Study Guide Flashcards

Question

What are the benefits/costs of budgeting?

Answer 1

Benefits: Can catch/explain performance errors Encourage communication Costs: Costly to make Can’ capture non-financial measures

Answer 2

Encourages budget makers to set targets low to ensure that they are met and incentive is earned

Answer 3

-Given descision rights and performance measures -Cost, expense, revenue, Profit, Investment Responsibility centers are an operational unit or entity within an organization that are responsible for all the activities and tasks structured for that unit.

Answer 4

Objective: Minimize cost for a fixed output Decision rights: Input mix (M,L,OH) Performance measures: Cost variances, quality measures, continuous improvement Example: Manufacturing department

Answer 5

Objective: Maximize service/output for a fixed budget Decision rights: Responsibility over relevant cost Performance measures: Benchmarking, quality easures Example: Accounting, R and D, Marketing

Answer 6

Objective: Max revenue for a given price w a specific budget Decision rights: Responsibility over price (revenue) Performance measures: Sales variances Example: Sales dept

Answer 7

Objective: Max profit w a fixed budget Decision rights: Input mix, product mix, price. (OP and revenue) Performance measures: Profit variances Example: Any division that incurs cost and earns revenue by selling

Answer 8

Objective: Max profit subject to investment Decision rights: Revenue, operating costs, depreciation, capacity resources (all of it so operating income) Performance measures: ROA, ROI, Residual income Example: Any division that incurs cost and earns revenue by selling and investments that it makes to earn profits

Answer 9

Benefits: Cost effective and simple Easy to communicate and validate Easy to set goals for Ultimate goal of owners Perceived as objective Costs: Does not account for non-financial performance measures Backwards looking measures Too easy to validate May encourage myopic behaviors

Answer 10

Variance analysis explains the deviations from the budget Variance figures usually work in tandem to explain budget deviations. For example, a highly favorable price variance, but a highly unfavorable efficiency variance may mean that low quality cheaper goods were used.

Answer 11

Master: BSQ * BIQ * BIP Sales volume variance Flex: ASQ*BIQ* BIP Efficiency variance As-If: ASQ* AIQ*BIP Input price variance Actual: ASQ*AIQ*AIP

Answer 12

-Only impacts divisional profits, not firm profits -Allows for the establishment of prices for the goods and services exchanged between affiliates that are part of the same larger enterprise.Transfer pricing affects the revenues of the producing profit center (PC), the costs of the buying PC, and hence, the profits of both units

Answer 13

Provide information for accurate performance evaluation Provide proper economic signals for good decision making (goal congruence) Preserve divisional autonomy Purposely move profits between entities/locations (tax-driven)

Answer 14

Market Based: used when a competitive external market exists. Good/service would have been sold to the outside market TC= VC +Opportuntiy cost (Contribution margin) Marginal / Variable Cost: used when there is excess capacity. One time exchange Marginal Cost plus Markup / Full Cost (VC+FC): used when there is no excess capacity. Recurring, long term exchange

Answer 15

A BSC is a strategic planning and management system designed to align business activities to the vision and strategy of the organization, improve communication of strategy, and monitor the performance of an organization against strategic goals. -Describe and implement org's strategy -Provide language to discuss direction and priorities -Translate vision/strat into coherent and linked set of performance measures

Answer 16

Financial: To succeed financially, how should be appear to our shareholders (Revenue growth or cost reducton) Customer: To achieve our vision, how should we appear to our customers (customer intimacy, product leadership (speed to market, performance), operational effectiveness (speed of service, returns) Internal business processes: to satisfy our cusotmers and shareholders, at what business processes must we excel: customer intimacy, product leadership (new products, etc), operational effectiness (supply chain, asset utilization) Learning and Growth: To achieve our vision, how will we sustain our ability to change and improve. Define core compencies and skills, tech, and corp culture needed to support internal business perspective

Answer 17

Objectives: dimensions of performance that needs to be improved Measures: data used to assess performance on the objective Targets: level of measure to which performance is compared Initiatives: strategy intended to help achieve target Causal Links: Link nonfinancial performance measures to strategy

