1
Q
COSO Components of Internal Control
A
C = Control activities R = Risk assessment I = Information and communication M = Monitoring E = Control Environment
2
Q
Reciprocal Cost Allocation
A
Services Rendered by all service departments to each other are recognized
3
Q
Incremental cost allocation
A
The cost objects are sorted in descending order by total traceable cost and the common cost is allocated up to the amount of each
4
Q
Stand-alone cost allocation
A
The common costs are allocated by weighting the cost of each user as a separate entity
5
Q
What are the responsibility Centers
A
- Revenue Center - Responsible for revenue only
- Investment Center - Responsible for revenue, expense, and invested capital (Balance sheet & Income Stmt)
- Profit Center- Responsible for revenue and expense
- Cost Center - Responsible for cost only
6
Q
Contribution Accounting
A
Emphasized variable cost and their relationship with revenues, but disassociated fixed costs from department responsibility
7
Q
Functional accounting
A
Accumulates costs and assets for each service provided or functions performed
8
Q
Manufacturing cost
A
Is the prime cost and manufacturing OH
1. Direct material
2. Direct Labor
3. Manufacturing OH
Indirect materials, Indirect Labor, factory operating costThese are all of the costs that need to be incurred in order to actually produce the product.
Not include Selling & Administrative cost
Selling & Administrative cost = period cost
9
Q
what are the 2 components of the static budget variance ?
A
- The flexible budget variance
2. The sales volume variance
10
Q
PCAOB Standard #5
A
It is a principal based
It is design to increase the likelihood that material weakness in internal control will be found before they result in material misstatement of company’s financial statements and at the same time, eliminate procedures that are unnecessary
11
Q
Manufacturing cost
A
Is the prime cost and manufacturing OH
1. Direct material
2. Direct Labor
3. Manufacturing OH
Indirect materials, Indirect Labor, factoring operating costThese are all of the costs that need to be incurred in order to actually produce the product.
Not include Selling & Administrative cost
Selling & Administrative cost = period cost
12
Q
Investment categories and the reporting value
A
- Trading Securities = Report at FMV
- Available For Sales Securities = Report at FMV
- Held to Maturity = Report at Amortized Cost
13
Q
What are the categories of performance measures?
A
- Profitability measures
- Customer satisfaction measures
- efficiency, quality and time measures
- Innovation measures
14
Q
What are the transferred price methods?
A
- Variable cost - Allow buyer to purchase at the selling divisions variable cost. This method only can be use when selling division has excess capacity
- Full (absorption) cost - Ensure selling division will not incurred a loss. Not goal congruence. All cost can be pass to the buying division. Least costly method to administer
- Negotiation- Each division can set their own price. Good when market price are fluctuate a lot. Achieve goal congruence for division but not as a whole
- Market price -Best transferred price
15
Q
What are the time based classifications?
A
- Feed Back control - Report information about completed activities. Permit improvement in future performance. Corrective action occurs after fact.
Ex: Inspection of completed goods - Concurrent - Adjust ongoing process. Monitor activities in present.
Ex: Closed supervision on a production line - Feed forward-Anticipate, prevent problem. Require long term perspective
Ex: Organization policy and procedure
16
Q
what are the control procedures
A
- Segregation of duties
- Independent checks, verification
- Safeguarding controls
- Pre-numbered forms
- Specific document flows
17
Q
The Sarbones-Oxley Act of 2002
A
Required each member of the audit committee to:
- At least one member is a financial expert
- Be an independent member of the issuer’s board of directors
- an independent director is not affiliated with and receive compensation from the issuer.
18
Q
Sarbone - Oxley Act - Section 404
A
Required the auditor to attest to and report on management of the entity’s control over financial reporting
19
Q
Process Costing
A
Process costing - Is used many identical or similar units of a product or service are being manufacture. Cost are accumulated by department or by process.
