CMA Part I 2020

Describe a Cost Leadership strategy.

A Cost Leadership strategy involves establishing a position across the industry as a lower-cost producer or provider by developing certain cost advantages.

What is the Standard Error in regression analysis?

A Standard Error signifies that there is approximately a 68% chance (assuming the data has a normal distribution) the estimated cost will be within the original estimate plus or minus the Standard Error. Doubling the Standard Error provides approximately a 95% chance that the estimated cost is actually within range of the original estimate.

Define a cyberattack.

A cyberattack is an attempt by an individual or organization to gain access to the information system or computer of another individual or organization to maliciously or deliberately inflict harm by altering, disabling, destroying, or stealing electronic information.

What is corporate governance?

Corporate governance is the system of rules and procedures by which a corporation is directed and controlled. The governance structure must meet certain requirements set forth by federal and state regulators.

What are the sub-processes of EPM?

Sub-processes of EPM: • Planning, budgeting, and forecasting • Performance reporting • Profitability and cost analysis

Briefly describe the two ways organizations account for bad debts.

1. Allowance method: The organization estimates the amount of bad debt it will incur and records the in the same expense period as the related sales using an allowance account. This method is based on accrual accounting and is used for GAAP purposes. 2. Direct write-off method: The organization waits until a specific account is identified as not collectible and removes the accounts receivable with an offsetting entry to bad debt expense. This method is more like a cash basis and is used for tax purposes.

What are the five steps of the Strategic Planning Process?

1. Define the vision and mission 2. Environmental scanning 3. Strategy design 4. Strategy implementation 5. Evaluation and control

What are three approaches that managers can use to solve cash needs?

1. Increase the amount of cash generated by operations or reduce the amount of cash used in operations. 2. Take out short-term operating loans. 3. Make the credit policy for customers stricter and negotiate for a less strict payables policy.

What are the two approaches for estimating uncollectible receivables under the allowance method of accounting for bad debts?

1. Percentage of receivables or balance sheet approach: The organization assumes a percentage of existing accounts receivable will not be collectible and adjusts the allowance account to reflect that. 2. Percentage of revenues or income statement approach: The organization assumes a certain percentage of sales are uncollectible and records bad debt expense based on that.

Describe Focus strategy.

A Focus strategy is based on identifying a certain segment or niche within the industry, and then establishing either a lower-cost advantage or a differentiation advantage in serving that particular industry segment.

What is learning curve analysis?

As the organization's workforce gains experience, the organization learns how to work better. Learning results in the biggest improvements in the beginning, with learning (and improvement) becoming smaller over time. Therefore, as time or cost of the output doubles, the cumulative average total output is reduced by a constant percentage.

Describe what causes a deferred tax liability (DTL) and describe how DTLS are calculated.

Deferred Tax Liability: When book income is recognized before taxable income due to timing differenced in the items. The DTL is recognition of revenue or expense calculated using enacted tax rates from the future periods when the timing differences are expected to reverse.

List some key characteristics of the consolidation method of accounting.

Generally, ownership above 50% is presumed to create control. • The investor presents the financial statements as though the parent and the subsidiary are a single entity. • The subsidiary assets and liabilities are recognized at fair value at the time of purchase in the consolidated financial statements. Any resulting goodwill is also included in the consolidated financial statements. • Any amount of ownership that is not held by the investor, the non-controlling interest, will be reflected in the equity section of the consolidated balance sheet.

How do companies record dividend distributions and net income related to investments where significant influence is obtained?

If an investor has significant influence over an investee, the investment is accounted for using the equity method. Under the equity method, companies record the investment at cost, then increase/decrease the investment by their pro-rata share of the net income/loss of the investee. The investment is share of the dividends declared decreased by their pro-rata by the investee.

Describe a Differentiation strategy.

In a Differentiation strategy, the organization identifies what customers in the industry value with respect to unique product or service characteristics, and then establishes a position to provide those unique needs.

Describe the management concept of "management by exception."

focus on current processes This approach helps management that might need attention. Variances, whether favorable or unfavorable, signal that something is out of compliance with the cost standards or budget expectations. These variances do not inform management what the actual problem is or what needs to be done. Variances are a signal to investigate.

Describe what a permanent difference between tax accounting and financial accounting is and list some examples of permanent differences.

A permanent difference occurs when GAAP revenues are not taxable, or GAAP expenses are not deductible under the tax law. The differences will never reconcile. Some examples of non-taxable revenues include: interest from some bonds issued by state and municipal governments, and life insurance proceeds on the death of an insured executive. Some examples include fines and penalties, of non-deductible expenses premiums paid for life insurance policies when the payer is the beneficiary, and 50% of meals and entertainment expenses.

What is a standard cost sheet?

A standard cost sheet is, essentially, a "recipe card" that specifies standard prices and standard quantities to build a single product or service.

What is a standard cost sheet?

A standard cost sheet lists the standard input quantity and standard input price to determine the production cost for each unit of a certain good.

What is the difference between a bottom-up and top-down budgeting approach?

Bottom-up (participating) budgeting involves more time and resources, but results in a more informed budget with higher "ownership" by the employees. Top-down (authoritative) budgeting takes less time and and be resources, but the budget may have blind spots may resisted by the employees.

Describe contingency planning.

Contingency planning involves developing alternative strategies in order to be prepared for unexpected conditions or outcomes. Good contingency planning can minimize the negative effect of surprising events, as well as optimize opportunities that may present themselves.

What distinguishes a liability as a current liability or a non-current liability?

Current liabilities are liabilities that will be settled with current assets within the next year or the operating cycle, whichever is longer. Most companies' operating cycles are less than one year. Non-current liabilities are any liabilities that have a due date beyond the next year or operating cycle, whichever is longer.

What are flexible budgets?

Flexible budgets are used to examine possible future scenarios in sales volume. They are crucial for computing variances to evaluate past operating results based on relevant budget costs. Flexible budgets use a contribution margin statement approach, separating variable costs and fixed costs, which is helpful to organizations working to control cost. and evaluate cost performance.

What is the difference between ideal cost standards and attainable cost standards?

Ideal cost standards represent the expected cost per input and input quantity based on an assumption that prices paid are at the absolute lowest possible level, and assuming that the use of inputs is absolutely efficient without any waste or error. Ideal standards are generally created in an authoritative (top-down) budgeting approach. Attainable cost standards are based on more reasonable These expectations about average prices and usage. standards are generally created in a participative (bottom-up) budgeting approach.

What is the difference between R Square and Adjusted R Square in regression analysis?

The R Square statistic indicates how much of the change in one or more sets of data explains the variance (change) in the other. The Adjusted R Square statistic is R Square adjusted for the size of the sample data set. The Adjusted R Square statistic is a more appropriate measure to use when explaining variance in cost data.

Describe the two types of manufacturing overhead.

Manufacturing overhead is separated into variable costs and fixed costs. 1. Variable costs will vary as a total amount but are constant (fixed) as a cost rate. 2. Fixed costs are fixed at the total amount, but will have a varying fixed cost rate based on changing levels of production volume.

List the five criteria to determine if a lease should be recorded as a finance lease.

Note: Only one of these criteria must be met to classify a lease as finance. • There is a transfer of ownership to the lessee at the end of the lease term. • There is a bargain purchase option-an option to purchase the asset significantly below expected market value at the end of the lease term. • The lease term exceeds a major part (75% guideline) of the remaining useful life of the asset. • The present value of the minimum lease payments exceeds substantially all (90% guideline) of the fair value of the asset. • The leased asset is so specialized that it has no alternative future use to the lessor.

Name and explain the three main sections included in the statement of cash flows.

Operating Cash Flows: Cash flows from the organization's central operations. This includes cash flows from customers, cash flows to employees and suppliers, and cash for interest and taxes. Investing Cash Flows: Cash flows associated with longer term investing activities of the organization like PP&E activities and other investments. Financing Cash Flows: Cash flows associated with the company's financing strategy. Includes transactions in the entity's own stock, cash inflows from borrowings, and payments of dividends and the principal amount of borrowings.

How are overhead allocation rates calculated?

Overhead Allocation Rate= Budgeted Annual MOH Costs ÷ Budgeted Annual Activity Volume

When looking at the financial statements, what are some inherent limitations that must be considered?

Periodicity: The monthly, quarterly, and annual statement periods are generally not good indicators of the natural business cycle. Historical information: The information is historical and should be considered with current knowledge of the company. Valuation: Some items use historical cost, others use estimates, and other items are reported at fair value. Accounting Methods: Differences between methods might make it difficult to compare two organizations. Omissions: Several relevant items are omitted from the financial statements.

Describe the three main components of the decision-making feedback loop used in the management process.

Planning: Operational objectives are defined, performance measures are set, and resources are committed. Controlling: Expectations are established, results are gathered and reported, and variances are captured and reported. Evaluating: Performance is rewarded, objectives are analyzed to see if they were met, and insight is gained to prepare for the next planning stage.

What is the periodic inventory valuation method?

Precise records are not kept at the moment of sale. Instead, the entity determines how much it spent on acquiring new inventory (including transportation in and discounts taken) and uses this in conjunction with ending inventory and beginning inventory to determine COGS.

What are pro forma financial statements?

Pro forma financial statements provide a view of the organization's future financial performance based on current financial statements and anticipated future actions. The term forma essentially means "as a matter of form."

Explain the effect on the financial statements of the stock. repurchase of treasury stock and the resale of treasury

Purchase of Treasury Stock: Treasury stock (a contra equity account) increases for the cost of the shares, which reduces equity. Resale of Treasury Stock: When stock is resold for greater than the repurchase price of the stock, the cost is taken from treasury stock and the excess is added to additional paid-in capital. When stock is resold for an amount lower than the repurchase price, the difference is taken from additional paid-in capital and retained earnings if there is not sufficient additional paid-in capital from previous resales of treasury stock.

What is SWOT?

SWOT is a tool that can be used for both environmental scanning and designing strategy. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. SWOT separates factors into internal factors (Strengths and Weaknesses) and external factors (Opportunities and Threats).

Describe scenario analysis.

Scenario analysis helps companies consider the complexities of an uncertain business environment with many factors that interact with each other. By carefully modeling how different scenarios might interact to impact the organization's market and business, managers can do better strategy planning.

How do selling and administrative (S&A) expenses affect the operating statement?

