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Flashcards in BEC Deck (182):

how often does an internal audit activity need to be assessed externally?

every five years.


what are the primary themes associated with internal audit attribute standards

(1) Purpose, Authority, and Responsibility; (2) Independence and Objectivity; (3) Proficiency and Due Professional Care; and (4) Quality Assurance and Improvement Program.


the 7 primary themes of the performance standards:

(1) Managing the Internal Audit Activity; (2) Nature of Work; (3) Engagement Planning; (4) Performing the Engagement; (5) Communicating Results; (6) Monitoring Progress; and (7) Resolution of Senior Management's Acceptance of Risks.


in a conventional graph, the 'intercept' is the point at which:

the dependent variable intersects the Y axis, and where the independent variable has the lowest value, usually zero


elasticity of supply?

%change in quantity supplied/%change in price


what is elasticity of demand?

the % change in quantity is greater than the % change in price


how do you prevent deflation?

you increase the money supply by lowering the reserve requirement, or lowering interest rates which stimulates demand and increases the general price level


what does an import quota do?

it restricts the quantity of a commodity that can be brought into the country from foreign providers. The biggest beneficiary is the domestic suppliers of the commodity.


3 generic strategies by Michael Porter?

cost leadership, differentiation, and focus


which framework is for gauging the attractiveness of the competitive environment of an industry?

five forces


what analysis method is for evaluating a macro-environment?

PEST analysis: political, economic, social, and technological characteristics


what are the five forces?

1-threat of new competition entering the market2-threat of substitute goods or services3-bargaining power of buyers of the industry good or service4-bargaining power of suppliers of the inputs used in the industry5-intensity of rivalry


what does SWOT stand for?

strengths and weaknesses of the entity, and the opportunities and threats faced by the entity


how is weighted avg cost of capital calculated?

the required rate of return on each source of capital weighted by the proportion of total capital provided by each source and then those amounts are summed.debt:30%x(10% 1-30% tax rate)=2.1%CS: 60%x12%= 7.2%PS: 10%x10%= 1%WACC= 10.3%


what is a compensating balance and how is the effective interest rate calculated?

an amount the borrower has to maintain in an account with a lender.the effective int rate is the cost of borrowing divided by the funds available for use.If the interest each year is 40,000 and the only amount you can actually use is 400,000, then the effective rate is 10%.


how is the required rate of return calculated?

risk free rate + Beta(expected rate - risk free rate)


basic approach to capitalize earnings to determine value of business?

annual earnings / required rate of return.


what is a time series model?

models based on extrapolation of past data to predict a future value


delphi method?

form of qualitative forecasting that involves consensus of a group of experts using a multi-stage process to converge on a forecast.


diff in quantitative & qualitative forecasting?

quantitative is objective and rely on math and calculations. qualitative are subjective and rely on judgement and opinion


what is the profitability index approach?

the relative economic ranking of projects by taking into account the cost & net present value of projects


average accounting rate of return?

avg annual after tax net income / avg cost of investment.the avg cost of investment is the beg book value + ending bv then divided by 2.


formula for calculating the profitability index of a project?

present value of annual after tax cash flows / original cash invested in the project


NASDAQ requires all companies have audit committees composed entirely of:

Independent directors who are also financially literate


can board of directors change the articles of incorporation?

no, only stockholders can do that


the purchase and sale of commodities for current delivery is what:

the spot market. the futures market is for delivery in the future


what is a specialist on the NYSE?

a NYSE member acting as a dealer in a small number of securities


what is a call option?

the right to purchase a security at a specified price for a defined period of time.


what factors make up the nominal risk free rate?

the real rate of interest and an inflation premium


if the Fed reserve purchases a large number of US gov securities, what is the effect?

it increases the monetary supply and puts downward pressure on interest rates


what is a put option?

it lets you sell a stock at a certain price for a period of time.


what is transfer pricing?

the pricing strategy for products and services bought and sold across international borders between related parties. it is mainly part of tax planning.


capital structure refers to:

all long-term debt and equity


the market price of a bond is the present value of the principal amount plus:

the present value of future interest payments at the market rate of interest


cost of capital for newly issued preferred stock?

net proceeds per share / annual costs40 sales price less 5 issuance costs = 35.if par value is 20, @9% int. payments are 1.80calculation is 1.8/35=5.1%


what is the CAPM formula?

