Review Flashcards Preview

BEC 2018 > Review > Flashcards

Flashcards in Review Deck (107):

Control Environment is made up of what factors

(1) integrity and ethical values, (2) commitment to competence, (3) human resource policies and practices, (4) assignment of authority and responsibility, (5) management’s philosophy and operating style, (6) board of directors or audit committee participation, and (7) organizational structure.


When analyzing a country’s balance of payments accounts, the capital account refers to.....

the transactions related to the international movement of financial capital.


what are the two main components of GDP?

labor productivity and total worker hours


Does the Federal Reserve System seek to achieve national economic objectives through its exercise of fiscal policy or monetary policy?

Monetary policy


Expected value.

calculates (and integrates) the likelihood of losses with the amount of losses. Hence, an expected value combines the information in low and high probability exposures and low and high-degree loss exposures into a decision-relevant, single, valuable (for decision analysis) number.


Which component of the COSO ERM framework is concerned with management's decision to avoid, accept, reduce, or share risk and to develop a set of actions to align risk with the entity's risk preferences?

Risk response


What graph shows the maximum combination of goods/services that can be produced at a given time if all available resources are used efficiently

productive-possibility curve


what coso process is the process of identifying, analyzing, and managing the risks involved in achieving the org's objectives?

risk assessment


what are the policies and procedures that ensure that actions are taken to address the risks related to the achievement of management's objectives (coso)

control activities


management's philosophy toward controls, organizational structure, system of authority and responsibility, personnel practices, policies, and procedures (coso)

control environment


what are the objectives of internal control as included in the definition of internal control developed by the COSO?

-financial reporting


Management of Warren Company has decided to respond to a particular risk by hedging the risk with futures contracts. This is an example of risk ...



market risk

the risk that the value of the asset will decline as a result of a decline in general economic conditions


Currency put option

enables a company to lock in the price at which it could sell (put) the British pounds when received.


how is the internal rate of return defined?

the discount rate at which the NPV of the project equals zero.


An increase in the minimum wage rate would likely result in which one of the following?

The aggregate supply curve would shift inward. An increase in the minimum wage rate would be an increase in the cost of labor, which would shift the aggregate supply curve inward--a reduction in supply.


Put option

gives the company the option to sell the stock at a specified price in the future. If the price of the stock declines, the value of the put option will increase by a like amount.


Are depreciation and salvage value included in the calc of NPV?

Depreciation is a noncash flow so it is not.
Salvage value is included.


The best reason corporations issue Eurobonds rather than domestic bonds is that

These bonds are normally a less expensive form of financing because of the absence of government regulation.



are issued in a currency other than the currency of the country in which they are issued. For example, U.S dollar-denominated bonds issued in an EEU country. these bonds are not subject to the government regulations of the country of the currency and, thus, avoid expense and disclosure requirements of that country.


The natural rate of unemployment includes....

All categories of unemployment except cyclical


Profitability calc

PV of after tax annual cash flows / initial investment


Credit instrument known as a bankers acceptance

is a time draft, payable on a specified future date, with the bank guaranteeing the payment.


Prime Rate

the interest rate that commercial banks charge their most creditworthy borrowers. While this rate would include an element of interest for deferring current consumption (the risk-free rate), it would also include a premium for the risks associated with making the loan.


Risk-free rate.

is the interest that would be charged on a borrowing that carried no risks (e.g., of default, inflation, etc.). This interest is required by lenders, not to cover risks, but to compensate the lender for deferring use of the funds by making an investment.


The discount rate

is the rate at which member banks may borrow short-term funds directly from a Federal Reserve Bank. Alternatively, the term refers to the interest rate used in determining the present value of future cash flows. In any case, the discount rate is not the return paid for deferring current consumption.


The effective rate

is the rate calculated as the interest received (or charged) divided by the actual cost of the investment (or loan). While this rate would include an element of interest for deferring current consumption (the risk-free rate), it would also include a premium for the risks associated with making the loan.


What risks can be hedged?

