAOB), under Title I, to oversee the activities of the auditing profession. The PCAOB is a non-profit private body, entrusted with the responsibilities of control of the auditing profession. Registering public accounting firms. Establish auditing, quality control, ethics, independence, and other standards relating to public company audits. Conduct inspections, investigations, and disciplinary proceedings of registered accounting firms. Enforce compliance with Sarbanes Oxley.
Corporate Governance: Responsibility-
Public companies are required to have an audit committee, which must have a 'financial expert' who has: - An understanding of GAAP and financial statements - Experience in preparing or auditing financial statements - Experience with internal auditing controls.
Title III of the Sarbanes-Oxley Act, "Corporate Responsibility," includes the following topics pertaining to financial reporting:
Public company audit committees Corporate responsibility for financial repots Improper influence on conduct of audits Forfeiture of certain bonuses and profits
A price ceiling causes a -
Quantity Shortage
A price floor causes a -
Quantity Surplus
3 objectives of COSO
R-reporting objectives (reliability, timeliness, transparency) O-operating objectives (effectiveness and efficiency) C-compliance objectives (adhering to laws and regulations)
receivables collection period
RCP= 365/AR turnover AR turnover= Sales/Avg. AR
Return on Investment (ROI)
ROI is used to assess the percentage return relative to capital investment risk. ROI can be calculated as income divided by invested capital or as a product of profit margin (income/sales) and investment turnover (sales/assets) ROI= Income / investment (assets)
RAM -
Random Access Memory: Contains temporary data used to run programs in process
'Just-In-Time' Inventory System -
Reduced inventory on hand and requires more frequent delivers from suppliers
the most effective way to reduce economic activity and prevent inflation
Reducing government spending, increasing taxes, reducing the money supply, and increasing interest rates are all ways to dampen the economy and prevent inflation.
When entities with higher income pay LESS tax as a proportion of income than entities with low income, the tax is classified as ________________.
Regressive Tax This is where everyone pays the same percentage of tax for purchases, regardless of income. Examples include: Property Tax Sales Tax
Forecasting -
Relationship between fixed, variable and total costs as a regression equation is: y = A + Bx - Y = Total Costs (dependent variable) - A = Fixed Costs (the Y intercept) - B = Variable cost per unit (the slope) - X = Number of units (independent variable) ----> A = Bx - Y
Four categories of entity objectives in the enterprise risk management framework
Reporting Operations Compliance Strategy Examples: Reliability of reporting (R) effective and efficient use of the entity's resources, (O) compliance with applicable laws and regulations (C) NOTE: implementation of internal controls is a means, not an objective.
Restricted access to blank checks
Restricted access to blank checks would ensure that the checks don't end up with unauthorized personnel to curb frauds.
File Attributes -
Restricts read/write/edit capabilities of a record
Ratios: Gross Margin -
Revenue - COGS
Contribution approach
Revenue - Variable Costs = Contribution Margin - Fixed Costs = Net Income
Ratios: Contribution Margin -
Revenue - variable expenses
absorption formula
Revenue-COGS=GM-operating expenses = net income
CAPM Formula
Risk free rate + (Beta*(Market Return-Risk Free Rate))
According to the COSO Enterprise Risk Management, what is the definition of risk
Risk is the possibility that events will occur and affect the achievement of strategy and business objectives
Incremental Budget -
Rolling budget that adds the current period and drops the oldest period, such as adding the next month and dropping the oldest month that's currently on the budget
Objective setting/strategy (SOAR)
S-strategies (alternative) O-objectives (business) A-analyzes business context R-defines risk appetite
Review and revision (SIR)
S-substantial change I-improvement in ERM R-reviews risk and performance
Monitoring (So D)
Separate/ongoing evaluations Deficiencies communicated
Project Management:
Series of activities to achieve a desired project in a limited amount of time using a temporary structure
Project Management: Critical Path -
Series of critical activities necessary for the completion of the project, and if any of the events on the critical path don't happen, the project will not be completed on time
Social Engineering -
Set of techniques used by a fraudster to get sensitive information from people instead of actually hacking computer systems
A large decrease in an economy's labor force would most likely -
Shift the aggregate supply curve left (lower it), because labor is an economic resource and would affect overall supply by lowering it
Tracing shipping documents (i.e. packaging slips or packing tickets) to prenumbered sales invoices, provides evidence that
Shipments to customers were properly invoiced.
ROI limitations
Short-term focus Disincentive to invest
Operational Risk -
Short-term risk that involves the risk of running a business day to day. This risk is best controlled by focusing on the execution of the company's strategic plan
For good control, the receiving department
Should not know the quantity ordered. This ensures they count the amount received, which should reconcile to the actual amount ordered once reviewed.
Aborted Print Jobs -
Since printed reports contain sensitive data, there should be a control to dispose of partial printouts or aborted print jobs
Perfect Monopoly (& 2 main reasons a monopoly would exist) -
Single seller where there is no close substitute for the good(s) they sell. 1. Single company is able to produce at a lower cost than multiple producers. This is "economies of scale" 2. If the company has legal control or authority of the resources required to produce the products
Examples of Physical IT security controls:
Smoke Detectors Generators Security Guards ID Badges Security controls are part of the internal control system that can be technology driven, administrative, or manual. Smoke detectors, generators, security guards and ID badges are all examples of manual or physical controls.
Enterprise-wide Resource Planning System (ERPs)
Software system that processes transactions, supports management, and aids decision making throughout the entire organization in a single package. AKA (ERP integrates all of the data maintained by the organization into one database)
Arbitrageur
Someone who takes advantage of tiny differences in the exchange rate across markets by simultaneously purchasing a currency in one market and selling it in another market. Someone who buys in one market and sells in another at a slightly higher price, and thus, has significantly less risk than a speculator.
Risk Assesment (SAFR)
Specify objectives Assess and identify changes Fraud potential Risk (analyzed)
Real Interest Rate -
Stated rate for a period less the rate of inflation for that period
Predictive Analytics
Statistical and analytical techniques used to develop models that predict future events or behaviors. uses historical information and current trends to make future predictions.