Expected return= RF + B(RM-RF)RF means risk free rate.B means betaRM means return on market


between 2 investments with the same expected return, choose the one with:

lower projected standard deviation


between 2 investments with different expected returns and standard deviations, choose the one with:

lower coefficient of variation


What is NPV?

net present value is the present values of future cash flows less the cost of the investment. If the NPV is above zero then it's a good investment.


How do you calculate NPV?

it's the present value of future cash flows discounted to present value using the COST OF CAPITAL


what is the basic FV calculation?

FV= current amount x(1+i)^nor1,000 times(1+0.1)^5


what is the rule of 72?

a very close estimate for seeing how long it takes for an investment to double. You just divide 72 by the interest rate. If the interest rate is 8% you divide 72/8=9


what does the security market line(SML) graph?

the relationship between expected return and risk as measured by the beta coefficient


How to calculate the benefit cost (profitability) index?

present value of cash flows / net investment. an index greater than 1 means the project is acceptable


what does the equivalent annual annuity(EAA) technique evaluate?

projects that have different durations(lives)


times interest earned calculation?

Earnings before interest and taxes / interest expenseThis is telling you how many times you earned your interest during the period


cash conversion cycle?

period beg with paying cash for inventory and ending with the collection of cash from the sale of products made with that inventory


what is underwriting?

investment bank buys an entire offering then tries to sell it to the public at a profit


least expensive long-term source of capital?

long term debt because interest is tax deductible and debt is repaid first so it has less risk


formula to determine the cost of common stock:

next period's dividend / proceeds such as 2/50 which equals 4%. then you add this to the firms growth rate in dividends. If growth rate the cost of common stock would be 7+4 for 11%


what are the chronological events in the dividend payment process?

1-declaration date when board approves dividend2-ex dividend date is first date you buy stock without being entitled to the dividend3-date of record is date you must own shares by to receive dividend4-payment date is when checks are mailed


how is financial leverage calculated?

It is calculated by taking the percentage increase in earnings per share which is then divided by the percentage increase in earnings before interest and taxes. Here, earnings per share starts as $4.00 and increases by $2.00, a 50 percent increase. Earnings before interest and taxes starts as $300,000 and increases by $60,000, only a 20 percent increase. Therefore, the degree of financial leverage is 50 percent divided by 20 percent or 2.5.


what are the 4 reasons to hold cash?

transactions to meet day to day cash outflows, compensating balances required by banks, precautionary balances to meet unexpected events, and speculative balances to take advantage of opportunities


cash conversion cycle?

age of inventory + age of receivables - age of payables


4 parts of a company's credit policy?

(1) Credit period--when the payment is due; (2) Credit standards--criteria as to which customers are granted credit; (3) Collection policy--enforcement of the collection process; and, (4) Discount--reductions offered to speed up payments.


Your supplier gives you credit terms of 2/10 net 30. This means that if you pay within 10 days you take a 2% discount. If not, the balance is due in full within 30 days. What is the annual percentage cost to you of not taking the discount and paying on the 30th day?

Your choice is to pay $.98 on the dollar on day 10 or $1 on day 30. The extra cost is .02/.98 or .0204081. You save 20 days (30-10) by paying later. To annualize the cost take 365 days and divide by the days saved. 365/20=18.25 and multiply this by the .0204081 percent cost: (.0204081) (18.25) = 37.24%


A manufacturer of single engine aircraft operates 365 days per year and produces 3,650 aircraft per year. Its engine supplier takes 5 days from the time an order is placed to deliver engines. Assuming the manufacturer does not wish to carry a safety stock, at what level of engine inventory should they place an order (reorder point) for new engines to ensure that production is not interrupted?