Selling and administrative (S&A) expenses are another form of overhead for the organization. And like manufacturing overhead, these expenses typically have variable and fixed cost components. Selling and administrative expenses must be budgeted before the operating statement is complete.

List some external users of the financial statements and briefly discuss why each party uses them.

Shareholders and prospective investors: To determine their return on investment. Financial institutions: Assess the ability to pay on loans and keep debt covenants. Suppliers: Assess the ability of their customers to pay bills on time. Customers: Assess whether the suppliers will remain in business. Competitors: Compare their performance to others in the industry. Regulators: Assess whether public organizations have adhered to accounting and reporting requirements.

Describe the four common methods to account for the cost of raw materials and merchandise inventory.

Specific Identification Method: Common for organizations with unique finished goods. Assigns actual costs to specific goods. First-in, First-out (FIFO): The goods purchased first are expensed as cost of sales first. Last-in, First-out (LIFO): The goods purchased last are expensed as cost of sales first. Average Cost: Cost of goods sold is based on a moving average cost per unit. As goods are purchased or moved from raw materials to inventory, average unit costs are recalculated.

What is the process for calculating impairment losses on long-term tangible assets?

Step 1-Recoverability Test: Compare the book value of an asset to the sum of the future undiscounted cash flows. If the FCF exceed the BV, the asset is considered recoverable and no impairment exists. Otherwise, an impairment loss must be calculated and recognized (Step 2). Step 2-Impairment Loss: Management must estimate the asset's fair value. A loss will be recognized for the difference between BV and FV.

What is the Multiple R in regression analysis?

The Multiple R statistic is the simple correlation between two or more sets of data (volume and costs, for example).

What is the formula for calculating the cumulative average?

The formula for calculating the cumulative average is Y = aXb where Y=cumulative average per unit, a=time required for first unit, X=cumulative number of units, and b= In learning curve % + In 2. (Note: In indicates the natural log.)

What is the formula for the expected value of a set of possible outcomes?

The formula for the expected value of a set of possible outcomes is EV = Σ(rp) where r = result of the outcome and p = probability of the outcome.

Describe the management concept of the ceteris paribus principle.

This is Latin and means "all other things being equal." This means that a variance computation isolates the effects of one single issue in the organization and measures the effect it has on operating income. If the effect of the issue (solely by itself) increases operating income, it is described as "favorable." If the effect of the issue decreases operating income, it is an "unfavorable" variance.

What is the perpetual method of inventory valuation?

The organization records any amounts associated with inventory purchases and sales directly to the inventory account when transactions take place throughout the year. This method allows companies to match the cost of sales and inventory transactions more closely with their sales and expenditures throughout the year. A perpetual inventory method is required for a moving average costing system.

What does it mean to factor receivables with recourse?

The organization selling accounts receivable bears the risk of loss relative to collecting the customers' balances. One advantage to factoring with recourse is that the fees are typically lower than factoring without recourse. The selling organization is required to compensate the factor for any loss so they estimate the amount of the resulting recourse obligation and record it at the time of the factoring.

How is the pro forma balance sheet used to determine debt financing needed?

The pro forma balance will determine whatever financing is needed to support the planned level of assets using the following equation: Projected Total Assets - Equity - Remaining Liabilities = Balancing Debt Account The current amount of debt will be subtracted from the balancing debt account to calculate the increase or decrease in debt financing needed.

What are the components of the sales budget?

The sales budget is a simple composition of Volume x Price.

Describe the purpose of the statement of cash flows.

The statement of cash flows reconciles the overall change to the organization's cash position over the course of the period presented, making it useful for understanding cash resources and needs of the organization. On the cash flow statement, the change in cash is broken down into three categories of cash flows, the combination of which equal the total change in cash for the period presented.

What is the lower of cost or NRV principle?

Used for inventory valued using most cost flow assumptions, including LIFO and Retail Method. Inventory is carried at net realizable value (NRV) if it is determined to be less than the historical cost of inventory. NRV is the value an organization would expect to receive in the current market, less any costs associated with selling the inventory. Some factors that could cause the NRV of inventory to decrease: • New technology. • Fire or other natural disasters that damage or destroy inventory.

What is factoring a receivable?

When receivables are factored, they are sold for cash immediately, rather than waiting for the cash to be collected from customers. This usually involves a discount from the recorded value of the receivables to cover the risk of non-payment by customers.

What is an expected value computation?

When there are multiple possible future outcomes, a manager can mathematically "combine" several outcomes to form an "expected value" based on all possible outcomes, weighted by their respective probabilities.

What is zero-based budgeting?

Zero-based budgeting demands that all budgeting choices are taken back to a "blank page" to be fully evaluated and, if approved, put into the master budget plan. Nothing is assumed to carry forward from previous years to the next year's budget. Projects are prioritized and allocated resources based on their alignment with the organization's strategy.

What are the different ways to compute the budget for cost of goods sold?

• Based on the traditional income statement formula, use the production budget and the standard cost sheet to calculate total production costs, then use beginning and ending finished goods inventory to find cost of goods sold. • Alternatively, simply multiply the budgeted sales volume by the standard cost per unit.

Describe the four classifications of the BCG Growth-Share Matrix.

• Cash cows: a large share of an established (slow growth) market. Require little investment and generate a lot of cash. • Stars: a high share of a fast-growing market. Must spend significant resources to maintain. • Question marks: a small share in a fast-growing market. A lot of potential to do well. • Dogs: a small share of market that isn't growing. An undesirable business.

What is the difference between effective and efficient measures?

• Effective: Determined by how well an organization achieves its revenue goals (output). • Efficient: Based on how well an organization achieves its cost goals (input)

Give examples of the components of PESTLE analysis.

•Politics: regulation issues, political stability, legal environment, tax policies • Economy: inflation, unemployment, quality of labor force, stability of currency, economic growth rate • Social: demographics, culture, education levels, leisure interests, attitudes toward environment, social responsibility • Technology: manufacturing, computers, communication, transportation, medical • Legal: regulations governing consumer and employee safety, intellectual property, competition fairness, product warranties • Environmental: scarcity of raw materials, pollution impacts, weather patterns, geography

What are the five steps in the budgeting process?

1. Form the budget committee. 2. Establish budget guidelines. 3. Submit budget proposals. 4. Negotiate budget proposals. approve 5. Review and the final budget.

How can the variance framework be used whether an organization operates in the manufacturing, service, or merchandising industry?

Regardless of the industry an organization operates in, variances can be used to effectively manage the complexity of the organization. The variance framework computes signals that management should investigate to determine why actual costs are different than expected costs.

What is inherent control risk?

Risks that would occur in the absence of controls. These any risks occur because of the industry in which a company operates or business decisions that a company chooses to make.

What does segregation of duties mean, and what is its purpose in a business setting?

Segregation of duties is the separating of responsibilities for key business transactions such as making sales, shipping products, and paying invoices. The purpose is to reduce the risk of fraud and errors.

What is the difference between simple regression analysis and multiple regression analysis?

Simple regression analysis (sometimes called single linear regression analysis) can be used to explore two sets of data to see if there is a relationship between them. One set of data is the activity, or independent variable, and the other is the dependent variable. While simple regression analysis uses only one activity to predict costs, multiple regression analysis can use many activities to help managers understand and forecast costs.

Describe strategy implementation.

Strategy implementation involves identifying short-term objectives, and then establishing processes to achieve those objectives.

How is the variable overhead spending variance calculated using both the framework approach and formula approach?

•Using the framework approach, the variable overhead spending variance is calculated by comparing the Total Actual Costs to the Actual Activity Used x Standard Variable Overhead Rate. The actual activity used refers to the activity of the base that the organization uses to apply overhead costs. • Using the formula approach, it is calculated as (Actual Activity Used x Standard Rate) - Actual Costs.

How are changes in cash flow classified across the three categories of the cash flow statement: cash from operating activities, cash from investing activities, cash from financing activities?

1. Cash flows from operating activities are based on balance sheet accounts for current operating assets and current operating liabilities. 2. Cash flows from investing activities are based on balance sheet accounts for current non-operating assets and long- term assets. 3. Cash flows from financing activities are based on balance sheet accounts for current non-operating liabilities, long- term liabilities, and equity.

What are the three sections of traditional cash budgets?

1. Cash receipts 2. Cash disbursements 3. Financing

Briefly describe the five components of an effective internal control system as outlined by COSO's Internal Control Framework.

1. Control Environment: Company's attitude and culture toward internal controls. 2. Risk Assessment: Periodically review processes to identify risks and stay competitive. 3. Control Activities: Have controls in place to safeguard assets and ensure the proper recording of business transactions. 4. Information and Communication: Identify, capture, and communicate information accurately, efficiently, and securely. 5. Monitoring Activities: Periodically review controls to ensure they work.

What are the three production cost budgets?

1. Direct materials budget 2. Direct labor budget 3. Manufacturing overhead budget

What are the benefits of expected value computations?

1. Expected value computations that incorporate multiple possibilities are generally more representative of an uncertain future. 2. The expected value computation reduces multiple outcomes to a single value, which is easily understood and can be entered into a budget plan.

What are the three methods of accounting for equity investments based on level of influence, and when does an organization use each method?

1. Fair value method: Used when the organization owns a and cannot small amount of stock in another company significantly influence or control the investee's operations. 2. Equity method: Used when an organization can exert significant influence, but not control, over the investee's operations. 3. Consolidation method: Used when an organization can exert control over the investee's operations.

Describe the two main types of information systems.

1. Financial accounting systems: Generate financial reports, budgets, cost accounting information, and other accounting and finance information. 2. Operating information systems: Collect, process, and summarize information related to operations and generate reports for management to understand operations.

What are three key analyses that take place with capital budgeting decisions?

1. Financial analysis: NPV, IRR, payback, and ROI 2. Risk analysis: assessing uncertainty with respect to outcomes and inputs 3. Qualitative analysis: considering non-quantitative characteristics

Describe the relationship of changes in balance sheet accounts with changes in the cash account.

1. Increases in debt (liability) accounts or equity accounts result in increases in the cash account. 2. Increases in asset accounts (all asset accounts other than cash) result in decreases in the cash account. 3. This can be depicted as follows: Δ Cash=Δ Debt + Δ Equity - Δ Assets

Describe the three categories of application controls.

1. Input controls: Help prevent and detect errors and irregularities related to the input of data. 2. Processing controls: Cover how the system turns input data into information output. 3. Output controls: Help determine if the input and processing activities result in valid output for decision making.

