Policies & procedures used to implement internal control
Risk Management
Financial Reporting Risks & Objectives
Fraud Risks
Risking Technics & Data Sources
Inherent & Residual Risk Evaluation
Information & Communication
Financial reporting & internal control information and internal & external communication thereof
Monitoring
Ongoing monitoring, evaluations & reporting of deficiencies
Environment - Control
Philosophy & Operating Style
Human Resources
Reporting Competencies - Financial
Authority & Responsibility
Structure - Organizational
Ethical Values
Directors
Environment - Internal
Philosophy & Risk Management
Human Resources
Risk Appetite
Authority & Responsibility
Structure - Organizational
Ethical Values
Directors
Competencies - Commitment
Objective Setting
Objectives/Risk Analysis
Risk Response
Risk Avoidance
Risk Reduction
Risk Sharing
Risk Acceptance
Event Identification
Event Analysis
SOX 2002 Requirements
Corporate Responsibilities
Enhanced Financial Reporting
SOX 2002 - Corporate Responsibilies
Establish Audit Comitee
CEO/CFO Certification of Financial Rep
CEO/CFO Bonus Comp Forfeiture for Non-Compliance
No Improper Audit Influence
SOX 2002 - Enhanced Financial Reporting
Disclosures
Conflict of Interest Provisions
Related Party Transactions
Management Evaluation of Internal Control
Code of Ethics for Officers (Silent on CEO)
Audit Comitee Finacial Expert Requirements
SOX 2002 - Enhanced Financial Reporting - Management Evaluation of Internal Control
Assumption of Responsibility
Assessment of Effectiveness
Auditor Reporting of Management Evaluation
The Treadway Commission was established by:
Private sponsoring organizations
Why did COSO prepare the Internal Control Intergrated Framework?
To assist businesses in assessing internal control
Risk Response - Risk Avoidance
Terminating Risk
Risk Response - Risk Reduction
Mitigating Risk (Diversification of Portfolio)
Risk Response - Risk Sharing
Transferring Risk (Insurance)
Risk Response - Risk Acceptance
No Action
Event Inventories
An event identification technic which lists potential events common to companies in a particular industry
Risk Management - Inherent Risk
Amount of risk that exists to an organisation if management takes no action
Risk Management - Residual Risk
Amount of risk that exists to an organization after management takes action to mitigate risk
What is the maximum # of layers between CFO and those responsible for financial reporting?
3
Transaction Marketing
Customers are attracted for the sake of a single sale (i.e. auto based on lowest price)
Interaction-based Marketing
Customers are attracted for the purpose of a sale that serves as a basis for an ongoing relationship (repeat business, i.e., insurance)
Database Marketing
Customer information is gathered in a database and is used to segment customers into target markets for more attractive selling effort
E-Marketing
Use of the internet to accomplish marketing objectives
Network Marketing
Use of relationships and referrals to accomplish marketing objectives
Control Charts
A technic used to determine zero defects and goalpost performance
Cause-and-Effect (Fishbone) Diagram
A technic used to analyze the source of potential problems and their locations within a process by tracing back to the source (Materials, Machinery, Methods and Manpower)
Benchmarking
A technic used by a company in comparing data to published information to determine if optimal
An annual profit plan is most effectively based on:
D. All of the Above
Non-Financial Measures are viewed as:
Attention Getters
ROI Disadvantages as a Motivational Technic:
Management may delay increasing the investment based in order to make ROI targets easier to meet
Does not balance long and short-term issues (encourages shortsighted behavior)
Balanced Scorecard
Fully integrates financial measures of performance with non-financial measures of performance
Total Productivity Ratio
All output relative to the value of all input
Considers all inputs & prices of inputs
=Quantity of Ouput Produced/Cost of Inputs
Partial Productivity Ratio
All output relative to the value of some input
Considers single input & no price
=Quantity of Output Produced/Quantity of Single Input Used
Pareto Diagrams
Combine the elements of a histrogram of quality control issues displayed in order of most to least frequent with a line graph that displays the cumulative occurrence of the problems
Effective Performance Measures Characteristics
Relate to Organizational Goals
Be Objective & Easily Measured
Be Under Control & Understood by the Employee
Balance ST & LT Objectives
Impacts of IFRS Conversion
Increased Revenue Recognition
Increased Impairment & Impairment Reversal Frequency
Debt & Equity Classification Changes
Increased Entity Consolidation
What industries typically use Standard Costing Systems?
Manufacturing Industry
Service Industry
Prime Costs (PMC) Formula
PMC = DMU + DLU
Product Costs Definition
Costs assigned to goods & products that were purchased or manufactured for resale
Direct Materials Used (DMU) Formula
DMU = BDM + DMP - EDM
Relevant Costs Definition
Costs relevant to a particular decision
Period Costs
Costs expensed during a period (not capitalized or charged to a product)
Opportunity Costs
Costs that would have been saved or earned if an alternate decision would have been made
Cost of Goods Manufactured (COGM) Formula
COGM = BWIP + TMC - EWIP
Weighted Average Cost Inventory Valuation Method
1. #UC + EWIP(%) = EUP
2. TC/EUP = CPU
3. CPU * EWIP(%) = TV EWIP
What two costing systems can Activity Base Costing be used with?
1. Job Costing
2. Process Costing
FIFO Cost Inventory Valuation Method
1. #UC - BWIP + BWIP(%) + EWIP(%)=EUP
2. CC / EUP = CPU
3. CPU * EWIP(%) = TV EWIP
Activity Based Costing Attributes
Assigned based on the consumption of resources
Multiple cause and effect relationships
Not acceptable for External Reporting
Cost of Goods Sold (COGS) Formula
COGS = BFG + COGM - EFG
Normal Spoilage Attributes
Product Costs
Inventoriable
Abnormal Spoilage Attributes
Period Costs
Non-Inventoriable
What is a Cost Driver?
A causal factor that increases the total cost of a cost objective
When can Conversion Cost Pricing be used?
When the customer furnishes the material to be used in manufacturing a product
Engineered Cost
A cost that bears an observable and known relationship to a quantifiable activity base
Operation Cost System
Like Process Costing System except materials are allocated on the basis of batches of production
Hybrid System applied to batches of similar products
Has features of both processing & job costing
Process Costing System
Allocates costs by averaging costs over the total units produced
Costs are usually accumulated by department rather than job
Used for homogeneous goods
Purpose of Cost Allocation
Measuring Income and Assets for External Reporting
Disposition of over/under applied factory overhead
Isignificant - Costs of Goods Sold
Significant - Cost of Goods Sold & Finished Goods Inventory
Total Manufacturing Costs (TMC) Formula
TMC = DMU + DLU + MOHA
or
TMC = PMC + MOHA
or
TMC = DMU + CVC
Conversion Costs (CVC) Formula
CVC = DLU + MOHA
Summary of Cost Formulas
DMU = BDM + DMP - EDM
TMC = DMU + DLU + MOHA
COGM = BWIP + TMC -EWIP
COGS = BFG + COGM - EFG
Just-In-Time production environment characteristics (JIT)
Lot sizes equal to one
Insignificant setup costs
Balanced & level workloads
Theory of Constraints
Concerned with max throughput by identifying & alleviating constraints
Six Sigma
Quality control putting cost reduction above production constraints