Economic Order Quantity points (EOQ) tells you how many engines to order at one time. It is determined by taking the square root of the following result: 2 times annual demand (1,600 units) times the cost of placing an order ($50) divided by the cost of carrying a unit for a year ($1). So, (2 x 1,600 x 50) or 160,000. That is then divided by $1 so that it stays 160,000. The square root of 160,000 is 400. That is the number of units that should always be ordered. Because 1,600 are needed, the orders of 400 are placed four times per year.


A manufacturer of single engine aircraft operates 365 days per year and produces 3,650 aircraft per year. Its engine supplier takes 5 days from the time an order is placed to deliver engines. Assuming the manufacturer does not wish to carry a safety stock, at what level of engine inventory should they place an order (reorder point) for new engines to ensure that production is not interrupted?

In the absence of a safety stock, reorder point is equal to daily usage times the time it takes for a supplier to deliver. Daily usage is 3,650/365 or 10 x 5 days to deliver (lead time) is equal to 50 engines as a reorder point.


average days sales in inventory?

360 / inventory turnoverinventory turnover= COGS/ Avg inventory


What does a TPS do?

it supports the day to day activities of a business such as purchasing goods, sales to customers, and payroll


ROI calculation?

net income / avg investment


alternate ROI calculation?

asset turnover x profit margin on sales


what is the dupont ROA?

(net income/net sales) x (net sales/avg total assets)


asset turnover?

sales / assets


which risk cant be mitigated through diversification of investments?

systematic risk because it deals with the macro environment


what does the systems analyst do in an IT environment?

designs systems, prepares specifications for programmers, and serves as intermediary between users and programmers


what detects errors in data transmission?

a parity check


margin of safety?

difference between your actual or expected profitability and the break even point


what is the floor and ceiling in a transfer pricing decision?

the floor is opportunity cost plus costs of outlay. the ceiling is the market price


target pricing?

set prices based on what you think customers are willing to pay based on perceived value


economic value added?

net operating profit after taxes less cost of capital


does deflation encourage or discourage borrowing?

deflation discourages borrowing because people want to borrow money in times of inflation because you can repay it with money with less purchasing power


when interest rates increase, bond prices:

decrease. and vice versa


how is the overhead rate calculated?

dividing estimated overhead costs(both variable and fixed) by a budgeted or estimated quantity of a cost driver. Example: total overhead costs of 75,000 divided by 20,000 budgeted direct labor hours for a overhead application rate of 3.75 per direct labor hour


conversion cost?

direct labor + overhead


how is a spoilage question done?

normal spoilage is a manufacturing cost because it's an inherent part of production, so it is included in finished goods.Abnormal spoilage is treated as a period cost.If total units completed are 5500 with 5000 being saleable, 200 being normal spoilage, and 300 being abnormal spoilage, then 5200 is included in finished goods. so 5200/5500 times the total cost:(5200/5500)*99,000=93,600 which is what will be debited to finished goods


how to use high-low method:

total costs y=a+b(x)y=total costsa=fixed costsb=variable cost per unitx=number of kilos,etcb is change in costs divided by change in kilos, or (y2-y1)/(x2-x1)


what does the CPU contain?

primary storage, a control unit, and an arithmetic/logic unit


what is primary storage?

temporary main memory portion of the CPU which is part RAM part ROM. Secondary storage consists of devices external to the CPU such as disks, flash drives, & hard drives


elements of assembly language:

must be translated into machine language by an assemblereasier to write programs in than machine languageit's an efficient form of second gen language


elements of a procedural language:

3rd gen language that concentrates on the procedures and functions of the programs. written in source code then translated into object code. source code is more similar to english but object code is the machine language for the type of computer. FORTRAN, COBOL, and BASIC are all forms of procedural languages


what does a JCL do?

