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Synonym for "indemnify"
Indemnify => Reimburse
Lawsuits brought against directors or officers in their corporate capacity, and any judgement imposed on them as a result, may be ______ by the corporation except in a ______ _______ suit.
Lawsuits brought against directors or officers in their corporate capacity, and any judgement imposed on them as a result, may be indemnified by the corporation except in a shareholder derivative suit.
What 4 things tend to fall under the duties of the Board of Directors?
  • Election, removal & supervision of officers
  • Adoption, amendment, & repeal of bylaws
  • Fixing mgmt & BOD compensation
  • Initiating fundamental corp structure changes
Officers are ____ of corporations & therefore may ____ them to contracts.
Officers are agents of corporations & therefore may bind them to contracts.
Audit committee members must be members of the _____ but must be _____ in that they don't receive _____ & don't have power to ______________.
Audit committee members must be members of the BOD but must be independent in that they don't receive compensation & don't have power to influence financial decision.
Section 404 of the Sarbanes Oxley Act of 2002 pertains to...
Mgmt assessment of internal control.
(included in annual report)
What penalties exist for alteration of documents under SOX?
Criminal penalties for anyone who alters, destroys, mutilates, conceals, covers up, falsifies, or makes false entries in any record, doc, or tangible object with intent to impede, obstruct, or influence an investigation:

Fined
Imprisoned not > 20 yrs
Both


Under SOX, what penalties exist for auditors not retaining workpapers for the required period of time?

What is the required period of time?
Fine
Imprisonment for not > 10 yrs
Both

Required: 7 years
What is the Statute of limitation for securities fraud under SOX?
No later than earlier of:
2 years after discovery of facts
5 years after violation
What are Whistle Blowers entitled to if treated unfairly as a result?
Reinstatement w same seniority as would've had

Back pay w interest

--and--

Compensation for special damages that resulted
What is the definition of internal control & what are a companies' 3 objectives?
Internal Control: Process by those chg'd w governance, mgmt, & personnel designed to provide reasonable assurance about the achievement of the entity's objectives.

Objectives: what an entity strives to achieve.
  • Reliability of fin reporting
  • Effectiveness & efficiency of operations
  • Compliance w applicable laws/regulations
What are the 5 components of internal control?
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CRIME
  • Control environment (tone @ top)
  • Risk assessment (mgmt'd ID)
  • Information & Communication Systems (means of recording trans & comm resp)
  • Monitoring (of internal controls)
  • Existing control activities (policies/procedures)
What are the 7 principles of the control environment?
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PHRASED
(control env phrased as tone @ top)
  • Mgmt Philosophy & operating style
  • Human resources
  • Financial Reporting competencies
  • Authority & responsibility
  • Organizational Structure
  • Integrity & Ethical values
  • Board of Directors
What are the penalties for an individual who knowingly executes, or attempts to execute, securities fraud?
Fines

Imprisonment for not more than 25 yrs

Both
The Organizational Structure aspect of the Control Environment limits layers of organization between CFO and the individuals in financial reporting to ____.
3 Layers
According to the Organization Structure aspect of the Control Environment, states that internal auditors should report directly to whom?
Directly to the CEO that has access to the audit committee.
At least one member of the audit committee should be a ____ ____.
At least one member of the audit committee should be a financial expert.
The Risk Assessment component of internal control states that financial statements should be in accordance with ____ and be supported by the (6) financial statement assertions which are...
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COVERU

GAAP

  • Completeness 

  • Cut-Off 

  • Valuation, Allocation, Accuracy 

  • Existence & Occurance 

  • Rights & Obligations 

  • Understandabilty & Classification

The Information and Communication component of internal control should be ____ & ____
The Information and Communication component of internal control should be Timely & Accurate.
COSO defines Enterprise Risk Management (ERM) as:
A process, effected by an entity's BOD, mgmt, & other personnel, applied in strategy setting & across the enterprise, designed to ID potential events that may affect the entity, and manage risk to be w/in its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.
How does ERM (Enterprise Risk Mgmt) define a company's objectives?
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SORC

