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Flashcards in B-1 2013 Deck (60)
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1
Q

Title III of the Sarbanes-Oxley Act, “Corporate Responsibility,” includes the following topics partaining to financial reporting:

A

Public Company Audit Committee; Corporate Responsibility for Financial Reports; Improper Influence on Conduct of Audits; Forfeiture of Certain Bonuses and Profits.

2
Q

The Sarbanes-Oxley Act defines the responsibilities of the audit committee of an issuer as including:

A
  1. Appointment of the auditor. 2. Compensation of the auditor. 3. Oversight of the auditor: a. Resolve disagreements between management and the auditor b. The accounting firm reports directly to the audit committee.
3
Q

The Sarbanes-Oxley Act defines the criteria for the independence of audit committee members for issuers as including the following characteristics:

A
  1. Each member of the audit committee shall be a member of the board of directors of the issuer but shall be otherwise independent. 2. Audit committee members may not accept any consulting, advisory or other compensation or fees from the issuer other than pursuant to their roles on the board. 3. Audit committee members may not be an affiliated person (a person whio can influence financial decisions) of the issuer or any subsidiary of the issuer.
4
Q

The Sarbanes-Oxley Act requires that an issuer’s audit committee establish a complaint procedure that includes:

A
  1. Receipt, retention, and treatment of complaints received by issuers regarding: a. Accounting b. Internal controls c. Auditing. 2. Confidential or anonymous submissions by employees of issuers regarding questionable accounting or auditing matters.
5
Q

The Sarbanes-Oxley Act assigns the following corporate responsibility for financial reprots for issuersL

A

The CEO and CFO must certify the following for annual and quarterly reports: 1. The officers have read the report. 2. The report does not include untrue statements. 3. The financial statements are fairly stated. 4. The signing officers make assertions regarding their responsibilities for internal control. 5. The signing officers have disclosed internal control weakness and instances of fraud to the auditor and the audit committee. 6. The status of changes to internal control subsequent to the date of their evaluation.

6
Q

The Sarbanes-Oxley Act assigns the following corporate responsibilities regarding internal controls that must accompany financial reports:

A

The CEO and CFO must certify the following for annual and quarterly reports: 1. The officers are responsible for establishing and maintaining internal controls. 2. Internal control is designed to ensure that material information is provided to internal and external users. 3. Internal controls have been evaluated within 90 days prior to the report. 4. THe officers’ conclusions regarding internal control effectiveness as of the evaluation date.

7
Q

The Sarbanes-Oxley Act assigns the following corporate responsibilities regarding the required disclosures to the auditors and audit committee by officers:

A

The CEO and CFO must certify the following for annual and quarterly reports to the auditors and the audit committee: 1. All significant deficiencies in the design or operation of internal controls. 2. Any fraud, whether or not material, that involves management.

8
Q

The Sarbanes-Oxley Act specifically prohibits improper inlfuence on the conduct of audits defined as follows:

A

No officer or director may take any action to fraudulently influence, coerce, manipulate, or mislead an independent CPA engaged in an audit of the financial statements of an issuer for the purpose of rendering the financial statements materially misleading.

9
Q

The Sarbanes-Oxley Act imposes certain financial penalties on officers who are responsbile for material misstatements resulting from their misconduct. Penalties include:

A
  1. Refund to the issuer of any bonus or other incentive-based or equity-based compensation during the 12-month period following the first public issuance of the financial document. 2. Refund any profits realized from the sale of securities of the issuer during the 12-month period following the first public instance of the financial document.
10
Q

Title IV of the Sarbanes-Oxley Act, “Enhanced Financial Disclosures,” includes the following topics:

A

Disclosures in periodic reports; Enhanced Conflict-of-Interest Provisions; Disclosures of Transactions Involving Management and Principal Stockholders; Management Assessment of Internal Controls; Exemption; Code of Ethics for Senior Financial Officers; Disclosure of Audit Committeee Finnacial Expert; Enhanced Review of Periodic Disclosures by Issueers; Real Time Issuer Disclosures.