Job control language initiates programs, specifies priorities and running sequences, and which databases are used and which files are used


What is the order of creating master budget?

sales budget is first, then production budget, budgeted income statement then budgeted balance sheet


absorption costing?

assigns all 3 factors(direct material, direct labor, and both fixed and variable manufacturing overhead) to inventory


direct costing?

assigns only variable manufacturing costs to inventory- which means variable manufacturing overhead


what does r squared actually mean?

percentage of variation in the dependent variable explained by the variation in the independent variables


what are x and y in a line equation?

x is the independent variable, and y is the dependent variable.


overhead efficiency variance?

The overhead efficiency variance is the difference between actual direct labor hours worked, and the standard quantity of hours allowed for actual production, times the variable overhead rate per hour.


overhead volume variance?

The overhead volume variance equals the difference between the master budget for fixed overhead and applied fixed overhead. The variance has one cause only: producing a number of units different from that specified in the master budget.


labor efficiency variance

The labor efficiency variance is the difference between actual direct labor hours worked, and the standard quantity of hours allowed for actual production, times the direct labor wage rate per hour.


material usage variance?

This variance is the difference between the actual quantity of material used, and the standard quantity allowed for the output achieved, times the standard price of material.


Diff between spending variance for fixed overhead and variable overhead?

The spending variance for variable overhead is the difference between the actual overhead and the budgeted overhead based on actual direct labor hours. The spending variance for fixed overhead is the difference between the actual overhead and the master budget for fixed overhead. Neither variance is affected by the denominator used for allocating fixed overhead.


what is incremental or differential cost?

the total difference in cost of two alternatives.


Residual income formula?

Residual income = operating income - required rate of return (invested capital)


using PERT or CPM, activity slack is?

max amount of time an activity can be delayed without delaying the entire project


what are the 2 distinct functions of the information systems department?

systems development and data processing


liason between end-users and the processing center?

the control group.


what are the 3 main types of system documentation?

data flow diagramssystem flowchartsentity relationship diagrams


What AICPA framework relates to "reliable systems"?

AICPA's Trust Services provides assurance on systems.


what 3 IT functions need to be separated?

programming, operations, and the library


daily operations of the website?

Web coordinator


control activities defined?

Control activities include all of the policies and procedures used within a sytem to help ensure that all management directives are performed as anticipated. Each system is supposed to perform designated tasks. Control activities are installed to ensure those tasks get accomplished efficiently and effectively.


5 examples of information goals?

(1) input validity - where input data be approved and reflect accurate economic events (2) input completeness - all valid events are captured (3) input accuracy - all events are captured correctly (4) update completeness - all events are reflected in respective master files (5) update accuracy - all events are reflected correctly within master file.


controlling computer operations is controlled by:

Segregation controls, backup and recovery, contingency processing, file protection rings and internal and external labels represent methods to control computer operations. Segregation controls represent controlling access to programs and data.


There are five risks associated with e-commerce, according to the Trust Services framework established by the AICPA. These risks are:

1) security, 2) availability, 3) processing integrity, 4) online privacy, and 5) confidentiality.


4 categories of IT resources under COBIT:

applications, which include systems and manual procedures to process information; the information itself; infrastructure, which includes hardware, equipment, and operating systems needed to process information; and people.


4 components of the COBIT framework's IT process model:

1) plan and organize, 2) acquire and implement, 3) deliver and support, and 4) monitor and evaluate. Abbreviated, these components are referred to as: Plan, Build, Run, and Monitor.


Who established COBIT?