Steps and formula for economic value added (EVA)
Step 1: Calculate the required amount of return and income after taxes Investment x Cost of capital = required return Step 2: Compare income to the required return Income after taxes-required return = economic value added
Macroeconomics -
Study of economic activity for an entire economy
Hi/Low Method of Cost Estimation -
Subtract the lowest cost from the highest cost and divide it by the lowest number of units subtracted from the highest number ex: (highest cost - lowest cost)/(most units - least units) = cost per unit
knowledge-based system (Expert)
Systems provide answers based on information provided by the user and rules developed by an expert to address specified situations. Business intelligence systems that provide intelligence that supplement's the user's own intellect and makes DSS more effective. For example, a tax planning expert's set of rules may be incorporated into a software program for use by inexperienced tax planning specialists. As new circumstances or decision-making techniques are developed, expert systems must be updated.
Information and Communication -
Systems that allow a company's employees to identify and exchange information regarding controls and operations
Ongoing information, communication, reporting (TIP)
T-technology and information leveraged I-information risk communicated P-performance and risk culture reports
What are total factor productivity ratios (TFP) and partial productivity ratios (PPR)
TFP and PPR are two types of productivity measures used as external benchmarks. Total factor productivity ratios (TFP's) reflect the quantity of ALL output produced relative to the costs of ALL inputs used.
extended DuPont ROE
Tax burden*Interest burden*Operating income margin*asset turnover*financial leverage -Tax burden= net income/pretax income -Interest burden=pretax income/EBIT -operating income margin= EBIT/sales -asset turnover= sales/avg. total assets -financial leverage=average total assets/equity
Technological leadership focuses on innovation or creativity. Technology touches every aspect of the workplace, including accounting. CPAs should have a creative mindset when it comes to technology.
Technological leadership
Big data analytics
Technologies, skills, and processes for searching and examining massive, complex sets of data that traditional data processing applications cannot handle to uncover hidden patterns and correlations.
Internal Labels -
Tells the program its using the correct files for the update process
People with a high proportion of liquid assets tend to have a __________ propensity for savings.
Tend to have a Low propensity of savings. People with many liquid assets (i.e. cash and cash equivalents) tend to increase consumption at every level of disposable income. Note: Savings results from income not spent on consumption. So, people with high debt loads tend to consume less, resulting in increased savings. Additionally, Increasing real interest rates and consumer expectations of future price decreases tend to increase the propensity for savings.
Stages of the SDLC: Stage 5:
Testing
According to Sox Act of 2022
The Board of Directors must have an Audit committee ENTIRELY composed of members who are independent of management influence.
SOX required disclosures to the auditors and the audit committee by officers
The CEO and CFO must certify the following for annual and quarterly reports to the auditors and the audit committee: 1. All significant deficiencies in the design or operation of internal controls 2. any fraud, whether or not material, that involves management
SOX assigns the following corporate responsibilities regarding internal controls that must accompany financial reports:
The CEO and CFO must certify the following for annual and quarterly reports: 1. The officers are responsible for establishing and maintaining internal controls 2. internal control is designed to ensure that material information is provided to internal and external users 3. internal controls have been evaluated within 90 days prior to the report 4. the officer's conclusions regarding internal control effectiveness as of the evaluation date
Internal Rate of Return (IRR)
The IRR is the discount rate at which the PV of the cash INflows equals = the PV of the cash OUTflows from an investment or project. the discount rate that makes the NPV of an investment zero
Independence under the Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 mandate all public companies ('issuers') to have an Audit Committee comprising solely independent directors. This requirement serves as a corporate governance mechanism for issuers.
Supply Chain Management System is correct.
The Supply Chain Management System takes a holistic approach on choosing a vendor. This approach is concerned with four important characteristics of every sale; what, when, where, and how much. What is being ordered is being delivered, the order is being delivered when it is promised, the order is being delivered where it was requested and how much do the goods ordered cost.
Cost Drivers -
The basis by which costs are assigned to products
Nonconformance costs
The combination of internal failure and external failure costs; the costs incurred when a product is defective and therefore does not conform to its intended design. Internal failure: -rework -scrap -tooling changes -costs to dispose -cost of the lost unit -downtime External failure: -warranty costs -cost of returning the good -liability claims -lost customers -reengineering an external failure
Conformance Costs
The combination of prevention and appraisal costs; the costs incurred to make sure a product or service is not defective and therefore conforms to its intended design Prevention costs: -employee training -inspection expenses -preventive maintenance -redesign of product -redesign of process -search for higher-quality suppliers Appraisal Costs: -statistical quality checks -testing -inspection -maintenance of the laboratory
Example of a business objective set by a company:
The company's business objective for its production facility is to have a target of less than 3% unfavorable material usage variance. As such, the less than 3% target for material usage variance aligns with the principle of formulating business objectives.
Central Processing Unit (CPU) -
The control center of the computer system
Relevant Costs: Opportunity Costs -
The cost of choosing one opportunity over the other
The Absorption Approach
The critical component of this costing approach to know is that it does not separate fixed costs and variable costs, This costing approach is required under U.S. GAAP. Generally, this approach will entail allocating fixed overhead costs across all units produced for the period, which will result in a per-unit cost. Revenues - COGS -------------------------- = Gross Margin - Operating Expenses (i.e. Variable SG & A and Fixed S G & A) -------------------------- = Net Income
As related to the Enterprise Risk Management (ERM) Framework, the position that is best suited to devise and execute risk procedures for a particular department is:
The department manager The department manager is the individual most able to identify positive and negative events within that department, and manage the associated risk related to this framework.
