BEC Final Review Flashcards
(240 cards)
1
Q
What are the specific duties of BOD
A
provide strategic direction for the corporation and provide oversight to management
2
Q
Officers are ______ to the board
A
fiduciary
3
Q
T/F officers must be shareholders
A
F
4
Q
T/F board members are agents
A
F
5
Q
Which of the following are key responsibilities of the board:
A
Elect, remove and supervise managers
adopt, repeal, and amend bylaws
6
Q
Indemnification
A
Reimbursement of board members for lawsuits
7
Q
T/F board members can conduct business with the corporation
A
T - must be fair to the corporation
8
Q
T/F corporation officers are agents
A
T
9
Q
What were the outcomes of SOX
A
expanded disclosures
reps from CEO and CFO
10
Q
What are the enhanced disclosures required
A
material adjustments, off-balance transactions, pro forma FS, and special purpose entities
Ownership over 10%
11
Q
Title IV
A
enhanced financial disclosures
12
Q
Title III
A
Corporate responsibility
13
Q
Title VIII
A
Corporate and criminal fraud accountability
14
Q
how long should auditor retain information?
A
seven years
15
Q
Title IX
A
white-collar crime penalty
16
Q
Periodic reports with SEC must include the following:
A
report complies with Securities Exchange Act 1934
information contained is fairly presented
signed by CEO & CFO
17
Q
Title XI
A
corporate fraud accountability
18
Q
What are the COSO framework objectives?
A
Operating
Reporting
Compliance
19
Q
Operating objective
A
effectiveness and efficiency of an entity’s operations
20
Q
Reporting
A
Reliability, timeliness, and transparency of an entity’s external and internal financials
21
Q
Compliance
A
Ensure the entity is adhering to laws and regulations
22
Q
What was the treadway commission established by?
A
private sponsoring organizations
23
Q
What objective does competence relate to?
A
Control environment
24
Q
What objective does accountability relate to?
A
Control environment
25
competence
commitment to attract, develop, and retain competent individuals
26
accountability
holds employees accountable for internal control responsibilities, measure of performance, and incentives
27
lines of organizational structure
reporting relationships should not undermine the commitment to effective financial reporting
28
What objective does lines of organizational structure relate to?
control environment
29
What are the principles related to control environment?
competence
accountability
board independence
lines of organization
ethics
30
setting objectives
understanding the mission, vision, and core values
31
assessment of operational risk
theft of merchandise
32
assessment of reporting risk
new accounting standards or inability to apply GAAP
33
assessment of compliance risk
do they meet requirements of laws and regulations?
34
fraud risk
considers incentives and pressure to commit fraud and ability to rationalize
35
what are the 3 components of the fraud triangle
incentive
opportunity
ability to rationalize
36
change management
assess changes that could significantly impact the system of internal control
37
what objective does setting objectives relate to?
risk management
38
what objective does assessing risk relate to?
risk management
39
what objective does fraud risk relate to?
risk management
40
what objective does change management relate to?
risk management
41
what are the principles of risk management?
setting objectives
assessing risks
fraud risks
change management
42
verificiation
confirming transactions or operations have been executed accurately and completely
ex) expenditure cycle, receiving room creates a receiving report
43
reconciliation
comparing data from different sources to detect and correct any discrepancies
ex) expenditure cycle, invoice comes from vendor, AP should reconcile what was ordered with what was received and make sure purchase was approved
44
risk reduction
control activities reduce the risk to achievement of objectives to acceptable levels
45
what objective does risk reduction relate to?
control activities
46
what objective does technology controls relate to?
control activities
47
what objective does policy relate to?
control activities
48
monitoring
testing controls and reporting on deficiencies; assessing quality of IC over time
49
ongoing and separate evaluations
management should establish and implement ongoing and separate evaluations regarding how IC is functioning
50
evaluate and communicate IC deficiencies
timely communication
51
what objective does ongoing and separate evaluation of IC relate to?
monitoring
52
what objective does evaluating and communicating IC deficiencies relate to?
monitoring
53
quality
information needs to be relevant, timely, and current
54
what is the primary purpose of the information and communication objective?
enabling internal control functions
55
what are the principles related to monitoring?
ongoing separate evaluations
evaluating and communicating IC
56
what are the principles related to information and communication?
quality
internal
external
57
in order to have an effective system of IC, senior management and board must
understand when operations are managed effectively
compliance with rules and regulations
preparation of financial reports that confirm to entity's reporting objectives
58
what is the objective of ERM?
