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Teresa C.Anderson, CPA, CMA .Manager, Accounting Curriculum Tom Cox, CPA, CMA, CHFP • Financial (GASB & NFP) National Editor Steve levin, JD Regulation (law) National Editor John B.Pillatsch, MAS, CPA Director, Course Development Operations Pete Console Director,Educational Technologies Katie Tran .Director, Quality Assurance Stephen Bergens Manager,Curriculum Quality Assurance James McKimson Manager,Software Quality Assurance Anson Miyashiro Course Production Manager AI Glodan Bookstore Purchasing Manager Michelle McCubbins, MBA Course Production Project Manager Jeff Rosier Course Production Project Manager Brian Cave .Manager, Software Development Tim Munson Course Production Editor Linda Finestone • Course Production Editor CONTRIBUTING EDITORS Eric J.Brunner,PhD Michael Meriwether, CPA, MBA Chris Cocozza,CPA, JD,llM Peter Olinto, JD, CPA Robert A.DeFilippis,CPA,MBA Mike Potenza, JD Jennifer B.Deutsch,CPA,MS Cheryl l.Prachyl, Ph.D., CPA Mike Farrell, JD Ray Rigoli, CPA, MBA Dennis J.Green, CPA, MBA Joshua M.Rosenberg, CPA, CFA, MBA John S.Grayson, JD, CPA Jonathan R.Rubin, CPA, MBA Liliana Hickman-Riggs, CPA, CITP, CMA, CIA, CFE, MS Michael Rybak,CPA,CFA Patrice W Johnson,CPA Christopher Severson,MPA Donald A.Kaniecki, CPA,MBA Jeffrey Sherman, JD, CPA (inactive) John B.Kushner,CPA Roberta Smith, CPA Cindy lawrence, CPA,MBA Karen Tarbet, CPA, JD Seth levine,CPA,MPrA, MBA, ABD Lisa M.Thayer, CPA Edward McTague,CPA,MBA Permissions Material from Uniform CPA Examination Selected Questions and Unofficial Answers, 1989,1990,1991,1992,1993,1994, 1995,1996,1997,1998,1999,2000,2001,2002,2003,2004,2005,2006,2007,2008,2009,2010,2011,2012,and 2013 copyright © by American Institute of Certified Public Accountants, Inc.,is reprinted and/or adapted with permission Any knowing solicitation or disclosure of any questions or answers included on any CPA Examination is prohibited Copyright © 2013 by DeVry/Becker Educational Development Corp All rights reserved Printed in the United 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'" u '" u c: -c c: '" t: « c: -c c: '" � BUSINESS BUSINESS E � Vl E � Vl '" u c: "0 c: '" '" u c: -c c: '" � � IMPORTANT NOTES TO STUDENTS REGARDING "THE BECKER PROMISE" • You must stamp this sheet at the end of each class attended This is the only acceptable record of your classroom attendance • An overall percentage correct of 90% or higher is req u i red of the homework to q u a l ify for The Becker Promise • Please fax documentation to 866-398-7375 no later than 45 days following the completion of each section It) DeVry/Becker Educational Development Corp All rights reserved v Becker Professional Education I CPA Exam Review Business NOTES vi © DeVry/Becker Educational Development Corp All rights reserved Becker Professional Education I CPA Exam Review Business BUSINESS table of contents Program ottendance record v Introduction Intro-1 BUSINESS 1: Corporate Governance and Operations Management Corporate governance 81-3 Operations m anagement: Performance management and i m pact of measures on behavior 81-31 Operations management: Cost measurement meth ods and techniq ues 81-39 Class questions 81-67 BUSINESS 2: Strategic Planning Plan n i ng tech niques: Forecasting and projection 82-3 Plan n i ng tech niques: Budgeting and analysis 82-24 Class questions 82-55 BUSINESS 3: Financial Management Financial modeling and analysis Capital management, including working capital 83-20 Class q uestions 83-51 83-3 BUSINESS 4: Information Systems and Communications Organi zational needs assessment 84-3 Systems design and other elements 84-20 Security 84-34 The I nternet: I m plications for business 84-40 Types of information syste ms and technology risks Disaster recovery and business continuity Appendix: IT fundamen tals 84-60 84-52 84-57 Class q uestions 84-75 © DeVry/Becker Educational Development Corp All rights reserved vii Business Becker Professional Education I CPA Exam Review BUS I N ESS S: Economic Concepts Changes in economic and busi ness cycles 85-3 Economic measure5!indicators 85-13 Market influence on business strategies 85-26 Class questions 85-57 BUSINESS 6: Process and Project Management, Globalization, Financial Risk Management, Decisions, and Valuation Operations management: Process management 86-3 Operations management: Project management 86-14 Globalization and local economies 86-24 Financial risk management 86-32 Financial decisions 86-51 Financial valuation 86-58 I n ternal auditing standards 86-64 Class questions 86-73 Class question explanations CQ-1 Glossary Glossary-1 Index Index-1 viii It) Devry/Becker Educational Development Corp All rights reserved COURSE INTRODUCTION and Written Communication Lecture ' Business environment & concepts content specification outline Intro-3 Becker's CPA Exam Review-Cou rse introduction I ntro-S Introduction I ntro-S Lecture series Intro-S Tex tbooks I ntro-S Course software Intro-6 Study planner Intro-7 Study roadmap Intro-7 Flashcards Intro-8 Becker Community and Support I ntro-lO The Uniform CPA Exam-Overview I ntro-lO Passing the CPA Exam I ntro-l2 Managing your stress before the examination I ntro-l4 Surviving the examination I ntro-lS Written Communication- Lecture I ntro-16 Written Communication-Additional tips Intro-32 Glossary System Programmer - A system programmer is responsible for installing, supporting (troubleshooting), monitoring, and maintaining the operating system (and often the related hardware if that function is not performed by a separate hardware technician) System programmers may also forecast hardware capacity and perform other capacity planning functions In complex computing environments, a considerable amount of time can be spent testing and applying operating system upgrades See also application software and application programmer System Software - System software consists of the programs