Foreign Exchange rate
Interest Rate risk
Default risk


The cost of debt most frequently is measured as

Actual interest rate minus tax savings


A short-term speculative rise in the worldwide value of domestic currency could be moderated by a central bank decision to

Selling domestic currency would increase supply and therefore decrease price.


A swap agreement

In an interest rate swap agreement one stream of future interest payments (e.g., floating-rate payments) is exchanged for another stream of future interest payments (e.g., fixed-rate payments) for a specified principal amount. In this case, an interest rate swap would hedge (mitigate) exposure to fluctuations in interest rates of the floating-rate bonds by exchanging those payments for a fixed-rate payment. would be recommended to hedge interest rate risk on long-term floating-rate bonds


What limitation is common to the calculations of payback period, discounted cash flow, internal rate of return, and net present value?

They all rely on forecasts of future cash flows.


What are limitations of the capital asset pricing model?

It assumes that there are no restrictions on borrowing at the risk-free rate of return.
It assumes that no external costs are associated with the investment.
It fails to consider risk derived from other than variances from the asset class benchmark.


What should the gov due in a period of deflation?

Increasing the money supply because in a period of deflation the government wants to encourage borrowing and investment to promote economic growth.


a decrease in government purchases will result in a(n)

decrease in aggregate demand (Aggregate demand includes government purchases. A decrease in government purchases will decrease aggregate demand.)


If Information about the sources of the product is widely available,

customers are able to comparison shop for the lowest price and are, therefore, more likely to be able to affect price.


What is the shape of a keynesian supply curve?

A Keynesian supply curve is horizontal up to the assumed level of output at full employment, at which point it "kinks," or slopes, sharply upward, which reflects the point at which output is associated with higher prices.


What is an option

A contract that allows (doesnt require) the holder to purchase a specified quantity of a financial instrument at a specified price.


how much fundraising is allowed in the first 12months using crowdfunding



Which techniques consistently gives the best answer when evaluating investment projects that are mutually exclusive?



Company specific risk is also known as

Unsystematic risk, firm-specific risk, diversifiable risk. This risk includes those elements of business risk that can be eliminated through diversification. Specifically, this risk can be mitigated by diversification of projects, investments, etc.


Incremental costs

are those that are different between two or more alternatives under consideration.


The degree of operating leverage (DOL)

is a measure of the change in earnings available to common stockholders associated with a given change in sales volume. It is calculated, for a particular level of sales, as % change in operating income / % change in sales volume


What is the formula for calculating the profitability index of a project?

Divide the present value of the annual after-tax cash flows by the original cash invested in the project.


which inventory management approach seeks to minimize total inventory costs by considering both the restocking (reordering) cost and the carrying costs?

Economic order quantity


Define “dark data”

Data about data (meta-data), and, data that an organization has that is currently underusing, e.g., using customer daily activity data to inform a marketing campaign is an example of the use of “dark data.”


Why doesn't bitcoin use a client-server network, like most business computing?

A peer-to-peer network is decentralized, which is essential to bitcoin's goal of independence from centralized authority, governments, and financial institutions.


What are the three determinants of blockchain security?

The security of blockchain depends on three factors:
Independent confirmation
Asymmetric encryption
Cheap, fast computing capacity



an encrypted, distributed audit trail database.


How is AI (artificial intelligence) different from common applications of computers today (e.g., spreadsheets and word processing)?

Emerging AI technologies include reasoning and judgment abilities that do not exist in most existing applications. Examples of these capabilities include natural language processing systems and robots that control real-time manufacturing processes.


Describe the category of AI used in Netflix's system to advise viewers about which movies they are likely to enjoy.

This is primarily a numeric analysis system. It primarily compares a user's numeric rating of movies to find similar movies that a user is likely to enjoy.


Explain how an AI system can be biased.

An AI system can be biased in three ways: (1) data (i.e., collecting only a biased subset of available data); (2) predictions (i.e., the reasoning built into the system can reflect the biases of developers); and (3) learning (i.e., the learning of AI systems can be “biased” to be consistent with those of the developers).