manage risk and create value
59
risk avoidance
unable to mitigate risk
60
risk inventory
all risks that could impact an entity
61
risk capacity
maximum amount of risk that an entity can absorb in pursuit of strategy
62
risk profile
risk at a particular level related to the risk
63
input edit checks (constraints)
preventative controls that assist in protecting the integrity of information and allowing complete transactions to be submitted
64
which of the following is an input edit check?
reasonableness test
data validation
input validation
sequence check
reasonableness
65
which of the following is NOT an input edit check?
field check
referential integrity check
data validation
closed loop verification
data validation
66
what are processing controls?
protect an organization against processed data from being incomplete or inaccurate
data matching
input validation
sequence check
cross footing
67
Process narratives
written documents that tell the story of a process
68
data flow diagrams
logical flow of data through a process
69
flowcharts
visual representations of how information flows through a process
70
system interface diagram
how users and functions interface with the organization system
71
economic profit
net income - WACC
72
perfect competition
large number of firms
very little product differentiation
no barriers to entry
firms are price takers
73
T/F demand in perfect competition is perfectly elastic
T
74
monopolistic competition
relatively large number of firms
differentiated products sold by firms in the market
few barriers to entry
firm has control over quantity produced with price set by market
75
T/F demand in monopolistic competition is perfectly inelastic
F - highly elastic
76
monopolistic competition has _______ economic profit in the long run because of barriers to entry
zero
77
which of the following matches the market to the type of market structure?
grocery store - monopolistic competition
corn - perfect competition
airline - oligopoly
Gas/utilities - monopoly
All of the above
78
oligopoly
very few firms sell differentiated products
fairly significant barriers to entry
firms are interdependent
firms face kinked demand
79
kinked demand
match price cuts but ignore price increases
80
monopoly
single firm in a market
significant barriers to entry
no substitute
ability to set output and price`
81
fiscal policy
government spending and taxationmo
82
Fundamental law of demand
price of product/service and the quantity demanded are inversely related.
83
what drives the fundamental law of demand
substitution effect
income effect
84
substitution effect
consumers tend to purchase more or less of a good when its price falls or rises in relation to price of other good
85
income effect
when prices are lowered (income at a constant) consumers will purchase more of the lowered price products
86
what is the different between movement vs shift
movement - slides along the supply or demand curve and are related to price
shift - other than changes in price
87
what are examples of factors that shift demand
wealth
price of related goods
consumer income
consumer expectations
number of buyers
88
what are examples of factors that shift supply
price expectations
product costs
price or demand of other goods
subsidies or taxes
product tech
89
fundamental law of supply
price and quantity supplied are directly related
90
what does the interaction of supply & demand dictate?
price level
91
what does price level dictate?
quantity demanded and supplied
92
price floor
set artificially high - minimum price above equilibrium line
93
price ceiling
set artificially low - maximum price set below the equilibrium line
94
what do price ceilings cause?
shortages
95
what do price floors cause?
surplus
96
T/F minimum wage is an example of a price floor?
F
97
T/F rent control is an example of a price floor?
T
98
price elasticity of demand
% change in quantity demanded / % change in price
99
% change formula
new - old/ old
100
T/F price is inelastic if its less than 1
T
101
T/F price is elastic if greater than 1
T
102
T/F is price is 0 its perfectly elastic
F - perfectly inelastic
103
when demand price is inelastic, ______ price results in a _____ quantity that is proportionally ______ than increase in price causing revenue to ______
increase, decrease, smaller, increase
104
when demand price is elastic, _____ price results in a ______ quantity that is proportionally ______ than increase in price causing revenue to _______
increase, decrease, larger, decrease
105
T/F if a demand is unit elastic, it will have no effect on total revenue
T
106
price elasticity of supply
% change in quantity supplied / % change in price
107
Cross elasticity
% change in number of units demanded
108
what does it mean when the supply curve shifts left
price increase and quantity decreases
109
What are porter's five forces?
barriers to market entry
market competitiveness
existence of substitute products
bargaining power of customers
bargaining power of suppliers
110
what happens to PV of investments during inflation?
decreases
111
what happens to monetary assets/liabilities during periods of inflation?
decrease
112
what happens to nonmonetary assets during inflation?
increases
113
as prices increase, purchasing power _______, and value of money ______
decrease, decrease
114
what is the effect of variable interest rates during times of rising prices?
coupon goes up, keeping price closer to par value
115
if you think cost of production will increase in the future, borrow at a ______
fixed rate
116
if you think cost of production will decrease in the future, borrow at a ______
variable rate
117
what are internal factors of SWOT
strength, weakness
118
what are external factors of SWOT
opportunities, threats
119
what would high up front costs, patents, customer loyalty positively impact?
barriers to entry
120
what would collusion positively impact?
market competitiveness
121
what would inelastic demand positively impact?
existence of substitute products?
