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BEC CPA Exam Review
Terms in this set (160)
Demand Curve Shift Upward (direct relationship-positive shift)
The price of subsitute goods, expectations of price changes, income for normal goods, and extent of market
Demand Curve Shift Downward (inverse relationship-neg. shift)
The price of complement good, income for inferior goods, and consumer boycotts
strengths, weaknesses, opportunities, threats
Three common measures of price inflation:
1. The Consumer Price Index (CP)
2. The Producer Price Index (PPI)
3. The GDP Deflator
Provides a general rule of thumb showing how economic growth rates faster than average often result in reductions in unemployment
Product differentiation strategies
seek to make the demand for a firm's products more inelastic.
is the process for setting prices that are charged for the transfer of goods or services between related parties such as departments of a large entity.
Full employment implies that
there frictional and structural unemployment, but not cyclical unemployment.
The consumer price index (CPI)
is a common measure of inflation. It compares the price of goods and services in a base year to the price of the same goods and services at a later year. The CPI is commonly used to convert figures not readily comparable across years into figures that are more comparable.
The phases of the business cycle are
expansion, peak, contraction (ie, recession), and trough.
usually characterized by a lack of available labor and capital, which results in a deceleration of growth. Output is at maximum and unemployment is as low as possible—or at the "natural" rate.
Tight labor markets and lack of excess capacity often result in
the bidding up of wages and prices, leading to an acceleration of inflation.
A change in account balances will always be measured as
(the current balance - the prior balance), with a positive result indicating an increase and a negative result a decrease.
% changes for account balances =
(Current balance - prior balance) / prior balance.
Transportation costs would exist
even in the absence of government.
There are three common measures of price inflation:
consumer price index, producer price index and GDP deflator.
a decrease in the general level of prices and inflation rate is below zero
results when competing suppliers agree that they will not compete on the basis of price, setting a uniform price to be charged by all suppliers (conspire). This enables the suppliers to establish higher than market prices.
a minimum price for a good or service
a maximum price that can be legally charged for a good or service
represents a mismatch between the skills of workers and the needs of the labor market. This usually occurs due to technological advances that change or eliminate the need for the specific skills many workers possess.
A significant decline in the U.S. dollar tends to
hurt U.S. importers and benefit U.S. exporters, while making foreign goods more expensive for U.S. consumers.
Stagflation is defined as
simultaneous unemployment and inflation
involves the Fed buying securities to add liquidity to the economy, when short-term interest rates are already close to zero.
has been ongoing for many decades. It has many aspects, including more savers having more internationally diversified portfolios (i.e., reduced home bias), more firms operating internationally, and increased international trade occurring within companies.
Impose countervailing duties legally under WTO rules:
the other country must have disobeyed a WTO panel that told it to correct a problem.
Theory of Derived Demand
the value of goods of higher order is derived from that of the corresponding goods of lower order
Consumption by households + Investment + Government spending + Net exports
Opportunity cost is defined as
the best alternative use or benefit foregone as the result of a business decision.
Dumping is the practice of
selling product below its production costs, generally, in an effort to reduce competition.
Selling foreign reserves causes
one's currency to appreciate, which is the opposite of what a country with a trade surplus needs if it wants to maintain exchange rate stability.
The velocity of money (VoM)
is used to calculate the number of times each dollar in the money supply is exchanged to purchase domestically produced goods and services. VoM is calculated by nominal gross domestic product (NGDP) / the money supply
Predatory pricing involves
companies attempting to eliminate competitors by charging prices that are lower than competitors' production costs.
During the second half of the twentieth century, most recessions followed efforts by
the Federal Reserve to forestall current or expected increases in inflation rates through higher interest rates.
actual national income is less than potential national income. The economy is typically considered in one following two consecutive quarters of negative GDP growth.
Primary cause of fluctuations in business activity resulting in the alternating rise and fall of economic growth is
the level of total spending
Price Elasticity of Demand =
% change in quantity demanded / % change in price
The internal rules of management adopted by a corporation at its first organizational meeting.
duty of loyalty, duty of care, and due diligence
the controls designed to prevent unauthorized changes to the system
5 components of ERM
1. Culture & Governance
2. Objective Setting & Strategy
4. Review & Revision
5. Reporting, Information and Communication
According to COSO, one of the primary purposes of I/C is to
maintain an acceptable level of risk. This is accomplished through monitoring.