The cost of 1 finish good is an average cost
20
Q
Standard Costing
A
- Is planned cost for each unit produced
- OH is allocated to unit produce by calculating the pre-determined manufacturing OH rate
- Standard costing enable manager to compare actual costs with the cost should have been for the actual amount produced.
- Manufacturing company used standard costing with flexible budgeting to control DL and DM.
21
Q
Dividend received under equity method
A
Cash Dividend received from investee is a return on investment.
22
Q
Replacement cost under LCM
A
The replace cost can not be lower than the Floor price or higher than the ceiling price.
Floor price
23
Q
How is trading security reported?
A
Unrealized gain/loss are reported in earning on statement of financial position and record at FMV
24
Q
How is inventory reported under IFRS?
A
Inventory is measured at lower of cost and NVR.
25
What inventory method is use for moving average valuation?
Moving Average use Perpetual inventory method
26
What inventory method is use for Weighted Average valuation?
Weighted Average use Periodic inventory method.
27
How should the cash dividend recorded under equity method?
The receipt of cash dividend is a credit to investment when declared. Equity Method is not applicable to preferred stock.
28
Expected value calculation
1. The expected value is the long run average outcome
| determined by calculating the weighted average of the outcome
29
Joint Probability
1. The probability of an event occurring giving that another event has already occurred.
2. Determined by multiplying the probability of the first event by the conditional probability of the second event
30
What is the order of the cash flow using either indirect or method when preparing cash flow?
1. Operating
2. Investing
3. Financing
31
How should the property dividend by recognized on the date of the declaration?
When a property dividend is declared, the property is remeasured at FMV and recognized any gain or loss
32
Loss Contingency
Loss Contingency should be recorded if the event will be probably occur and the loss amount can be reasonably estimated.
33
What cost should be capitalized in regards to Patent?
Legal fees of obtaining the patent, incidental costs of obtaining the patent, and costs of successful patent infringement suits.
34
What are the cost include in the present value of the minimum lease payment on a capital lease?
The lessee’s minimum lease payments include minimum rental payments, bargain purchase option, guaranteed residual value, and nonrenewal penalty. Minimum lease payments do not include contingent rentals.
35
How is deferred tax assets arise?
A deferred tax asset arises when there is either:
1) a revenue that is included in taxable income before it is included in book income, or
2) an expense that is included in book income before it is deductible for tax purposes
36
What is the effect of the deferred tax assets or deferred tax liability?
Deferred tax assets is a tax benefit, it reduce the tax expense.
Deferred tax liability is a tax expense, it increase the tax expense.
37
What happen to the company's equity when dividend declare and dividend pay?
The equity of the company is reduced when the dividend is declared and unchanged at the date of payment.
The current liability is unchanged as all entries are within the equity section.
38
What are the characteristic of Preferred Stock?
Preferred Stocks has :
1. Has priority over common stock with regard to earnings.
2. . Has the right to receive dividends in arrears before common stock dividends can be paid.
3. Has priority over common stock with regard to assets.
4. Has the ability to convert to Common Stock
5. Has no voting rights
39
What are the conditions must be met for revenue to be recognizes under the completion of production method
These three conditions are:
1) the item is readily saleable as soon as it is completed,
2) there is a known market price for the item and there are minimal selling costs, and
3) the units are homogenous (identical to each other).
40
What does financial flexibility mean?
Financial flexibility refers to the ability of a company to take actions that will alter the amounts and timing of its cash flows so that it is able to respond to unexpected needs and opportunities.
41
What is the minimum level of ownership at which an investor can exercise significant influence ?
20%
42
What are the 3 auditing risks?
1. Inherent Risks
2. Detection Risks
3. Control Risks -Assessments of internal control
43
What are the 2 elements of Detection Risks?
1) the risk that analytical procedures and other relevant substantive tests will fail to detect misstatements at least equal to tolerable misstatement and
(2) the allowable risk of incorrect acceptance for the substantive test of details.