  • Strategic - goals designed to achieve the mission

  • Operations - effective & efficient use of resources

  • Reporting - reliable reporting

  • Compliance - with laws & regulations

Similar to internal control, except more broad, what are ERM's (Enterprise Risk Mgmt) components and in what order?
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IS EAR AIM

  • Internal Environment

  • Setting Objectives

  • Event Identification

  • Assessment of Risk

  • Risk Response

  • Control Activities

  • Information & Communication

  • Monitoring

Similar to the components of the Control Environment in internal control; what are the 8 components of the ERM (Enterprise Risk Mgmt) internal environment?
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PHRASED C

  • Philosophies of risk mgmt

  • Human resources standards

  • Risk appetite

  • Authority & responsibility

  • Structure (org)

  • Ethical values (& integrity)

  • Directors

  • Commitment to competence

With regards to ERM's Risk Assessment: what is the difference between inherent risk and residual risk?
Inherent risk is the risk that exists if mgmt takes no action to change the liklihood/impact of adverse event.  This exists despite mgmt.

Residual risk is the risk that exists after mgmt takes action to mitigate adverse impact of event.
What are the four responses a company can take to risk in the Risk Response component of ERM?

  • Avoidance 

  • Reduction 

  • Sharing (ex ins)

  • Acceptance (do nothing)

Describe the 2 forms of external benchmarking and the 3 form of internal benchmarks used for performance measurement.
External Benchmarking:


  • Total Productivity Ratios:  quantity of all output relative to the value (cost) of all input

  • Partial Productivity Ratio:  quantity of all outputs as compared to the value (quantity) of major categories of input



Internal Benchmarking:


  • Control Charts: Graph actual results within "acceptable range" (goalpost) & determine if quality is increasing or deteriorating 

  • Pareto Diagrams: determine quality control issues that are most frequent by graphing individual and cumulative errors by type

  • Cause & Effect (Fishbone): includes a line that describes a process & diagonal lines that represent contributions to a process, and potential problems that could occur @ each.

List the 8 characteristics of quality performance measures.

  • Relate to goals of company

  • Balance long and short term issues

  • Reflect mgmt of key activities

  • Under control of employee

  • Understood by employee

  • Used to evaluate, reward, or constructively influence behavior employee 

  • Objective & easily measured

  • Used consistently

List the 5 types of marketing

  • Transaction marketing: Customers attracted for single sale (lowest price)

  • Interaction Based Relationship Marketing: Customers attracted for purpose of ongoing relationship: loyalty

  • Database Marketing: Info gathered on customers & used to segment cust into target markets for effective selling effort.  Junk mail based on what you signed up for.

  • E Marketing: internet ads

  • Network Marketing: referrals; word of mouth

Define:


  • Carrying Costs

  • Sunk Costs

  • Committed Costs

  • Mixed Costs 


  • Carrying Costs: Costs to carry inventory

  • Sunk Costs: Expenses in the past

  • Committed Costs: Unavoidable future expenses

  • Mixed Costs: Part fixed, part variable

Define cost objects
Resources or activities that serve as the basis for mgmt decisions.

ex: direct labor or direct material
Name the 3 most frequent cost objectives
1. Product Costing (inventory & COGS)
2. Efficiency Measurement ls (compare to standards)
3. Income Determination (profitability)
What's the formula (and/or definition) for Prime Cost(s)?
Direct Labor
+
Direct Materials

(Note: this means used, not purchased, you may have to solve for such)
What is the formula for Conversions Costs?
Direct Labor
+
Manufacuring Overhead
Synonym for Allocation Base
Cost Driver
What are the 2 steps to traditional costing?

(Indirect cost allocation)
1. Calculated overhead rate =
Budgeted OH costs /
Estimated cost driver

2. Applied OH =
Actual cost driver * OH rate
Cost behavior is defined as the degree to which costs are ____ or ____
Fixed or Variable
Define relevant range
A range of activity levels in which cost behavior characteristics are valid.

    • List the two types of cost accumulation systems.

    • When they are used.

    • Define Each. 


    • Job Costing:  Used for custom orders.  Identifies the job as the cost objective and is used when there are few units produced and each is unique or easily identifiable.  Accumulates costs by job.