122
what would having a lot of customers with high switching costs and few competitors positively impact?
bargaining power of customers
123
what kind of market are cost leadership strategies successful?
markets where buyers have large bargaining power and price competition
124
what kind of market are differentiation strategies successful?
customers see value in individual products
125
comparative advantage
specializing in production and trade of specific products
126
how do you calculate comparative advantage?
commodity/comparison commodity
127
horizontal combination
companies in the same industry join under single management
128
vertical combination
combination of companies at different stages of production
129
circular combination
occurs when different business units with relatively removed connections come together under single management
130
diagonal combination
company that engages in an activity integrates with another company that provides ancillary support for that primary activity
131
what is facebook merging with instagram an example of?
horizontal combination
132
what is a cell phone company buying a car company an example of?
circular combination
133
what is a burger company buying a meat supplier company an example of?
vertical combination
134
what is a iron and steel company merging together an example of?
diagonal combination
135
what kind of combination is the following:
A + B = C
merger
136
what kind of combination is the following
Large A + B = Larger A
B can keep legal title or cease to exist
acquisition
137
what kind of combination is the following
smaller B + portion of larger A
purchase of assets
138
what kind of combination is the following
buying outstanding shares of another company at a specified price
tender offer
139
sell off
outright sale of a subsidiary
140
spin off
new, independent company that separates a subsidiary business from a parent company
141
equity carve out
subsidiary is made public through an initial public offering
142
Which of the following are part of the SCOR Model
Plan
Monitor
Source
Operations
Make
Deliver
plan, make, source, deliver
143
if cross elasticity is positive, goods are _____
substitutes
144
if cross elasticity is negative, goods are ____
complementary
145
a price increase in one good will cause quantity demanded to increase the other would indicate a (positive/negative) cross elasticity and the goods are _______
positive, substitutes
146
a price increase in one good will cause quantity demanded to decrease the other would indicate a (positive/negative) cross elasticity and the goods are _______.
negative, complementary
147
if income elasticity is positive, good is a _______ good
normal
148
if income elasticity is negative, good is a _____ good
inferior
149
what does income elasticity of demand measure?
% change in quantity demanded given a % change in income
150
what does cross elasticity measure?
% change in quantity demanded for one good caused by a price change in another?
151
which type of transaction results in no cash inflow?
spin off
152
interest rate risk
losses in underlying asset value or increase in underlying liability value as a result of changes in market interest
153
market risk
losses in trading value of asset or liability in markets
154
what kind of risk is market risk?
systematic/nondiversifiable
155
credit risk
inability to secure debt financing in a timely and affordable manner
156
default risk
possibility that a debtor may not repay the principal or interest due on their debt obligation on a timely basis
157
liquidity rate
investor desires to sell a security but cannot do so on a timely basis or without material price concessions
158
effective interest rate (periodic rate)
interest paid per period/ net proceeds of loan*
*face value - fees or charges
159
simple interest rate
effective periodic rate x # periods in the year
160
simple interest amount
total interest over the life of the loan
P X SAR X # of years
161
compound interest
(1 + effective periodic rate)^(#periods) - 1
162
compound interest amount
P x (1 + effective periodic rate)^(# years x #periods)
163
nominal rate
real rate of return + inflation premium
164
required rate
nominal rate + risk premiums*
*interest rate risk
liquidity risk
default risk
165
transaction exposure
gain or loss
166
economic exposure
value of cash flows
167
if FC decreases, PV cash collected ________ and PV cash paid out _______
decrease, decrease
168
if FC increases, PV cash collected ________ and PV cash paid out ______
increases, increases
169
if US dollar increases, export (more/less)
less
170
transaction
specific transaction; dealing with foreign currency gain or loss
171
economic exposure
value of cash flows could fluctuate up or down as a result in exchange rate
172
translation
foreign subsidiary
173
hedging
financial risk management technique that mitigates risk by obtaining a financial instrument that behaves opposite from hedged item
174
future hedge
purchase or sell a number of currency units for a negotiated price
175
lower interest rate risk and increased capital availability is an advantage of (ST/LT) borrowing
LT
176
increased liquidity and higher profitability are advantages of (ST/LT) borrowing
ST
177
Working capital financing
current assets being financed with trade AP and accrued liabilities
178
letter of credit
third party guarantee
179
line of credit
bank loan
180
T/F LT cost of borrowing is less than ST cost of borrowing
F
181
What are the methods of LT Financing
leasing, bonds, equity
182
T/F operating leases reflect a ROU asset and lease liability?