Answer 18

Performance measures should be balanced among the four perspectives of the BSC Leading Indicators: performance driver measures that dictate when financial performance is going. An example is customer satisfaction scores Lagging Indicators: outcome measures, like sales

Answer 19

Compare strategy to environment/industry

Answer 20

Motivate (rewards Communicate Monitor performance

Answer 21

1. Correlation Analysis 2. Regression 3. Scatter plot 4. Re-run regressions after splitting data at median of crew skills

Answer 22

Good nonfinancial measures can be leading indicators of future financial performance thus incentivizing employees to be more forward looking. Thees focus on more subject performance measures

Answer 23

Measurement error: the performance measure is an imperfect proxy for the construct it represents Motivation: People are aware of the emasrue used for their evaluation and care about their evaluation ( the more they care the more incentive they have to manage the measure( Discretion: People have the ability/discretion to distort this measure through either action that effects the raw data or (mis)reporting of that data

Answer 24

When employees improve their performance on a measure by taking actions inconsistent w the underlying construct that the measure represents

Answer 25

-Reduce measurement error (the more closely the measure captures the construct, the more difficult the measure is to manage) -Conceal measurement from employees (those who don't know how they are being measured cant easily manage it) -Monitor and limit discretion-> implement controls

Answer 26

Benefits: Leading/intermediate information; thus, good diagnostic tool Focused on components of operations that managers can control Employees receive better information on specific actions that achieve strategic objectives Costs: Not always easy to reliably measure Can be difficult to confirm their association with value creation Interpretation is tricky and may depend on context

Answer 27

They can use the regression analysis to test whether their strategy is actually having the intended effect on a designated measure.

Answer 28

Moderators influence the relationship between variables while mediators explain the relationship

Answer 29

Bias: measurement is a more direct difference between the proxy and construct

Answer 30

Often decreases their informativeness—especially when employees have the flexibility to take actions to improve the measure that are not consistent with the measure’s underlying construct

Answer 31

Business Strategy at the center Belief systems: core values / beliefs of the company Boundary systems: code of conduct / rules Diagnostic Control Systems: feedback systems used to monitor organizational outcomes and correct deviations from preset standards of performance Interactive Control Systems: facilitate information exchange Internal controls as the foundation

Answer 32

Safeguard assets Ensure reliable accounting records and financial information systems Ensure compliance with laws and regulations Promote operational efficency

Answer 33

-Control environment -Risk assesment -Control activities -Information and communication -Monitoring

Answer 34

COSO cube Standards, process and structure that provide basis for internal control; tone at the top  Commitment to integrity and ethical values  Board of directors demonstrates independence from management and exercises oversight of the development and performance of internal control  Management establishes appropriate reporting lines  Organizations demonstrate a commitment to attract, develop, and retain competent individuals  The organization holds individuals accountable for the internal control responsibilities ex: Control environment Good culture Support controls Training peopler Care about value Not trying to cut corners Emphasize and live to mission statement COSO Board of directors pays attention Mission statement-> walk the talk, encourage people to have good ethics Doing the right thing

Answer 35

The organization must be aware of and handle the risks it faces, where risk is the possibility that an event will occur and adversely affect the achievement of the organization’s objectives. It must establish mechanisms to identify (scan the external and internal environment), analyze, and management the related risks.  Objectives must be clearly specified objectives to facilitate the identification of risks  The organization identifies risks to the achievement of objectives and discusses how to handle the risks  The organization considers the potential for fraud in assessing risks to the achievement of objectives  The organization identifies and assesses changes that could significantly impact the system of internal control

Answer 36

Actions via policy and procedures to help ensure directives to mitigate risk are carried out  The organization selects and develops control activities that contribute to the mitigation of risks  Develops control activities over technology  Deploys control activities through policies that establish what’s expected and procedures to put policies in place

Answer 37

These systems enable the organization’s people to capture and exchange the information needed to conduct, manage, and control its operations.  The organization obtains or generates and uses relevant, quality information to support the functioning of internal control  The organization internally communicates information, including objectives and responsibilities for internal control, necessary to support the functioning of internal control  The organization communicates with external parties regarding matters affecting the functioning of internal controls.