What are the different classifications of intangible assets and how are they each carried on an organization's balance sheet?

1. Intangible assets with a finite life: Amortized similar to depreciation of tangible assets. Impairment follows the same two-step process as tangible asset impairment. 2. Intangible assets with an indefinite life: Carried at cost and reviewed for impairment when circumstances indicate a possible problem and at least annually. 3. Goodwill: Recorded when a business is acquired for more than the fair value of its net identifiable assets. There is a two-step process to review for impairment.

What are two ways to reduce budgetary slack?

1. Limiting performance evaluation to controllable costs 2. Periodically reviewing and adjusting the budget when outside factors cause the original cost standards to become less representative or even irrelevant

What are five best practices in budgeting?

1. Link the budget to strategy. 2. Design budgeting processes that allocate resources strategically. 3. Establish budget targets based on realistic expectations and based on stretch goals. 4. Reduce budget complexity and budget cycle time. 5. Develop flexible budgets that accommodate change.

Describe the process of creating a direct materials budget.

1. Multiply budgeted production volume by the standard input quantity to determine total direct materials needed. 2. If the organization maintains inventory of direct materials, determine materials to purchase as follows: Production Needs + Ending Inventory - Beginning Inventory. 3. Multiply the materials to be purchased by the standard price of materials to determine the final direct materials budget.

Describe the process of creating a direct labor budget.

1. Multiply budgeted production volume by the standard quantity of hours to determine direct labor hours needed 2. Multiply direct labor hours needed by the standard price for labor to determine the budgeted direct labor payroll

Describe the three objectives of a functioning system of internal controls.

1. Operations: Make sure the business runs effectively and efficiently. 2. Reporting: Ensure that financial and nonfinancial reports generated by the business are reliable, timely, and transparent. 3. Compliance: Ensure that businesses are compliant with applicable laws and regulations.

What are the five dimensions of competitive forces in an industry according to Porter's Five Forces?

1. Supplier Power 2. Customer Power 3. Threat of New Entrants 4. Threat of Substitute Products 5. Intensity of Competition

What are the three possible classifications of debt securities?

1. Trading: The organization intends to resell these securities in the near term. 2. Held-to-maturity: The organization has the ability and intent to hold the security until it matures. 3. Available-for-sale (AFS): Any securities not specifically designated as trading or held-to-maturity.

Why would an organization calculate fixed manufacturing overhead variances when the costs are fixed?

By establishing a fixed overhead rate and applying costs to each unit of output, the cost application process treats fixed costs as if they were variable. This process creates a signal on how the actual production output compares to the expected production output.

What is a continuous rolling budget?

A continuous rolling budget is used to establish and maintain a constant number of operating periods moving forward in the master budget. For example, six months of weekly budgets, followed by a half year of monthly budgets, followed by a year of quarterly budgets, and an annual As each month of operations budget in the third year. concludes, the budget rolls forward.

What is a flexible budget and how is it used in performance analysis?

A flexible budget is established based on what is actually produced and sold; therefore, this budget is based on actual outcome results. Compared to the Master Budget, the fixed costs should not be changed and only the variable costs should "flex" to assess the actual output. A flexible budget makes the costs relevant for analyzing the efficiency performance of the organization's actual output.

What is activity-based budgeting?

Activity-based budgeting focuses on identifying and using core activities throughout the organization to establish activity cost rates to assign costs to products, customers, and other business targets based on actual consumption relationships.

What are some of the advantages and disadvantages of using Residual Income measures?

Advantages: • Avoids the ROI incentive problem on projects with desirable rates of return that are below the high-performing SBU's current rates of return. Disadvantages: • The concept of capital costs and economic income is a bit more difficult to understand and communicate than the ROI concept. • These measures can cause a bias when comparing performance between SBUS that are dramatically different in size because larger SBUS typically have an advantage in generating more residual income dollars.

Describe how support cost assignments are made under the direct method.

Although support departments provide support activities to the production departments as well as the other support departments, the direct method avoids the reality that support departments serve each other and instead makes the cost assignments directly to the production departments using the traditional two-step process by: 1. Building a cost assignment rate 2. Using the rate to assign costs to the cost object

What is audit risk and how do auditors assess the risk?

Audit risk is the likelihood that a company's financial statements are materially misstated and the auditor expressed an inappropriate audit opinion. In other words, it is the risk that auditors make the wrong call. Auditors often use the audit risk model to assess risk and plan the audit. The audit risk model is: Audit Risk = Inherent Risk x Control Risk x Detection Risk.

Define data governance and name the four attributes of an organization's data that data governance oversees.

Data governance is a set of defined procedures, policies, rules, and processes. Data governance oversees the following attributes of an organization's data: • Availability • Usability • Integrity of data • Security of data

Define data mining.

Data mining involves statistical methods, computer learning, artificial intelligence, and large-scale computing power to analyze large amounts of data to reveal patterns and insights. The primary goal of data mining is to provide useful information for decision making and anticipating future outcomes.

Describe what causes a deferred tax asset (DTA) and describe how DTAS are calculated.

Deferred Tax Asset: When taxable income is recognized before book income due to timing differences in the recognition of revenue or expense items. The DTA is calculated using enacted tax rates from the future periods when the timing differences are expected to reverse.

What is Enterprise Performance Management (EPM)?

Enterprise Performance Management (EPM) is a process that facilitates the linking of an organization's strategies to specific plans and actions.

Describe the implementation and conversion step of the systems development life cycle. Also describe the operations and maintenance step in this cycle.

Implementation and conversion • Making the system design becomes a reality in this step. Hardware and software are installed and tested. If a new system is replacing an older one, that data must be transferred and integrated in the processes and procedures of the new system. Operations and maintenance • This is the process of fine-tuning the system. Hardware may need to be replaced over time due to wear and tear and/ or obsolescence and software may need to be updated to improve processing or to add functional options.

What is internal control risk?

Internal controls are designed to ensure that an organization meets its objectives (i.e., effective and efficient operations, reliable financial reporting, and compliance with applicable laws and regulations). Internal control risk is the risk that an organization will fail to achieve one of its objectives.

How does spending on capital projects differ from spending on operation processes?

In contrast to smaller spending decisions on operations that involve less risk over shorter time periods, capital projects are extensive investments requiring significant financial, management, and labor capital over lengthy periods of time.

Describe the purposes of the income statement and the balance sheet.

Income Statement: Shows the sources of revenues, gains, expenses, and losses for a reporting period. Elements on the income statement are recorded on an accrual basis. The income statement is often combined with a presentation of Other Comprehensive Income. The income statement may be presented using either the single-step or multi-step method. • Balance Sheet: Shows the assets, liabilities, and owners' equity of the organization as of the end of a reporting period.

What does the term hypothesis testing mean when referring to Balanced Scorecard Strategy design and deployment?

Management determines that success in a particular financial objective requires effective deployment of core customer objectives that are dependent upon implementation of critical internal processes that are sustained by ongoing learning and growth initiatives. Specific strategic linkages between strategic objectives are established using linked KPIS. The linkages are "hypotheses" that are subsequently tested with data to observe whether the relationships are working.

Define software as a service (SaaS).

Software as a service is a cloud-based system setup that acts like centralized system that enables local users to have more computing power and more software availabilities without repetitive installments and equipment. Rather than building up local computing capabilities and installing software on each local PC, software as a service is based on delivering and licensing software through online applications, in an "on-demand format."

What are the three steps that a company can use to compute the cost of goods manufactured when using the FIFO method?

Step 1: Assume the beginning inventory (which represents the prior month's production costs to get beginning inventory partially completed) is first in production for the month, so include these costs in costs transferred out in the current month (cost of goods manufactured). Step 2: Account for the production costs to complete the beginning work-in-process inventory. Step 3: Account for the remaining units of work transferred out to the warehouse with all the work performed in the current month.

Briefly describe the three-step process that manufacturing and service organizations use to account for overhead.

Step 1: Before the reporting period starts, establish an overhead application rate by determining the overhead cost budget and an overhead application basis. Step 2: Use the overhead application rate during the year to apply costs to actual job or service invoices as the work takes place. Additionally, track the actual overhead costs during the year. reconcile the overhead to Step 3: At the end of the year, determine if overhead costs have been over- or under- applied during the year.

Explain the events of stock splits and stock dividends.

Stock Split: Does not impact the equity accounts as long as the par value is changed to reflect the new share size. Stock Dividends: A small stock dividend is less than 20-25% of the number of outstanding shares. Retained earnings is reduced for the fair value of stock, common stock is increased for the par value, and the difference is included in additional paid-in capital. For large stock dividends (greater than 20-25%), retained earnings is reduced and common stock is increased for the value par of the stock issued in the dividend.

What is strategy?

Strategy is the long-term planning and work of the organization. Strategy guides the day-to-day operations work in the organization and provides a framework and feedback mechanism to evaluate the long-term effects of that work on the future of the organization.

Describe the systems analysis, conceptual design, and physical design steps of the systems development life cycle.

Systems analysis • This is an evaluative process to assess user needs, resource requirements, and costs and benefits. It is important to understand the end goals and uses of the system to ensure proper design. Conceptual design •. This is the process of creating plans for meeting the needs of the organization and providing detailed specifications on how to achieve the desired system. Often, several designs will be considered at this stage. Physical design •. This is the process of identifying the features, specifications, and equipment needed to make the system operational. Both the end-user experience and the back-end computational and processing power needed are considered in this step.

What is the role of the Public Company Accounting Oversight Board (PCAOB)?

The PCAOB was created by the Sarbanes-Oxley Act of 2002 (SOX) and oversees audit firms that audit public companies. It is responsible for issuing auditing standards and periodically reviewing auditors for quality and compliance with those standards.

Describe how support cost assignments are made under the step-down method.

The computational approach in the step-down method is similar to the direct method, but the step-down method pays some attention to the fact that support departments also support each other. Usually, management determines the order used to assign costs by identifying the support department that provides the most support to the other departments, followed by the department that provides the second most support, and so forth. The order choice is subjective, but it can affect the costs finally assigned to production departments.

What is the core difference between theory of constraints (TOC) and just-in-time (JIT) management systems?

The core difference is that TOC identifies the bottleneck in the organization and uses it as the focus to coordinate the whole system. Optimizing the system is based on being sure that the bottleneck operation is always working at full capacity. Part of the optimization process includes keeping a buffer of inventory in front of the bottleneck. In contrast, JIT seeks to remove all inventory everywhere.