Dodd-Frank seeks to switch trading of swaps from
the over-the-counter market to clearinghouses.
Strategic goals involve
aligning an entity's internal operations with its position in the marketplace.
Operational excellence involves
efficiency and effectiveness in operations.
Reporting reliability involves
reports (eg, financial statements) that represent the condition of the entity accurately.
Monitoring encompasses two principles:
evaluation and communicate
would involve taking action, such as entering into a joint venture, so that other entity's share losses if the risk materializes.
would involve taking no action to mitigate the risk.
A financial expert has:
-an understanding of GAAP and financial statements
-experience preparing or auditing comparable financial statements
-experience in applying financial statement or audit knowledge to estimates, accruals/reserves
-experience with internal accounting control over financial reporting
-an understanding of A/C functions (not required to be a CPA)
The Dodd-Frank act requires
executives to return some compensation if their companies undergo accounting restatements.
The IT training records demonstrate
a commitment to retain competent individuals in alignment with objectives.
The Association of Certified Fraud Examiners (ACFE) Report to the Nations on Occupational Fraud & Abuse includes
evaluating the design and operation of antifraud controls for comprehensiveness and adequacy as part of the role of the internal auditor, rather than the audit committee.
The business judgment rule
establishes that managers or directors will not be held liable for business decisions made in good faith, with due care, and with loyalty.
Under the Sarbanes-Oxley Act (SOX), the audit committee (A/C) is required to be made up of
independent members of the company's board of directors.
In a large public corporation, evaluating internal control procedures should be the responsibility of
Internal audit staff who report to the board of directors
has the greatest impact on management's ability to make effective decisions. It implies that the information is accurate, timely and useful for decision-making purposes.
The COSO framework outlines four responses to risk:
(SARA - sharing, avoidance, reduction, acceptance.)
avoidance, sharing, acceptance, and reduction
The Revised Model Business Corporation Act requires articles of incorporation to contain
a corporation's name and the nature and purpose purpose of a corporation's business.
Goals of the Dodd-Frank Act:
Enhancing the financial stability of the U.S,
Protecting taxpayers by ending bailouts, and
Protecting consumers from abusive financial services practices
a corporation's internal rules and procedures for corporate governance.
The Phillips Curve implies that
in the short term, policies resulting in higher inflation may also reduce unemployment.
Business risk is commonly defined as
the risk that profits may be lower than anticipated, which among the options is most closely related to cash flows.
The net present value of a project is
the difference between the present value of the inflows from the project and the present value of the cash outflows.
The cost of debt most frequently is measured as
Actual interest rate minus tax savings
To be considered a derivative, a financial instrument must have three characteristics (Roger Mnemonic: NUNS):
No net investment; an underlying and a notional amount, and a net settlement amount.
Materials requirements planning
is a forecast-based production planning and inventory control tool used to ensure that materials are available when needed.
The average collection period
is the average length of time it takes to collect receivables, which affects the availability of cash and liquidity.
costs of activities that cannot be eliminated without reducing the quality, responsiveness, or quantity of the output required by a customer or the organization (examples: engineering, direct manufacturing, modifying products, and R&D)
the cost of an activity that adds cost to a product or service, but does not increase its market value (examples: moving, handling, storage, utilities, and depreciation)
is a structured forecasting method based on the collective judgement of a group of experts.
financial, customer, internal business processes, learning and growth
6 Principles of Control Obj. for Infor and Related Technology (COBIT)
1. Providing stakeholder value
2. Enabling holistic approach
3. Ensuring the governance dynamic
4. Seperating governance from management
5. Tailoring the governance system
6. End-to-End application
Framework Core 5 Functions of various cybersecurity activities:
National Institute of Standards and Technology (NIST) Cybersecurity Framework (3 parts)
Framework Core, Implementation Tiers, and Framework Profiles
Systems Development Life Cycle (SDLC)
1. Feasibility Study
2. Requirements Definition
3. Software Selection and Acquisition or Software Design
4. Configuration or Development
5. Final Testing and Implementation
7. Maintenance Phase
What is a primary goal of information technology (IT) governance?
is to balance risk versus return over IT and its processes.
An entity's board of directors (BOD) is primarily responsible for:
setting the overall strategies of an entity, communicating those strategies to executive management, and monitoring management's implementation of those strategies; they do not participate in the day-to-day management of operations.