11
Q

The Sarbanes-Oxley Act requires certain disclosures in periodic reports. Those disclosures include:

A
  1. All adjusting entries identified by the public accounting firm reporting on the financial statements. 2. All off balance sheet transactions including contingent obligations and other relationships that may have a material current or future effect on the financial statements. 3. Pro forma financial statements shall include all relevant information and shall not include misleading or untrue information.
12
Q

The Sarbanes-Oxley Act includes certain enhanced conflict-of-interest provisions. Those provisions include:

A

Prohibitions on personal loans to executives with some exceptions.

13
Q

The Sarbanes-Oxley Act includes provisions to disclosure of transactions involving management and principal stockholders. Those provisions include:

A

Reporting by persons with ownership of 10% or more. Statements are filed at the time of registration, when a person achieves 10% ownership, and when there has been a change in ownership.

14
Q

The Sarbanes-Oxley Act includes provisions for management assessment of internal controls. Those provisions include a report showing:

A
  1. Management’s assertion that it is responsible for adequate internal control structure. 2. Management’s conclusions regarding its assessment of the effectiveness of the internal control structure and procedures for financial reporting. 3. The auditor’s attestation regarding management’s assessment of internal control.
15
Q

The Sarbanes-Oxley Act includes provisions for audit committee disclosures. Those disclosures include:

A

The issuer msut disclose the existence of a financial expert on the committee or the reasons why the committee does not have a member who is a financial expert.

16
Q

For purpposes of service on the audit committee, what qualifies an individual for classification as a financial expert?

A

A financial expert qualifies through education, past experience as a public accountant, or past experience as a finance officer for an issuer. Knowledge of the financial expert should include: 1. Understanding of GAAP. 2. Experience in the preparation or auditing of financial statements for comparable issuers. 3. Application of GAAP. 4. Experience with internal controls. 5. Understanding of audit committee functions.

17
Q

Title VIII of the Sarbanes-Oxley Act considers what topics?

A

Criminal penalties for altering documents; Statute of limitations for securities fraud; Whistleblower protection; Criminal penalties for securities fraud.

18
Q

What are the components of the Committee on Sponsoring Organzaitions’ (COSO) Internal Control Integrated Framework? (CRIME)

A
  1. Control Environment; 2. Risk Assessment; 3. Information and Communications; 4. Monitoring; 5. Existing Control Activities.
19
Q

What are the principles associated with the control environment component of the Committee on Sponsoring Organizatio’s (COSO) Internal Control Integrated Framework? (PHRASED)

A
  1. Management’s Philosophy and Operating Style 2. Human Resources 3. Financial Reporting Competencies 4. Authority and Responsibility 5. Organizational Structure 6. Integrity and Ethical Values 7. Board of Directors
20
Q

What are the principles associated with the risk assessment component of the Committee on Sponsoring Organizatio’s (COSO) Internal Control Integrated Framework? (PHRASED)

A

1.Financial Reporting Objectives 2. Financial Reporting Risks 3. Fraud Risk

21
Q

What are the principles associated with the control activities component of the Committee on Sponsoring Organziation’s (COSO) Internal Control Integrated Framework?

A
  1. Risk Assessment Integration 2. Selection and Development 3. Policies nd Procedures 4. Information and Technology
22
Q

What are the principles associated with the information and communication component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework?

A
  1. Financial Reporting Information 2. Internal Control Information 3. Internal Communication 4. External Communication
23
Q

What are the principles associated with the monitoring component of the Committee on Sponsoring Organzation’s (COSO) Internal Control Integrated Framework?