Labor Rate Variance
The difference between the actual hourly labor rate and the standard hourly rate, multiplied by the number of Actual hours worked during the period. The labor rate variance measures the difference between the actual and expected cost of labor. It is calculated as: Actual hourly rate paid minus the standard hourly rate times the total Actual hours worked. Calculation: (Actual Rate - Standard Rate) x Actual Hours (AR - SR) x AH Note: In the RATE variance, the calculation is focused on the difference between the ACTUAL and Standard RATE, but is then multiplied by the ACTUAL Hours
Master File -
The equivalent to a general ledger in a paper system in that it contains a summary of all transactions
Four Popular Types of Combinations
The four popular types of combinations are: Horizontal combination: Combination of companies within the same industry. Vertical combination: Combination of companies at different stages of production of a single product. Circular combination: Combination of companies in different businesses and producing different products. Diagonal combination: Combination of a company with another company offering a related product/service.
discount rate
The interest rate on the loans that the Fed makes to banks The discount rate is the rate at which federal debt is discounted. Lowering the discount rate ican ease lending constraints. Easing lending constraints tends to increase borrowing for capital investments, which generally are held to spur economic growth.
Payback Period
The length of time it takes for a project to fully recover its initial cost from the net cash inflows it generates. the amount of time required for an investment to generate cash flows sufficient to recover its initial cost Calculation: Payback Period = Initial Investment divided by annual after-tax cash inflows Initial Investment _______________________________ Annual after-tax cash inflows NOTE: The company's after-tax operating cash inflows = After-tax operating inflows + Depreciation tax shields Example: = (110,000 annual cash inflow x 60%) +(80,000 depreciation x 40%) = $98,000 Payback period = $400,000 initial / $98,000 = 4.08 years
Opportunity costs
The loss of potential gain from other alternatives project, when one alternative project is chosen.
Supply Chain Management (SCM)
The management of information flows between and among activities in a supply chain to maximize total supply chain effectiveness and profitability
IT System Development -
The overall approach and process for developing systems is called the 'systems development life cycle' (SDLC)
Economic cost
The payment that must be made to obtain and retain the services of a resource. i.e. the cost the income that is provided to investors to attract resources (investment)
What is the Philips curve?
The phillips curve is used to graphically illustrate the INVERSE relationship between the rate of INFLATION and the UNEMPLOYMENT RATE shows that when inflation is high (low), the unemployment rate tends to be low (high)
economic exposure
The potential that the present value of an organization's CASH FLOWS could increase or decrease as a result of changes in the exchange rates
Equivalent Units
The product of the number of partially completed units and their percentage of completion with respect to a particular cost. Equivalent units are the number of complete whole units that could be obtained from the materials and effort contained in partially completed units.
What is a major advantage of debt issuance?
The relatively low after-tax cost due to the interest deduction Debt has a relatively low after-tax cost due to the interest deduction. Creditors have greater priority than shareholders in bankruptcy and are paid interest before net income is calculated; dividends are paid based on retained earnings. Therefore, creditors (debt) assume less risk than shareholders (equity). Correspondingly, creditors are willing to accept less return for their investment. Thus, debt tends to increase earnings per share.
events in an accounting information system (AIS)
The series of events in an AIS is as follows: 1. The transaction data from source documents is entered into the AIS by an end user 2. The original paper source documents are filed 3. The transactions are recorded in the appropriate journal 4. The transactions are posted to the general and subsidiary ledgers 5. Trail balances are prepared 6. Adjustments, accruals, and corrections are entered. Financial reports are generated
Descriptive Analytics
The set of analytical techniques that describe past performance and history - what has happened in the past. creates a summary of historical information, but really only provides insights into what happened, not necessarily what will happen in the future.
Trough Phase of Business Cycle
The stage/period in the business cycle where activity is bottoming, or where prices are bottoming, before the point in which the economy shifts from recession to expansion. The lowest part in the business cycle and turning point at which a recession ends and output starts increasing again.
Part of an IT system is having a Continuity Plan which allows:
The system to keep running and maintaining data in the event of a disaster such as the main office burning down or being flooded.
What are the types of securities in the SEC?
There are primarily three types of securities: equity—which provides ownership rights to holders; debt—essentially loans repaid with periodic payments; and hybrids—which combine aspects of debt and equity. Public sales of securities are regulated by the SEC.
Level 3 of determining the fair value under GAAP:
These inputs unobservable and level 3 inputs should only be used when there are no observable inputs
Homogeneous products
These products imply that the products are identical in quality, shape, size and color. So, no producer is in a position to charge a different price of the product it produces. A uniform price prevails in the market. In a perfectly competitive market, commodity is homogeneous (identical).
Neural Networks
They are similar to expert systems, but they also learn from their mistakes. Interconnected neural cells. With experience, networks can learn, as feedback strengthens or inhibits connections that produce certain results. Computer simulations of neural networks show analogous learning.
Disadvantage of ERP:
They are very expensive to purchase and integrate into an organization
Biometric Controls -
Things like fingerprint scanners that are used instead of a password
Is cryptocurrency treated like cash?
This digital form of payment is not the same as cash.
The Contribution Approach (Variable Costing)
This is an income approach that separates variable and fixed costs to calculate net income. This costing method will often make it more difficult to determine the ideal price for goods and services, as it doesn't consider all costs that the company has to cover. Revenue - Variable Cost ___________________________ = Contribution Margin - Fixed Costs (i.e. Variable SG & A and Fixed S G & A, but NOT Fixed Mfc OH Cost! As this is in the inventoried product cost!) ____________________________ = Net Income
Accounting Controls: Objective of internal control -
To have effective and efficient operations, reliable financial reporting, and be compliant with laws and regulations
Process Control
To monitor and control a process so that the quality of the output/product improves.
The World Bank's main objective -
To promote general economic development worldwide, and focusing on lending to developing countries for infrastructure
Strategic Budgeting -
Top-down approach that starts with the company's goals and mission and allocates resources accordingly
Debt Utilization: Debt to Total Assets -
Total Debt/Total Assets
Debt Utilization: Debt to Equity -
Total Debt/Total Equity
Debt to Equity Ratio
Total Liabilities / Common Stockholders' Equity
Relevant Costs: Incremental or Differential Costs -
Total difference in costs between two alternatives
Gross National Product (GNP) -
Total output of all goods and services produced world-wide using U.S resources
Net National Product (NNP) -
Total output of all goods and services world-wide using U.S resources, but does NOT use a depreciation value. Same as GNP - depreciation
Aggregate Supply -
Total output of goods and services at different price levels at the economy level
National Income (NI) -
Total payments for economic resources included in the production of all goods and services which include payments for wages, rents, interest, and profits
Aggregate Demand -
Total spending of individuals, businesses, governments, and net foreign spending on goods and services at different prices at the economy level
Factors influencing exchange rates
Trade-Related factors: 1. relative inflation rates 2. relative income levels 3. government controls Financial Factors: 1. relative interest rates 2. capital flows
Batch Processing -
Transactions are processed in a group
Transmission Control Protocol/Internet Protocol (TCP/IP) -
Transmission protocol of the internet
Quality Management: Balanced Scorecard -
Treating a company's mission into performance metrics
What are the 3 major subsystem of accounting information system?
