BEC CPA 1

Question 1

List COSO’s 5 Enterprise Risk Management Framework components

Answer 1

GO PRO (ERM manages risk to align with risk appetite)
G 1. Governance and Culture
O 2. Strategy and Objective-Setting
P 3. Performance
R 4. Review and Revision
O 5. Information, Communication, and Reporting

Question 2

Governance and Culture 5 components of COSO’s ERM

Answer 2

DOVES
1. Desired culture
2. exercises board Oversight
3. commitment to core Values
4. attracts capable Employees
5. establishes operating Structure

Question 3

Strategy and the objective-setting component of the ERM framework are supported by what 4 principles?

Answer 3

SOAR
1. evaluates alternative Strategies
2. formulates business Objectives
3. Analyzes business context
4. defines Risk Appetite

Question 4

The performance component of the ERM framework is what 5 principles

Answer 4

VAPIR
1. View
2. Assesses severity of risk
3. Priorities risk
4. Identifies risks
5. implements risk responses

Question 5

A written code of conduct helps management set the tone for the Organization can…

Answer 5

Promote honest/ethical conduct, teamwork, compliance and appropriate disclosure

Question 6

The Three-way match in the expenditure process includes

Answer 6

Supplier invoice
receiving report
purchase order

Question 7

The Code of Conduct likely includes

Answer 7

-prohibitions or limits on gifts and gratuities
-descriptions of the organization’s commitment to compliance and confidentiality
-prohibitions against conflicts of interest and self-dealing

Question 8

what is necessary to be an audit committee financial expert

Answer 8

Experience with internal accounting controls

Question 9

Audit committee of an issue is responsible for

Answer 9

1. establishing procedures of complaints received by the company
2. pre-approving all audit and non-audit services provided by company’s auditor
3. appointment, compensation, and oversight of the work of the firm employed by the company

Question 10

Five steps of the manufacturing process

Answer 10

1. product design and engineering
2. manufacturing forecasting and scheduling
3. product development

Question 11

Put vs Call options

Answer 11

Settlement with call option = $ x (call rate + premium)
Settlement with put option = $ x (put rate - premium)
Receivable put option = more than the exchange rate on the date of sale. otherwise not exercise
Buying Call option = opposite of Put

Question 12

Foreign Currency Net inflows Loss mean domestic currency…(appreciates or depreciates)
Net outflow loss means domestic currency…(appreciates or depreciates)
(Think of the table)

Answer 12

-Net inflow Loss means domestic currency appreciated
FC DC Inflows Outflows
D A Loss Gain
A D Gain Loss

Question 13

According to the COSO of the Treadway Commission, which components of internal control integrated framework addresses an entity’s financial reporting objectives

Answer 13

Risk Assessment

Question 14

The performance component of COSO’s Enterprise Risk Management framework is supported by which principles

Answer 14

Identifies Risk

Question 15

According to COSO, what effective approach to monitoring internal controls is included in the assess-and-report phase?

Answer 15

Prioritize findings

Question 16

The Sarbanes-Oxley Act of 2002 seeks to improve investors confidence by providing greater transparency for what 3 issues

Answer 16

1. Competency for audit committees
2. Compliance of senior officers with a code of ethics
3. Adequacy of internal controls

Question 17

Which derivative is recommended for hedging interest rate risk?

Answer 17

Interest rate swap agreement

-This is a private agreement between two parties to exchange future cash payments

Question 18

Annual percentage rate of interest formula

Answer 18

Amount of payments required / net proceeds of the debt
e.g 10,000(borrowing amount) x 10% (interest rate) - any additional interest = 1,000 / 9,500 (net proceeds.

Question 19

Annualized % cost of financing

Answer 19

( Actual interest (P x Rate x Time) - interest earned ) / difference of loan proceeds company has use of.

e.g 500,000 bank loan x 8% rate = 40,000 - (50,000 balance in account x 3% rate) = 38,500 / 450,000 (500,000 - 50,000 balance)

Question 20

Three elements needed to estimate the cost of equity capital and the equation is:

Answer 20

1. Current dividends per share (D) - D(1+g) = expected div.
2. expected growth rate in dividends (g)
3. Current market price per share of common stock (P)
   = expected div / current share price + growth
   R = (D(1+g)/P)+g

Question 21

Equity & Debt Financing Equation

Answer 21

E = (EBIT - Taxes) / shares outstanding
D = (EBIT - interest expense - taxes) / Shares outstanding

Question 22

Times interest earned equation

Answer 22

EBIT / total interest expense

Question 23

When the cost is lower than the market yield rate of debt, the cost of debt would be lower because:

Answer 23

Interest is deductible for tax purposes

Question 24

List COSO Internal Control-Integrated Framework 5 components

Answer 24

1. Control environment - “tone at the top”
2. Risk Assessment
3. Information and communication
4. Monitoring
5. Control Activities

Question 25

What are the 4 risk responses and their risk assessment (inherent, Residual, none)

Answer 25

1. Acceptance - Inherent Risk ( the risk still exists)
2. Avoidance - No Risk (discontinuing a product reduces the risk to 0)
3. Reduction - Residual Risk ( lowered the risk but the risk is still there)
4. Sharing - Residual risk (insurance or outsourcing)

Question 26

Public Company Audit Committee is responsible for:

Answer 26

1. appointment, compensation, and oversight of work by the registered public account. firm employed by the company.
2. establish procedures for receipt, retention, and treatment of complaints received by the company about accounting, internal controls, and auditing
3. preapproving all audit and non-audit services by the company’s auditor

Question 27

The weighted average cost of capital equation

Answer 27

WACC Weight x Rate x Tax effect =
Product debt 30% 10% (1-30%) 2.10%
common Stock 60% 12% 7.20%
Preferred stock 10% 10% 1.00%
Total WACC Interest rate 10.30%
Rate = cost %

Question 28

Cost of Preferred Stock

Answer 28

Dividends paid (par value x dividend %) / net proceeds (selling price - cost of issuing) or market value

Question 29

The after-tax cost of debt on a bond

Answer 29

The pre-tax cost of bonds x (1 - Tax rate)

Question 30

APR of quick Payment discount equation

Answer 30

365 / (pay period - discount period) x (discount % / (100 - discount %))

Question 31

The effective interest rate, or effective cost equation

Answer 31

Interest paid (200 x 12%) / Net Proceeds (200*80%(100%-20% compensating balance)

Question 32

Benefit (loss) on planned change in credit terms equation

Answer 32

Sales - Variable costs (or x credit sales ratio) - Opportunity Cost (or x collection day ratio)
Opportunity cost = variable cost x (expected days / 365) x opportunity cost rate

Question 33

Cost of factoring equation

Answer 33

AR Submitted x fee x (365/ days in period)
Plus: AR submitted x advance % x advance %
Less: expenses saved
Equal: net cost
Cost = Net cost / (AR submitted x advance %)