BEC - 1 Flashcards
(182 cards)
1
Q
COSO is the framework for assessment of
A
of internal controls over financial reporting.
2
Q
COSO is used by management and the BOD for
A
understanding and obtaining confidence.
3
Q
Definition of internal control is
A
the process designed and implemented by an entity to provide reasonable assurance that the company will accomplish its reporting objectives.
4
Q
Five components within COSO - “CRIME” equal:
A
Control Environment, Risk Assessment, Information and Communication, Monitoring, and Existing Control Activities
5
Q
Three major objectives within COSO - “ORC”:
A
Operating Objective, Reporting Objective, and Compliance Objective
6
Q
Control environment is the tone
A
at the top.
7
Q
Control Environment - EBOCA
A
Ethical value and integrity, Board Independence and oversight, Organizational Structure, Commitment to Competence, and Accountability
8
Q
Risk Assessment - EAR
A
Event identification, assessment of risk and respond to risk.
9
Q
Information and Communication - FACT
A
Fair, Accurate, Complete, and Timely information
10
Q
Information and Communication occurs between
A
internal and external parties.
11
Q
Monitoring is the effectiveness of
A
internal controls.
12
Q
Monitoring’s frequency depends on
A
the assessment of risk.
13
Q
Monitoring should report
A
deficiencies and correct them.
14
Q
COSO cube - organizational structure includes:
A
Entity level - board, division, operating unit, and function.
15
Q
Effective system should be both present and
A
functioning. Integrated system.
16
Q
Present =
A
included in the design of internal control.
17
Q
Functioning =
A
operating as designed.
18
Q
Effective system will reduce
A
the risk of not accomplishing objectives.
19
Q
Limitations on internal controls equal
A
no guarantees - reasonable assurance to meet objectives. There are human errors, collusion, and management override.
20
Q
ERM stands for
A
enterprise risk management.
21
Q
ERM is the company’s strategy to
A
balance the risk and return.
22
Q
ERM has four category objectives (SORC)
A
Strategy, Operations, Reporting, and Compliance.
23
Q
ERM components =
A
IS EAR AIM.
24
Q
IS =
A
Internal Environment (EBOCA HR), and setting objectives (SORC).
25
EAR =
Event identification, assessment of risk, response to risk.
26
AIM =
Control Activities (existing controls), information and communication, and monitoring.
27
Internal environment (EBOCA HR) = (part of IS of ERM).
HR = Risk Management Philosophy (Aggressive or Conservative), Human Resource Standards (hire, train, evaluate, compensate, promote), Risk Appetite (balance).
28
Financial performance measures include:
1) profit, 2) return on investment, 3) variance analysis, 4) balanced scorecard.
29
Nonfinancial performance measures include:
External and internal benchmarks.
30
External benchmarks are productivity
measures.
31
Examples of external benchmarks include:
1) ratio of output relative to the input, 2) total factor productivity ratios, and 3) partial productivity ratio.
32
Total factor productivity ratio is all inputs, including
material AND labor costs. Output over total cost.
33
Partial productivity ratio is
materials OR labor costs - focusing on quantity. Output over specific quantity.
34
Internal benchmarks are
techniques to find and analyze problems.
35
Internal benchmarks include:
1) control chart, 2) Pareto Diagram, and 3) Cause and effect.
36
Control chart determines
zero defects.
37
Goalpost conformance, part of control chart, keeps
deviations within an acceptable range.
38
The Pareto diagram is a histogram that determines
quality control issues from most frequent to least frequent.
39
The Pareto diagram is also known as the
frequency diagram.
40
Cause and effect is the
fishbone diagram.
41
When using a cause and effect diagram, one
works backwards.
42
Managers use this diagram to identify sources of problems.
Cause and effect or fishbone diagram.
43
The characteristics of an effective performance measure include:
promoting the achievement of goals, which motivate employees, and also are objective and easy to measure.
44
Marketing practices must
consider the objectives of management.
45
Purpose of marketing is to:
establish value of a product or service.
46
Transaction marketing is for
the promote the lowest price, for a single sale.
47
Interactive-Based Relationship marketing is for
repeat business or a loyalty discount. It promotes customer satisfaction.
48
Database Marketing is for
focusing in on a segment of customers - which provides more effective selling to target groups.