A
  1. Ongoing and Separate Evaluations 2. Reporting Deficiencies
24
Q

What are the components of the Committee on Sponsoring Organzaitions’ (COSO) Ienterprise Risk Management (ERM) Integrated Framework? (IS EAR AIM)

A
  1. Internal Environment 2. Objective Setting 3. Event Identification 4. Risk Assessment 5. Risk Response 6. Control Activities 7. Information and Communication 8. Monitoring
25
Q

What are the key elements of the internal environment component of the Committeee on Sponsoring Organziation’s (COSO) Enterprise Risk Management (ERM) Integrated Framework? (PHRASED C)

A
  1. Philosophy of risk management 2. Human resources standards 3. Risk appetite 4. Authority and responsibility 5. Structure (organziational) 6. Ethical values (and integrity) 7. Directors 8. Commitment to Competence
26
Q

What are the key elements of the objective setting component of the Committee on Sponsoring Organization’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Strategic Ojbectives 2. Related Objectives 3. Selected Objectives 4. Risk Appetite 5. Risk Tolerances
27
Q

What are the key elements of the event identification component of the Committee on Sponsoring Organization’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Events 2. Influencing Factors 3. Event Identification Techniques 4. Event Interdependencies 5. Event Categories 6. Distingquishing Risks and Opportunities
28
Q

What are the key elements of the risk assessment component of the Committee on Sponsoring Organziation’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Inherent and Residual Risk 2. Establishing Likelihood and Impact 3. Data Sources 4. Assessment Techniques 5. Event Relationships
29
Q

What are the key elements of the risk response component of the Committee on Sponsoring Organziation’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Evaluating Possible Responses 2. Selected Responses 3. Portfolio View
30
Q

What are the key elements of the control activities component of the Committee on Sponsoring Organization’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Integration with Risk Response 2. Types of Control Activities 3. Policies and Procedures 4. Controls over Information Systems 5. Entity Specific
31
Q

What are the key elements of the informaiton and communication component of the Committee on Sponsoring Organization’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Information 2. Communication
32
Q

What are the key elements of the monitoring component of the Committee on Sponsoring Organization’s (COSO) Enterprise Risk Management (ERM) Integrated Framework?

A
  1. Ongoing Monitoring Activities 2. Separate Evaluations 3. Reporting Deficiencies
33
Q

Define the integrity and ethical value principle associated with the control environment component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

Top management must set a standard of conduct for financial reporting that demonstrates a commitment to integrity and ethical values.

34
Q

Define the board of director’s principle associated with the control environment component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

The board of directors is changed with understandting and exercising oversight responsibility for financial reporting and related internal control.

35
Q

Define the management philosophy and operating style principle associated with the control environment component of the Committee on Sponsoring Organziation’s (COSO) Internal Control Intergrated Framework for achieving effective internal control over financial reporting.

A

Management philosophy and operating style should support achieveing effective internal control over financial reporting.

36
Q

Define the organizational structure principle associated with the control environment component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrted Framework for achieving effective internal control over financial reporting.

A

The organizational structure of the company should support effective internal control over financial reporting.

37
Q

Define the financial reporting competencies principle associated with the control environment component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

The company retains only individuals who are competent in financial reporting roles.

38
Q

Define the authority and responsiblities competencies principle associated with the control environment component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

Assignment of authority and responsibility should promote and effectively achieve internal control over financial reporting.

39
Q

Define the human resources competencies principle associated with the control environment component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

Human resources principles and practices promote and achieve effective with respect to internal control over financial reporting.

40
Q

Define the ongoing and seprate evaluations principle associated with the monitoring component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

The functioning of internal control over financial reporting must be verified on an ongoing basis or in separate evaluations.

41
Q

Define the reporting deficiencies principle associated with the monitoring component of the Committee on Sponsoring Organization’s (COSO) Internal Control Integrated Framework for achieving effective internal control over financial reporting.

A

Deficiencies in internal control over financial reporting should be identified and reported timely to parties responsible for taking corrective action, to management and, if necessary, the board.

42
Q

Name the three components of product cost.

A

Direct Material (DM); Direct Labor (DL); Manufacturing Overhead (MO). Prime Cost = DM + DL. Conversion Costs = DL + MO.

43
Q

Distinguish between product and period cost.

A

Product Costs: Inventoriable; they become cost of goods sold when sold. Period Costs: Expensed in the period incurred.

44
Q

Determine the traditional overhead rate.

A

Traditional Overhead Rate = Budgeted manufacturing overhead costs / Estimated cost driver. (Applied Overhead = Actual Cost Driver x Overhead rate.)

45
Q

Define relevant range.

