BEC_MISC1

Question 1

What is the main purpose of COSO’s Internal Control Framework?

Answer 1

Assist organizations in DEVELOPING COMPREHENSIVE ASSESSMENTS OF INTERNAL CONTROL.

Question 2

What does the INFORMATION AND COMMUNIATION component of IC entail?

Answer 2

FACT

Fair, Accurate, Complete, Timely

Question 3

What principles govern the CONTROL ENVIRONMENT

Answer 3

EBOCA

• Commitment to Ethical values and Integrity
• Board independence and oversight
• Organizational structure
• CommitmenttoCompetence
• Accountability

Question 4

What principles govern RISK ASSESSMENT?

Answer 4

SAFR

Specify Objectives

Consider the potential of _F_raud

Identify and Asses changes

Identify and analyze Risks

Question 5

What principles govern INFORMATION AND COMMUNICATION?

Answer 5

OIE

OBTAIN and use information

INTERNALLY communicate information

Communicate with EXTERNAL parties

Question 6

What principles govern MONITORING ACTIVITIES?

Answer 6

SO D

ONGOINGand/orSEPARATE Evaluations

Communication of DEFICIENCIES

Question 7

What principles govern (EXISTING) Control Activities?

Answer 7

CA T P

• Select and Develop CONTROLACTIVITIES
• Select and Develop TECHNOLOGY CONTROLS
• Deploy through POLICIESandPROCEDURES

Question 8

What are PRESENT and FUNCTIONING of effective IC mean?

Answer 8

PRESENT (DESIGN): Relevant IC controls are INCLUDED IN THE DESIGN

FUNCTIONING (Operating Effectively): Demonstrates that the commponents and relevant principles are OPERATING AS DESIGNED

Question 9

What does an INEFFECTIVE INTERNAL CONTROL mean according to COSO?

Answer 9

“MAJOR DEFICIENCY”

This means a significant deficiency that REDUCES THE LIKELIHOOD** THAT AN ORGANIZATION **CAN ACHIEVE ITS OBJECTIVES

Question 10

How could management add value to a company?

Answer 10

CPER

• Creation
• Preservation
• Erosion
• Realization

Question 11

How does VALUE-REALIZATION for a company takes place?

Answer 11

Value is realized when benefits created by the organization are distributed to the shareholders (e.g. dividend payment).

Question 12

When an organization responses to risk by disposing a business unit, product line, or geographical segment, what type of risk response is that?

Answer 12

RISK AVOIDANCE

Question 13

When a business buys insurance against losses or enter a joint venture to address risk, what type of risk response is that?

Answer 13

RISK SHARING

Question 14

When a firm responses to risk by diversifying product offering, rather than eliminating the product, what type of risk response is that?

Answer 14

RISK REDUCTION

Question 15

According to COSO ERM framework, RISK ASSESSMENT includes what types of risks?

Answer 15

• Inherent Risk
• Target Residual Risks
• Actual Residual Risks

Question 16

How does a firm SHARE RISK?

Answer 16

Involving an outside party (e.g. insurance company) to share some risk burden.

Question 17

What principles does the strategy and objective setting component of COSO’S ERM follow?

Answer 17

SOAR

Strategies

Objectives

Analyze business context

Risk Appetite

Question 18

What is the link between RISK APPETITE and RESIDUAL RISKS?

Answer 18

It is considered that an organization’s risk appetite has been EXCEEDED, whent the COMBINED LIKELIHOOD OF NEGATIVE exceeds the RESIDUAL RISKS.

Question 19

What is ORGANIZATIONAL SUSTAINABILITY?

Answer 19

ABILITY of an enterprise to WITHSTAND THE IMPACT OF LARGE-SCALE EVENTS.

Question 20

What is a value EROSION?

Answer 20

Value EROSION takes place when FAULTY STRATEGY and INEFFICIENT/INEFFECTIVE operations CAUSE VALUE TO DECLINE.