44
What is the purpose of an audit committee?
Its purpose is to help keep external and internal auditors independent of management and to assure that the directors are exercising due care.
45
What are the control procedures?
The Control Procedures are:
1. Segregation of Duties
2. Independent checks and verification
3. Safeguarding controls
4. Pre-numbered forms
5. Specific document flows
46
What is the requirement of management under Section 404 of Sarbanes-Oxley Act?
It require the Internal Report must state that :
1. Management is require to establish and document internal control structures and procedures for financial reporting and
2. contain an assessment of the effectiveness of the internal control structures and procedures of the company for financial reporting as of the end of its most recent fiscal year.
47
What is the requirement of the PCAOB Standard #5 ?
It required the ;
1. internal control audit integrated with financial audits.
2. Focuses auditor on procedures perform high quality audit
3. More risks based
4. provided significant opportunity to strengthen financial reporting process
48
The COSO framework breaks up the definition of control objectives into what categories?
The control objectives is broken into following categories:
O 1. Operations- Enhance effectiveness and efficiency
R 2. Reporting -Reliability of financial reporting
C 3. Compliance with applicable laws and regulations.
49
What are the objective of Foreign Corrupt Practices Act,?
Under the Foreign Corrupt Practices Act of 1977, all public companies must devise and maintain a system of internal accounting control sufficient to provide reasonable assurance that:
1) Transactions are executed in accordance with management’s general or specific authorization;
2) Transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles (GAAP);
3) Access to assets is permitted only in accordance with management’s general or specific authorization;
4) The recorded accountability for assets is compared with the existing assets at reasonable intervals, and appropriate action is taken with respect to any differences.
50
What are the four different audit approaches?
The four different audit approaches:
1. The substantive procedures approach
2. The balance sheet approach
3. The systems-based approach
4. The risk-based approach
51
What is the the Risk Based approach?
With the risk-based approach, audit resources are directed towards those areas of the financial statements that may contain misstatements (either by error or omission) as a consequence of the risks faced by the business.
52
What are the functions that should be kept separate proper segregation of duties?
```
A = Authorization
R = Record keeping
C = Custody
R = Reconciliations
```
53
What is the Substantive Procedures of an audit?
The substantive procedures approach is also referred to as the vouching approach or the direct verification approach.
In this approach, audit resources are targeted on testing large volumes of transactions and account balances without any particular focus on specified areas of the financial statements.
54
What is the System-base approach of an audit?
The systems-based approach requires auditors to assess the effectiveness of the internal controls and then to direct substantive procedures primarily to those areas where it is considered that systems objectives will not be met. Reduced testing is carried out in those areas where it is considered systems objectives will be met.
55
What are the objectives of the governance objectives?
1. Effectively coordinating the activities of and communicating information among the board, external and internal auditors, and management.
2. Ensuring effective organizational performance management and accountability
3. Promoting appropriate ethics and values within the organization.
56
Good governance requires effective interaction among which five entities under 21st Century Governance Principles for U.S. Public Companies?
The five entities are :
```
The board of directors,
management,
the external auditor,
the internal auditor, and
legal counsel
```
57
What is the objective of the Risk Assessment under COSO Framework?
Risk Assessment in the COSO model is the identification and analysis of relevant risks to achievement of the objectives. It forms a basis for determining how the risks should be managed.
58
What is the objective of the Control Activities under COSO Framework?
Control activities are the policies and procedures that help ensure management directives are carried out. They ensure that actions are taken to address risks to achievement of objectives.
59
What is the objective of the Control Environment under COSO Framework?
The Control Environment component sets the tone of an organization and influences the control consciousness of personnel.
60
What is the objective of the Information and Communication under the COSO Framework?
Information and Communication involves identifying, capturing, and communicating pertinent information in a form and time frame that enables people to carry out their responsibilities. Communication includes providing an understanding to employees about their roles and responsibilities.