T
183
What happens to the ROU asset and lease liability?
ROU amortizes and lease liability is paid down over the life of the lease; lease expense recognized on income statement
184
T/F finance leases reflect a ROU asset and lease liability
T - can make an election not to recognize it
185
T/F operating leases contain lease payments that consist of part interest and part principal paydown
F - finance leases
186
what is the advantage of a financing lease?
depreciation
187
how do you calculate the net cost for an operating lease vs a financing lease?
operating lease:
1. lease payment x (1- tax rate)= after tax payment
2. after tax payment X PV factor = Net cost
financing lease
1. depreciation x tax rate= offsets cost of asset
2. initial cost - PV of depreciation tax shield = net cost
188
what is a debenture
unsecured bond
189
subordinated debenture
unsecured obligations that rank behind senior fixed income securities; greater risk, increased cost to borrow
190
T/F debt financing exposes to more risk but has a higher rate of return
T
191
operating leverage formula
% change in EBIT/% change in sales
192
financial leverage formula
% change in EBT (earnings before tax) or EPS/ % change in EBIT
193
after tax cost of debt
pretax cost of debt x (1-tax rate)
194
pretax cost of debt
face amount x coupon rate
195
cost of preferred stock
preferred stock dividends/ net proceeds of preferred stock
196
cost of retained earnings
risk free rate + risk premium
197
risk premium
beta coefficient of stock X market premium
198
market premium
market rate - risk free rate
199
what does beta represent?
volatility of target stock relative to overall market volatility
200
WACC formula
((common equity/ market value) X cost) + ((preferred equity/ market value) X cost) + ((debt/market value) X required rate of return (1-tax rate)
201
what is financial leverage?
the degree to which a company uses debt rather than equity in its capital structure
202
APR of quick payment discount
360/(pay period - discount period) X Discount/(100-discount %)
203
what's the advantage to having more debt on balance sheet?
higher return
204
debt to equity
total liabilities/total equity
205
total debt ratio
total liabilities/total assets
206
quick ratio
cash and cash equivalents + ST marketable securities + net receivables/ current liabilities
207
what are the three ways to manage cash
reduce fees
expedite deposits
fraud protection
208
what are the two ways to reduce fees?
compensating balances
trade credit
compensating balance
209
what are the three ways to expedite deposits
zero account balance
electronic fund transfer
lockbox system
210
compensating balance
bank fees are waived when customer maintains minimum account balance
211
trade credit
buying on credit maximizes availability of funding with no or reduced charges
212
commercial paper
source of short term financing and an investment of idle cash by the buyer
213
zero account balance
maintains a zero balance to reduce elapsed time between accounts and maximizes availability of cash
214
inventory turnover
COGS/Average inventory
215
Days in inventory
Ending inventory/(COGS/365)
216
Receivable turnover
sales/net AR
217
operating cycle
length of time from the initial expenditure until the time cash is collected from customers
218
what does a high inventory turnover mean?
higher demand;inventory is sold quickly; good
219
what does lower days in inventory mean?
takes less days to sell inventory; higher demand; good
220
what does a lower AR turnover mean?
lower amount of sales, bad
221
days sales in AR
ending net AR/ (Net sales/365)
222
what does a lower days sales in AR mean?
payments are made quickly; good
223
change in a credit policy is an improvement if the overall operating cycle _______
decreases
224
cash conversion cycle (net operating cycle)
days to sell + # days to collect - # days to pay
225
operating cycle
days to sell + # days to collect
226
AP turnover
COGS/Avg AP
227
What does a low AP turnover mean?
slower payment to suppliers; favorable credit term or cash flow issue
228
what does EOG assume?
demand is constant
229
EOQ formula
sqrt(2SO/C)
annual or monthly sales in units
cost per purchase
carrying cost per unit or monthly
230
reorder point
safety stock + lead time x sales during that lead time
231
Trade Factors
Inflation rates increase
purchasing power down, thus rate of currency decreases
232
Trade Factors
Income levels
if income in DC is up, demand for foreign goods/services also increases
233
If US $ appreciates and paying in FC
Gain
234
If US $ appreciates and receiving in FS
Loss
235
If US $ depreciates and paying in FC
Loss
236
If US $ appreciates and receiving in FC
Gain
237
Futures Hedge
Purchase or sell a number of currency units for a negotiated price on a stated date
238
When are futures hedges used?
Smaller amounts
239
Forward hedge
Owner is entitled to buy or sell volumes of currency at a point in time
240
When are forward hedges used?