The Information Systems Audit and Control Association (ISACA)


definition of net present value?

present value of cash inflows minus the net investment


definition of internal rate of return?

the specific discount rate that makes the present value of the inflows equal to the net investment and forces the NPV to be equal to zero


market value added?

market value of the firm minus the book value of the capital investment in the firm


economic value added?

net operating profit after taxes minus the firm's cost of capital in dollar terms


ROA (return on assets):

net income divided by total assets


ROE(return on equity):

net income divided by total equity


ROIC (return on invested capital)

net income plus interest divided by average total invested capital. invested capital is just interest bearing debt plus owners equity


what are the 4 elements of a balanced scorecard?

financial, customer, internal processes, and learning & growth


after a performance measure has been accepted, what is the next step?

the current level of performance should be determined (baseline performance), a designated performance rate or a designated improvement rate should be set (targets), and actions needed to achieve those targets should be designated (strategic initiatives)


free cash flow?

net operating profit after taxes (NOPAT), add in depreciation expense, then subtract money set aside for capital expenditures and any need for increasing working capital


receivables turnover?

net credit sales / avg acc receivable


number of days sales in inventory?

COGS divided by 365. Then divide avg inventory by the first number.


financial planning process:

1) analyzing the investment and financing alternatives available to a firm, 2) forecasting the future consequences for each of the alternatives, 3) deciding which alternatives to undertake, 4) measuring subsequent performance against established goals. Measuring the subsequent performance is the final step in that process.


what are the steps to process improvement?

1) design, 2) modeling (which involves simulation of the process), 3) execution (including training of personnel and testing of the process), 4) monitoring, and 5) optimization.


what is a pareto chart?

a bar chart or histogram that ranks the causes of variations in a process from most to least frequent, which is intended to indicate their effects on quality


what is a control chart?

measures deviations from process standards, a fishbone diagram identifies causes of defects and their effects


steps in project management:

project initiation, project planning, project execution, project monitoring and control, and project closure


a cost management system is:

a planning and control system that measures the cost of significant activities, identifies non value-added cost, and identifies activities.


relevant range?

level of activity where fixed costs remain fixed


diff between theoretical capacity and practical capacity?

Theoretical capacity assumes output is produced 100% of the time. Practical capacity adjusts theoretical capacity for non-production time such as holidays and maintenance shutdowns.


Utilizing the expected annual capacity approach to overhead application, can result in overapplied overhead when:

Actual overhead costs were less than expected and/or production was higher than expected.Overhead is applied based on a calculated rate per unit. This calculated rates uses estimate overhead costs divided by an estimated activity level. If either the estimated overhead is higher than the actual overhead or the estimated activity level is lower than the actual activity level, overhead can be overapplied.


labor rate variance?

actual rate paid minus standard hourly rate times the total hours worked


labor efficiency variance?

number of hours worked less hours supposed to have been worked times the standard rate


material price variance?

diff of total price paid and total price should have paid for the same amount


fixed overhead spending variance

It is the difference between the actual overhead spending and the budgeted overhead spending.


when doing weighted avg cost of capital calculations, what needs to have taxes removed?

the cost of capital for DEBT must be computed net of the tax benefit provided by the deductibility of the interest expense


how to find effective rate of interest on a compensating balance question?

cost of borrowing / funds available for useIf you have 500,000 at 8% interest that equals 40,000 in interest expense. but if you can only use 400,000, then the calculation is 40k/400k for an effective rate of 10%, not 8%


difference between performance standards and attribute standards

attribute standards describe the characteristics of organizations and people who perform internal audit services.performance standards describe internal auditing and identify the quality criteria applicable to the performance of the internal audit services


what percentage can a whistleblower get for a dodd-frank award?

10% and 30% of sanctions imposed


what is the slope of a demand curve?

it is negative. the lower the price, the greater quantity demanded


a positive GDP gap exists when:

potential GDP exceeds real GDP. This means that the economy is operating at less than full capacity- which implies unemployment and under-utilized plant and equipment


2 largest export countries?

germany and china- each about 9%


US share of worldwide GDP is:

approximately 25%


which type of employment is not considered in calculating full employment?

cyclical- the other 3 types can exist and still have "full employment"


a supply schedule shows the relationship between the quantity of a commodity that will be supplied during a period of time and:

the selling price of the commodity. A supply curve is basically saying that as price increases, more sellers would enter the market and more of the good would be supplied


freely fluctuating exchange rates:

automatically correct a lack of equilibrium in the balance of payments


what would the Federal Reserve NOT do to stimulate the economy?