How is KPMG using IBM's Watson™ system?

KPMG is using Watson™ to generate predictive analytics that help clients identify and manage financial statement risks.


How is Deloitte using AI to improve audits?

Deloitte is partnering with several vendors to automate audit tasks including document review, confirmations, inventory counts, disclosures, predictive risk analytics, and producing and filling client request lists.


In COBIT, the process of identifying automated solutions falls within the ________ control process domain.

Acquire and implement


In COBIT, the process of ensuring security and continuous service falls within the _______ control process domain.

Deliver and support.


What is the role of the systems analyst in an IT environment?

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


Who is responsible for granting users access to specific data resources?

Database administrator.


Executive support system.

executive support systems focus on strategic levels of the organization and non-routine questions and include external scanning capabilities.


data query language

allows the user to extract information from the database.


Data manipulation language (DML).

allows the user to add new records, delete old records, and update existing records.


Data definition language (DDL).

allows the definition of tables and fields and relationships among tables.


Structured query language

is a specific, commonly used language that permits the user to extract information from the database.



would contain the collection of data for all vendors in a relational database. This would also be called a table in a relational database.


The CPU, the central processing unit,

does the primary processing for a computer.


Online real-time processing is characterized by

(1) the processing of one transaction at a time; 2) use of random processing technology, and (3) processing of transactions immediately (as they occur).


Define change management.

How the organization identifies the need for changes to the system, manages these changes according to a controlled process, and prevents unauthorized changes.


Describe the criterion of IT security assessment related to Organization and Management

The criterion is concerned with the IT-relevant organizational structures and processes for managing and supporting the people within operating units. This includes criteria addressing accountability, integrity, ethical values and qualifications of personnel, and the operational conditions in which they function.


GAPP includes these 10 subprinciples:

Choice and Consent
Use and Retention
Disclosure to Third parties
Security for Privacy
Monitoring and Enforcement


Categories of Criteria for Assessing IT Security Principles

Organization and management
Risk Mgmt, and design and implementation of controls
Control Monitoring
Logical and Physical Access controls
systems operations
Change mgmt


Intrusion detection systems (IDS)

Automate the monitoring of logs of network traffic permitted to pass through the firewall. The most common analysis is to compare the logs to a database containing patterns of known attacks.


Describe the process for assessing the likelihood and severity of cyber risk impact.

Senior management should lead this initiative, in collaboration with business and IT stakeholders. It must include individuals with a deep understanding of the organization's cyber risk profile.


Explain why assessing cyber-risk requires understanding the organizations’ industry.

Cyber-criminals often engineer industry-specific attacks. For example, organized criminals often attack financial institutions and retailers to exploit system vulnerabilities for profit (e.g., credit card data or personally identifiable information [PII]). Alternatively, nation-states or industrial spies might attack the oil and gas industry to steal strategic data about future exploration sites.


Valuing IT systems requires collaboration and coordination between ______ and ______ stakeholders.

Valuing IT systems requires collaboration and coordination between business unit and IT stakeholders


Why are threats from cyber-risk greater now than 20 years ago?

Because of the increasing pace of implementation of, and the resulting increased reliance on, information technology in systems of internal control.


What is the “U.S. critical infrastructure”?

The “systems and assets, … physical or virtual, so vital to the United States that their incapacity or destruction would debilitate security, national economic security, national public health or safety, or any combination of these.”


Define the four elements of the framework for cybersecurity.



Define the five functions of the framework for cybersecurity.

Identify, protect, detect, respond, recover


Give examples of the subcategories of the framework for cybersecurity.

Identify and catalog external information systems; protect data at rest; and investigate notifications from detection systems


Describe Tier 2, “risk-informed” risk management.

In tier 2 “risk-informed” risk management, management approves risk management practices but not as a part of a formal, organizational-wide policy. The prioritization of cybersecurity activities is informed by organizational risk objectives, the threat environment, and business requirements.