that run the computer and support system management operations See also a pplication software and system programmer Systematic Interdependence - Systematic interdependence (of nations and their economies) acknowledges that all members of the global community share the planet earth Actions of governments that adversely i m pact the climate or reduce our safety ( nuclear proliferation) i mpact all nations System-Specific Policy - A system-specific policy is a policy that management has decided to implement for a specific system (e.g., the payroll system) T1 - A dedicated communication line supporting communication rates of 1.544 M bits per second A Tl line actually consists of 24 individual communication channels, each of which supports 64K bits per second Each 64K bit/ second channel can be configured to carry voice or data Most telephone companies allow the purchase of just some of these individual channels, known as fractional Tl access Tl l ines are sometimes called DS1 lines See also T3 T3 - A dedicated communication line supporting communication rate of about 43 M bits per second A T3 line actually consists of 672 individual communication channels, each of which supports 64K bits/second See also Tl Target Costs - Target costs are standard costs developed in connection with a known selling price Target costing backs into the level of costs that can be allowed for a given product in order to meet profitability objectives TCP Transport control protocol (TCP) is the tra nsmission protocol of the I nternet protocol suite - TCP/IP TCP/IP is the network protocol used on the Internet TCP/IP creates a packet-switching network, where a message is split into pieces by the sending end and put back together by the receiving end The sending end attaches a header to each piece of each message, and the header information (which includes the destination address) is used to put the message back together again - Tem porary File - Temporary files are files that are not per ma nent files See also permanent file Becker Professional J;ducation I CPA J;xam l1ev;c� Theory of Constraints (TOC) - The theory of constraints is a management philosophy that contends that manageable systems and processes are limited from achieving their goals by one or more identifiable constraints The TOC process seeks to identify the constraint(s) and restructure the business operations around the constraint(s) Business process improvement using theory of constraints anticipates the use of five focusing steps to work around the constraint including identifying the constraint, taking organization wide measures to exploit, leverage or eliminate the constraint and then verify that the process is working Thin Client - A thin client is a client designed to be especially sma ll so that the bulk of the data processing occurs on the server See also server and fat client Threat - A threat is any eventuality that represents a danger to an asset or a capability linked to hostile intent See also vulnerability Three-Tier Architecture - In a three-tier architecture, application processing is separated between the client and an intermediate application processor See also two-tier architecture Throughput Costing (Super-Variable Costing) - Throughput costing is a relatively recent development in costing methods This method assumes that the only truly variable costs are the costs for d i rect materials, so these are the only costs assigned to the product All other costs (including d irect labor) are expensed on the throughput contribution margin statement i n the period i n which they occur See also absorption costing and variable costing Token - A token is a physical device similar to an identification card that identifies a particular user Total Cost (TC) - Total cost is the amount a firm must pay for the resources used to produce its products Total cost is the sum of the total fixed cost plus the total variable cost See also total fixed cost and total variable cost Total Cost of Ownership (TCO) - Total cost of ownership (TCO) is the total cost of hardware or software, i ncluding the origi nal purchase price, ongoing maintenance and support costs Total Fixed Cost (TFC) - Total fixed cost is the total of the fixed costs of a firm See also total variable cost Total leverage - Total leverage is operating leverage plus financial leverage See also operating leverage and fi nancial leverage Total Output (Q) - Total output is another name for total product See also total product Total Product - Total product is the total amount of output produced by a firm Terabyte (TB) - A terabyte is a pproximately trillion bytes (actually 1,099,511,627,776 or 240 bytes) GL-36 co DeVry/Becker Educational Development Corp All rights reserved Glossary Becker Professional Education I CPA Exam Review Total Quality Management (TQM) Total quality management represents an organizational commitment to customer performance that emphasizes both qual ity a n d continuous improvement The factors of TQM a re customer focus, continuous i m p rovement, workforce i nvolvement, top management support, objective measures of quality, timely recognition of achievements, and ongoing train ing - Total Revenue (TR) Total revenue is the price of a product times the number of units sold See also average revenue - Treasury Bills Treasury bills, or T-Bills, are short-term securities that can be purchased either directly from the U.S Treasury or through a bank or broker Treasury bills are sold at a discount and a re issued at maturities of one year or less See also Treasury notes and Treasury bonds - Treasury Bonds Treasury bonds are couple securities (they pay i nterest) issued by the U.S Treasury whose original maturities are more than ten years See also Treasury bills and Treasury notes - Treasury Notes Treasury notes a re coupon securities (they pay interest) issued by the U.S Treasury whose original maturities are more than one year