    • Process Costing:  Used for mass-produced homogeneous products.  Averages costs and applies them to a large number of homogeneous items. Accumulates costs by dept.
    • Operation Costing: hybrid between Process & Job costing.

Describe the formula for Cost of Goods Manufactured (COGM)
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BASE
Beginning work in process inventory (B)
+ Direct Materials (A)
+ Direct Labor (A)
+ Manu OH applied (A)
- Ending working process inventory (S)
COGM (E)

BASE 
Describe the formula for Cost of Goods Sold (COGS) for manufactured products and the diff to retail products
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BASE
Beginning finished goods inventory (B)
+ COGM (A)
= COG available for sale
- Ending finished goods inventory (S)
COGS (E)

BASE 

The difference between manu and retail is the + of COGM vs + purchases
Describe a summary of the steps to process costing.

  • Flow of physical units

  • Calculate "equivalent unit" output

  • Accumulate total costs to be account for

  • Calculate unit costs based on total costs & Equivalent units

  • Apply avg costs to units completed & units remaining in ending work-in-process inv.

For Process Costing: Using the BASE mnemonic, describe the accounting for the following (including the relationship between each):


  • Inventory: Raw Materials

  • Inventory: Work in Process

  • Inventory: Finished Goods 

Inventory: Raw Materials
B Beginning Inv of raw materials
A + purchases or raw materials
= Raw materials avail for use
S - Raw materials used (to WIP)
E ending inv of raw materials 

Inventory: Wrok in Process:
B Beginning inv of WIP
A + raw materials used (from raw inv)
A + DL & OH used
= WIP inv available for finish
S - Inv transferred to Finished Goods
E ending inv of WIP

Inventory: Finished Goods:
B Begin inv of finished goods
A + inv transferred from WIP
= Finished goods avail for sale
S - COGS
E End inv of finished goods 
In Process Accounting:

The # of units accounted for must equal __________

The # of costs accounted for must equal __________
The # of units accounted for must equal the # of units charged to the dept

The # of costs accounted for must equal the amount of costs charged to the dept.
In Process Costing, what are equivalent units?
An equivalent unit of DM, DL, or conversion costs (DM + OH) is the amount of DM, DL or conversion costs necessary to complete one unit of production.

For example, not all units in WIP will be complete, some may be 80% complete.  10,000 actual units or DM, DL etc for WIP 80% complete is 8,000 units.

The second step to Process Costing requires the calculation of "equivalent units"
Define and describe the difference between the following process costing equivalent unit costing methods:


  • FIFO

  • Weighted Average 


  • FIFO:  end inv is priced @ the cost of manufacturing during period. (3 step process - use begin inv)



WIP Begin (ex 100 units *75% to complete 75 units)
+ Units started & completed this period
- Units in begin inv
+ WIP end inv (*% complete) 
= Equiv units of products

  • Weighted Average: averages the cost of production during period w the costs in the beginning WIP inv. (2 step process - dont use begin ivn)



Units complete & transfer out
+ WIP ending (*% completed)
= Equiv units of production
How is cost per unit figured using the weighted average method?

How is cost per unit figured using the FIFO method?
Weighted Average =
beginning cost + current cost
/ equivalent units


FIFO
current cost
/ equivalent units
What do conversion costs comprise of?
Direct Labor & Factory Overhead.  (Not necessarily materials)



(when given materials, labor, and oh)
The T bar graph illustrating over & under applied factory OH states that OH over applied is on the ____ and is a _____ balance.  Factory OH under applied is on the _____ and is a _____ balance.

______ is unfavorable & ______ is favorable.
The T bar graph illustrating over & under applied factory OH states that OH over applied is on the right and is a credit balance.  Factory OH under applied is on the left and is a debit balance.

underapplied is unfavorable & overapplied is favorable.
Total production costs include:

  • Direct Labor

  • Direct materials

  • Overhead applied




Therefore when a problem gives you "total prod costs" and any element above, don't take the other element into consideration as it is already in total prod cost.
How are normal spoilage and abnormal spoilage treated?
Normal spoilage: is capitalized in inventory.  Costs are spread over equivalent good units (not actual units produced)

Abnormal spoilage: is expensed immediately.  Actual units are used.
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