The cybersecurity framework includes three major parts:

the core, the profile, and the implementation tiers.


Relational databases

Store data in table form.
Are maintained on direct access devices.
Are flexible and useful for unplanned, ad hoc queries


The ledger that tracks bitcoins is a(n) ____________ ledger while the network that accounts for bitcoins is a(n) ___________________ network.

Blockchain ; peeo-to -peer


Structural unemployment

consists of members of the workforce who are not employed because the types of jobs they had previously have been greatly reduced or eliminated, including as a result of technological advances, or because they lack the skills needed for available jobs. Technological advances cause structural unemployment.


what is the best investment during a period of high inflation

precious metals
Because of their scarcity, precious metals tend to increase in market value during periods of inflation


What happens to corporate and treasury bonds during periods of inflation

Treasury bonds and corporate bonds, both of which typically pay fixed rates of return, face market interest rate risk and will lose market value as inflation drives up the general rate of interest.


What happens to common stock during periods of inflation

While common stock may provide some protection during a period of high inflation, that inflation causes the costs of productive inputs to increase, therefore, increasing pressure on company profits and returns to common stock shareholders.


what tasks are given first priority in DRP.



What is considered a low-cost wired transmission medium?

a twisted pair


In a common-size balance sheet, each item is measured as a percentage of ....

total assets (or total Liab and SHE)


What does the Federal Reserve Bank intend to do during an expansionary policy

An expansionary policy would serve to increase spending, demand, employment, and other economic measures. By purchasing federal securities (through its Open Market Committee), the Fed would put more cash into the economy by providing cash to the selling investors (e.g., banks, etc.). Increasing cash (the money supply) typically serves to stimulate the economy. In addition, lowering the discount rate (the interest rate the Fed charges for short-term loans to banks) would reduce the cost of borrowing by banks, thus increasing their ability to make loans for consumption and investment purposes.


The rate of unemployment caused by changes in the composition of employment opportunities over time is referred to as the

Structural unemployment rate


What type of unemployment is due to imperfections in the labor market and relates to workers searching for jobs or waiting to take jobs in the near future.

Frictional unemployment


In a common-size income statement, each item is measures as a percentage of

total revenue


The operating cycle measures the average length of time to

invest cash in inventory, convert the inventory to accounts receivable, and collect the receivables.
Cash to cash


Limitations of the Black Scholes method

It assumes the stock does not pay dividends.
It assumes the risk-free rate of return used for discounting remains constant during the option period.
It assumes the option can be exercised only at the expiration date.


The calculation of depreciation is used in the determination of the net present value of an investment for which of the following reasons?

Depreciation increases cash flow by reducing income taxes. Since the amount of depreciation expense taken reduces taxes due, it reduces cash outflow by the amount of taxes saved. The present value of that saving enters into the determination of present values for net present value assessment purposes.


What is a major advantage to Larson with the debt issuance?

The issuance of debt results in interest expense, which is deductible for tax purposes. Therefore, the effective cost of debt is less than its stated interest rate by the amount of taxes saved by that interest deduction. The effective cost of debt is its interest cost x (1 - tax rate).


What is the major advantage of a zero-balance account system?

It maximizes the float involved in cash disbursements. By using regional banks and not transferring funds until the checks are presented, the float on disbursements is maximized.


Risk Assessment

primarily relates to organizational objectives, risk assessment, fraud, and change management. Organizational objectives link to risk assessment since objectives help to define the risks that are to be assessed.


accounting rate of return.

is the return on the initial investment not adjusted for the time value of money.


What accounts for the difference between the stated rate and the effective annual rate of a loan?

the frequency of compounding


One important purpose of COBIT is to

Guide managers, users, and auditors to adopt best practices related to the management of information technology.


The database management system (DBMS)

controls the storage and retrieval of the information maintained in a database and is responsible for maintaining the referential integrity of the data.


A parity check

A parity check is designed to detect errors in data transmission.


Closed loop verification.

is an input control associated with online real-time systems.


What is the primary purpose of the balanced scorecard?

measure performance