and u p to ten years See also Treasury bills and Treasury bonds - Total Variable Cost (TVC) Total variable cost is the total of the variable costs of a firm See also total fixed cost - Trade Acceptance A trade acceptance is a draft drawn by the seller of goods on the buyer and accepted by a commercial enterprise at a specified future date The trade acceptance may be marketable at a discount depending on the buyer's creditworthiness See also banker's acceptance - Treasury Shares Treasury shares are issued shares that are sometimes repurchased by the corporation (called "issued but not outstandi ng") - Tree Network Tree networks connect multiple stars i nto a bus Each h u b is connected to the bus and handles the tra nsmission for its star See also bus network and star network - Trade Credit Trade credit is the use of credit from suppliers to finance current operations It i ncludes accounts payable, accrued expenses (expenses that have not become accounts payable yet), notes payable (accounts payable that have been formalized in notes), and trade acceptances See also trade acceptance - Transaction Cycles Similar economic events are typically grouped for repetitive processing into five transaction cycles Transaction cycles a re most frequently revenue, expenditure, production, human resources, and financing I ndividual industries might have additional or customized transaction cycles - Transaction Exposure Transaction exposure is the risk that a firm could suffer economic loss or experience economic gai n upon settlement of individual transactions as a result of change in foreign exchange rates See also translation exposure and economic exposure - Transaction Processing System Tra nsaction processing systems are the systems that process and record the routine daily transactions necessary to conduct the business The functions of such a system a re normally p redefined and h ighly structured See also decision support system and executive information system and management i nformation system Trojan Horse A Trojan horse is a seemingly i nnocuous program i n which malicious or rmful program code is h idden - T-Value I n sampling with a normal distribution, a factor called the z-value is used for determining confidence intervals around a sample mean The z-value is used when the data in the population are normally distributed with a known standard deviation When the data in the population are not normally distributed or the standard deviation of the population is not known, the a ppropriate factor to use for the same purpose is called a t-value It is based on the t-distribution, which approximates the normal distribution, especially as the sample size increases See also regression analysis and coefficient of correlation and coefficient of determination and standard error of the estimate - - Transfer Price A transfer price is the price charged for a good or service by one division (or segment) of a business to another d ivision (or segment) of a business Transfer prices may be based on market price, cost, or a negotiated amount - Translation Exposure Translation exposure is the risk that a company's equity, assets, or income will change in value as a result of foreign exchange rate changes Translation exposure is also known as accounting exposure See also transaction exposure and economic exposure - © DeVry/Becker Educational Development Corp All rights reserved Two-Tier Architecture A client/server system is composed of various workstations and servers Some of the file servers are used to access various databases, and another file server is used as a print server This architecture is referred to as a two-tier architecture, with the first tier being the client (workstation) and the second tier being the server I n this a rchitecture, all application processing is performed on the client, and the servers merely provide data requested by the application See also three-tier architecture - Underapplied Overhead Underapplied overhead is manufacturing overhead applied to products that is less than the actual overhead cost incurred Depending on materiality, underapplied overhead is either a llocated between ending inventory and cost of goods sold or just written off to cost of goods sold See also overapplied overhead - GL-37 Glossary Becker Professional Education I CPA Exam Review Unemployment Rate The unem ployment rate is the ratio of the nu mber of people classified as unemployed to the total labor force The total labor force includes all non institutionalized individuals 16 years of age or older who are either working or actively looking for work An u nemployed person is defined as a person 16 years of age or older who is available for work and who has actively sought employment during the previous four weeks - Unexpired Costs Unexpired costs a re costs that are reasonably expected to benefit future periods and should be carried forward as an asset See also expi red costs and sunk costs - Uniform Resource Locator (URL) A uniform resource locator ( U RL) is a string of characters that refers to specific resources on a computer URLs consist of three parts: (1) the protocol that will be used (e.g., the http in http://), (2) the computer on which the requested resource is located (e.g., www.beckerreview.com/l and (3) -the resource (file) requested (e.g., students) - Uninterruptible Power Supply (UPS) A U PS is a device that maintains a continuous supply of electrical power to connected equipment UPS is also called battery backup - Unipolar The term unipolar is used to describe a system (such as the world economy) with one dominant power Currently the United States is the lone super power in the world U.S dominance is an i l lustration of u nipola rity - Unipolarity Unipolarity anticipates concentration of economic power in one nation and its economy - Value Added Network (VAN) Value added networks are privately owned and managed communications n