Typically an AIS is composed of three major subsystems: (1) Transaction Processing System (TPS) that supports daily business operations; (2) General Ledger System and Financial Reporting System (GLS/FRS) and (3) the Management Reporting System (MRS)
Normal Spoilage -
Unavoidable spoilage due to the manufacturing process and is included as an inventorial product cost
direct method and step-down method for allocating service costs in activity-based costing (ABC)
Under the Direct Method, each service department's total costs are directly allocated to the production departments without recognizing that the service departments themselves may use the services from other service departments Under the Step-down method, a sequential approach is used to allocate service department costs to production departments as well as the other service departments
GDP calculated under the expenditure approach (GICE)
Under the expenditure approach, GDP is calculated by summing total expenditures in the domestic economy. Government purchases PLUS Investment domestic PLUS Consumption personal PLUS Exports (net of imports)
GDP calculated under the income approach (I PIRATED)
Under the income approach, GDP is calculated by summing the value of resource costs and income generated during the measurement period Income of proprietors PLUS Profits of corporations PLUS Interest (net) PLUS Rental income PLUS Adjustments for net foreign income PLUS Taxes (indirect business taxes) PLUS Employee compensation (wages) PLUS Depreciation (capital consumption allowance)
Shared Services -
When one part of an organization provides an essential business process that had previously been provided by multiple parts of the organization
DM purchases budget equation
Units of DM needed for a production period + Desired ending inventory at the end of the period - Beg. inventory at the start of the period = Units of DM to be purchased for the period x cost per unit = cost of DM materials to be purchased for the period (purchases at cost)
Abnormal Spoilage -
Unplanned spoilage due to something like a natural disaster or carelessness, and is deducted as a period expense in the calculation of net income
COSO ERM (& new objectives) -
Updated COSO model that has 8 objectives: 1. Risk Response 2. Event Identification 3. Objective Setting
Income Approach -
Used valuation techniques to convert future amounts of economic benefits or sacrifices of economic benefits to determine what the future amounts are worth
Profitability Index Approach -
Uses a ranking system to rank capital budgeting projects in terms of desirability (profitability)
Optical Disk (CD) -
Uses laser technology to "burn" data onto a disk
Market Approach -
Uses prices and other relevant information generated by market transactions involving assets or liabilities that are identical or comparable to those being valued
Symmetric Encryption -
Using a single algorithm to encrypt or decrypt
Electronif Funds Transfer Transactions
Using electronic funds transfers for transactions requires secure access to the banking system. This would prevent cash theft due to stricter access to the payment system.
simple and multiple regression
Using the correlation to predict the value of one variable based on its relationship with the other variable Simple regression-involves only one independent variable Multiple regression- involves more than one independent variable
SOX Rule that whistleblowers will be compensated -
Usually a reward of 10 to 30% of the sanctions imposed. If you blew the whistle and the SEC imposed penalties of $1 million on the perpetrator, you would be awarded somewhere between $100k-$300k. If the sanctions imposed are $1 million or more, a bounty (reward) is mandatory
Performance (VAPIR)
V-view (portfolio) A-assesses severity of risk P-prioritizes risk I-identifies risks (events) R-responses to risk implemented
Value Chain Analysis
VCA is a strategic tool that helps an entity determine the importance of its value (as perceived by buyers) with respect to the market in which it operates. Steps: -identify value activities -determine cost drivers associated with each activity -develop a competitive advantage by reducing cost or adding value -exploit linkages among activities in the value chain
VOH Rate and Efficiency Variance
VOH rate (spending) variance: Actual hours x (Actual rate - Standard rate) VOH efficiency variance: standard rate x (actual hours - standard hours allowed for actual production volume)
A 'PESTEL' analysis is a -
Variation of the 'PEST' analysis that adds 1. environmental factors 2. legal factors
WACC formula definiton
WACC= (cost of capital x weight of long-term debt) + (cost of capital x weight of preferred stock) + (cost of capital x weight of common stock equity aka R/E)
working capital turnover formula
WC turnover = sales / avg. WC
The General Agreement on Tariffs and Trade (GATT) -
Was setup to encourage international trade by eliminating tariffs, subsidies, import quotas, and other trade barriers
characteristics of SCM
What: goods received should match goods ordered When: goods should be delivered by date promised Where: goods should be delivered to the location requested How much: the goods cost should be the lowest possible
Foreign Direct Investment -
When a domestic entity invests in foreign production facilities
Cost Leadership
When a firm has a cost leadership, it means that it is able to offer the product at a lower cost than that of its competitors. This also means that it can sell the product at a lower price to the end consumers without incurring any loss. Under such circumstances, it has an opportunity to augment its market share because most consumers will prefer the product at reduced prices.
Employment -
When economists are calculating unemployment, only ages 16 and up are counted. Individuals younger are not considered
proportional tax
When entities with higher income pay the same tax as a proportion of their income as entities with low income. A tax in which the average tax rate is the same at all income levels.
When risk is being prioritized, the most helpful metric is 'Expected Value' -
Which calculates the likelihood of losses and the amount of losses
Peer-to-peer Network -
Which different nodes all share in communications management - there is no central controlling server
b.) Data elements needed Explanation: A systems specification document should include a description of the data elements needed.
Which of the following items would be most critical to include in a systems specification document for a financial report? a.) Cost-benefit analysis b.) Data elements needed c.) Training requirements d.) Communication of change management considerations
Distribution Logs -
Who receives what reports should be recorded and controls should be in place to make sure people only receive reports they are authorized to receive
Law of Diminishing Marginal Utility -
With each additional unit of a commodity acquired, utility (satisfaction) goes down. example: After 4 slices of pizza, slice 5 isn't as good, and slice 6 is even less good, etc.