What are the factors that affect the likelihood of internal control failure and what is the formula to describe the likelihood of this failure?

The likelihood of an internal control failure is a function of inherent risks and the effectiveness of various controls. This risk can be modeled as follows: Likelihood of Internal Control Failure = Inherent Risk x Control Effectiveness (Preventive, Detective, and Corrective)

Describe the purpose of accounting controls and list some examples.

The purpose of accounting controls is to ensure the accuracy and reliability of financial information for decision making. Some examples of accounting controls are only allowing authorized personnel access to accounts, summarizing batch totals, proper voiding and/or cancellation of source documents, feedback controls, and feed-forward controls.

Describe how support cost assignments are made under the reciprocal method.

The reciprocal method better represents the reality that support departments provide resources to each other as well as to production departments. This method creates a two- step solution that represents (1) a simultaneous assignment of costs between the support departments followed by (2) a direct assignment of costs to the production departments.

Briefly describe the three critical accounting terms (throughput, inventory, and operational expense) as they relate to throughput accounting.

Throughput: Throughput is computed as revenue minus extremely variable costs. • Inventory: Inventory represents all the money tied up in the production system. Labor and overhead costs are not allocated to inventory, but are immediately expensed to the income statement. • Operational expense: Operational expense represents all costs other than raw materials that are used to convert inventory into throughput, including labor costs. These costs are treated as fixed expenses and are immediately expensed to the income statement.

What are the main purposes of disaster recovery and backup controls?

To protect company information systems from natural disasters such as fires, earthquakes, and floods and to develop plans of how to secure company data, quickly restart operations, and continue serving customers in the event of a natural disaster or unexpected event.

What are the three important characteristics of a liability?

• Probable future sacrifice of economic benefit. • Arises from a present obligation to transfer assets or provide services to other entities. • Results from past transactions or events.

What is a Customer Relationship Management (CRM) system?

• A CRM is a nonfinancial system that runs in parallel with an AIS. • The system captures information about sales calls, shipment tracking, and customer profiles. • An enterprise resource planning system can be used to link the CRM system to AIS.

What is a data warehouse?

• A data warehouse is used to aggregate data from multiple sources into a central integrated data repository. • Data warehouses are used to analyze business activities and operations. • A data warehouse does not process data.

What is a database management system (DBMS)?

• A database management system is the interface or program between a company's database and the application programs that access the database. • The DBMS defines, reads, manipulates, updates, and deletes data in a database. It controls access to the data and maps each user's view of the data.

What are the aspects that form an organization's environment?

• The world in which the organization operates • Competitors, current and potential • Customers, current and potential • Suppliers and other stakeholders • The organization's internal structure

Discuss the importance of having a documented record retention (or records management) policy.

• A documented record retention policy helps ensure that data is secure by providing a framework to provide clear guidance about how information can be used, and which employees can perform data-related functions. • A records management policy can ensure that an organization complies with applicable legal and regulatory requirements. • Additionally, a records management policy can safeguard an organization against the loss of key strategic information.

What are the main limitations of activity-based costing (ABC)?

• ABC methods are more costly and time intensive to design, implement, and maintain. • ABC cost consumption relationships are based on a longer time horizon than traditional systems, so substantial time of the and effort are needed to adjust spending on many activities used in the ABC solution. • Profit-and-loss reports based on ABC methods may not conform to external reporting requirements, so organizations may need to maintain more than one version of their cost system.

Briefly describe how costs are reflected when using the absorption costing income statement compared to the variable costing income statement. Which income statement should be used for external financial reporting?

• Absorption Costing Income Statement: Tracks the full production cost of inventory to the balance sheet and onto the income statement. This traditional statement is required for external financial reporting. • Variable Costing Income Statement: The only production costs used to value the inventory on the balance sheet are the variable costs of production. Fixed production costs are fully expensed to the income statement in the period in which they occur. This statement is not allowed for external financial reporting.

When determining how to mitigate internal control risk, a company must look at the likelihood and the potential for loss. What are four ways to handle internal control risk and when would a company use each one?

• Accept risk: Low potential loss, and low likelihood. • Implement controls: Low potential loss, and high likelihood. • Purchase insurance: High potential loss, and low likelihood. • Avoid risk: High potential loss, and high likelihood.

To comply with the Foreign Corrupt Practices Act (FCPA), companies' internal controls must be sufficient to provide reasonable assurances that:

• Access to assets can only be permitted with management's authorization. • The companies' records accurately reflect transactions and the disposition of assets in accordance with GAAP or other relevant accounting standards.

What are some advantages and uses of artificial intelligence (AI)?

• Al can process information more quickly and in larger quantities than the human mind can because it does not suffer from computational fatigue that would cause fatigue and strain for a human. • Al can help classify or categorize transactions into appropriate accounts. • It can also be used to discover patterns and trends as well as potential errors or irregularities in accounting data. • Al can help improve financial reporting or help auditors detect misstatements and/or fraudulent activities.

What are the main reasons that indirect costs should not be used for internal evaluation decisions?

• Allocating indirect (common) costs can interfere with effective performance evaluations that are internal to the organization. • Analyzing decisions regarding keeping or dropping a business unit from the organization or decisions of where to invest resources with allocated indirect costs can lead to management decisions with death-spiral results. • There is no direct relationship between indirect costs and the business unit they are assigned to.

What are Accounting Information Systems (AIS)?

• An AIS is a formalized process to collect, store, and process accounting information. • The system captures pertinent information and recordkeeping needed in order to produce financial statements and performance reports. • An AIS could be maintained on physical books or on an electronic system.

Describe what the Residual Income Method represents and how it is calculated.

• An organization doesn't make an economic profit until it earns enough to pay the costs of its debt and equity financing structure. This is done by establishing a hurdle rate that the organization must clear before economic value is created. • The hurdle rate represents the organization's minimum required ROI and is used to calculate the Required Income, which is calculated as Assets x Hurdle rate. • The Residual Income formula is Current Income - Required Income.

What are the stages of the system development life cycle?

• Analysis • Systems design Prototyping • Development/programming • Quality testing • Implementation and maintenance

What are some of the advantages and disadvantages of using Return on Investment (ROI) measures?

• Are easily understood by managers and widely used in practice. • Make it easy to compare performance across different business units. Disadvantages: • Will discourage SBU managers from investing in business projects that are good for the organization if the project's ROI will dilute the SBU's current ROI.

What are the two methods of accounting for warranties and how is each method used?

• Assurance Warranty Approach: Account for warranties that are automatically attached to the sale of a product by expensing the estimated warranty cost and recording an assurance warranty liability at the time of sale. The liability is reduced as claims are made. • Service Warranty Approach: Account for extended warranties that are sold separately from the product by deferring revenue at the time of sale and recognizing the service warranty revenue over the service period. Related service warranty costs are expensed as incurred.

List and describe the four types of risk in the audit risk model.

• Audit risk: Chosen by the auditor. • Inherent risk: Risks related to the business decisions, culture, and environment of the audit client. • Control risk: Likelihood that the client's internal control systems will fail to prevent or detect and correct material misstatements. • Detection risk: Likelihood that the auditor's procedures will fail to detect a material misstatement.

What are the key responsibilities that should be separated for key business transactions?

• Authorization or approving transactions • Recording transactions • Custody of assets • Periodic reconciliation

List the main benefits and limitations of the variable costing system.

• Avoid the troubling incentive to overproduce and build inventory. Limitations: • Inventory is undervalued on the balance sheet because all fixed costs are expensed to the income statement. Managers need to be aware of this if inventory costs are used in decisions like pricing. • Variable costing systems do not comply with external financial reporting standards, so organizations using these systems internally still need to use an absorption costing system for external financial reports.

Data visualization can be presented in many ways, including using various charts. Briefly describe the characteristics of the following types of charts: bar charts, pie charts, line charts, and bubble charts.

• Bar charts: use horizontal or vertical bars to show the proportion of categorical data in each category. • Pie charts: used with categorical data to show the proportion of data in each category with slices in a circle. • Line charts: show a series of data points in a line for one variable. Alternatively, multiple lines can be stacked onto the same chart to show multiple variables. • Bubble charts: enhance scatter charts by showing the size of the circle.

What is one major benefit and one major drawback of using transfer pricing to create an open market within the organization?

• Benefit: This approach creates positive competitive pressure to keep costs down and quality up on goods and services being delivered within the organization. • Drawback: Managers sometimes make suboptimal decisions when choosing to transfer (or not) due to poor accounting information or misaligned incentives. It can be tempting for the executive management team to step in, but that is generally not advisable because other benefits related to delegation and management training are lost.

Describe some of the challenges of managing data analytics.

• Big data requires a compilation of disparate data sources into a unified, structured database. • The process can be time consuming and intellectually challenging. • An organization must have procedures and processes in place to validate the data sources and verify that proper processing has taken place. • Specialized training in computer science, information systems, and statistics is often needed to have the necessary skillset. • New technologies are being developed that require training and education.

What is blockchain and what are some potential appl tions of this technology?

• Blockchain technology is a distributed, digital ledger of economic transactions that keeps track of all transactions within a peer-to-peer network. • It improves the validity of data as the record of transactions is widely distributed, but it cannot be copied. • One popular use of blockchain is for cryptocurrencies like Bitcoin. • Another use is a new type of contractual agreement called smart contracts. These contracts allow for contractual terms to be completed without third-party involvement and oversight.

What is the role of business process analysis in improving system performance? How is this business process analysis accomplished?

• Business process analysis is used to evaluate and improve core business processes by taking a fresh view of a process business and asking how it could be done either with greater speed or with greater effectiveness. • This process begins by gathering information about the current process and its objectives and then identifying alternative processes and determining whether the same objectives could still be achieved. • Diagrams and flowcharts can be used to help document the logical flow of the business process.

List the main benefits and limitations of the absorption costing system.

• By allocating fixed costs to production, managers have a more complete measure of the full costs of inventory. • Financial reporting standards require a full cost valuation of inventory on the balance sheet; therefore, it is necessary for external financial reporting. Limitations: • Creates a troubling incentive in managers to overproduce and build inventory.

What is ISACA's COBIT and what does COBIT focus on specifically?

• COBIT is a best-practice framework that stands for Control Objectives for Information and Related Technologies that guides information technology (IT) management and governance. • In addition to providing a framework, COBIT also provides a variety of resources, technical guides, and trainings. • COBIT specifically focuses on security, risk management, and information governance.