etworks that provide additional services beyond sta ndard data transmission VANs are often used for electronic data interchange See also electronic data interface (EDI) - Value at Risk Value at risk is a calculation that al lows a firm to estimate the maximum amount that it might expect to lose in an asset portfolio in a given time period with a given probability It is a measure used to estimate how the value of the portfolio might decrease over a certain time period under usual conditions It has two parameters: the time period and the confidence level at which the estimate is made The time period is usually day or 10 days Confidence levels are usually 99% or 9S% - Value Chain The va lue chain defines each of the major activities that add value to the products or services produced by a firm Comprehensive value chains typically begin with product development and end with product delivery See also value added activities - Value Chain Analysis The value chain defines each of the major activities that add value to the products or services produced by an orga nization Comprehensive value chains are typically represented as beginning with product development and ending with product delivery Va lue chain analysis is the determination of what constitutes the value chain Steps in value chain analysis are (1) identifying the value chain activities, (2) identifying the cost drivers associated with each activity, and (3) developing a competitive advantage by reducing cost or adding value - Value Engineering Val u e engineering is the identification of the functions of a product or service with the objective of providing those functions at the lowest total cost Value engineering i ncorporates the systematic application of recognized techniques to identify product and service functions - Unit Elastic Demand Unit elastic demand is when a one percent increase in price results i n a one percent decrease in q uantity demanded (Le., when the absolute value of the price elasticity of demand is equal to one) See also price elasticity of demand - United Nations (UN) The United Nations consists of nearly 200 countries The goals of the UN include facilitating cooperation in international law and security, economic development, and the achievement of world peace - UNIX U N I X is a n operating system designed for minicomputers - Unshielded Twisted Pair (UTP) UTP is the standard telephone wiring (two strands of wire twisted together) - Validity Check A validity check is a validation step performed on a data element to ensure that it is in a valid code table, such as product numbers, or that the data is within an appropriate range or that the data is otherwise valid in combination with other data elements See also check digit and field check - Value Added Activities Value added activities in a value chain are those activities that increase product value Non value added activities are activities that not add value See also value chain - GL-38 Variable (Direct) Costing Variable costing is a method of product costing that incl udes only variable manufacturing costs (Le., direct materials, direct labor, and variable manufacturing overhead) as part of product costs All other costs, including fixed manufacturing overhead, are treated as period costs Variable costing is not GAAP for financial statement purposes - Variable Cost Ratio The variable cost ratio is defined as variable costs divided by total sales - Variable Costs Variable costs are costs that change proportionately i n tota l relative to changes in production within the relevant range Variable costs per u nit remain constant, but vary directly in tota l with changes in u n its Almost any cost is variable in the long term (because the relevant range will change over time) See also fixed costs and mixed costs and relevant range - © DeVry/Becker Educational Development Corp All rights reserved Glossary Becker Professional Education I CPA Exam Review Variance Analysis Variance analysis is an analysis of the variances between standard costs and actual costs for direct material, direct labor, and overhead See also standard costs - Web 2.0 Web 2.0 refers to change and innovation in the ways that software developers and users utilize the Internet - Web Administrator Web administrators, often called webmasters, are responsible for information on a web site See also network administrator - Vertical Integration Vertical integration is the improvement of a value chain through the supply end and the demand end in the same industry (i.e., when a firm expands its business into areas that are at different points of the same production path) - Virtual Memory Virtual memory or virtual storage is not real memory Portions of a program that are not being executed a re stored on d isk as virtual memory pages and are retrieved and brought i nto actual physical memory when they are needed Virtual memory provides the capabil ity to run programs that require more memory than is physica lly available - Web Hosting Service A web hosting service is an organization that maintains a number of web servers and provides space to users to maintain their web sites - Web Server A web server is a computer that delivers web pages upon request Any computer can be turned into a web server by installing web server software and connecting it to the Internet - Weighted-Average Cost of Capital (WACC) The weighted average cost of capital is the weighted average of the costs of the various components of capital (debt, preferred stock, and common stock or retained earnings) The weights a re the market values of the d ifferent securities - Virtual Private Network (VPN) A virtual private network is a private network configured within a public network to take advantage of the economies of scale of the public network A VPN hides data in the private network in a wrapper to hide its contents VPNs can be either encrypted (secure) or unencrypted (trusted) - Virus