Roles within IT: Application Programmers -
Work under the systems analyst to actually write the programs
Digital Certification -
Works by providing electronic identification and verification of a message
Asymmetric Encryption -
Works by using two paired algorithms to encrypt and decrypt text
Does Manufacturing overhead already include indirect materials?
Yes, manufacturing overhead includes both direct and indirect overhead. NOTE: Be Careful in MCQ's: Indirect materials are a part of manufacturing overhead. Therefore, they are included in the manufacturing overhead cost and should not be added again. Doing so would result in double counting the cost of indirect materials.
Example of calculating effective interest rate: Example: You have a loan for $100k at 8% interest, but you have to maintain a 10% compensating balance in the account. Find the effective interest rate.
You're only really borrowing $90k, but your interest is calculated on the full 100k, which would be 8k. 8k/90k = 8.88% interest
Change in Demand vs. Change in Quantity Demanded
a change in the price of the product being examined causes a movement along a fixed demand curve (i.e this is a change in quantity demanded) any other change affecting demand causes the entire demand curve to shift (i.e. this is a change in demand)
Total Quality Management (TQM)
a comprehensive approach - led by top management and supported throughout the organization - dedicated to continuous quality improvement, training, and customer satisfaction. an organization-wide effort to create and maintain a corporate climate in which the focus is on continuous improvement and delivery of high-quality products and services to both internal and external customers. Identifies costs of quality that are incurred to correct or prevent defects.
What are cryptocurrencies?
a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority. a digital currency, which is an alternative form of payment created using encryption algorithms. The use of encryption technologies means that cryptocurrencies function both as a currency and as a virtual accounting system. A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it
Strategic Business Unit (SBU)
a division of the firm itself that can be managed and operated somewhat independently from other divisions and may have a different mission or objectives
packaging slip
a document listing the quantity and description of each item included in a shipment
expansionary policy
a fiscal policy used to encourage economic growth, often through increased spending or tax cuts cut taxes or increasing spending to GROW the economy ex: use this policy during/after a recession or a depression
Hot site vs. Cold site
a hot site is an off-site location that is equipped to take over a company's data processing a cold site is an off-site location that has all of the electrical connections and other physical requirements for data processing but does not have the actual equipment
digital signature
a means of electronically signing a document with data that cannot be forged A digital signature is a guarantee that information has not been modified, like the tamper-proof seal on a bottle of aspirin. Digital signatures are used for establishing secure web site connections and verifying the validity of transmitted files. Note: Files with digital signatures may be intercepted, The contents are not necessarily encrypted. A digital signature does not verify the receiving person or address.
teleconferencing
a meeting among several people at different physical locations facilitated by electronics. a conference of people who are in different locations that is made possible by the use of such telecommunications equipment as closed-circuit television
Money Market Hedge
a money market hedge uses international money markets to plan to meet future currency requirements by either INVESTING internationally in a manner that matches investment maturities with settlement of foreign payables, or BORROWS against foreign receivables in a manner that matches the maturity of borrowings with the collection of receivables
Price Multiples used in valuation (4 ratios used for stock valuation)
a price multiple represents a ratio of a stock's market price to another measure of fundamental value on a per-share basis. Investors use price multiples to determine the intrinsic (true) value of stock and ultimately to decide whether the stock is undervalued, fairly valued, or overvalued *price-to-earnings (P/E) ratio *price-to-sales ratio *price-to-cash-flow ratio *price-to-book ratio
fungible
a product or commodity replaceable by another identical item; mutually interchangeable. (n.) (adj.) freely exchangeable for or replaceable by another (syn.) exchangeable
Database Management System (DBMS)
a program used to create, process, and administer a database separately maintain data and programs except during processing. Include a data definition language that helps describe the schema, which is a logical structure or organization of a database. creates, reads, updates, and deletes data in a database while controlling access and security A primary goal of a DBMS is to minimize data redundancy.
economies of scale
a proportionate saving in costs gained by an increased level of production. "mergers may lead to economies of scale"
The Audit Committee is a Subcommittee of
a public company's Board of Directors. Note: A Board of Directors can have several subcommittees. The audit committee focuses on corporate governance, specifically the company's internal controls and financial accounting systems.
How is a recession defined?
a recession is defined as a period during which real GDP (national output) is falling for at least two consecutive quarters. (negative real GDP growth and rising unemployment)
Six Sigma
a rigorous statistical analysis process for goal achievement Six Sigma expands on the Plan-Do-Check-Act (PDCA) model of process management to DMAIC and logically anticipates methodologies to improve current processes and develop new processes
balance of payment accounts
a summary of the country's transactions with other countries national accounts that track both payments to and receipts from foreigners An increase/surplus in the balance of payments (BOP) account occurs when there is a surplus of receipts over payments. And, a decrease/deficit when the opposite occurs. An increase in a Balance of payments (BOP) account can result in a surplus when more money enters a nation than leaves it, or a deficit reduction occurs when more money leaves a nation than enters it.
import tariff
a tax levied by a nation on goods imported into the country Result in higher costs for consumers of imported products.
commodity
a valuable product a useful or valuable thing, such as water or time A commodity is a basic good used in commerce that is interchangeable with other goods of the same type. Commodities are most often used as inputs in the production of other goods or services. A commodity thus usually refers to a raw material used to manufacture finished goods.
Managerial accounting
accounting used to provide information and analyses to managers inside the organization to assist them in decision making is designed to meet the needs of the organization's internal parties.
High-Low mehtod
another method used to estimate fixed and variable components of a mixed cost. Step 1: divide the difference between the high and low dollar total costs by the difference in high and low volumes to obtain the variable cost per unit. -estimate variable cost per unit-Change in cost/ Change in volume Step 2: use either the high volume or the low volume to calculate the variable costs by multiplying the volume times the variable cost per unit -estimate fixed cost- use cost equation
Theory of Constraints
anticipates that organizations are impeded from achieving objectives by the existence of one or more constraints. The organization project must be consistently operated in a manner that either works around or leverages the constraint
Exporters and importers
are interested primarily in movement of products among nations and often hedge their purchases to avoid risk.