The use of cryptocurrency (such as Bitcoin)
allows a customer to pay for goods or services
from a website while maintaining financial privacy.
Allows organizations to use the Internet to access and use services and applications that run on remote third-party technology infrastructure and it usually has lower upfront costs for equipment and maintenance.
A disadvantage of using a private key for encryption is
that both sender and receiver must have the key for this encryption method to be effective.
A limit test (or reasonableness check)
would only allow reasonable dates to be entered into the field within an acceptable range.
Electronic Data Interchange (EDI)
transactions are formatted using strict standards that have been agreed to worldwide and it is more costly than using the internet.
ranks a category of data by type, class, percentage, and other qualifiers to identify outliers.
is used to compare aggregate totals over time to identify patterns.
is used to calculate ratios for the purpose of discovering relationships among financial and nonfinancial data.
is used to compare data from various sources to identify unexpected differences.
encodes messages so that they can only be read by those knowledgeable about, or with a key to, the code. It increases security and, since it is not cost free, adds to system overhead.
A closed-loop verification
uses input data to find and display other related information.
A traditional EDI
commonly utilizes an inventory program which can be used to automatically send an order to a supplier when quantities in stock of an item drop below a certain level. This functionality reduces the likelihood of stock-out costs.
involves running client data through the client's program, using the auditor's computer, to verify that the program provided to the auditor is the same one that was used to process the client's data originally.
Integrated Test Facility (ITF) approach
the auditor will run fictitious transactions through the client's system along with the client's data, to make certain that it is receiving the same treatment and enabling the auditor to compare results to expected results.
involves running the client's data through an auditor developed software package. The auditor can compare the results to the client's results to see if the client's system processed the data similarly.
A business continuity plan
is designed to minimize disruptions to operations in the event of a disaster and ensure a timely recovery.
The data librarian
is responsible for the collection, preservation, and maintenance of an entity's data.
Three-tiered architecture for client/server applications
consists of a desktop client, an application, and a database.
refers to anyone in the organization who creates or uses documents, data, or networks in the business information system. They are not limited to management, IT personnel, or users.
The test data approach
involves running data compiled by the auditor through the client's IT system, under the auditor's control.
A validity check test
is designed to match data input to a list located in a permanent file. It is a test used to ensure the accuracy and reliability of data processing.
A limit test
is designed to ensure that all input falls within a relevant range and is designed to ensure the reliability and accuracy of data processing.
are designed to ensure that an individual computer application or process performs properly.
An enterprise resource planning (ERP) system
is software that integrates all the business processes of an organization. The modules of are interconnected and share data, thus increasing responsiveness and flexibility.
A mirrored web server
is a complete duplicate of a computer system that can be put into service immediately if the primary system fails.
Value-added network (VAN)
routes data transactions between trading partners
Internet-based tools for collaboration include:
e-mail, videoconferencing, and groupware systems
searches for patterns and trends in a data set to obtain useful information.
are tools used to access information saved in a data store.
Enterprise Resource Planning (ERP) Systems
is a packaged business software system that allows an organization to automate and integrate the majority of its business processes, share common data and practices across the organization, and produce and access information in a real-time environment.
is used to determine which elements correspond to the standards in an EDI system.
What is the primary objective of data security controls?
To ensure that storage media are subject to authorization prior to access, change or destruction.
A primary advantage of using generalized audit software packages
is that it allows an auditor to perform audit tests on a client's computer files while having only a limited understanding of the client's IT environment.
Under direct costing
all fixed costs are considered period costs
Under the Dodd-Frank Act, lenders selling loans to securitizers
Will bear a 5% economic interest in loans that do not meet safe harbor provisions.
is a risk specific to conducting business in a particular foreign location.
In oligopolistic markets
since there are few competitors, the actions by one firm are likely to affect the decisions of other firms (ie, game theory) and the market as a whole.
How can a financial institution (or any business) manage the risk that its customers may fail to make the contractual payments they have committed to?
diversify customer's, purchase credit defaultl swaps, and requiring guarantees or collateral.
The Revised Model Business Corporation Act requires
a recommendation from the board of directors and subsequent approval of a majority of voting shareholders to voluntarily dissolve a corporation.
Gross domestic product (GDP)
represents the monetary value of all final goods and services produced within the economy over a period of time, usually one year.
refers to extremely sharp increases in price levels over a period of time.
represent restrictions on bringing money into the U.S. and would be a consideration in a company's cash flow analysis in reviewing its cash flows from foreign subsidiaries.