49
E-marketing is performed via
the internet.
50
Network Marketing is from
relationships and referrals.
51
Incentive compensation is to
motivate, compensate and retain its employees.
52
Perks are
non-salaried benefits, but when they are not related to performance of manager's business activities may also need to be included in the taxable income.
53
Cash bonus can be either
fixed, which is objective, or variable, which is subjective.
54
Stock options promote
current and future performance. Assist in the retention of employees.
55
Local vs. company-wide performance incentives
Division performance may erode company-wide performance.
56
Cooperative incentive plans promote
one goal and an example would be stock options.
57
Competitive incentive plans are promoted by
tiered sales commissions.
58
ERM stands for
enterprise risk management.
59
ERM has four objectives - SORC -
Strategic, Operations, Reporting, Compliance.
60
The Components of ERM as acronyms are:
IS EAR AIM
61
IS stands for:
internal environment and setting objectives.
62
EAR stands for
event identification, assessment of risk, and response to risk.
63
AIM stands for
control Activities (existing controls), information and communication, and monitoring.
64
Internal environment defines
the tone of the organization.
65
Internal environment is supported by eight key elements:
EBOCA HR.
66
EBOCA HR stands for:
Ethical Values and Integrity, Board Oversight, Organizational Structure, Commitment to Competence, Accountability. Risk Management Philosophy, Human Resources Standards, and Risk Appetite.
67
Setting Objectives is supporting by the following key elements:
Strategic Objectives, Operations Objectives, Reporting Objectives, and Compliance objectives. "SORC"
68
Risk appetite is set with the oversight
of the Board of Directors. It is the benchmark for strategy setting. Willingness to accept risk to achieve return.
69
Event identification -- the E in EAR --
considers internal (technology choices, personnel, etc) and external risks (recessions, storms, changes in society), and both negative (risks) and positive (opportunities) should be identified.
70
Assessment of Risk -- the A in EAR -- is the
likelihood and severity - probability. There is inherent risk - if management does nothing - and residual risk - the risk after management takes action.
71
The assessment of risk has several techniques such as:
benchmarking, or modeling (probabilistic = statistical and non-probabilistic = opinion).
72
Response to risk -- the R in EAR -- should align
with the organizations overall risk appetite. Organizations should look at risk from a portfolio view or entity-wide view.
73
Management with response to risk in one of four ways. The four ways are:
avoidance, reduction, sharing, and acceptance.
74
Control Activities - the A in AIM - are the
policies and procedures used to response to risk.
75
Information and communication - the I in AIM - should use internal
and external information and communication to fully integrate with operations. The information quality should be FACT.
76
Monitoring - the M in AIM - is ongoing
and dictated by risk. There are separate evaluations, with multiple checks and balances within internal audit. Should report deficiencies and correct them.
77
There can be no material weaknesses for ERM to
be considered effective.
78
Limitations of ERM are
made via error or management override of controls.
79
Financial performance measures include:
profit, return on investment, variance analysis, and balanced scorecard.
80
Nonfinancial performance measures includ external
benchmarks and internal benchmarks.
81
External benchmarks is a productivity
measure of variance and efficiency.
82
Examples of external benchmarks include:
ratio of output relative to the input, total factor productivity ratio, and partial productivity ratio.
83
Total factor productivity ratios are for material
and labor costs. The ratio is the number of output over total cost.
84
Partial productivity ratio are for material
or labor costs. Focuses in on quantity. The ratio is a number of units produced over a specific quantity (hours, pounds used, gallons used, etc.)
85
Internal benchmarks are a technique
to find and analyze problems.
86
Control chart is to determine
"zero" defects. Output is within an acceptable range. Standard = average, upper and lower range = goalpost conformance. Keep deviations within an acceptable range.
87
Pareto Diagram is a
histogram and determines quality control issues from most frequent to least frequent. It is a frequency diagram.
88
Cause and effect is also known as the
fishbone diagram.
89
Cost object is defined as
a resource or activities that serve as a basis for management decisions.
90
Cost control is the valuation
of product or inventory.
91
A single cost object can have more than one way
to measure. Measure for tax purposes vs GAAP purposes or internal vs external.
92
Prime costs include
direct material + direct labor.