What is cloud computing and how can it improve efficiency?

• Cloud computing is a network of remote servers connected by the Internet that allows for improved processing of electronic information. • It provides access to larger data storage, processing speeds, and software applications. • It helps avoid data loss as the "cloud" or network of servers provides a safeguard by storing information on multiple servers at multiple geographic locations.

Briefly describe the following analytic models: clustering, classification, regression, and time series.

• Clustering: This technique helps discover and identify patterns of similarity and dissimilarity by grouping similar objects together. • Classification: This method attempts to predict which predefined category an item belongs to. • Regression: This method analyzes the correlation of a dependent variable with an explanatory or independent variable. This can be performed with one independent variable or many independent variables. • Time Series: This method considers data points over time, which allows patterns to be identified.

Describe the four design principles a company can use to institute and maintain effective controls.

• Control: The systems should safeguard assets and ensure reliable data. • Compatibility: Internal controls should be specific to an industry or business unit. • Flexibility: Internal controls need to be able to accommodate growth of the organization. • Cost-benefit: The tradeoff balance between effectiveness and the cost to the organization should be maintained.

Briefly describe how to distinguish among controllable costs, direct costs, and indirect costs.

• Controllable costs: Costs that managers can significantly influence or directly control. These costs should be used when assessing the performance of the manager or management team. • Direct costs: Include controllable costs and any other costs that are directly connected to the operations of the unit. • Indirect costs: Costs that are allocated to the business unit that represent general administrative costs for the organization. Not controllable by the business unit being allocated the costs.

Briefly describe what is meant by the terms "cost pools," "cost objects," and "cost drivers."

• Cost Pools: Sets of costs that are related together, both functionally and behaviorally. • Cost Objects: The target of the cost assignment system. They are typically tied to the organization's income statement and also represent the revenue objects. • Cost Drivers: Establish a relationship between cost pools and cost objects. They represent a consumption relationship if the cost is variable. If the cost is fixed, they represent an allocation method.

Briefly describe the four general types of responsibility centers.

• Cost center: Organizational unit in which the manager of the unit has control only over the costs incurred. • Revenue center: A business unit set up to focus exclusively on generating sales and revenue. • Profit center: Usually found at higher levels of an organization than cost centers. The manager is responsible for costs and revenues. • Investment center: Found at the highest levels in the organization. Responsible for managing costs, revenues, and assets.

How are cost drivers used? Briefly describe the two-step process that is used to calculate an assigned cost to the cost object.

• Cost drivers are used to establish cost driver rates, and the cost driver rates are used to track or allocate costs to the cost object. • The first step is to calculate the cost driver rate. This rate is calculated as the Cost Pool Total ÷ Cost Driver Volume. • The second step is to use the rate to track or allocate costs to the cost object. The assigned cost is calculated as Cost Driver Rate x Cost Object Activity.

Describe the three basic problems with inventory (cost, quality, timeliness).

• Cost: Economic holding costs occur because of tied money up in unsold inventory; out-of-pocket costs are incurred to move, store, and secure the inventory; and shrinkage cost exists if inventory is lost, damaged, or becomes obsolete. • Quality: Quality problems are hidden in the inventory pile, and continue until discovered when the inventory is used. • Timeliness: In addition to production time, inventory must also "sit in line" waiting for production, which results in delayed or lost sales.

What are some of the main challenges of accurately classifying costs as variable or fixed?

• Costs are typically classified as either variable or fixed, but many costs exhibit both variable and fixed characteristics. • Fixed costs can shift in total as an organization moves between significant cost structures. As volume increases or decreases, there are "step-up" or "step-down" costs. • The time horizon for the performance report or decision analysis. Costs tend to be fixed in very short horizons and variable over long horizons. • The distinction as fixed or variable is based on the cost object.

Briefly describe the last four stages in the data life cycle (data analytics, data publication, data archival, and data purging).

• Data analytics: A specialized stage wherein data is used in models to facilitate pattern recognition and evaluation of correlations and associations. • Data publication: Involves making data available outside of an organization. This is not always a willful act of the organization as data breaches and cyberattacks technically fall under this stage. • Data archival: Data is set aside from active usage and stored for future use. • Data purging: The final stage of the data life cycle where data is deleted or removed from existence.

Briefly describe the first four stages in the data life cycle (data capture, data maintenance, data synthesis, and data usage).

• Data capture: The initial stage of data wherein the data is generated or recorded. This can be accomplished through many means. that puts data into useful • Data maintenance: The process forms. No evaluations or analysis are performed in this stage. • Data synthesis: The stage where new data is created by using existing data and deriving logic outputs. • Data usage: As the name implies, data usage is employing the data within the business activities and processes of an organization.

Briefly describe what data visualization is and how organizations use it.

• Data visualization is the creation, analysis, and evaluation of data presented in visual forms such as charts, graphs, diagrams, dashboards, etc. • Organizations use data visualization to help identify patterns, trends, and outliers. • Data visualization can also be used to provide understanding about correlations and relationships among critical success factors for an organization's activities or industry and market behaviors. • Data visualization is especially useful to make sense of big data.

What activities can be represented by a flowchart?

• Decision points where the next action depends on the decision made. • Automated processing. • Manual operations. • When the process produces an output document (either electronically or in paper form). • Where data is stored online in the information system.

Briefly describe the four types of data analytics.

• Descriptive: This form reports the characteristics of historical data using statistical properties like mean, median, range, or standard deviation. • Diagnostic: This form looks at correlations to help identify unknown or uncertain empirical relationships by finding meaningful statistical associations. • Predictive: This form builds on descriptive and diagnostic analytics to make predictions about future events. • Prescriptive: This form uses the three other types of data to recommend the best course of action.

Describe the first issue that needs to be clearly managed and separately evaluated when managing transfer pricing.

• Does the organization want the transfer to take place between the two business units? • The organization should determine if there is an outside alternative and, if there is, the organization must determine if it is cheaper to buy externally or internally produce and transfer the product by comparing the external market price to the sum of the variable cost, opportunity cost, and incremental fixed cost.

Briefly describe the three parts of the drum-buffer-rope system used by the theory of constraints (TOC).

• Drum: The drum indicates the current pace of the bottleneck to downstream processes so that output from the bottleneck is anticipated and handled as perfectly as possible. • Buffer: The purpose of buffer inventory is never to let the bottleneck stand idle waiting for upstream operations to catch up. • Rope: The rope represents constraints placed on upstream operations so they don't overwhelm the bottleneck operation with so much inventory that cost, quality, and timeliness problems become an issue.

What are some benefits of EPM?

• EPM software packages can improve efficiencies in planning, budgeting, and reporting processes by relying on a centralized database and workflow. • EPM can reduce or even eliminate the need for spreadsheet-based business activities by acting as a central repository for performance data. • EPM provides a more holistic view of an organization's performance by linking its financial and operational data and metrics.

What are some of the main responsibilities of the Board of Directors for a company?

• Ensure that the company operates in the best interest of the shareholders. • Establish corporate policies • Appoint senior management, including the CEO and CFO. • Serve on various committees, including the audit committee, which is responsible for the financial reporting process oversight.

What is Enterprise Resource Planning (ERP)?

• Enterprise Resource Planning is the integrated management of core business processes such as inventory management, accounting, finance, human resources, supply chain management, and more. • This shared database allows employees in one business function to view and access data generated in other business functions.

Briefly describe the following analytic models: exploratory data analysis, sensitivity (what-if) analysis, and simulation models.

• Exploratory data analysis: This technique summarizes the characteristics of a dataset to examine the data for patterns or anomalies, often using visual methods. • Sensitivity (what-if) analysis: This technique explores how a dependent variable might be affected under different possible sets of independent variables. • Simulation model: This technique is based on computational algorithms that follow specified assumptions to model possible outcomes. A Monte Carlo simulation is a specific type of simulation model.

What are some factors that might influence the choice of inventory costing method?

• FIFO generally reflects the actual physical flow of goods better. • LIFO is not allowed under International Financial Reporting Standards. • If there is an inflationary environment, LIFO will have higher cost of sales, so the gross margins and net income will be lower, but the income tax liability will also be lower. • If there is a deflationary environment, LIFO will have lower cost of sales, so it will have higher gross margins, net income, and income tax liability.

What are the four perspectives or themes that are presented in the Balanced Scorecard Model and which question is the focus of each model?

• Financial perspective: "How do we look to our shareholders?" • Customer perspective: "What do our customers value?" • Internal perspective: "At what business processes must we excel?" • Learning perspective: "How do we sustain change and progress?"

Describe the financial and customer perspectives of the Balanced Scorecard Model and which question each perspective is focused on.

• Financial perspective: Where the organization's vision and mission are translated into financial performance. Focuses on the question: "How do we look to our shareholders?" Identifying what the shareholders are expecting will define the types of financial performance measures that should be established. • Customer perspective: Focuses on answering the question: "What do our customers value?" The key to understanding what customers truly value is identifying what value customers are willing to pay tor.

Describe three personnel controls a company should use.

• Hiring: Screen potential employees to ensure that they have the skills, education, or certifications necessary to perform the job well. resources to training and • Training: Devote adequate tracking employee performance to help them improve. • Job Rotation and Mandatory Vacations: Useful to cross- train employees and prevent or detect fraud.

Data visualization can be presented in many ways. Briefly describe the following presentation options: histograms, boxplots, scatterplots, dot plots, tables, and dashboards.

• Histograms: show the distribution of numerical data • Boxplots: show data distribution by displaying the quartiles in which data occur • Scatterplots: show how two variables are related • Dot plots: used when values fall into discrete categories and show values as small circles stacked on each other in each category • Tables: list information in rows and columns. • Dashboards: provide a quick summary view of key performance indicators

What are the differences in inventory accounting under IFRS vs. U.S. GAAP?

• IFRS does not allow the use of the last-in, first-out (LIFO) inventory costing method, which can be used for U.S. GAAP. • Under IFRS, inventory previously written down for lower of cost or net realizable value issues can be written back up to original cost if there is a recovery; U.S. GAAP does not allow write-up of inventory previously written down.

List the steps in the revenue recognition process.

• Identify the contract with a customer. • Identify performance obligations in the contract. • Determine the transaction price. • Allocate the transaction price to the performance obligations in the contract. • Recognize revenue as, or when, the performance obligations are satisfied.