61
Does the Foreign Corrupt Practices Act of 1977 required an organization to establish an Audit Committer?
NO
62
what is the characteristic of Treasury Stocks?
Treasury stock recorded at cost is a reduction of total equity. Treasury stock recorded at par is a direct reduction of the pertinent contributed capital balance
63
What is the role of internal auditing?
Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations.
64
What type of incidents internal audit activities must report to the upper management?
Internal audit activities must report the following incidents:
1. Fraud
2. Illegal Acts
3. Material weakness, significant deficiencies in internal control
4. Significant penetrations of information security system
65
What is the purposes of internal control?
The purpose of internal control is to:
1. Support risk management and achievement objectives
2. Ensure
a) Reliability, integrity information
b) Efficient and effective performance
c) Safeguarding of assets
d) Compliance with laws, regulations and contract
66
Viruses
multiply itself without user's knowledge and usually spread by email attachment and download
67
Logic bomb
destroy data and remain in single computer usually trigger by some occurrance
68
Worm
1. A worm is an independent program that replicates itself from system to system without the use of any host file
2. Worms generally exist inside of other files, often Word or Excel documents
69
How is a capital lease be determine?
Capital lease must met one of the four criteria:
1. The lease must equal 75% or more of the estimated remaining economic life of the lease property
2. The lease contain a bargain purchase options
3. The lease provides for the transfer of ownership of the leased property
4. The present value of the minimum lease payments is at least 90% of the fair
value of the leased property.
70
What is the characteristic of Semi-Variable Cost?
The range increase/decrease disproportionately but the cost change proportionately
71
What is the characteristic of the Variable Cost?
Total cost increase as the unit increase but the cost per unit stay constant.
72
What account should the Abnormal spoilage or normal Spoilage charged to?
Abnormal spoilage is charged to a special loss account and presented on the income statement in the period of the spoilage.
The normal spoilage will be on the income statement only for the units are being sold. It is expense in the period it is incurred
73
What is the Job Order Costing?
Job order costing is used when the items produced are unique and different from one other
74
What is Process costing?
Process costing is used when the units produced are similar (homogenous) in a large quantities.
75
How is OH allocate under the traditional cost system?
Under Traditional Cost system, OH is allocated based on the rate of the direct labor
76
What are the methods to calculate the Joint Cost for a product?
3 Methods
1. The NRV -Net realizable value (NRV) is calculated as the selling price minus future costs to complete and dispose
2. weighted-quantity method
3. the gross market value, or relative sales value at split-off
4. Relative Sales Value -In order to allocate joint costs based on the relative sales value of the output, we need to calculate the sales value of the output for each product.
5. physical quantity method-We need to know the total physical quantity
77
How is sales value method for allocating joint costs calculate?
When the sales value method is being used, we use the sales value at the splitoff point for any product(s) that can be sold at the splitoff point, even if they could be processed further. We use net realizable value for any product(s) that cannot be sold at the splitoff point.
78
What is the definition for a By Products?
1. The definition of any by-product is that its sales value is quite low compared with that of the main products.
2.
79
Production Method of Joint Costing
The Production Method of accounting for by-products is preferable to the Sales Method because it is consistent with the matching principle.
1. the byproduct is inventoried at the time of production.
2. the byproduct is inventoried at the time of production.
80
The Sales Method of Joint Costing
where the byproduct is recognized at the time of sale, is simpler and is used more frequently if the value(s) of the by-product(s) are immaterial.
81
How is the production cost accounted for under Variable Costing?
Under variable costing, all variable production costs are put into inventory and are expensed only when the unit is sold.
1. The fixed manufacturing OH is base on number of units produce.
82
How is the per unit cost accounted for under the absorption costing?