Question 21

What type of RISK RESPONSE is relevant when AN ORGANIZATION ONLY MONITORS POLITICAL EVENTS WITHOUT TAKING ANY ACTIONS?

Answer 21

RISK ACCEPTANCE

Question 22

When does WORKING CAPITAL policy become more CONSERVATIVE?

Answer 22

A bigger percentage of a company’s long-term assets, permanent current assets and temporary current assets are funded by long-term financing.

Question 23

What ratio should investors consider for a START UP company?

Answer 23

Price Sales Ratio

This is especially helpful if the company does not have earnings data unavailable.

Question 24

How do you calculate stock price when you know the dividend growth rate and the discount rate?

Answer 24

P=D_t+1/(r-g)

Question 25

How do you calculate FCF?

Answer 25

FCF=NET INCOME + NONCASH EXPS - INCREASE IN WC

Question 26

How do you calculate PRICE EARNINGS GROWTH (PEG) ratio?

Answer 26

PEG=(P₀/E₁)/G =P₀/(E₁\*G)

Question 27

What are some of the relevant factors to estimate the useful life of a permanent asset?

Answer 27

1. Expected Usage 2. Market Information 3. Historical Information

Question 28

What is the main difference between BLACK-SCHOLES and BINOMIAL (Cox-Ross-Rubinstein) model?

Answer 28

Bionamial model is actually a variation of Black-Scholes Model. Two main differences: 1. Black Scholes use American-Style Option, where the option can only be exercised after the maturity date. 2. Unline Black-Scholes model, Binomial can be used for stocks that pay PERIODIC DIVIDENDS without modifying the model.

Question 29

What are the factors considered into a Black-Scholes Model?

Answer 29

1. Current price of the underlying stock 2. Option exercise price 3. Risk-free interest (discount rate) 4. Time until expiration 5. Risk tied to the underlying stock.

Question 30

What is the best way to ensure physical access control in a computer system?

Answer 30

To not let unauthorized individuals go near the coumputer resources.

Question 31

What factors should a company consider to evaluate the data security of a CLOUD SYSTEM?

Answer 31

* The provider's multi-tenant architecture * The provider's third-party suppliers * The provider's cloud-to-cloud agreements?

Question 32

What is VERTICAL SCALABILITY?

Answer 32

It means adding more memory, computer power and resources to the cloud.

Question 33

When a company COMMUNICATES BASELINE EXPECTATIONS for performance of employees….this is relevant to which specific component of COSO Internal control framework?

Answer 33

Control Environment

Question 34

When a CFO updates the audit committee about the status of internal control…..this is the evidence of what?

Answer 34

This indicates reporting of deficiencies…**.NOT ONGOING MONITORING.**

Question 35

According to COSO what are the main functions of a WRITTEN CODE OF CONDUCT?

Answer 35

1. It helps management set the tone of the top. 2. it promotes (among other things) ***_(1) honest/ethical conduct, (2) teamwork, (3) compliance and (4) appropriate disclosure._***

Question 36

What CONCEPT can best explain an OLIGOPOLY BEHAVIOR?

Answer 36

GAME THEORY MODEL.

Question 37

What is the main objectice of an EIS?

Answer 37

It presents a MACRO BIG PICTURE of the operations. It is tailored to the need to the top management and can be used only be a very few designated users. So it is NOT WIDELY USED throughout the orgination. It is likely to be one of the smallest subsystems in terms of usage.

Question 38

What kind of control does PERIODIC RECONCILIATION support?

Answer 38

**DETECTIVE CONTROL**

Question 39

What is the main objective of THEORY OF CONSTRAINTS management philosophies?

Answer 39

Maximizing throughput by identifying alleviating constraints.

Question 40

What does an ASSESS-AND-REPORT phase of the MONITORING phase of the COSO Internal control mainly do?

Answer 40

First there are some findings, that result from the monitoring process. Once the findings are identified, they must be prioritized to help management address the MOST CRITICAL ISSUES associate with the INTERNAL CONTROL.