BEC

Question 1

Components of COSO Framework

Answer 1

C- Control environment - tone at the top
R- Risk Assessment - F/S Misstated or fraud
I- Information and Communication -Fair, Accurate, Complete and Timely(FACT)
M- Monitoring - Effectiveness of internal controls, report deficiencies
E-(Existing) Control Activities- Policies/procedures to mitigate risk

Question 2

Control Environment

Answer 2

EBOCA

E- Ethics - commitment to ethical values
B- Board Independence
O- Organizational structure that facilitates ethics
C- Commitment to Competence- Properly trained employees
A- Accountability

Question 3

Risk Assessment

Answer 3

E- Event identification - identify possible risks
A - Assess the risk
R- Respond to the risk

Question 4

Information and Communication

Answer 4

Between both internal(management and board/audit committee) and external parties(to investors, customers and external auditors)
- must be fair, accurate, complete and timely(FACT)

Question 5

Monitoring

Answer 5

Test on a timely basis internal controls for effectiveness, monitor the controls regularly to assess internal control quality

• frequency of testing dictated by risk
• assets at greatest risk tested most frequently
• must report and correct any deficiencies in a timely manner

Question 6

Existing Control Activities `

Answer 6

• Control activities set forth by the entity to mitigate risk
• Policies and procedures to prevent and detect
• segregation of duties
• make sure existing controls are being followed and no one is overriding them

Question 7

Objectives of an organization(COSO)

Answer 7

O - Operations
R - Reporting
C - Compliance

Question 8

Effective internal control

Answer 8

• effective internal control provides “reasonable” assurance that the entity’s objectives will be achieved
• All components of CRIME must be PRESENT and FUNCTIONING
• PRESENT - components and relevant principles are included in the design of the internal control system
  FUNCTIONING - components and relevant principles are currently operating as designed

Question 9

How long to retain working papers and audit records for?

Answer 9

7 years

Question 10

Statue of limitations for fraudulent reporting***

Answer 10

Earlier of 2 or 5

• 2 years since violation was found
• 5 years since violation occurred

Question 11

Major deficiency identified in internal control

Answer 11

Organization cannot state or conclude that they have met the requirements for an effective internal control

Question 12

Objectives of enterprise risk management(ERM)

Answer 12

S +ORC
S - Strategic(high level goals to achieve the mission)
O - Operational
R - Reporting
C- Compliance

Question 13

Component of enterprise risk management(ERM)

Answer 13

Similar to components for internal control but BROADER in scope
IS EAR AIM

I-Internal Environment(EBOCA “HR”)
S-Setting objectives

E-Event identification
A-Assessment of risk
R-Risk response

A-control ACTIVITIES
I-Information and communication
M-Monitoring

Question 14

Risk Assessment Techniques

Answer 14

1. Benchmarking - Use of common data from similiar organizations
2. Probabilistic models - Statistical data - more objective, historical data
3. Non-Probabilistic Models- mere opinion, subjective assumptions

Question 15

Portfolio View

Answer 15

When use analyze risk you look at it from an ENTITY-WIDE perspective and not specifically to an isolated department

Question 16

Balanced Scorecard

Answer 16

A framework used for implementing strategy that converts a company’s strategic objectives into a set of performance measures(financial and non-financial measures)

Question 17

Benchmarks

Answer 17

Industry “gold” standard

Question 18

Total factor productivity ratio(TFP)

Answer 18

reflect the quantity of all output produced relative to the costs of all inputs used.

• Material & labor costs
• used to compare actual cost cost per unit production levels to budgeted(or prior years) production levels.

Output / Total Costs

Question 19

Partial Productivity Ratios

Answer 19

-Material OR Labor quantity

Output / Specific quantity

Question 20

Internal Benchmarks

Answer 20

• Find and analyze problems
• Why we’re not where we should be?

Control Charts

• Determine zero defects
• statistical analysis to determine output or usage of something is within an acceptable range

Question 21

Goalpost conformance

Answer 21

Keep deviations within an acceptable range

-“zero” defects

Question 22

Pareto Diagram

Answer 22

“Histogram”, frequency diagram

-determine the quality control issues that are most frequent

Question 23

Cause and effect diagram

Answer 23

“fish-bone diagram”

• analyze the REASONS that are contributing to frequent defects that come up in the Pareto diagram
• identify sources of the problem
• trace defect back to the source

Question 24

Marketing practices

Answer 24

Establish value for organizations products

1. Transaction marketing- single sale, lowest price
2. Interaction based relationship -repeat business, loyalty discounts, establish relationships with customers
3. Database marketing - segment the customers, target groups
4. E-marketing - use of the internet
5. Network marketing - relationships and referrals

Question 25

Bonus incentives

Answer 25

1. Cash bonus - reward current performance 2. Restricted stock options - may reward current performance, but the plan emphasizes future performance - employee most likely must stay through option vesting period(retention) - option only has value if stock price increases

Question 26

Prime Costs

Answer 26

Direct materials + Direct Labor = Prime costs

Question 27

Conversion Costs

Answer 27

Direct Labor + Overhead Applied = Conversion Costs

Question 28

Product Costs

Answer 28

Not expensed until the product is sold - matching principle - product costs are inventoriable - Direct materials + direct labor + manufacturing overhead = product costs

