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B1 Flashcards

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1
Q

primary role of an entity’s board of directors

A
  1. safeguard company’s assets

2. maximize shareholder return

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2
Q

Liability for Unlawful Distributions

A
  • paying dividends when the corporation would not be able to pay its debts as they became due
  • total assets would be less than its total liabilities
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3
Q

limitation on director indemnification

A
  • bad faith

* unethical

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4
Q

Are directors individual agents?

A

no

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5
Q

authority of officers

A

actual and apparent authority

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6
Q

largest change from SOX

A
  • enhanced disclosures
  • audit committee
  • CEO & CFO representations
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7
Q

types of liability for CEO & CFO

A

*civil and criminal liability

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8
Q

CEO/CFO pay for a restatement and must reimburse the issuer if material noncompliance is found

A
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9
Q

principal stockholders

A

> 10% ownership in the company

*related parties

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10
Q

Section 404 of SOX

A

*assessment of internal controls

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11
Q

Who is in charge of enhanced review of periodic disclosures?

A

the SEC

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12
Q

What is the purpose of the COSO framework?

A

to help management obtain an initial understanding of what constitutes an effective system of internal control

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13
Q

Elements of an Effective System of Internal Controls

A
  • more than adherence to policies
  • use of judgment
  • PRINCIPLES-BASED approach
  • should extend beyond financial reporting
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14
Q

Three Categories of Objectives under COSO Framework

A

O perations
R eporting
C ompliance

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15
Q

5 Components of Internal Control

A
  1. Control Environment
  2. Risk Assessment
  3. Existing Controls
  4. Monitoring
  5. Information and Communication
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16
Q

Elements of Control Environment

A 
"EBOCA"
E thics and integrity 
B oard independence and oversight
O rganizational structure 
C ompetence
A ccountability
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17
Q

Risk Assessment Elements

A

“EAR”
E vent ID
A ssess risk
R espond to risk

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18
Q

Monitoring Elements

A

*assessing the quality of internal control performance AND taking the necessary corrective actions

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19
Q

Existing Control Activities Elements

A
  • detective or preventative

* technology controls, control activities, policies and procedures

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20
Q

An effective system of internal controls requires

A

internal controls that are both

PRESENT & FUNCTIONING

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21
Q

major deficiency =

A

may not conclude that it has met the requirements for an effective internal control system

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22
Q

What level of assurance do internal controls provide?

A

reasonable assurance

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23
Q

Enterprise Risk Management definition

A

*balances risks and returns as well as efficiency and effectiveness

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24
Q

Strategic Objectives of ERM

A 
"SORC"
S trategic
O perations
R eporting
C ompliance
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25
Components of ERM (8)
``` "IS EAR AIM" I nternal environment S etting objectives E vent ID A ssess risk R espond to risk A ctivities (control) I nformation and communication M onitoring ```
26
Internal Environment for ERM
``` "EBOCA HR" E thical values and integrity B oard oversight O rganizational structure C ommitment to competence H uman resources standards R isk management philosophy R isk appetite ```
27
Two things to look for in event identification
POSITIVE AND NEGATIVE events
28
Inherent Risk vs. Residual Risk
* inherent = risk without management action | * residual = risk after management action
29
3 Assessment Techniques for Risk Assessment
1. Benchmarking 2. Probabilistic Models 3. Non-probabilistic Models (opinion; outcome of lawsuit)
30
Possible Risk Responses
1. Avoidance (terminate the risk) 2. Reduction (mitigate; invest) 3. Sharing (insurance) 4. Acceptance (no action)
31
How should risk be considered?
*on an entity-wide (portfolio) perspective
32
Information Quality Factors
* timely * current * accurate
33
Monitoring Components
1. ongoing monitoring activities 2. separate evaluations 3. reporting deficiencies
34
Measurements of Performance should be both
*financial and nonfinancial
35
Total Factor Productivity vs. Partial Productivity
1. (output)/(total costs) | 2. (output)/(specific quantity of input)
36
Control chart =
*goalpost conformance
37
Pareto Diagram
* histogram | * shows cumulative and most frequent quality control issues
38
Cause-and-Effect Diagram
* fishbone | * used to identify the sources of the problem
39
Characteristics of Effective Performance Measures
* promote the achievement of goals * objective and easily measured * understood by the employee
40
Marketing Practices and Methods
1. Transaction Marketing - price 2. Interaction-Based - repeat business/loyalty discount 3. Database Marketing - segment and target groups 4. E-marketing - internet 5. Network marketing - relationships and referrals
41
Performance Incentives & Compensation
1. Sales-volume-driven compensation | 2. Customer satisfaction and quality measures
42
Types of Bonus Plans
*fixed and variable
43
Cooperative vs. Competitive Plans
``` Cooperative = stock options Competitive = commissions ```
44
Cost Object
*the item or process for which a separate cost must be computed
45
Freight in vs. Freight out
*inventory/product vs. selling cost
46
Prime Cost
DL + DM
47
Conversion Cost
DL + MOH
48
Cost Drivers
*relationship in which manufacturing overhead will be applied
49
In the long-run, all costs are
VARIABLE
50
Types of Costs (behavior)
* variable * fixed * semi-variable
51
How are costs allocated under job costing?
*allocated sequentially as it moves through the manufacturing process
52
Manufacturing Overhead
Credit Balance = favorable = overapplied | Debit Balance = unfavorable = underapplied
53
Equation for Production Report
BI + Started (Transferred In) = EI + Transferred Out
54
Two types of cost-flow assumptions
FIFO or Weighted Average
55
FIFO Equivalent Unit Calculation
1. cost to complete BI 2. costs added to started and completed 3. cost in ending inventory ONLY COSTS ADDED
56
Weighted Average Equivalent Unit Calculation
1. costs in units completed 2. cost in ending inventory TOTAL COST
57
Normal Spoilage vs. Abnormal Spoilage
* normal = inventory | * abnormal = I/S - separate component of COGS
58
ABC Features
* multiple activity centers * focuses on cost/benefit activities * removes cost distortion
59
Split off Costs Allocation Methods
1. volume relationships 2. net realizable value a. known at split-off b. not known at split-off
60
By-products
1. applied to main product as a reduction of common costs or 2. miscellaneous income
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