With respect to measuring costs of quality, briefly describe internal failure costs and external failure costs. Provide examples of each.

• Internal failure costs: Scrap and rework costs that are incurred to dispose of or fix defective products before they are shipped to the customer. These include costs of downtime or reduced yield due to production of defective parts or services. • External failure costs: These are generally the highest costs of a low-quality product and include complaint processing costs, customer returns, warranty claims, product recalls, field service, and product liability. Future lost sales due to external failure can be very significant.

Describe the internal and learning perspectives of the Balanced Scorecard Model and which question each question is focused on.

• Internal perspective: Focuses on the question: "At what business processes must we excel?" This depends s on on how the organization's internal processes are tied to successfully delivering on the customer perspective. The three types of internal processes are innovation, production and delivery, and post-sale service or support. • Learning perspective: Focuses on the question: "How do we sustain change and progress?" This is about identifying the key areas to improve to support key internal processes and key customer values.

Why is transfer pricing needed?

• It can be used to motivate performance and discipline processes in cost and revenue centers. • It allows both cost and revenue centers to be reestablished as profit centers to better align incentives with the organization. • If the price is set correctly, the receiving business unit will expect quality and timeliness in the transaction, and the supply unit will be incentivized to provide quality and timeliness.

What does the Customer Profit Migration Chart represent?

• It represents the twofold relationship between the total margin on purchased goods and services that a customer generates and the total costs to serve that customer's relationship with the SBU. • The same crossover point in the whale curve is demonstrated in the migration chart with the customers whose margin on purchases and offsetting use of support processes results in either a small profit or a small loss.

Briefly describe some of the major components of just-in- time (JIT) systems.

• JIT systems have similar management objectives as MRP systems. • JIT involves ordering and receiving inventory for production and customer sales only as it is needed to produce goods, not before. • There is a very low tolerance for errors in JIT systems. • The initial objective of JIT systems is to reduce all inventory in the organization to extremely low or zero levels. • The true objective of JIT systems is to improve quality, reduce speed, and increase throughput.

Describe when an organization would use a job order costing model and when an organization would use process costing model.

• Job order costing model: This model is used when the customer or client receiving the product can be identified before the process begins and the job with its associated costs are tracked together throughout the process. • Process costing model: This model is used when an organization is building similar products without separately identifying each product during the and the process organization can only identify the buyer during the selling process.

Describe why managers need to be careful when using joint process cost allocations in the of planning, controlling, and evaluating operations.

• Joint costs are part of the absorption costing system and the costs must be allocated, but there is no "optimal" method for allocating joint costs. • Joint costs are fixed with respect to the individual activity in each joint product. • The process of allocating joint costs may suggest to management that these costs are affected by individual project lines, but they are not!

What are key performance indicators (KPIS) and how should an organization use them?

• KPls are a small set of critical data points that indicate to the executive team and other stakeholders whether the organization is on track to accomplish its strategic objectives. • Each strategic objective established should be identified by one or two KPIS.

List some typical types of network, hardware, and facility controls.

• LANS, WANS, VPNS • Computer equipment in locked room with restricted access and protection from natural disasters • Duplicate systems • Appropriate storage for company data • Data encryption • Routing verification • Message acknowledgment • Antivirus software and firewalls

Briefly describe the concept of lean manufacturing.

• Lean manufacturing changes management's focus from optimizing separate technologies, processes, and assets to optimizing the flow of products and services to a horizontal view through the entire organization. • Lean manufacturing is not only focused on eliminating excess inventory and production scrap and spoilage, but it is also focused on reducing time spent waiting in the production process, eliminating unnecessary movement of inventory and people, and reducing processing that isn't desired by the customer.

What does the life-cycle costing method provide organizations?

• Life-cycle costing provides organizations with a more complete view of the costs of establishing and sustaining a product or customer. • The life cycle for a product begins in the research and development stage. • By tracking upstream costs prior to the manufacture of a product and downstream costs subsequent to the manufacture and delivery of a product, organizations can establish a more strategic view of managing all three core product stages: R&D, production, and post-sale support.

Briefly describe the cyberattack techniques of malware, phishing, and denial-of-service attacks.

• Malware: A breach of a system or computer to block access to computer or server functions, gather and transmit data, or disrupt system processing. • Phishing: False presentation or fraudulent communication of information from a reputable source with the goal of installing malware or stealing personal information. • Denial-of-service attack: An attack that overloads a network or computer with requests to process information. These requests exhaust the processing power or bandwidth of the computer or network.

Briefly describe what measurement surrogation means.

• Measures function as imperfect surrogates for (or representations of) the actual strategic objective in the organization. • If managers focus too much on a specific measure, they start making decisions strictly to increase that measure, regardless of the possible negative effects on the long-term profitability of the organization. • For example, too much focus on reducing reported costs and increasing reported revenues can lead to a loss of focus on sustainable cost drivers and quality revenue drivers.

Describe cost allocation using the net realizable value (NRV) method and cost allocation using the constant gross profit (gross margin) method.

• Net realizable value (NRV) method: The logic in this method is that joint costs should be allocated based on the product's ability to pay the costs, defined as the product's NRV (final sales value of the product less any additional processing costs). • Constant gross profit (gross margin) method: This method can be used to reduce the impact on product line profitability due to the allocation method used. Start with the overall gross profit percentage for the organization, then mathematically work backwards to ensure that each product line reports the same gross profit percentage.

Describe what constitutes "normal" and "abnormal" spoilage. How is each of these types of spoilage accounted for?

• Normal Spoilage: Spoilage represents units of work that are lost in the production process and cannot be transferred forward to the next department. Normal spoilage is an accepted cost of production. The costs of normal spoilage are transferred forward to the finished goods inventory account (or the next work-in-process account). • Abnormal Spoilage: This spoilage represents an unacceptable loss in the production process. The costs are transferred into a loss account that is immediately recognized on the income statement.

There are two main methods used to handle the reporting of by-products. Briefly describe each method.

• One method establishes a separate product line in the organization's profit report for the by-products. Under this method, the relatively lower performance of the by- product stands out in the overall report. • The other (more popular) method offsets the joint process cost with the by-product revenue before computing the joint cost allocation. The decrease in cost will be allocated to the various products under whichever joint cost allocation method the organization uses.

Describe the two approaches for reconciling over- or under- applied manufacturing overhead.

• One method is to proportionally adjust the ending balance in all "downstream accounts." This is the most accurate approach and is the best method to use when the over- or under-applied amount is significant. • The second method is to simply adjust the cost of goods sold account directly for the full amount of the variance. This method will over-adjust the cost of goods sold and leave inaccuracies in the ending balances for all inventory accounts.

Where should a company have internal controls?

• Organization-wide • Division level • Operating unit • Function (for example, accounting, marketing, and information technology)

What are the main categories of Information Systems General Controls?

• Organizational, personnel, and operations controls • Systems development controls • Network, hardware, and facility controls • Disaster recovery and backup controls • Accounting controls

What are some reasons that overhead variances require careful control and evaluation by management processes?

• Overhead is a compilation of many factors, so the process is complicated. • In some organizations the overhead costs substantially exceed the combined cost of direct materials and direct labor. •Many organizations with complicated overhead structures will expand their system for tracing overhead cost variances to include many different types, prices, and inputs of overhead.

What are some examples of safeguarding controls?

• Petty cash in a locked container with the key held by the controller • Computer systems in a locked room with access restricted to appropriate personnel • Prenumbered forms • Prenumbered purchase orders

Describe cost allocation using the physical units method and cost allocation using the sales value at split-off method.

• Physical units method: This method is based on a simple logic that as more of a product is produced, it should bear more of the joint process costs. • Split-off method: This method is based on the logic that the joint process adds value to the main products, so the value established at the point the products are identifiable and ready for sale should be the basis for the allocation. This method is only available if products are saleable at the split-off point.

Describe the kaizen activity cycle Plan→Do→Check→Act approach (PDCA).

• Plan: A current or proposed process is assessed, and an improvement plan is established. • Do: Changes are made, and data are gathered to determine if the changes are effective. • Check: Evaluation of the data takes place, decisions regarding adjustments are made, and additional action and data gathering occur, if needed. • Act: If the organization determines the process should be is rolled out, new performance improved, the new process standards are set, and the organization acts on the change.

Describe the three elements of the decision-making and management process for achieving operational objectives.

• Planning: where the strategy is defined into operational objectives, performance measures are set, and resources are committed. • Controlling: requires that expectations are established and incentivized, results are gathered and reported, and variances from the budget are computed. • Evaluating: involves rewarding performance, analyzing results, and using the insight gained to inform the planning stage for the upcoming operational cycle.

Describe the difference between a practical (normal) production capacity and a theoretical (ideal) level of capacity.

• Practical production capacity represents the level of output that can realistically be achieved based on the current management policies, as well as machine and labor scheduling expectations. This capacity also allows for unavoidable productivity losses from machine breakdowns, production errors, employee vacations, and so on. • Theoretical capacity assumes that all policy constraints and scheduling limitations are removed, and no productivity is lost from breakdowns, errors, etc. This is an ideal capacity that is never actually achieved.

With respect to measuring costs of quality, briefly describe prevention costs and appraisal costs and give a few examples of each type of cost.

• Prevention costs: Prevention costs are incurred to ensure that tasks are performed correctly the first time and that the product or service meets customer requirements. Some examples of prevention costs include process or product design, employee training, education of suppliers, and preventive maintenance. • Appraisal costs: Appraisal costs represent what the organization spends on inspection, testing, and sampling of raw materials, work-in-process, and finished goods and services. Some examples include quality inspectors, and costs to adjust measuring and test equipment.

List the three basic categories of controls and briefly describe each one.

• Preventive controls: Designed to prevent control failures from occurring. • Detective controls: Controls that are designed to detect control failures after they occur. • Corrective controls: Designed to reverse or reduce the errors found through detective controls.

How are price and quantity variances calculated using the formula approach?

• Price variance formula: Actual Quantity x (Standard Price - Actual Price) = Price Variance • Quantity variance formula: (Standard Quantity - Actual Quantity) Standard Price = Quantity Variance

What is the difference between primary and support activities in an organization's value chain?

• Primary activities: Primary activities add value directly to the production process as they are focused on the logistics of receiving inputs, converting them, delivering and marketing a finished product, and supporting the product with after-sales service. • Support activities: Because an organization's competitive advantage derives mainly from technological improvements or innovations in business models or processes, support activities such as information systems, human resources processes, or general management can be the most important source of the organization's differentiation strategy.