Question 29

Period Costs

Answer 29

Income State only(not capitalized or part of inventory or balance sheet)

Question 30

"Manufacturing" costs

Answer 30

treated as product costs composed of direct costs(DL + DM) and indirect costs(Overhead*) *Indirect materials, Indirect Labor, Factory Overhead

Question 31

Non Manufacturing Costs

Answer 31

treated as period costs composed of Sales, General and Administrative and Interest costs

Question 32

Cost Accounting

Answer 32

designed to meet the goal of measuring cost objects or objectives. The most frequent objectives include: ``` "PIE" Product Costing(inventory and cost of goods manufactured and sold) Income determination(profitability) Efficiency measurements(comparisons to standards) ```

Question 33

Direct Costs

Answer 33

Can be easily traced to the object - Direct raw materials include freight-in(Not freight-out!) and a Normal amount for Scrap - Direct raw materials include cost of labor directly related to the product plus a reasonable amount of expected "downtime"(e.g breaks, setup and training)

Question 34

Indirect Costs

Answer 34

Cannot be easing traced to the completed product If it has to do with the FACTORY than it is considered a product cost and Manufacturing Overhead If the cost has to do with the OFFICE then it is considered a period cost(G &A)

Question 35

Cost Drivers

Answer 35

Assign factory overhead for indirect costs to individual products - In the "relevant range" assumptions of the cost driver hold true

Question 36

Traditional costing

Answer 36

When using "traditional costing" we take total manufacturing overhead(all costs) and allocate it to one cost pool Step 1: Calculate overhead rate= Budgeted overhead costs / Estimated cost driver(DL$, DH, DLH, MH) Step 2:Applied overhead = Actual Cost driver x Overhead Rate(from step 1)

Question 37

Cost Behavior

Answer 37

"Linear" As products produced increases so does costs Some costs are fixed and others are variable, while some can be both fixed and variable(semi variable costs)

Question 38

Variable Cost

Answer 38

Total Cost changes proportionately with the cost driver | -per unit amount is constant

Question 39

Fixed Cost

Answer 39

Total Fixed cost, does not change with the cost driver - ex. rent per month - as more units are produced the fixed cost per unit decreases -in the long run any cost is considered variable(ex 30 year lease in year 30 becomes a variable cost)

Question 40

Cost Accumulation systems

Answer 40

Job Costing Used for specific unique items Process Costing Used for generic same item produced every time Backflush Costing Item has no value until it is complete, and therefore only accounts for costs at the end of the process

Question 41

Calculating Cost of Goods Manufactured formula

Answer 41

``` Beginning Work in process +Direct materials used +Direct Labor +Manufacturing overhead applied =Total manufacturing costs incurred -Ending work in process =cost of goods manufactured, completed in this period ```

Question 42

Calculating Direct Materials Used(if not given)

Answer 42

``` Beginning Raw Materials +Purchases =Materials available -Ending Inventory Raw Materials = Direct Materials Used ```

Question 43

Calculating Cost of Goods Sold

Answer 43

``` Beginning Finished Goods +Cost of Goods manufactured =Cost of Goods available for sale -Ending Finished Goods inventory =Cost of Goods Sold ```

Question 44

Equivalent Units of Production -Memorize!

Answer 44

Weighted Average Take completed and transferred items + % complete of ending work in process items FIFO 1. Take work in process beginning x % NOT complete yet 2. Add units complete and transferred out 3. Subtract Total number of units in beginning work in process 4. Add % complete of ending work in process

Question 45

Calculate per Equivalent Unite

Answer 45

Weighted Average Beginning cost + Current Cost/ Equivalent Units FIFO Current Costs only/ Equivalent Units

Question 46

Spoilage

Answer 46

Normal Spoilage - part of Balance sheet, included in inventory costs Abnormal Spoilage - period expense

Question 47

Activity Based Costing -"Transaction-based costing"

Answer 47

Uses multiple overhead rates by department -improves cost allocation compared to volume-based which uses only a single cost pool, provides greater detail by breaking O/H down by department to product costs Cost Drivers and Cost pools Traditional - only one Activity Based Costing - multiple

Question 48

Direct Method and Step-down method

Answer 48

Direct Method -allocates service costs by taking service department's total costs and directly allocating them to production departments Step-down method -more sophisticated, service costs are allocated to service departments and production departments based on use(b/c service departments use service costs as well as production depts)

Question 49

Joint Product Costs

Answer 49

- also known as a "common cost" - joint products are "main products" Split off point- point when joint product costs can be recognized as individual products(nike makes shoes, before product becomes running or basketball at that point is the split of point) -after split off point costs are called separable costs

Question 50

By-products

Answer 50

- relatively small value and not main product, so don't want to allocate joint product costs to them - can subtract revenue received from sales of by-products against joint costs or book it as miscellaneous revenue

Question 51

Allocating Joint Costs

Answer 51

Methods 1. By volume- as a percentage of units produced 2. Based upon sales value - whatever percentage of total sales value of items is allocated to joint costs 3. No sales value at split-off - must be finished to have value and sell it(b/c no sales value at split-off) work backwards and subtract out separable cots after split-off and then take percentage of sales value and allocate it to joint costs(like method 2)