93
Conversion costs include
direct labor + overhead applied.
94
Product costs would include
direct material + direct labor + manufacturing overhead applied. All costs related to manufacturing.
95
Product costs are not expensed until
the product is sold - matching principle.
96
Period costs are income
statement only. These should NOT be capitalized. Examples are selling, general, and admin costs, interest expenses.
97
Product costs are
iventoriable (i.e. considered as assets before the product is sold).
98
Period costs are expenses in the
period in which they are incurred.
99
Manufacturing costs include all
costs associated with the manufacture of a product. Consist of both direct and indirect costs.
100
Nonmanufacturing costs include
selling, general, and administrative expenses.
101
Direct raw material are the costs
of materials purchased (including freight-in net of any applicable discounts) plus a reasonable amt of normal scrap.
102
Direct labor is the cost of the labor
related to production including downtime.
103
Indirect costs are known
as overhead.
104
Indirect materials covers the cost
of materials not used specifically or could not be traced to completed product (i.e. cleaning supplies for couch making).
105
Indirect labor in manufacturing includes
forklift drivers, maintenance workers, shift supervisors, etc).
106
Other indirect costs in manufacturing would include
depreciation, rent, machine maintenance, property taxes, insurance, rent, utilities, etc.
107
Calculated overhead rate =
Budgeted overhead costs / estimated cost driver
108
Applied overhead =
actual cost driver x overhead rate (from prior step).
109
Cost drivers can include
sales volume and production volume.
110
Variable cost changes proportionally with the
cost driver.
111
Variable costs change in total, but
they remain constant per unit.
112
Fixed costs remain constant in total, but they
vary per unit.
113
Long-run characteristics is given enough time,
any cost can be considered variable.
114
The following transactions occur within the relevant range of an identified cost driver, the following are VARIABLE costs:
```
Sales,
Returns and allowances,
Direct material,
Direct labor,
Fringe benefits (15% of labor),
Royalties (1% of product sales),
Factory production supplies,
Electricity - used in mfg. process,
Scrap and spoilage (normal),
Sales commissions,
Fringe benefits (relate to labor),
Delivery expenses.
```
115
The following transactions occur within the relevant range of an identified cost driver, the following are FIXED costs:
```
Depreciation - straight-line,
Electricity - used in the mfg. process,
Officers' salaries,
fringe benefits (relate to labor),
Advertising expenses (annual contract expenses).
```
116
The following transactions occur within the relevant range of an identified cost driver, the following are SEMI-VARIABLE costs:
```
Indirect labor,
Fringe benefits (15% of labor),
Maintenance and repairs of building.
```
117
Cost accumulation systems are used to
assign costs to products.
118
Custom order cost object uses a
job costing system.
119
Mass-produced homogeneous cost object uses a
process costing system.
120
Cost of goods manufactured account for manufacturing costs
completed during the period. It includes direct material, direct labor, and manufacturing overhead.
121
The manufacturing costs incurred during the period are increased or decreased by
the net change in work-in-process inventory (beginning WIP minus ending WIP).
122
The formula for COGM is:
WIP, Beginning
Add: DM, DL, and manufacturing overhead
Less: WIP, Ending
= COGM
123
The formula for COGS is:
```
Finished Goods inventory, beginning
Add: COGM
= Cost of goods available for Sale
Less: Finished goods inventory, ending
= COGS
```
124
Flow of inventory = Raw materials >
Work in Process > Finished Goods.
125
Details Flow of inventory = Raw materials used are added to WIP and
Inventory transferred to finished goods are added to finished goods.
126
Under FIFO accounting, the ending inventory is priced at
cost of manufacturing during the period.
127
Weighted-Average method averages
the cost of production during the period with the costs of the beginning WIP.
128
FIFO has three elements:
1) Completion of units on hand at the beginning of the period (% to complete).
2) Units started and completed during the period (Units completed - beginning WIP)
3) Units partially complete at the end of the period.
129
Weighted-Average has two elements:
1) Units completed during the month (beginning WIP + units started and completed during the month),
2) Units partially complete at the end of the period.
130
FIFO represents only costs
incurred in the current period.
131
Weighted-average approach includes both
current period units plus prior period units.
132
Cost per equivalent unit for weighted average is calculated by:
(Beginning cost + current cost) / equivalent units.