What is the DuPont Equation as it applies to the Return on Assets formula? Briefly describe what each part of the equation measures.

• Profit + Assets = (Profit ÷ Sales) x (Sales ÷ Assets) OR Return on Assets = Profit Margin x Asset Turnover. • Profit Margin: Measures the percentage of sales revenue that is captured as profit. • Asset Turnover: Reports on the number of sales dollars generated by each dollar invested into assets. Organizations that generate (turn over) a lot of sales dollars from assets can still accumulate a significant profit even if competing on a thin profit margin percentage.

What is the basic Return on Investment (ROI) formula? List some of the common items used to define each part of the formula.

• ROI = Income Investment • Income: After-tax net income, pre-tax income, operating profit, gross margin, or cash flow from operations. • Investment: Total Assets, Long-term Debt and Equity (Total Assets Short-term Debt), and Equity (Total Assets - Total Debt).

What is robotic process automation (RPA) and what are the benefits of using RPA?

• RPA is the use of software to complete routine, repetitive tasks such as manipulating data, recording transactions, processing many information, and other business and IT processes. • RPA is typically used when there are high volumes of routinized actions. • RPA can provide greater consistency and speed in the work performed so it allows organizations to scale processes faster than hiring and training additional workers to perform identical tasks. • RPA can lower companies' costs by increasing throughput and reducing errors.

Describe the main characteristics of the batch controls of record counts, control totals, and hash totals.

• Record counts: Counting the number of records in a batch or lines in a document to determine completeness. • Control totals: Totaling a financially meaningful field such as the amount field as a check figure. • Hash totals: Totaling a field where the total has no logical meaning.

Describe how organizations use regression analysis to estimate the variable and fixed costs.

• Regression analysis is based on all the data provided in a report. Because it uses all the data points instead of just two, regression analysis is a much more comprehensive approach to identifying variable and fixed costs. • Using Excel™️, a line is fitted as tightly as possible to the data points. • The coefficient or slope of the line (rise over run) represents the variable cost per unit. The coefficient for the intercept point represents the total fixed costs.

Describe the basic requirements of SOX Sections 202, 201, and 302.

• Section 202: Prohibits accounting firms from providing some non-audit services. • Section 201: Requires lead audit partners to rotate off engagements every five years to help maintain independence. • Section 302: Puts management on the hook for internal control failures.

Describe the basic requirements of SOX Sections 301, 407, and 404.

• Section 301: Requires audit committee independence. • Section 407: Requires audit committees to have at least one member who qualifies as a financial expert. • Section 404: Requires public companies to establish and maintain a system of internal controls, which must be audited.

What are the four most common depreciation methods?

• Straight-line depreciation: Recognizes depreciation equally over the asset's useful life. • Sum of year's digits (SOYD): Records more depreciation in early years than in the later years. • Double declining balance (DDB): Calculates depreciation by multiplying the asset's book value by 2 ÷ n (n = number of years in the asset's useful life). • Units of production (UOP): Spreads the depreciable cost evenly over the number of units produced during the asset's life.

Data can be structured or organized in several ways. Briefly describe what the terms structured data, semi-structured data, and unstructured data mean.

• Structured data: This data is organized and has fixed fields like data in a spreadsheet with row or column identifiers, which makes it easily searchable. • Semi-structured data: Although it doesn't have organized fixed fields, this data may still contain organizing features such as tags or markers so it can have classifications and groupings. • Unstructured data: This data is unorganized and not easily searchable. It is often text-based so it is difficult to categorize and organize it into predefined, set data fields.

List some examples of input controls that an organization should have in place.

• Supervisors should confirm the аccuracy of source data before employees input data into the system. • Appropriate approval procedures. • Dual observation/review of data before it is input into the system. • Manually calculated totals of various fields should be batched. Batch totals are compared to computer-calculated totals.

List some examples of output controls.

• System should have password protection. • Master file changes should be tracked and logged. (If review of every entry is impossible, exception reports can show significant changes to master files). • Other output controls can identify problems after processing is complete like key balance sheet account reconciliation and discrepancy reports.

Which IT duties should be segregated within the organization?

• Systems development: IT analysts and developers accountable for system creation • IT operations: The computer operators, data library custodian, and those responsible for the systems input and output • Technical support: Administrators of network security, databases, and network utilities

Briefly describe the focus of the activity-based costing (ABC) model and the hierarchy of types of activities that an ABC model uses.

• The ABC model focuses on breaking down and identifying how costs are actually consumed in an organization, and then fully costing product lines or customer lines using activities as the cost assignment base. • The ABC model uses a hierarchy of types of activities to identify the variable nature of cost consumption. The types of activities in the ABC hierarchy include unit-level activities, batch-level activities, product line activities, and facility support activities.

What is a General Ledger and Reporting System?

• The General Ledger and Reporting System another subsystem of the AIS. • The General Ledger and Reporting System has fewer operational functions than the AIS cycles and focuses primarily on information functions. • The General Ledger and Reporting System is the process of recording, classifying, and categorizing an organization's economic transactions and producing summary financial reports.

Briefly describe some of the major components of the material requirements planning (MRP) model.

• The MRP model focuses on launching a master production schedule into a series of detailed daily schedules. • Raw material and work-in-process inventory levels are based on the scheduling of purchases and release events in order to have components arrive as needed in the production process. • MRP systems help manage complex organizations and production processes to reduce inventory and workflow interruptions. • An MRP system is described as a "push" system.

What are some of the drawbacks of robotic process automation (RPA)?

• The RPA system needs to be updated if rules or processes change. These updates can require a substantial amount of time and energy if the changes are significant. • The initial investment required to develop an RPA system can be costly. • These systems require a significant amount of time to understand and define the procedures and processes and even more resources to test, verify, and/or audit the process to ensure accurate completion of the task.

What are some of the judgments or estimates that need to be made by management when determining depreciation calculations?

• The asset's expected useful life, or period over which the asset is expected to provide benefit to the organization. • The expected salvage value at the end of the asset's useful life. The asset should not be depreciated below salvage value. • The depreciation method must be selected and should reflect the asset's usage pattern.

Explain the three circumstances under which revenue is recognized over time.

• The customer simultaneously receives and consumes the benefit of the performance obligation. • The satisfaction of the performance obligation creates or enhances an asset already controlled by the customer. • The good or service has no alternative future use to the selling organization and the organization has a right to payment for work completed.

What are the characteristics of the most profitable and most unprofitable customers in an SBU's portfolio?

• The customers who purchase a high volume of product or services or who select high-margin products and engage in customer support processes efficiently are the most profitable customers for the SBU. • Customers who demand a lot of special support activities in the CRM process and yet don't produce much profit margin on product sales are the most unprofitable customers in the portfolio.

Which variance is the direct labor mix variance a subset of, and how is it calculated under both the framework and formula approaches?

• The direct labor mix variance is a subset of the labor efficiency variance. • Under the framework approach, it is calculated by comparing the Total Actual Quantity x Actual Mix % x Standard Rate to the Total Actual Quantity x Standard Mix % x Standard Rate. • Under the formula approach, it is calculated as Total Actual Quantity x (Standard Mix % - Actual Mix %) x Standard Rate.

Which variance is the direct labor yield variance a subset of, and how is it calculated under both the framework and formula approaches?

• The direct labor yield variance is a subset of the labor efficiency variance. • Under the framework approach, it is calculated by comparing the Total Actual Quantity x Standard Mix % x Standard Rate to the Total Standard Quantity Allowed x Standard Mix % x Standard Rate. • Under the formula approach, it is calculated as (Total Standard Quantity Allowed - Total Actual Quantity) x Standard Mix % x Standard Rate.

What is business process reengineering (BPR)?

• The focus of BPR is to remove unproductive management layers, wipe out redundancies, and radically remodel processes. • BPR starts with a high-level assessment of the organization's mission, strategic goals, and customer needs. • With a focus on the high-level assessment items, the organization reviews every process, activity, and employee role in the organization using the BPR cycle of identifying a process, reviewing and analyzing the process, designing a new process, and testing and implementing the new process.

Describe how the Variance Framework works and how you would use it to calculate the price and quantity variances.

• The framework is a visual method for calculating variances. • Moving from left to right, you move from actual amounts to standard amounts. • The price variance is calculated first as you isolate the price by comparing Actual Quantity x Actual Price to Actual Quantity x Standard Price. • You calculate the quantity variance by comparing Actual Quantity x Standard Price to Standard Quantity x Standard Price.

Describe how organizations use the high-low method to estimate the variable and fixed costs.

• The high-low method focuses solely on the highest and lowest activity levels (e.g., production volume). • Organizations compare the change in production costs to the change in activity level at these two points to establish a variable cost per unit (rise over run). • The variable cost per unit is then used to solve for the total fixed costs by using the formula: Total Cost = (Variable Cost Unit x Total Units) + Total Fixed Costs.

Causes for direct labor variances can be spread across multiple departments. What role do the human resource and production departments play in determining direct labor variances?

• The human resource department is responsible for finding, hiring, and initially training new employees. The HR department is responsible for achieving standard labor rates, which is impacted by the and demands of economy other departments. • The production department plays a major role in the efficiency of labor because managers in this department are responsible for ongoing training and motivation of their team.

Briefly describe the process to implement a BSC.

• The leadership team clarifies the vision and mission into a communicable strategy. • The leadership team drafts a balanced scorecard and strategy map to introduce to middle management. • The implementation team is established and composed of key leaders, managers, and front-line employees. • The implementation team rolls out the change process while leadership identifies and eliminates nonstrategic investments and realigns the organization to focus on the strategic objectives.

Describe operating leases and their basic accounting.

• The lessor transfers only the right to use the property to the lessee and the lessor/owner retains most of the risks and benefits of ownership. value of the • An ROU asset and a lease liability for the present minimum lease payments are recorded at the lease signing. is recorded on a straight-line basis over • Lease expense the life of the lease and includes both interest on the lease liability and the amortization of the ROU.

Describe finance leases and their basic accounting.

• The lessor transfers some of the rights and benefits of ownership to the lessee. • The arrangement is treated as a borrowing and a purchase. • Borrowing: The lessee records a liability for the present value of the minimum lease payments and amortizes the liability as payments are made, similar to a mortgage loan. • Purchase: The lessee records the property as an ROU asset and recognizes amortization similar to expense, depreciation on owned assets.