Decision support systems (DSS)
are used primarily for semi-structured problems requiring the exercise of judgment. Rather than providing answers, a DSS provides information to assist a user to develop answers.
The overall IT system design is
based on user specifications; a serious misunderstanding of those specifications could impact the functionality of the system so that it doesn't meet the objectives. Note: While programming delays are unwelcome, they are less likely to prevent reaching system objectives than confusion regarding specifications. Users typically are trained during system implementation. Written user specifications may be referenced readily by system developers, making them preferable to oral specifications.
COGM equation
beg WIP+ raw material + labor +manufacturing overhead - ending WIP
COGS equation
beginning inventory + purchases - ending inventory or beg. finished goods + COGM - end finished goods = COGS
what is an equivalent unit and how are the costs applied
equivalent units are used in process costing -equivalent units are fully completed and partially completed units during the period -in applying costs, determine the units, then costs, then apply the cost flow assumption for cost per unit and allocation of costs
business cycle
expansion, peak, contraction, trough, recovery
Factoring as a mechanism for speeding cash collections
factoring involves the sale of accounts receivable to another party (a factor) in exchange for cash the selling company will receive an upfront cash advance of x% of their receivables and will be charged both a fee on all receivables purchased and an interest rate on the upfront advance (while saving on collection-related expenses) the factor will collect the fees and interests, while assuming the responsibility of the collecting on the receivables owed by the customers of the selling company
financial leverage
financial leverage is the degree to which a firm's use of DEBT to finance the firm magnifies the effects of a given percentage change in EBIT on the percentage change in EPS
Break even in sales dollars
fixed costs expenses / contribution margin ratio %
Break Even in Units
fixed costs/expenses _______________________________ contribution margin per unit (i.e. sales price per unit - Variable cost per unit)
Capacity Planning
focuses on the volume of a product or service that a business can provide during a period. process of assessing a company's ability to produce enough output to satisfy market demand
resource management
for example, organizing staff more efficiently, by skills rather than by line of business (SKILLS)
IT governance
formal structure for how organizations align IT and business strategies
Demand Flow
manages resources using customer demand as the basis for resource allocation Demand flow contrasts with resource allocations based on sales forecasts or master scheduling
Monitoring control effectiveness may be
manual or automated
Types of Unemployment:
frictional: normal unemployment resulting from workers changing jobs or being temporarily laid off structural: when available jobs do not match the skill set of the workforce or when unemployed workers do not live where the jobs are seasonal: caused by seasonal (temporary) changes in the demand and supply of labor cyclical: declines in real GDP during periods of economic contraction or recession
Prescriptive Analytics
goes beyond predictive analytics to reshape the future and provides a platform to take best course of action based on a given situation. techniques that create models indicating the best decision to make or course of action to take
Prenumbered sales invoices
help businesses keep track of all sales made on account
3 types of off-site locations
hot site cold site warm site
Economic indicators measure
how much a country is producing, whether its economy is growing, how the country compares to others.
Pareto Diagram/Fishbone
identifies the frequency (Highest to Lowest) of defects or problems that demand management attention. Once initially identified in the Pareto diagram, the individual defects/problems are further analyzed by Cause and Effect in a Fishbone diagram
how are investment decisions made using the NPV method
if NPV is (+) positive, then the investment should be made. if NPV is negative, the investment should not be made
The benefits of debt financing over equity financing are likely to be highest
if marginal tax rates are high and if there are few noninterest tax benefits. Note: Because you pay interest expense on the debt, the cost of the debt is less the higher the tax rate, effectively making the debt a better choice over equity when there are few noninterest tax benefits. (The interest expense paid decreases net income, which means you effectively pay less in taxes due to the increase in cost related to the debt financing)
Why are input controls important:
if the data is entered correctly, there are less problems in the future because of decisions being made based on bad data
General Control Examples
include software controls, physical hardware controls, computer operation controls, data security controls, controls over the system implementation process, and administrative controls.
perfect competition
include the following characteristics: - very little customer loyalty - Homogeneous Product (standardized products) - Free/No entry and exit Barriers - Many Independent Producers - Perfect Information (a hypothetical state in which each participant in a market has complete up-to-date information about products and prices and can therefore make perfectly rational choices) i.e. Perfect Knowledge of Prices and Technology -No Transporation Costs - Buyers and sellers are so close in the perfect competition market that there is no cost to carry one item from one place to another -No Artificial Restrictions -No Large Buyers and Sellers
demand-pull inflation
increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand demand-pull inflation could be caused by factors such as increases in gov. spending, decreases in taxes, increases in wealth, and increases in the money supply
Federal Reserve purchasing federal securities (debt)
increases the money supply available to the private sector.
elasticity quantitative values
inelastic if <1.0 elastic if >1.0 unit elastic =1.0
Risk Management
instituting a formal risk framework that adds rigor to how IT measures, accepts, and manages risk
operating cycle formula
inventory conversion period + accounts receivable collection period
As related to Information Technology (IT), Pilot testing
involves testing a trial group or division before testing the whole entity, to identify any potential problem areas on a small scale.
knowledge-based system (KBS)
is a computer program that reasons and uses a knowledge base to solve complex problems. Knowledge-based, or expert-based, systems provide answers based on information provided by the user and rules developed by an expert to address specified situations.
PERT Chart (Program Evaluation and Review Technique)
is a scheduling tool
accounting information system (AIS)
is a system that a business uses to collect, store, manage, process, retrieve, and report its financial data. Examples include payroll and time-tracking platforms (i.e. ADP, Paychex) invoicing systems, (i.e. Bills.com A/R Module) payment processing systems, (i.e. Bills.com A/P Module) accounting software, (i.e. QuickBooks) IT hardware and infrastructure.
Learning curve
is a systematic method for estimating costs based on increased learning by the business, group, or individual, which allows them to become more efficient at completing tasks. Note: Costs will decrease as learning increases Note: Learning Curve applies at an average cost, not a total cost.