A virus is a self-replicating computer program or piece of program code that spreads by inserting copies of itself into other programs or data A virus can enter a system as an e-mail attachment, a file downloaded from the Internet, or other infected media Not all malicious software programs are viruses; worms and Trojan horses are also considered malicious software - VOIP VOI P means voice over Internet protocol VOIP is used for making phone calls using a high-speed connection to the Internet - Volume Variance In a two-way or three-way analysis of overhead variance, the volume variance is the budget based on standard hours al lowed for the actual units and the applied overhead There will be a volume variance only when fixed and variable overhead are both being analyzed since, for variable overhead, the budget based on standard hours a llowed will be the same as the applied overhead (which is based on the standard rate times the actual units) See also spending variance and efficiency variance and budget variance Weighted-Average Method of Process Costing The weighted-average method of process costing calculates equivalent units and production costs differently from the FIFO method of process costing In the weighted-average method, the equivalent units are the units transferred out plus the equivalent units of the ending work in process Production costs to be accounted for are the cost of beginning work in process plus costs added during the month Cost per equivalent units is the production cost divided by the equivalent units Normally, a separate cost per equivalent units is calculated for direct materials and conversion costs (labor and overhead) See also F I FO method of process costing - - Wide Area Network (WAN) WANs allow national and international communications They usually employ non dedicated public communications channels (e.g., fiber optic, terrestrial microwave, or satellite) as their communications media WAN communication services may be provided by value added networks, Internet-based networks, or point-to point networks (direct private/proprietary network links normally using leased lines) See also local area network (LAN) - Wi-Fi Wi-fi is the set of standards for wireless LANs, also called the 802.11 standards - Vulnerability For business information systems, a vulnerability is a characteristic of a design, i m plementation, or operation that renders the system susceptible to a threat - Warm Site A warm backup site is a facility that is stocked with all the hardware necessary to create a reasonable facsimile of a primary data center It is the compromise between the hot backup site and the cold backup site - World Trade Organization (WTO) The World Trade Organization is an international institution that deals with regulation of trade between nations including formalizing trade agreements and assisting in the resolution of trade disputes The WTO has over 150 member nations - Working Capital Working capital is current assets minus current liabilities See also current ratio and quick ratio - Waste Waste includes scrap with no value or productive materials lost i n the production process A certain a mount of sh rin kage is antici pated and considered a normal part of production - (c DeVry/Becker Educational Development Corp All rights reserved Worm A worm is a self-replicating computer program, similar to a virus Worms are self-contained and not need to be part of other programs to propagate Worms are generally designed to travel over networks such as the Internet - GL-39 Glossary Becker Professional Education I CPA Exam Review Workstation A workstation is a node (usually a PC) that is used by end users See also node - XBRL (Extensible Business Reporting Language) XBRL is a license-free means of comm unicating business and financial data between businesses and via the internet through the use of, for example, identifying tags that are assigned to data Advantages of this language include cost savings and improved efficiency, accuracy, and reliability XBRL is a very flexible program, able to handle various languages and accounting sta ndards - XML (Extensible Markup Language) XML is a technology that is being developed to transmit data in flexible formats, instead of the standard formats of EDI XML tells systems the format of data and also what kind of information the data is XM L utilizes user-defined tags similar to the data formatting tags that are used in HTML for the display of Web pages in browsers See also hypertext markup language (HTML) Zero Balance Accounts A zero balance account is a bank account that allows for automatic same-day transfers to or from a concentration account A zero balance account al lows a firm to move excess cash balances into a single account or to control the disbursement of funds from a central pool of money The balance in the account is maintained at zero by transferring money to a concentration account See also concentration banking - Zero Coupon Bonds Zero coupon bonds are discount bonds that not pay interest They are purchased at a discount and mature at par - - GL-40 Zero-Based Budget A zero-based budget is a budget that requires justification of all expenditures every year - © DeVry/Becker Educational Development Corp All rights reserved I N D EX A B Abnormal spoilage 61-55 Backup files 64-34 Absorption approach 62-4 Balanced scorecard 82-53 Access controls 64-54 Balance of power 86-31 Accounting information system (AIS) 64-6 Banker's acceptances 63-48 Accounts payable 63-44 Bargaining power of the customers 65-47 turnover 63-42 Barga ining power of the suppliers 65-47 Accounts receivable 63-43 Barriers to entry 65-46 turnover 63-42 Batch processing 64-12 Activity-based costing (ABC) 61-57 Behavioral biases 66-63 Activity-based management 66-11 Best cost strategies 65-50 Ad hoc report 64-16 Board of d irectors (duties of) 61-3 After-tax cash flows 63-6 Bond yield plus risk premium ( BYRP) 83-29 After-tax cost of debt 63-26 Breakeven cha rts 62-12 Aggregate demand (AD) curve 65-6 Breakeven computation 82-8 Aggregate supply (AS) curve 65-6 Breakeven time method 63-18 Analogous estimating 66-22 Budget deficits 65-20 Analytical databases 64-65 Budget policies 62-24 Annual budget 62-24 Budget surpluses 65-21 Annual percentage rate 66-35 Budget variance analysis 82-39 Annuities 66-58 Business cycles 6S-3 Application controls 64-27 Business information system 64-4 Application service providers (APS) 64-48 Business process design 64-20 Appraisal costs 86-8 Business process development 86-13 Attribute standards 66-66 Busi ness process management 66-3 Audit committees 81-5 Business process reengineering 86-7 Authoritative sta ndards 82-25 Business process reengineering ( BPR) 84-42 Average fixed cost 85-36 Business-to-business ( B2B) 64-43 Average total cost 65-36 By-products 81-63, 81-66 Average variable cost 65-36 Avoidable costs and revenues 63-4 Index Becker Professional Education I CPA Exam Review Constant growth (dividend discount model) c Capital asset pricing model (CAPM) 83-27 Consumer price index (CPI) Capital budgets 82-38 Continuous improvement (Kaizen) Capital rationing 83-14 Contractionary monetary policy 66-59 85-17 86-11 85-25 Cash budgets 82-36 Contractionary phase Cash collection budgets Contribution approach 82-36 85-4 82-3 Cash conversion cycle 83-42 Contribution margin 82-4 Cash d isbursements budgets 82-36 Contribution margin ratio Cause-and-effect diagrams Centralized processing 81-35 84-14 Contribution reporting 82-4 81-32 82-14 Controllable costs Charts of accounts 84-10 Controllable margin 82-52 84-49 Control objectives for i nformation and related technology (COBIT) 84-24 Cloud computing Code of ethics for senior officers 81-8 Code of ethics of the IPPF 86-64 Coefficient of correlation (r) 82-21 Coefficient of determination ( R2 ) 82-21 Combined (total) leverage 84-59 83-22 information criteria Commercial paper 83-48 Committee on Sponsoring Organizations (COSO) 81-11 COSO framework vs audit framework 81-17 Cost accumulation systems Cost behaviors Cost drivers Cost leadership advantage Common costs Common stock 81-16 82-52 Cost objects 86-56 Compensating bala nces Competitive advantage Components of internal control control environment 83-41 85-48 81-12 81-13 81-15 monitoring activities 81-14 81-14 Compound interest 81-14 86-37 84-10 Cost of goods sold statement Cost of preferred stock-kps Cost of quality 66-8 Conglomerates 66-27 81-46 81-42, 81-45, 83-3 81-57 85-48 81-46 81-47 Cost SBU 86-9 83-27 Cost-volume-profit (CVP) analysis Credit hedge 83-26 Cost-push inflation 85-17 82-51 82-3 83-49 Credit policy 83-39, 83-43 Credit risk Criminal penalties for securities fraud 86-34 81-9 Critical success factors 82-53 Cross elasticity Cross-hedging Currency diversification 85-34 86-48 86-48 Currency option hedges Index-2 Cost of retained earnings-kre Conformance costs 84-25 Cost of long-term debt-kdx 83-25 Concentration banking 63-40 Computer storage Cost of goods manufactured statement risk assessment information and communication (existing) control activities Cost of goods manufactured and sold budget 82-34 Comparative adva ntage 86-25 81-39 Cost leadership strategies 85-49 cube domains and processes 84-26 Cold site Coincident i ndicators 85-6 Centrally planned economies 86-27 82-52 Control charts 66-46 � DeVry/Becker Educational Development Corp All rights reserved -' Becker Professional Education I CPA Exam Review Index Currency swaps B6-48 Direct materials Currently attainable standards B2-25 purchase budget B2-31 Current ratio 83-37 usage budget 82-32 Customer relationship management systems (CRM) 84-47 variance 82-42 Cyclical u nemployment 8s-16 Direct method (service cost allocation) Bl-61 Disaster recovery 84-57 Disclosures in periodic reports 81-7 o Dashboard reports 84-17 Data 84-4 Database management system 84-62 Data capture 84-5 Data processing cycle 84-8 Data storage 84-9 Data warehouses 84-65 Days sales outstanding ( D50) 83-42 Discounted cash flow ( DCF) 83-9, 83-28 Discounted payback method 83-18 Discount rate 8s-23 Discretionary costs B3-3 Diseconomies of scale Bs-38 Disposable income (DI) 85-15 Distributed databases 84-65 Diversifiable risk B6-32 Diversification B6-32 Debentures 86-55 Debt covenants 86-56 Debt-to-asset ratio 83-36 Debt-to-eq uity ratio 83-36 Debt-to-tota l-capital ratio 83-35 Decentralized processing 84-15 Decision support system ( D55) 84-20 Default risk 86-34 Default risk premium 86-38 Deflation 85-17 Demand 85-6, 85-26 Demand flow 86-12 Demand-pull i nflation 85-17 Demand reports 84-16 Depression 85-4 Diagnostic controls 84-30 Differentiation advantage 85-48 Digital certificates 84-35 Digital signatures 84-35 Direct costs 81-41, 83-3 Direct effect 83-4 Direct foreign investment ( DFI) 86-26 Direct labor budget 82-32 variances 82-42 © DeVry/Becker Educational Development Corp All rights reserved E Earned value management 86-22 E-business B4-40 E-commerce 84-40 Economic exposure 86-40 Economic order q uantity 83-46 Economic value added 83-34 Economies of scale 8s-38 Effective annual percentage rate 86-36 Effective interest rate 86-35 Effective internal control 81-16 Electronic data i nterchange (EDI) 84-40 Electronic funds transfer 83-40, 84-47 Encryption 84-35 End-user computing ( EUC) B4-15 End-user databases 84-65 Enhanced fina ncial disclosures in issuer reports Bl-7 Enhanced review of periodic d isclosures by issuers 81-8 Enterprise resource planning system ( ERP) B4-45 Enterprise Risk M anagement (ERM) 81-18 components 81-19 control activities 81-26 enterprise objectives 81-19 event identification 81-22 Index-3 Index Becker Professional Education I CPA Exam Review framework (themes) 81-18 Fixed costs 81-27 Fixed factory overhead 81-28 Flexible budget 81-20 Float 81-24 Focus/niche strategies risk response 81-25 Forecasting (probability/risk) ana lysis Equity