When should the direct materials price variance be calculated and how is it calculated under both the framework and formula approaches?

• The price variance should be calculated as soon as the materials are purchased. • Under the framework approach, it is calculated by comparing the Actual Quantity Purchased x Actual Price to the Actual Quantity Purchased x Standard Price. • Under the formula approach, it is calculated as Actual Quantity Purchased x (Standard Price | - Actual Price).

Which department is typically responsible for price variances and what are some internal and external factors that might cause these variances?

• The production department is typically responsible for price variances. • Internal factors may include experience, training, and motivation of the production crew, how well the equipment is maintained, or how well quality control processes are managed. • External factors may include decisions made in other departments that can't be controlled by the production department, like a decision by the purchasing department to purchase lower-quality materials, which could lead to an unfavorable usage variance.

Which department is typically responsible for price variances and what are some internal and external factors that might cause these variances?

• The purchasing department is typically responsible for price variances. may • Internal factors include decisions about the quantity and cash discounts available, quality of the materials, and the delivery method used. • External factors may include rising or falling prices based on economic events or demands from another department that require the organization to expedite a purchase or delivery and therefore it is unlikely that the organization can obtain standard pricing.

What are some of the challenges of data mining?

• The quality of the data can affect data mining. If the data has missing values, errors, or an insufficient sample size, the ability to conduct statistical tests and draw inferences can be limited. • Data mining often involves combining data from multiple sources which may come in a variety of formats. • The size of the datasets could require computational power beyond the capabilities of standard computers. • Data mining can produce large quantities of data that could demand significant time and effort to sift through.

Which budget is the direct materials quantity or usage variance based on and how is it calculated under both the framework and formula approaches?

• The quantity variance (also known as the usage variance) uses the standard quantity in the flexible budget, not the original master budget. • Under the framework approach, it is calculated by comparing the Actual Quantity Used x Standard Price to the Standard Quantity Allowed x Standard Price. • Under the formula approach, it is calculated as (Standard Quantity Allowed - Actual Quantity Used) x Standard Price.

What two important behavioral considerations must be in a made when assigning responsibilities to managers responsibility accounting system?

• The responsible manager should be involved in developing the plan for the unit over which the has control. manager • The manager should be held accountable only for the costs, revenues, or assets for which the manager has "substantial control."

What does a corporate governance structure provide for a company?

• The rights and responsibilities of various stakeholders. • The rules and policies for addressing business functions. • The ability to direct the affairs of the organization through a board of directors.

What is the sales mix variance a subset of, and how is it calculated using both the framework and formula approaches?

• The sales mix variance is a subset of the sales volume variance. • Using the framework approach, it is calculated by comparing the Total Actual Volume x Expected Mix % x Standard Contribution Margin to the Total Actual Volume x Actual Mix % x Standard Contribution Margin. •Using the formula approach, it is calculated as Total Actual Volume x (Expected Mix % - Actual Mix %) x Standard Contribution Margin.

What is the sales quantity variance, and how is it calculated using both the framework and formula approaches?

• The sales quantity variance is a subset of the sales volume variance. Using the framework approach, it is calculated by comparing the Total Expected Volume x Expected Mix % x Standard Contribution Margin to the Total Actual Volume x Expected Mix % x Standard Contribution Margin. Using the formula approach, it is calculated as (Total Expected Volume - Total Actual Volume) x Expected Mix % x Standard Contribution Margin.

The sales volume variance can be broken down into two separate variances. What are these variances and why would a company use them in their analysis?

• The sales volume variance can be broken down into the sales mix variance and sales quantity variance. • Most organizations sell a mix of products or services so the sales volume variance results not only from selling more or less total goods or services, but also from selling relatively more or less of one type of product versus another. •Using the sales mix and quantity variances helps an organization break down the financial impact of both factors.

Briefly describe the fundamentals of the weighted-average process costing method.

• The weighted-average method saves a few mathematical steps by aggregating costs spent and work done in the previous period on beginning inventory with costs spent and work done in the current period. • This method doesn't really represent how costs and work actually flow in most organizations. • The use of computers gives little reason for the weighted- method to be used; however, some organizations average still use it.

What does the whale curve chart demonstrate and how can organizations use this chart?

• The whale curve chart demonstrates an analysis of customer profitability by organizing customers from most profitable to least profitable and comparing that relationship to total profits in the organization. If organizations can track all the costs related to each customer, they can identify the profitability of each customer. • The top of the whale curve demonstrates a crossover point for individual customer profitability. The customers to the right of the curve are unprofitable and reduce profitability.

What is the difference between a top-down, risk-based approach to auditing internal controls over financial reporting and a bottom-up approach?

• Top-down approach: Auditors identify significant accounts and disclosures and then determine the risk of material misstatement. They then examine the controls in place for those areas and plan tests to gather evidence on the internal controls. • Bottom-up approach: Test internal controls and examine how they might lead to material misstatements in the financial statements.

What are the differences in impairment testing under IFRS vs. U.S. GAAP?

• Under U.S. GAAP, impairment is reviewed at the individual asset level; under IFRS, an organization should review for impairment at the cash-generation unit (CGU) level. • Under IFRS, a one-step impairment test is used rather than the two-step model used for U.S. GAAP. • Recognizing reversals of prior impairment losses is prohibited under U.S. GAAP, but allowed under IFRS.

What are the differences in accounting for intangible assets under IFRS vs. U.S. GAAP?

• Under U.S. GAAP, intangible assets are carried at amortized cost; under IFRS, intangible assets may be carried at amortized cost or revalued to fair value. • Under IFRS, development costs for internally developed intangible assets may be capitalized once the technological feasibility of the project has been established and certain conditions are met; under U.S. GAAP, all development costs are expensed as incurred, except for software development once technological feasibility has been established.

How is the fixed overhead volume variance calculated under both the framework approach and the formula approach?

• Under the framework approach the variance is calculated by comparing the master budget costs to the applied costs. • Under the formula approach, it is calculated as the (Actual Production Volume - Master Budget Volume) x Fixed Overhead Rate. It can also be calculated as the Applied Costs - Master Budget Costs.

How is the fixed overhead spending variance calculated under both the framework approach and the formula approach?

• Under the framework approach the variance is calculated by comparing the total actual costs to the master budget costs. • Under the formula approach, it is calculated as the (Master Budget Production Volume x Fixed Overhead Rate) - Actual Costs Spent. It can also be calculated as the Master Budget Costs - || Actual Costs Spent.

How is the direct labor rate variance calculated under both the framework and formula approaches?

• Under the framework approach, it is calculated by comparing the Actual Hours Used x Actual Rate to the Actual Hours Used x Standard Rate. • Under the formula approach, it is calculated as Actual Quantity x (Standard Rate - Actual Rate).

What are the different types of audit opinions an auditor can issue?

• Unmodified opinion • Unmodified opinion with an emphasis-of-matter or other-matter paragraph • Qualified opinion • Adverse opinion • Disclaimer of opinion

Why is the direct labor efficiency variance called the efficiency variance and how is it calculated under both the framework and formula approaches?

• Using more or less direct labor often results because of an issue of managing the efficiency of labor usage. • Under the framework approach, it is calculated by comparing the Actual Hours Used x Standard Rate to the Standard Hours Allowed x Standard Rate. • Under the formula approach, it is calculated as (Standard Hours Allowed - Actual Hours Used) x Standard Rate.

List some examples of processing controls.

• Using standard processing procedures. • Automating as much as possible. • Using predefined values as appropriate. • Balancing the processing totals against the batch total to ensure accuracy. • Confirming that the balance of the subsidiary ledgers equals the general ledger control account. • Matching source documents to the processing records. • Implementing redundant data processing.

How is the variable overhead efficiency variance calculated using both the framework approach and formula approach?

• Using the framework approach, the variable overhead spending variance is calculated by comparing the Actual Activity Used x Standard Variable Overhead Rate to the Standard Activity Allowed x Standard Variable Overhead Rate. •Using the formula approach, it is calculated as (Standard Activity Allowed - | Actual Activity Used) x Standard Rate.

Describe what a value chain analysis is and the role it plays an organization.

• Value chain analysis is a careful review of all primary and support activities to determine how each activity relates to the organization's strategy and how it contributes to the organization's profit margin. • Primary and support activities are identified as either being central to the organization's strategy or secondary. The central activities become the focus of the organization's investment and improvement efforts while the secondary activities are managed for the greatest efficiency possible and are candidates for outsourcing to a third-party vendor.

Briefly explain the four V's of big data.

• Volume: The scale of the data. Big data is big as large amounts of data are stored in databases with information on thousands or even billions of observational units. • Velocity: The speed by which big data is generated and analyzed. Big data can involve the analysis of a constant stream of new data. • Variety: Big data comes in many different forms, such as relational databases, videos, emails, and more. • Veracity: The truthfulness or accuracy of data. Poor-quality data makes business decision making more difficult.

Organizations can put safeguards in place to prevent and detect cyberattacks. Briefly describe the safeguards of vulnerability testing, biometrics, firewalls, and access controls.

• Vulnerability testing: Used to identify existing vulnerabilities. Unlike penetration testing, vulnerability testing does not assess if and how the vulnerability could be exploited. • Biometrics: The use of physical features and measurements for identity verification. • Firewalls: Prevent unauthorized users in a computer network by monitoring the incoming and outgoing traffic and placing a barrier around network systems and databases. • Access controls: Limit who can access a place or resource.

Assuming the organization wants the transfer to take place, describe the second issue that needs to be clearly managed and separately evaluated when managing transfer pricing.

• What should the transfer price be so both units will be incentivized to participate? • The supplying unit needs to cover its variable costs, plus any opportunity costs of making the transfer and any incremental fixed costs. • The receiving unit does not want to pay more than the price available in the external market, may although it be willing to pay more if the difference is offset by transaction savings.

How will the transfer price be set when there is production capacity and when the production capacity is running out?

• When there is production capacity, business units will negotiate the transfer price somewhere between the variable cost plus the average of any incremental fixed costs to produce as the floor, and the market price that the receiving unit would normally pay as the ceiling. • If the supplying unit is running out of production capacity, the supplying unit will include the lost contribution margin on outside business in the price floor. Therefore, the formula for the minimal transfer price will equal (Total Variable Costs + Contribution Margin Lost + Incremental Fixed Costs) ÷ Total Units Supplied.