Objectivity
is an unbiased mental attitude that allows internal auditors to perform engagements in such a manner that they believe in their work product and that no quality compromises are made.
shifts in the demand curve
is caused by a change in variables, other than the price of the good itself, that affects the willingness of consumers to buy, including: income, prices of related goods, consumer tastes, consumer expectations, number of buyers
expansion or recovery phase of the business cycle
is characterized by increasing levels of economic activity. Businesses increase capital investment during the expansion phase to support an increased volume of sales. A decrease in unemployment claims would indicate that the economy is entering the expansion phase, meaning it would be the right time for a business owner to move forward on a planned expansion.
As related to IT, The board of directors
is entrusted with the responsibility of creating a conducive environment in the organization to support the adoption of technology. As such, it is expected to create and enforce strategies to align the organizational goals with IT goals. Resources are to be made available while also making the stakeholders, both internal and external, aware of current technology.
Application control
is specific to individual programs and uses of the system. Logic Tests are an example of application control. As logic tests are a test of reasonableness. It checks data to see whether data is in two or more fields is consistent.
Market Rate of Interest on U.S Treasury Bills -
is the 'risk free' rate of interest + the 'inflation premium'
full employment
is the level of employment reached when no cyclical unemployment exists. Does not mean everyone is employed, however, it does mean that nearly everyone who wants a job has a job! Full employment only means no cyclical unemployment, but it does not imply zero unemployment as even at full employment there is still frictional, structural, and seasonal unemployment.
The key difference in controls when changing from a manual system to a computer system
is the methodologies used for implementing the control changes. Note: There is no difference in the control principles or control objectives when changing from one system to another. Furthermore, control objectives are not necessarily more difficult to achieve with a computer system.
an acquisition
is the purchase of one company by another with no new company being formed. one company takes over another company by acquiring 51% or more of its shares (not assets).
macroeconomics
is the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. is the study of the economy as a whole, focusing on the determinant of unemployment, inflation, national income, and how monetary and fiscal policies affect economic activity.
The intent of Section 404 of the Sarbanes-Oxley Act i
is to give investors reasonable assurance that material unauthorized transactions or improper use of assets have been prevented or timely detected. This is facilitated by maintaining records that accurately reflect transactions, by recording all transactions, and by ensuring that all transactions are authorized by management. There is no need to prevent authorized transactions.
The goal of a Security Policy
is to secure tangible and intangible information resources An organization's Security Policy is a document that outlines its policies and objectives for ensuring the safety of its tangible and intangible information resources. It defines the security objectives, the operational security objectives, and the implementation of those policies.
Continuity Planning
is uninterrupted operation; involves planning to minimize disruption due to continuous threats (such as hackers) and less common events (such as hurricane damage).
regressive tax
is when everyone pays the same percentage of tax for purchases, regardless of income. When entities with higher income pay less tax as a proportion of income than entities with low income, the tax is classified as regressive. Examples include: -Property tax -Sales tax -Payroll tax (both employees and employers pay the same 7.65% on the tax on the same dollars, even though the company makes more money...at least from the employee's perspective)
Audit committee disclosure
issuer must disclose the existence of a financial expert on the committee or the reason why the committee does not have a member who is a financial expert
3 economic indicators
leading, lagging, and coincident
line of credit vs letter of credit (methods of short term financing)
line of credit - is a revolving loan with a BANK that is for a defined term and renewable prior to or upon expiration -loan from the bank -renew annually -not locking in a rate a letter of credit - is a third party guarantee (usually by a bank) of obligations incurred by a company. a letter of credit is a type of external credit enhancement (whereas a line of credit is not) -required by VENDOR before extending credit, makes borrower more credit worthy (reduce cost of borrowing) -3rd party guarantee by bank
methods of long term financing
locked in rate (lower rate) -rent, rather than borrow or buy Leasing options -operating lease(rent expense, no balance sheet effect) -capital lease(pretend as if it was purchased on credit, asset and liability, record depreciation and interest as if it was bought/borrow) rate still less than if they would have bought it
Manufactured goods inventoriable costs include
materials, labor, manufacturing overhead, and normal spoilage. Both sales commissions and abnormal spoilage are recorded as period costs, not as part of inventory.
Economic rate of return on common stock (also known as total return)
measures income and capital appreciation, calculated as the sum of dividends and the change in the stock price divided by the price the investor paid. Formula: (Dividends + change in price) divided by beginning price
Real GDP
measures the value of all final goods and services produced within the boarders of a nation in terms of CONSTANT prices (adjusted for inflation) Real GDP= (Nominal GDP / GDP deflator) x 100 .... where the GDP deflator is the price index used to adjust nominal GDP for changes in the overall prices of goods and services
Nominal GDP
measures the value of all final goods and services produced within the boarders of a nation in terms of CURRENT dollars (current price) (ex: the prices prevailing at the time of production)
Foreign-exchange forward contracts
obligate one party to buy, and a counter-party to sell, a fixed amount of currency at an agreed-upon future date. By entering into a foreign-exchange forward contract, entities can offset the risk that large movements in foreign-exchange rates will destroy the economic viability of overseas projects. Using a forward contract, the exporter can agree to settle the export contract at a pre-determined exchange rate, thus avoiding potential losses due to frequent fluctuations of foreign currency.
The most effective controls over recorded purchases
occur when supporting forms such as purchase orders, receiving reports, vendor invoices are compared independently for agreement.
When should Feasibility studies include cost-benefit analysis?
once a set of acceptable alternatives is established.