A

The relevant range is the range of volume for which the assumptions of the cost driver (i.e., linear relationship with the costs incurred) are valid and in which the actual value of the cost driver exists.

46
Q

With joint products, what is the treatment of costs incurred before the split-off point?

A

Costs incurred before the split-off point are sunk costs, not relevant to further processing decisions. Joint costs are allocated using one of the following methods. Use % of product to total based on a ratio of: Relative sales value; Net realizable value; Physical units.

47
Q

What is the formula for cost of goods manufactured?

A

BASE = Beginning, Add, Subtract, Ending. WIP (beginning) + Direct Materials (DM) + Direct Labor (DL) + Manufacturing Overhead (MO) - WIP (ending) = Costs of Goods Manufactured

48
Q

What is the formula for cost of goods sold?

A

BASE = Beginning, Add, Subtract, Ending. Manufacturing Entity: Finished Goods (beginning) + Cost of Goods Manufactured - Finished Goods (ending) = Cost of Goods Sold. Other: Beginning Inventory + Purchases - Ending Inventory = Costs of Goods Sold.

49
Q

What is the difference between job and process costing?

A

Job Costing: With job costing, each unit/batch is unique and easily identifiable costs are determined by each job. Example: We print your resume in our print shop. Process Costing: With process costing, continuous mass-produced identical units are manufactured, and costs are determined by activity/process/department. Example We process crude oil into gasoline.

50
Q

What is an equivalent unit?

A

Used in process costing, equivalent units are fully completed and partially completed units during the period. In applying costs, determine the units, then costs, then apply the cost flow assumption for cost per unit and allocation of costs.

51
Q

How are equivalent units and total cost calculated using the FIFO method?

A

Equivalents units = (Beginning WIP x % to be completed) + Units started and completed + (Ending WIP x % completed). Total costs = Cost incurred during the current period.

52
Q

How are equivalent units and total cost calculated using the weighted-average method?

A

Equivalents units = Units completed + (Ending WIP x % completed). Total Costs = Costs in beginning WIP + Costs incurred during the current period.

53
Q

Name the types of spoilage and indicate the appropriate accounting treatment.

A

Abnormal: Change to income of the current period. Normal: Increase the cost of the product produced (i.e., inventory).

54
Q

Define activity-based costing (ABC).

A

ABC is a costing theory that assumes that resource consuming activities cause costs and that costs should be assigned to benefiting products based on the activities performed and the resources consumerd. ABC systems often divide costs into multiple activity centers and identify the activities that drive the costs in each cost center. Costs are then assigned based on the volume of cost drivers at the determined rate per cost driver.

55
Q

What are the characteristics of effective performance measures?

A

Effective performance measures: 1. Relate to the goals of the organization. 2. Balance long- and short-term issues. 3. Reflect management of key activities sometimes referred to as critical success factors in the balanced scorecard. 4. Are under the control or influence of hte employee. 5. Are understood by the employee. 6. Are used to both evaluate and reward the employee or otherwise constructively influence behavior. 7. Are objective and are easily measured. 8. Are used consistently.

56
Q

Define transaction marketing.

A

Customers are attracted for the sake of a single sale. “Lowest Price”

57
Q

Define interaction-based relationship marketing.

A

When customers are attracted for the purpose of a sale that serves as the basisfor an ongoing relationship.

58
Q

Define database marketing.

A

Information is gathered on customers and the information from that database is used to segment customers into target markets for a more effective selling effort.

59
Q

Identify three types of compensation generally available.

A
  1. Fixed salary 2. Bonuses 3. Perks
60
Q

List five issues related to incentive compensation.

A
  1. Time horizon–Does the plan exclusively emphasize current reward for current performance or does it promote ongoing performance? 2. Fixed vs. variable bonuses–Is the incentive pay formula driven or subjective? 3. Sock vs. accounting-based performance evaluation–Is the measurement of performance based on accounting data or equity value? 4. Local vs. company-wide performance–Does the incentive reward for local (division) or company-wide performance? 5. Cooperative vs. competitive plans–Does the incentive reward group or individual accomplishment?