Reduce tax rates. The Fed Reserve does not change tax rates. This would stimulate the economy, but tax rates are set by Congress, not the Fed. The Fed could reduce the reserve requirement, reduce the discount rate which would increase loan activity, and they could increase the money supply.


who controls fiscal and monetary policy?

The Fed controls monetary policy(money supply), and Congress controls fiscal policy(gov spending and taxes)


calculate marginal propensity to consume:

change in spending over change in disposable income


calculate avg propensity to consume:

% of disposable income spent on consumable goods


the preventive measure for deflation?

increase the money supply. this stimulates demand and increases the general price level


how does deflation distort reported income?

depreciation is NOT reflective of current fixed-asset replacement costs?


what is SWOT concerned with?

the relationship between an entity and its environment


what is the 5 forces concerned with?

the nature, operating attractiveness, and probably long-run profitability of a competitive industry


what is the basis for a natural monopoly?

economics of scale- or an increasing return to scale.


in a perfectly competitive market, what is the best level of output for the firm?

Marginal revenue = marginal cost.


the direct exchange rate expresses the domestic price (in dollars) of:

one unit of foreign currency. 1 euro to $1.15


PEST is acronym for:

political, economic, social, and technological


What does PESTEL add to PEST?

E= environmental factorsL= legal factors


required rate of return for an investment:

riskfree rate + beta(expected rate - riskfree rate)


diff in financial structure and capital structure:

financial structure includes all items of liabilities and owners equity, and capital structure includes LONG-TERM liabilities and owners equity.


what time series model reduces random fluctuations in data?

exponential smoothing


what source of new capital usually has the lowest after tax costs?

bonds. less risk to investors so they're cheaper than equity, and the interest payments are tax deductible


what states the terms of a bond?

an indenture


what is the profitability index used for?

to rank potential investments by taking into account both the time value of money and the initial cost of the project


what is commercial paper?

short term, unsecured promissory notes


calculate profitability index of a project?

divide present value of annual after tax cash flows by the original cash invested in the project


what is residual income that remains after the cost of all capital, including equity capital, has been deducted?

economic value added. it measures economic profit, not accounting profit. NOPAT minus cost of capital


accounting rate of return?

dividing accrual based net income by the initial cost of the project


what is EDI for?

electronic data interchange allows companies to place orders with suppliers electronically


what kind of network is used to process EDI?

Value added network- VANs provide the additional security and addressing capabilities necessary to process EDI transactions


rollback and recovery procedures are most common in:

online real-time systems. periodic snapshots are taken of a master file, and upon detection of a problem, the system reprocesses all transactions that have occurred since the snapshot


who designs, creates, and tests program?

application programmers


a fire supression system in a computer facility should include:

halon and other chemical suppressents that dont harm computer hardware


which critical function is most likely to be missing in a small business computing environment?



in a large firm, who would maintain custody of the entity's data?

the data librarian


what allows a database management system to add new records, delete old records, and update records?

a data manipulation language (DML)


What is used to verify that a program was free of unauthorized changes?

a source code comparison program. this compares an archived program to the program actually in use


What is PaaS?

PaaS is the use of the cloud to create (not access) software


what is systematic risk?

market risk. large scale economic events that typically affect all companies


most likely strategy to reduce breakeven point?

decrease fixed costs and increase contribution margin


what is six sigma similar to?

total quality management


what are the 4 types of costs of quality?

prevention costsappraisal costsinternal failure costsexternal failure costs


steps for business continuity plan

create framework and structure, identify the scope of the plan, its key roles, and assign individuals to roles. Understand and evaluate organizational risks. Define alternative methods to ensure delivery of products and services. Strategy for handling crisis incidents. embed plan in organizational culture. educate, train, and make aware.