Operating margin
operating income/sales
operating leverage
operating leverage is the degree to which a firm uses FIXED operating costs, as opposed to VARIABLE operating costs
what is the equation for economic order quantity (EOQ)
order size = sqr.root of [2(sales in units)(order cost per purchase)]/carrying cost per unit
Oligopoly
positive economic profit in the long run -relatively few firms with differentiated products -fairly significant barriers to entry (high capital costs) -strongly interdependent firms (prices tend to be fixed) -KINKED demand curve (firms match price cuts but ignore price increases) -strategic plans focus on enhancing market share and call for the proper amount of advertising and ways to adapt to price and volume changes
transaction exposure
potential that an entity could experience ECONOMIC LOSS OR GAIN upon settlement of individual transactions as a result of changes in exchange rates
A feasibility study determines whether a proposed system is
practicable from technical, operational, and economical standpoints
cost of preferred stock formula
preferred stock cash dividends/net proceeds of preferred stock
after tax cost of debt formula
pretax cost of debt x (1-tax rate)
Determining the severity of an internal control deficiency is a matter of
professional judgment. Note: of an internal control deficiency is a matter of professional judgment. What may be considered a material weakness in one company may not be considered a material weakness in another. Factors that should be considered include materiality, mitigating controls, and intent. The level of expertise of the involved individuals is the LEAST important factor to consider. Although inexperienced individuals may contribute to a deficiency unwittingly, expert individuals are more able to intentionally exploit a deficiency.
Management Information Systems (MIS)
provide managerial and other end users with reports and information managers need to assist them in the business decision-making process
Executive information system (EIS)
provide senior executives with immediate and easy access to internal and external information to assist executives in monitoring business conditions. EIS assist in strategic!!!!, not daily, decision making
Performance Management
putting structure around measuring business performance
General controls
relate to the overall integrity of the system. Includes: -Information Technology infrastructure -Security Management -Software Aquisition As they are required for the overall functioning of a system.
Cloud has completely changed the how technology is managed. Cloud relies on ____, is _____, and leads to ________.
relies on sharing of resources, is very secure, and leads to economies of scale. NOTE: The Cloud is not self-sustaining and requires managed resources. Cloud is not executed on-site, but rather online via third parties. Cloud leads to fewer not more IT resources.
reorder point for inventory formula
reorder point= safety stock + (lead time x sales during lead time)
ideal standards
represent optimum levels of performance under perfect operating conditions
Target residual risk
risk entity prefers to assume knowing that management will or took action to alter the severity of the risk
cost of equity (R/E) using CAPM
risk free rate + [b(market rate-risk free rate)] risk premium= [b(market rate-risk free rate)] market risk premium=market rate-risk free rate
Actual residual risk
risk remaining after management has taken action
Translation Exposure
risk that an entity's assets, liabilities, equity, or income will change as a result of changes in exchange rates
Inherent Risk (ERM)
risk to an entity in the absence of any direct or focused actions by management to alter its severity
selling prices based on assumed volume
sales price per unit= (FC + VC + pretax profit)/number of units sold
internal failure cost examples
scrap, spoilage, rework
Shipping Documents - Why are they needed?
serve 3 purposes: • Transportation - Documents are proof that cargo was received, where it originated, and where it is going, and can also represent a binding contract between different supply chain parties. • Financial - Whenever cargo changes hands, it is considered a crucial part of the supply chain process. When goods are received by one party the other party expects payment. Shipping documents can provide proof that goods were received according to the terms of sale and that monies can be released to the other party.. • International shipments - When goods cross borders, customs officials look to shipping documentation to check for legal infractions and also to assess duties. While each shipment is different, there are some shipping documents that are rather common in the logistics world.
An increase in tax rates and tax revenues would -
shift aggregate demand to the left (lower it) because consumption dollars are being used up to pay taxes
An increase on spending on imports would most likely -
shift aggregate demand to the left (lower it) because demand for domestic goods is being replaced by imports
Business cycles result from
shifts in aggregate demand and aggregate supply
trade deficit
situation in which a country imports more than it exports. It is also referred to as a negative balance of trade (BOT). A trade deficit is neither inherently entirely good or bad, although very large deficits can negatively impact the economy. A trade deficit can be a sign of a strong economy and, under certain conditions, can lead to stronger economic growth for the deficit-running country in the future.
currently attainable standards
standards that can be attained with reasonable effort/without extraordinary effort by employees with appropriate training and experience
examples of securities
stocks, bonds, notes, and debentures (all types of debt), options, mutual funds, jumbo CDs, depositary receipts, units in an investment, variable life and variable annuities
marginal tax rate
the tax rate payable on the next dollar earned after a specified threshold. i.e. For every dollar up to $150K is 15%, but every dollar above that is 20% , the marginal tax rate. this method of taxation aims to fairly tax individuals based upon their earnings, with low-income earners being taxed at a lower rate than higher income earners.
depreciation tax shield
the tax saving that results from the depreciation deduction, calculated as depreciation multiplied by the corporate tax rate Tax rate x depreciation deduction = tax savings from the depreciation tax shield
GDP
the total market value of all final goods and services produced within the boarders of a nation in a particular period. note: that GDP INCLUDES the output of foreign-owned factories in the U.S./ but EXCLUDES the output of U.S. owned factories operating abroad
An organization formulates its business objectives based on
the various strategies evaluated and the corresponding risks Example of a business objective set by a company: The company's business objective for its production facility is to have a target of less than 3% unfavorable material usage variance. As such, the less than 3% target for material usage variance aligns with the principle of formulating business objectives.
Weighted average cost of capital (WACC)
the weighted average cost of capital is the average cost of debt and equity financing associated with the firm's existing assets and operations
If the Federal Reserve wants to increase the money supply -
they will lower the discount rates
Breakeven point in units
total fixed costs/contribution margin per unit (or CM ratio if want breakeven point in dollars)
Margin of Safety
total sales (in dollars) - breakeven sales (in dollars)=margin of safety (in dollars)
Seasonal unemployment
unemployment linked to seasonal work
frictional unemployment
unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills
Cyclical Unemployment
unemployment that rises during economic downturns and falls when the economy improves
sales invoice
used as a source document for recording a sale on account. a document that provides support for each sale. an accounting document that businesses issue to customers and clients to record sales transactions and request payment.
Futures hedge transaction
used to mitigate exchange rate risk on accounts payable or accounts receivable contract used to buy a foreign currency at a specific price and time (when A/P is due) in order to mitigate the risk of a weakening domestic currency
merger
when two or more companies join to form a single firm is when two companies merge to form a third company voluntarily and The shares of the newly formed company are sold to the pre-existing shareholders.
what is a frequently used statistical measure for globalization?
world trade expressed as a percentage of GDP