The primary purpose of the consumer price index (CPI)
is to compare relative price changes over time.
shareholders, customers, suppliers, employees, regulators, and the communities that are affected by the entity's operations or activities.
Price variance =
(Standard unit price paid - Actual unit price paid) x Actual units purchased
Direct Labor Usage Variance
(Standard hours allowed - Actual hours worked) x Standard rate
Units purchased =
Units used in production + Units in ending inventory − Units in beginning inventory
involves comparisons within or outside a firm in order to evaluate performance.
Activity-based costing (ABC)
allocates indirect cost to numerous cost pools using cost drivers. It relies on cost drivers with a high correlation to the cost-producing activity to develop reasonable product cost information.
Cost of quality states
that preventing failures is less expensive than addressing failures after they occur.
is more time consuming, increases motivation, increase acceptance, and is more accurate
Business process management (BPM)
involves the alignment of all aspects of a business with the wants and needs of its customers.
A value chain
is the sequence of business processes through which a product or service becomes more valuable or useful to the customer. Customer service, marketing, and research and development all add value for the customer. Accounting does not.
Internal failure costs
are incurred during or after production of a product, but before the product is actually shipped to the customer. A company can measure improvements in product quality if it keeps track of how many products need reworking.
The percentage of defective products
measures the quality of production but is measured in terms of units, not costs, making it a nonfinancial indicator.
is a statistical measure of the percentage of acceptable products.
Intellectual property risk
is the risk that an entity could lose control of information about the entity's products and processes. Copyright and patent regulation and enforcement is not uniform internationally.
A flexible budget
is actually a formula in which total costs within a relevant range are measured as total fixed costs plus the variable cost per unit of volume multiplied by the volume. As a result, it provides budgeted numbers for various levels of activity.
Coefficient of determination measures
"Goodness of fit"
Multiple regression differs from simple regression in that it
Has more independent variables.
The reward to risk ratio
is the mean return divided by the standard deviation.
The use of cryptocurrency (such as bitcoin)
allows a customer to pay for goods or services from a website while maintaining financial privacy. It is designed to allow payments through an intermediary such that the transmission of sensitive credit or bank account information is not required.
Integrated test facility approach
involves fictitious and real transactions being processed using the client's system
A distributed processing environment
is one in which various processes are performed separately by the individuals responsible for them in their locations and are integrated into a central system
The primary function of a database management system (DBMS)
is its ability to access, summarize, create and modify information contained in an electronic database.
ensure that alterations to the system are performed in a coordinated and controlled manner.
A database administrator
is responsible for the security and classification of shared data stored in a database system.
A biometric device
"reads" a physical aspect (face, fingerprint, eye, etc.) of an authorized user and compares it to a copy on file.
Electronic funds transfer systems
are a type of electronic data interchange that allow for transfers of funds without the need for the exchange of physical documents, such as checks.
A rule-based expert system
is programmed to simply carry out programming commands which are pre-determined by the programmer(s).
A change control process
is designed to minimize adverse effects resulting from uncontrolled entry of new requirements into the development process.
What is the role of the systems analyst in an IT environment?
Designing systems, prepares specifications for programmers, and serves as intermediary between users and programmers.
is the risk that the counterparty to a contract will fail to honor its obligations.
A virtual private network
establishes an encrypted point-to-point connection between sites and provides secure access to remote users.
A local area network
consists of a group of computers, usually at the same location, that are linked together to enable users to share peripheral devices, programs, and data. To enable this sharing, the computers must have a means of transmitting data to one another through common media.
is a tool that prevents unauthorized users from accessing data on a network or network segment. It can be electronic (computer program) or physical (physical device).
The job control language in the computer's operating system
performs scheduling, resource allocation, and data retrieval functions based on a set of instructions.
direct materials, direct labor, and manufacturing overhead
identifies parties within an organization who are responsible for certain tasks and activities, and develops reports/metrics to evaluate their performance. These include: cost centers, profit centers and investment centers.
Virtual Private Network (VPN)
establishes an encrypted point-to-point connection between sites and provides secure access to remote users.
A cost driver
is a causal factor (the cause) that increases the cost (the effect) of a cost objective.
What is the effect on prices of U.S. imports and exports when the dollar depreciates?
Import prices will increase and export prices will decrease.
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