133
Cost per equivalent unit for FIFO is calculated by:
Current cost only / equivalent units
134
Normal spoilage occurs under
regular operating conditions and included in standard cost of the manufactured product. Capitalized as part of inventory costs.
135
Abnormal spoilage does not occur
under normal operating conditions. Expenses separately on the income statement as a period expense.
136
Net realizable values equals
sales value less cost of completion and disposal.
137
By-product sales reduces
common costs for joint product costing or increases miscellaneous income.
138
Focus of Cost Objective is
with cost control. May focus on valuation of product or inventory or cost control (cost comparison to standards and budgets).
139
Prime cost =
DM + DL
140
Conversion costs =
DL + Overhead Applied.
141
Product costs =
DM + DL + Overhead.
142
Direct materials, WIP, and finished goods are all
balance sheet assets.
143
COGS is an
income statement account - expense upon sale.
144
Product costs are not expenses until
product is sold - matching principle.
145
Period costs are
income statement only - they do NOT go on balance sheet.
146
Manufacturing costs are
product costs.
147
Manufacturing costs (product costs) are composed of both
direct (DM + DL = Prime) and indirect costs (overhead).
148
Period costs are
SG&A, and interest
149
Cost accounting assists with PIE. PIE stands for
product costing, income, and efficiency measurements.
150
Freight in is included in direct
raw materials. Freight out is expensed.
151
Indirect costs - in the factory are
product costs such as manufacturing overhead.
152
Indirect costs - in the office are
period costs such as SG&A.
153
Allocate overhead using a
cost driver, assign factory overhead to individual products. Examples are direct labor $'s or labor hours.
154
Traditional costings is used with total
manufacturing overhead and we assign it in one way. A single cost pool.
155
Traditional costings step one
budgeted total overhead cost and divide by cost driver (labor hours, machine hours, etc.)
156
Traditional costing step two
uses actual hours multiplied by step 1 rate.
157
Relevant range is when the total
cost would not vary with volume.
158
Cost drivers are generally classified as a
volume of activity variable.
159
Any cost is variable in
the long-run.
160
All assumptions hold true within the
relevant range. Variable and total cost are constant.
161
Unique products made use a
custom order job costing system.
162
Process costing is used when there are
mass produced.
163
You can use both job order
and process costing.
164
Back flush costing - we will not price the
product until it is totally complete. It is not valuable until complete.
165
COGM =
```
BEG WIP
ADD: DM used (see card 166), DL, and Overhead applied
= Manufacturing costs available
LESS: Ending WIP
= COGM completed this period.
COGM is used in COGS.
```
166
If direct materials used is not given, you
```
would have BEG Raw material
ADD Purchases (incldue freight in
= Available
LESS: Ending Inve of Raw materials
= USED.
```
167
Manufacturing Overhead t-chart and the debit side would include:
```
Indirect labor
Indirect material
Utilities
Depreciation on building and equipment
Taxes (payroll, property)
Fire insurance
Other indirect Costs.
```
168
Manufacturing Overhead t-chart and the credit side would include:
Overhead applied.
169
Process costing is an
averaging of costs and applied them to a large number of items.
170
The goal of a production report is to
keep track of the physical flow of units and costs.
171
Equivalent units is defined when a percentage of units are
completed. Units multiplied by the percent completed. 10,000 units that are 75% completed would be an equivalent unit of 7,500.
172
Step-down method is used in a
more sophisticated approach to allocate service. More complicated.
173
Joint is also known as a
common cost.
174
Joint product is a
main product.
175
A by-product was not set
out to be made, but it just happened to occur during the production of the main product.
176
Joint product costs are costs incurred in producing products
up to the split-off point.
177
Separable costs are costs incurred on a product
after the split-off point.
178
There are three methods to assign expenses to
joint costs. Method 1 = volume. Method 2 = Sales Value at split-off. Method 3 = No sales value at split-off (finish to sell). Work backwards - separable costs are subtracted from sales value.
179
Net realizable value =
Sales value less cost to complete (separable costs). (Method 3).
180
By-products have a immaterial
value.
181
By-products can be subtracted
from the joint costs. Therefore less joint costs to allocate.
182
By-products income can also be
miscellaneous income.