Under absorption costing, the per unit cost of inventory includes all production costs, both fixed and variable manufacturing cost. These costs are applied to each unit as it is produced, and the costs go into inventory until the units the costs are attached to are sold. When the units are sold, the costs attached to each sold unit are expensed. The difference between the actual incurred costs and the applied costs for fixed manufacturing overhead is a variance, also called under-applied or over-applied costs.
83
The direct method of allocating service department costs.
Under the direct method the service department costs are not allocated to other service departments. only use the production dept for allocation
84
Single rate method of overhead allocation.
When a single rate of overhead allocation is used, it does not take into account the different usage of the service departments by the different production departments. Though this method is simple and easy, it is not very accurate and should only be used if all of the production departments use the service departments equally.
85
How is OH calculated using Step down method?
In the step down method the costs of the first service department are allocated to the other service departments and the production departments. The costs of the second service department are allocated to the remaining service departments (but not back to the first service department) and the production departments.
86
The reciprocal method of allocating OH cost.
The reciprocal method is the most accurate method of allocating service department costs because it takes into account all of the services that are provided by one service department to other service departments.
87
How is reciprocal method calculated?
The reciprocal method requires the use of two formulas. The two formulas are based on the total costs budgeted to be incurred by each service department and the budgeted percentage of each service department’s usage of the other service department’s total services provided.
88
The Theory of Constraint
The theory of constraints (TOC) is a technique used to improve profitability by making operating decisions that will impact net profit, return on investment and cash flow positively by focusing on:
1. Decreasing operating costs.
2. Decreasing investments.
3. Increasing throughput contribution
89
What is the formula for Throughput contribution margin?
The selling price minus the totally variable cost per unit is the throughput contribution margin per unit. Generally, the only totally variable cost will be the direct materials cost.
90
What are the four factors that create competitive advantage?
1. Efficiency - is the relationship between inputs and outputs, and superior efficiency leads to lower costs which leads to higher profitability and competitive advantage.
2. Quality - A product has superior quality when its customers consider that its attributes give them higher utility than do the attributes of competing products.
3. Innovation - in products and processes is perhaps the most important component of competitive advantage, because competition is driven by innovation.
4. Superior responsiveness to customers- means the company does a better job than its competition of identifying customer needs and satisfying them.
91
What is the the focus of TQM?
TQM is an approach that is committed to customer satisfaction and continuous improvement of the company’s products or services.
92
List the functions is in proper value chain order.
Research and development, marketing, and customer service is the correct order of those functions in the value chain. The primary activities in the value chain, in order of their completion, are: research & development, production, marketing & sales, and customer services.
93
What is appraisal cost?
Appraisal costs are the costs that are incurred in order to determine if an individual unit is defective.
94
Materials requirements planning (MRP) sometimes results in
1. Reduce setup cost
2. Decrease idle time
3. Lower inventory carrying cost
4. Increase flexibility in responding to market change
95
What does the U.S Foreign Corrupt Practices Act provision cover?
1. Illegal payments to foreign officials to assist in obtaining business.
2. Transparency of accounting records reflecting all transactions.
3. Payments to agents for the purpose of influencing foreign officials.
4. Maintenance of an adequate system of internal controls.
96
What is the other name for Financial Position Statement?
Balance Sheet
97
What are the four performance measure?
1. Profitability measures.
2. Customer-satisfaction measures.
3. Efficiency, quality, and time measures.
4. Innovation measures.
98
What is the Expected value analysis?
Expected value analysis is used to determine an anticipated return or cost based upon probabilities of events and their related outcomes.
99
What is the Sensitivity Anaysis?
Sensitivity modeling can be used to determine the outcome of a variety of decisions. A trial-and-error method may be adopted, usually in a computer model, to calculate the sensitivity of the solution (variability of outcomes) to changes in a variable.
100
A typical life cycle progression for a successful firm within the Boston Consulting Group’s growth-share matrix is
he progression is from question mark to star, cash cow, and dog. Accordingly, a firm should consider a SBU’s current status and its probable progression when formulating a strategy.
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