financing 86-55 Foreign economies Equivalent units 81-50 Forward hedge 81-51 Fraud accountability (u nder Sarbanes-Oxley) 81-52 Frictional unemployment 83-48 Full capacity 84-16 Full employment 82-15 Functional interdependence 86-28 Futures hedge 86-38 information and communication monitoring objective setting risk assessment FIFO weighted average Eurodollars Exception reports Excess capacity Exchange rate fluctuation Exchange rate risk Expansionary phase Expenditure approach 86-28 86-44 82-15 86-31 86-43 86-11 Generalized rules of thumb 85-45 Globalization Factors that shift aggregate demand Factors that shift demand curves 86-24 Global sourcing 85-8 Gross nationa l product (GNP) 85-28 Hardware 82-33 H igh-low method 82-41 Hot site 85-23 Hypertext markup language ( HTML) 82-27 Hypertext transfer protocol ( HTIP) Financial budgets Financial expert on audit committee Financial leverage Financial reports (corporate responsibility for) Financial scorecards 85-3 85-15 84-3 82-22 84-59 84-50 84-50 82-25 83-21 81-6 82-50 82-37 84-55 First-In First-Out ( F I FO) 85-31 81-8 Financing budgets 86-39 85-27 Favorable variance 86-26 H Factory overhead budget Fishbone Gross domestic product (GDP) 85-12 Factors that shift su pply curves Index-4 Factors that shift short-run aggregate supply Federal Reserve 83-40, 83-44 86-62 85-52 Government intervention in market operations Factoring accounts receiva ble 84-27 Government controls F Firewall G lobal competitive advantage 86-9 85-16 85-13 81-9 85-16 General controls 85-25 85-50 82-20 Gap analysis 85-4 86-18 External factors (opportunities and threats) External failure 83-41 82-4 G 82-38 84-20 Expansionary monetary policy 81-43 Executive information systems ( EIS) Executive steering committee 81-51 81-35 Ideal standards I mplementation standards assurance activities 86-71 consulting activities 86-71 Improvement initiatives I ncentive compensation 86-6 81-37 © DeVry/Becker Educational Development Corp All rights reserved Index Becker Professional Education I CPA Exam Review I ncome approach I ncome effect Income elasticity of demand 65-14 J 65-27 Job-order costing 65-35 Incremental costs 62-14, 63-3 Indirect costS I ndirect effect I neffective internal control I nflation I nflation premium ( I P) I nformation Just-in-time inventory models 64-4 Keep or drop a segment Lagging indicators 62-17 Law of demand B6-33 Law of diminishing returns B6-64 Law of supply 61-12 principles Leasing options Internal control (framework) limitations 61-17 Letter of credit 65-45 Line of credit Internal factors (strengths and weaknesses) I nternal failure I nternal rate of return (lRR) International Financial Reporting Standards ( I FRS) B3-15 International Professional Practices Framework ( I PPF) 66-30 66-64 66-64 International trade 66-25 6s-26 Bs-36 Bs-28 6s-5 B6-11 B2-22 B6-54 : B6-53 Liquidity risk premi u m (LP) Local a rea network ( LAN) , 63-41 66-38 64-68 B3-40 Long-run aggregate supply curve Long-term financing B6-48 66-63 6s-22 6s-6 66-52 Loss aversion Long-term forward contracts International Standards for the Practice of Internal Auditing Bs-6 Lockbox systems B6-8 Bs-43 61-12 62-18 Lean manufacturing Learning curve management assessment of 61-8 63-47 Leading indicators Internal control 66-7 64-3 64-27 B3-47 Kanban i nventory control B6-38 Labor market Bl-62, Bl-63 66-28 K Just-in-time (JIT) management B4-40 M B3-45 Mi B3-42 M 6s-22 B3-42 M3 6s-22 63-32 Make vs buy conversion period turnover L I nternal a uditing I nve ntory 62-18 64-52 I nterest rate risk I nternet 65-17 Inherent risks of international business operations defined Joint products 61-47 risk event identification Insourcing 63-4 Bl-17 Information technology (IT) I nput controls 61-41 Joint costS Investment myopia 62-51 Management information system (MIS) 62-14 Management of marketable securities Mandatory guidance 62-17 64-20 Investment SBU I rrelevant costs 63-48 66-64 Manufacturing costs 61-40 Manufacturing overhead variance 62-44 © DeVry/Becker Educational Development Corp All rights reserved Index-S Index Becker Professional Education I CPA Exam Review Marginal costs Marginal product Margin of safety B2-15, B5-37 Nonmanufacturing costs Bl-40 85-36 Nonmonetary assets 85-18 82-11 Normal spoilage Market competitiveness , 81-55 85-46 86-27 o 85-29 Objectives (categories in COSO framework) 81-36 Officers of corporations 86-33 Offshore operations 82-50 Oligopoly 82-50 Online ana lytical processing (OLAP) 84-14 82-26 Online, real-time (OLRT) processing 84-13 83-47 Open market operations (OMO) 85-23 B6-38 Operating budgets 82-27 85-44 Operating leverage B3-20 M onetary assets 85-18 Operational databases Monetary policy 85-23 Opportunity cost 86-44 Optimal cost of capital Market economies Market equilibrium Marketing practices and methods Market risk Market share variance Market size variance Master budgets Materials requirements planning Maturity risk premium (MRP) Minimum wage laws Money market hedge Money supply B5-22, B5-23 81-5 86-6 Output controls B4-28 Overdraft protection B5-44 Overhead aliocation 86-24 85-11 86-31 M ultiplier effect M ultipolarity 83-41 Bl-42 B6-48 p Parallel loan Pareto d iagrams Bl-34 85-15 Passwords 86-30 Payables deferral period 85-16 Payback period method 83-39 Payment discounts 83-48 Peak 85-15 Peg ratio 85-15 Perfect (pure) competition 83-10 Performance measures N egative arbitrage effect Negotiable certificates of deposit (CDs) Net domestic product Net national product (NNP) Net present value method ( N PV) 84-3, 84-68 New product Nominal G D P Nominal interest rate Nonconformance costs Nond iversifiable risk Index-6 Participative standa rds Natural rate of unemployment Networks 86-22 85-13 National income ( N I ) National power National income accounting system 86-13 85-21 85-3 86-8 86-32 , B2-17 Parametric estimating N 82-14, 83-3 85-41 B4-65 B3-24 M ultinational corporations ( M N C) 85-40 Outsourcing 85-39 Monopsony 