Answer 38

Ongoing evaluation and/or separate evaluations to check whether the five components of control are present and functioning. In this way, the system can react dynamically, changing as conditions warrant.  The organization selects, develops, and performs ongoing and/or separate evaluations to determine whether internal control components are present and functioning  The organization evaluates and communicates internal control deficiencies in a timely manner to parties responsible for taking corrective actions

Answer 39

Authorization of transactions: preventative control that requires approval for risky actions Segregation of duties: separate asset custody, recordings, and authorization Adequate records and documentation: detective and corrective control that sees the maintenance of supporting documentation Security of assets and documents: detective and corrective control that sees the maintenance of supporting documentation Independent checks and reconciliation: detective and corrective control that compares documentation for accuracy

Answer 40

- USED FOR IT Security: risks associated with both physical and digital unauthorized access to assets or documents Availability: risks associated with ensuring that key systems stay online and usable Processing Integrity: risk associated with inaccurate, incomplete, or improperly authorized information Online Privacy: risks associated with keeping client information private Confidentiality: risks associated with keeping company information private

Answer 41

Authentication of users and limiting unauthorized access: limit access to sensitive documents Hacking and other network break-ins - Online forced entry Organizational structure - Govern the development and operation of IT controls Physical environment and physical security of the system - Controls over the physical environment of the system and physical access controls to limit who is in contact with the system Business continuity: Business lives and evolves forever?

Answer 42

Input: ensure the accuracy and completeness of data input procedures and the resulting data EX: Using a calendar selection menu instead of manually entering a date for a flight Processing: intended to prevent, detect, or correct errors that occur during the processing in an application EX: Ensuring that a credit card is active Output: ensure the accuracy and completeness of the output, and to properly maintain the safekeeping of the output reports Ensure that products sent to customers are correct

Answer 43

3. Sales order entry 4. Shipping of goods 6. Billing for goods shipped 9. cash collections

Answer 44

1. Request goods 2. Order goods 5. Receive goods 7. Approve vendor invoice 8. Pay for goods ordered

Answer 45

Sales transactions and cash receipts are authorized and accurately and completely executed and recorded Assets are safeguarded Revenue and uncollectible accounts are recognized in accordance to GAAP

Answer 46

Are inventory levels checked as a part of sales approval? Was the customer’s credit checked? Were the prices for the sale verified? Was the packing slip compared to the purchase order prior to shipment? Was the customer’s check matched against the purchase order? Was the inventory account updated in a timely fashion? Was the shipping log updated?

Answer 47

They have better info abt their products, services,a nd customers

Answer 48

Do the objectives reflect the strategy? Are the objectives all actions? Have you identified cause and effect links between the objectives? Are the objectives included within the correct perspective? Do you have a “balance” of: the four perspectives? financial and non-financial objectives/measures? leading and lagging objectives/measures? Do you have a measure for each objective? Do you have an initiative for each measure/objective?

Answer 49

Learning and growth->Internal business perspective Internal business perspective->Financial perspective OR Internal business perspective->Customer perspective Customer perspective->financial perspective

Answer 50

* Internal Controls -- Mechanisms designed to prevent fraud, asset misappropriation, and ensure accuracy and completeness of the accounting records that underpin financial statements and their related disclosures. * Diagnostic Control Systems – Used by senior management to monitor critical performance variables or things that the company must do well in order to achieve strategic objectives. These systems should highlight to busy managers where their limited attention is needed and when corrective actions are needed. * Belief Systems – Belief systems communicate the entity’s core values and mission to employees (e.g., mission statements, vision statements, etc.). These systems remove uncertainty about the organization’s mission, how employees are expected to manage internal and external relationships, and inspire employees to pursue new, value-increasing opportunities. * Boundary Systems – Boundary systems identify those actions and risks the employees must avoid – they state what employees should not do (examples include codes of conduct and operating guidelines). * Interactive Control Systems – Interactive Control Systems are mechanisms that allow managers to learn about opportunities, risks, and uncertainties in their employees’ environment that may require a shift in the entity’s strategy. 22

Study Guide Flashcards

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