MOCK EXAM 1 Flashcards
(31 cards)
According to the Committee of Sponsoring Organization (COSO) of the Tread-way Commission, the following two components of enterprise risk management address and entity’s risk appetite
An entity identifies its Risk appetite as part of the internal environment component of the ERM as well with aligning objectives with risk tolerance as part of the Objective setting component
The Sarbanes-Oxley act of 2002 requires that the officers of a corporation make any number of representations that will accompany their quarterly and annual financial statement including
internal control is the responsibility of the signing officers
Effective Annual Interest Rate of 7.74% interest is payable semi-annually - what was the stated rate
the effective annual interest rate is equal to 1 plus the stated interest rated divided by the interest periods
US company has A/R denominated in foreign currencies - to mitigate its exchange risk - forward contract to sell
forward contract to sell the foreign currency at a specific date
forward contracts tend to be used for larger groups of transactions such as AR
while future contracts hedge a specific transaction
A forward contract to buy foreign currency at specific rate would be used to mitigate the risk that a foreign currency used to settle a payable would not be greater than originally expected
Contracts to buy mitigate exchange risk of liabilities
Contracts to sell mitigate exchange risk of Assets
Average Collections period to determine
Liquidity
A company’s average collection period us used to evaluate liquidity through the calculation of the
cash conversion cycle - Liquidity measures focus on the ability of the company to meet obligations as they become due
A letter of credit represent a third party guaranteed of obligations incurred by a company
a line of credit is short term borrowing
debentures are unsecured debts and do not enhance trade credit capabilities
subordinated debentures are unsecured debts
The payback period is computed as the net initial investment
divided by the increase in annual net after-tax cash flows
A production report is normally formatted to prove units
at the beginning of the period plus units transferred in are equal to the units transferred out plus ending inventory
for a firm earning a profit, increasing sales revenue and operating expenses by the same % will increase profits
this is because expenses will go up less in dollar than sales will. increased profit with no change in investment means a higher ROI
for a firm earning a profit, increasing sales revenue and operating expenses by the same % will increase profits
this is because expenses will go up less in dollar than sales will. increased profit with no change in investment means a higher ROI
cost push inflation is caused by a shift left
in aggregate supply - only a sharp rise in nominal wages would result in a shift left in aggregate supply
which of the following situations illustrates a potential vertical merger between companies X and Y
a company merging with one of its suppliers represents a vertical merger
Components of ERM
Control Activities - include elements that relate to the policies and procedures that ensure appropriate response to identified risks, including controls over information systems
the monitoring component of ERM - relate to the ongoing management activities or separate evaluations
Information & Communication -
Components of ERM
Control Activities - include elements that relate to the policies and procedures that ensure appropriate response to identified risks, including controls over information systems
the monitoring component of ERM - relate to the ongoing management activities or separate evaluations
Information & Communication - identification, capture and communication of information
internal envoronment - organizational structure, assignment of authority and responsibility, integrity and ethical values, risk management phylosophy, commitment to competence and human resources, influence tone of organization.
an investor with risk-averse behavior will seek to reduce risk by mixing investments in a portfolio with different or offsetting risks
this technique is most effective to reduce un-systematic risk.
an investor with risk-averse behavior will seek to reduce risk by mixing investments in a portfolio with different or offsetting risks
this technique is most effective to reduce un-systematic risk.
unsystematic risk is also referred to as firm-specific or non-market risk -
Unsystematic risk can be reduced by diversification in other companies
The terms systematic, market, and non-diversifiable risk are all synonymous and refer to
the risk that can not be mitigated by investment in different securities
operating leverage is the presence of fixed costs in operations
which allows a small change in sales to produce a larger lertative change in profits
A firm with a higher degree of operating leverage when compared to the industry average
implies that the firms profits are more sensitive to changes in sales volume