81-12 Monopolistic competition Monopoly 82-25 84-36 B3-42 83-16 83-39 85-39 81-31 81-35 82-39 Performance standards Period costs 86-67 81-39 Periodic scheduled reports Perpetuities 86-61 characteristics of effective measures Performance report 85-4 84-16 86-58 © DeVry/Becker Educational Development Corp_ All rights reserved Index Becker Professional Education I CPA Exam Review Personal income (PI) Bs-15 project risk B5-20 project sponsor 84-53 Phillips Curve Phishing Point-of-sale (POS) systems Political risk 84-14 86-29 Q 8s-46 Quality Potential level of output Preferred stock Quality audits Quantity supplied 83-25 83-6 Query 85-26 85-28 84-16 Quick (acid test) ratio 85-31 R Real GDP 85-32 Real interest rate 85-34 Receiva bles collection period 8s-31 Recession Price elasticity of demand Price elasticity of supply Price inelasticity Price multiples 8s-33, 8s-34 86-61 Relative inflation rates 83-3 Relative interest rates Processing controls Process management 86-3 Requ i red reserve ratio (RRR) Responsibility segments Return on assets 83-33 82-51 83-32 81-31 Return on investment 83-14 Revenue SBU 82-51 Risk-averse behavior 83-31 82-51 Risk-indifferent behavior 86-32 86-19 84-67 Risk management 86-14 Risk-seeking behavior 86-14 Roles and responsibilities of information technology professionals Project management project manager project members © DeVry/Becker Educational Development Corp All rights reserved 86-32 Programming languages project charter 82-26, 82-37 83-46 86-22 82-30 82-14, 83-3 Pro forma financial statements 81-44 8S-23 Residual income method Productivity measures 83-3 85-49 81-49, 81-50 " Profitability index Reserve analysis 86-39 86-39 Relevant revenues and costs Reorder point 82-20 Relevant range 84-27 85-4 86-39 81-51 84-6 85-4 81-39 Product differentiation Production report Relevant data concepts Production budget 81-49 83-42 Relative income levels Process costing assumptions Product costs Recovery phase 86-62 8s-3 8s-21 Process costing Regression a nalysis Price-to-cash-flow ratio Price-to-sales ratio 86-60 83-38 86-8 86-60 86-7 86-10 86-56 Price-earnings ( PiE) ratio Profit SBU 84-17 Prevention costs Processing Quantity demanded Pre-tax cost of debt Prime costs 85-6 86-17 83-39 Pre-tax cash flows Price ceilings B6-18 Preca utionary motive Price floors Push reporting Porter's five forces 86-32 84-31 86-17 86-17 Index-7 Index Becker Professional Education \ CPA Exam Re�ie'N - s Sunk costs Safety stock Sales budget Sales mix variance Supply 62-28 Supply chain management (SCM) 62-49 Supply chain operations reference (SCOR) model 62-49 62-49 Sales price variance Sales q uantity variance Sales volume variance 62-49 Sarbanes-Oxley Act of 2002 61-5 corporate fraud accounta bility 61-10 white-collar crime penalty enhancements Seasonal unemployment 61-9 65-16 SWOT Segregation of duties within information technology Selective hedging 64-37, 64-39 Selling and administrative expense budget Sell or process further 64-33 66-42 62-35 62-18 Sensitivity analysis Separable costs 61-43 62-20 62-18 Service cost allocation step-down method 61-61 Shared services 66-5 Shifts in economic balance of power 66-30 65-6 Ta rget costing Ta rget profit Simple interest 66-51 66-36 Three-point estimates Theory of constraints (TOC) 65-45 Total quality management Transaction cycles Transaction exposure Transaction motive Translation exposure Trojan horse Trough Special order decisions Speculative motive Stages of cash flows Statement of work Substitution effect 66-24 62-15 63-39 63-5 U nfavorable variance U nions and wages U nit elasticity URL 66-14 6s-16 v 65-47 Value added networks (VANs) 65-26 Value chain analysis United States Sentencing Commission 66-34 Uninterrupted power supply ( U PS) Substitute products 62-40 Structural unemployment Index-S Standard costing systems Stated interest rate 63-4 65-16 62-41 64-34 65-44 61-9 64-50 64-71 65-51 65-33, 65-34 63-48 64-53 66-41 65-4 64-20 U nemployment rate Specialization 66-40 66-50 64-7 61-9 66-9 61-7 U navoidable costs 66-12 66-22 64-3 Software 62-9 : 63-39 Treasury bills (T-bills) Transfer pricing Transaction processing systems u 64-20 66-13 66-31 62-13 Title V I I I (Corporate and Criminal Fraud Accountability) Six sigma 64-46, 65-53 Single-use plans 62-24 65-28 65-53 62-14, 63-4 Title IV (Enhanced Financial Disclosures) Short-term financing T Short-run aggregate supply curve Semi-variable costs Systems development life cycle (SDLe) Systemic interdependence Security policies 63-45 © DeVry/Becker Educational Development Corp All rights reserved - / Index Becker Professional Education I CPA Exam Review Variable cost 61-43 x 62-40 XBRL (extensible business reporting language) 64-53 Variance analysis Virus 64-17 83-41 86-58 z w Zero balance accounts Warm site 64-59 Zero growth stock Web 2.0 64-48 Weighted average Weighted-average cost of capital (WACC) Weighted-average cost of debt Whistle-blower protection 63-23 63-24 Wide area networks (WANs) Wireless networks financing 61-9 64-71 64-72 Work breakdown structure estimation Working capital 61-52 66-22 63-37 86-53 management 83-37 requirements e DeVrv/Becker Educational Development Corp All rights reserved 83-5 Index-9 Index Becker Professional Education I CPA Exam Review NOTES Index-lO © Devry/Becker Educational Development Corp All rights reserved ... Professional Education I CPA Exam Review Business NOTES vi © DeVry /Becker Educational Development Corp All rights reserved Becker Professional Education I CPA Exam Review Business BUSINESS table of... Intro-32 Becker Professional Education I CPA Exam Review Business NOTES Intro-2 © DeVry /Becker Educational Development Corp All rights reserved Business Becker Professional Education I CPA Exam Review. .. DeVry !Becker Educational Development Corp All rights reserved Becker Professional Education I CPA Exam Review Business BECKER' S CPA EXAM REVIEW- COURS E INTRODUCTION I N T R O DU C T I O N Becker