Index
A
Abandonment options, 218
ABB (activity-based budgeting), 380, 395
ABC analysis, 317
ABM (activity-based management), 347
Abnormal yield curve, 195
Absorption (full) costing, 352–353, 392
Accelerator theory, 149
Access controls, 79
Access control software, 95
Account analysis method (cost estimation), 349
Accounting rate of return (ARR), 205
Accounts payable (trade credit), 251
Accounts receivable financing, 252
Acid (quick) ratio, 310
Acquisitions & payments process, controls over, 52
Activity base, 340
Activity-based budgeting (ABB), 380, 395
Activity-based costing, 346–347
Activity-based management (ABM), 347
AFC (average fixed cost), 141
Aggregate demand and supply, 146–147
AI (artificial intelligence), 76
Algorithm, 86
Alliances, strategic, 163
Analog information, 72
Analysis phase (IT systems), 70
Annuities due, 202
Antivirus software, 82
Application control activities, 93, 97
Applications programming, 92
Applications software, 74
Arbitrage pricing model, 261, 268
Arithmetic average return, 192
Arithmetic/logic unit, 72
ARR (accounting rate of return), 205
Array, 77
Articles of incorporation, 37, 56
Artificial intelligence (AI), 76
Assembler, 75
Assessment, of industry environment, 157
Asset and liability valuation, 266
Asset approach (valuation), 267
Asset-backed public offerings, 252
Asset management ratios, 308–309
Asset utilization ratios, 306, 308–309
ATC (average total cost), 141
ATM (automatic teller machine), 73
Attorneys, as corporate governance device, 44
Audit committee, 56
Auditors
Audit software, 79
Authentication, 88
Autocorrelation, 386
Automated source data input devices, 73–74
Automatic teller machine (ATM), 73
AVC (average variable cost), 141
Average collection period, 309
Average fixed cost (AFC), 141
Average total cost (ATC), 141
Average variable cost (AVC), 141
Avoidable costs, 204, 219, 395
B
Balances, in cash management, 243
characteristics of, 298
components of, 298
performance measures in, 299–300
perspectives on, 298
strategy maps of cause-and-effect relationships, 298–299
Balance of payments, 153
defined, 153
and foreign exchange rates, 154
Balance of trade, 153
Balance on goods and services, 153
Banker's acceptance, 246
Bank loans, short-term, 251–252
Bargaining power
of customers, 158
of suppliers, 158
Baseline performance (balanced scorecard), 298
Base salary and bonuses, 39
Basis risk, 197
Batch processing, 75
Batch totals, 96
Bear market, 265
Benchmarks
defined, 312
Best practices, 312
Bit, 77
Black-Scholes option-pricing model, 198
Black swan analysis, 56
Blanket Inventory Lien, 253
Blogs, 81
Board of directors
as corporate governance device, 38–39
defined, 56
Board oversight, 40
Bonds
Eurobonds, 254
methods of payment, 254
private placement of, 253
security provisions, 254
types of, 255
valuation of, 203
Bond-yield-plus approach, 261
Botnet, 82
Bottleneck resources, 315
Boundary protection (computers), 94
Breakeven (CVP) analysis, 375–377, 395
Bridge, 81
Brokers, 265
Budget(s)
capital (capital expenditures), 380
defined, 395
DM, 379
production, 379
rolling, 378
Budgetary slack, 395
Budget constraints, 137
capital (see Capital budgeting)
incremental, 395
kaizen, 380
life-cycle, 395
zero-based, 396
Buffer, 73
Bull market, 265
Business judgment rule, 38–39, 56
Business processes, controls over, 50–53
Business process management, 314–315
Business process reengineering, 315
Buy versus lease decision, 218
By-products (cost measurement), 348
Byte, 77
C
Call back, 95
Call feature
bonds, 254
preferred stock, 257
Capital
invested, determining amount of, 304
venture, 258
Capital account, 153
Capital Asset Pricing Model (CAPM) method, 260–261
Capital (capital expenditures) budget, 380
Capital budgeting, 203–219, 241
accounting rate of return, 205
future cash flows determination, 208–212
internal rate of return, 206–208
multiple-choice answers and explanations, 233–238
multiple-choice questions, 224–229
mutually exclusive projects, 207–208
payback and discounted payback, 204–205
risk considerations in, 212–219
lease versus buy, 218
risk-adjusted discounted rate, 214–215
scenario analysis, 215
sensitivity analysis, 215
time-adjusted discount rates, 215
stages in, 203
written communication task, 239
written communication task solution, 240
Capital goods, acquisition and operating cost of, 148
Capitalization of earnings, 267
Capital leases, 256
Capital rationing, 207
convertible securities, 257
employee stock ownership plans, 258
going private, 258
going public, 258
preferred stock, 257
spin-offs, 257
tracking stocks, 258
venture capital, 258
evaluating best source of financing, 258–264
cost of existing common equity, 260–262
cost of new common stock, 262
for optimal capital structure, 263–264
financial markets, 265
advantages and disadvantages of, 256
debt covenants, 254
leasing as form of financing, 256
methods of payment, 254
security provisions, 254
types of bonds, 255
share repurchases, 265
CAPM (Capital Asset Pricing Model) method, 260–261
Cartels, 145
Cash conversion cycle, 241–243
Cash flows
accounting rate of return, 205
projected, 212
Cash flow hedge
accounting for, 197
Cause-and-effect analysis, 313
Cause-and-effect diagrams, 313
Cause-and-effect relationships, strategy maps of, 298–299
CDs (certificates of deposit), 245–246
Centralized processing, 76
Central processing unit (CPU), 72
Certificates of deposit (CDs), 245–246
CGM (cost of goods manufactured), 337–338
Check digit, 96
Checkpoints, 97
CI (continuous improvement), 313, 318
Classes of common stock, 257
Classical economic theory, 151
Client-server architectures, 82–83
Closed-loop verification, 96
Cloud-based storage, 72
Cloud computing, 80
COBIT (control objectives for information and related technology), 89
Code comparison program, 94
Coefficient of correlation, 219
Coefficient of determination, 384, 385
Coefficient of variation, 214
Coincident indicators (business cycles), 148
Cold site, 98
Collateral trust bonds, 254
Collusive pricing, 392
COM (computer output to microfilm or microfiche), 74
Command line interface, 73
Commercial paper
as short-term investments, 246
as source of short-term funds, 252
Committed costs, 204, 219, 395
Common equity, cost of, 260–262
Common-size income statement, 311
Communication (IT systems), 92–93. See also Information and communication
Communications servers, 83
Communications software, 74
Compact disks, 72
Comparative advantage, 152, 165
Compensating balances, 243, 268
Compensation committee, 56
Competition
Competitor analysis, 158
Compiler, 74
Compounding, 200
Computers
manual systems vs., 69
Computer control activities, 94–96
Computer output to microfilm or microfiche (COM), 74
Computer Service Organizations (Bureaus, Centers), 89
Concentration banking, 244–245, 268
Conference method (cost estimation), 349
Confidence level, 386
Congeneric mergers, 267
Conglomerate mergers, 267
Consideration of Internal Control in a Financial Statement Audit (AICPA), 90, 93
Console, 73
Constant returns to scale, 142
Consumer demand, utility and, 137–138
Consumer price index (CPI), 149
Consumption function, 138, 165
Contingency processing, 95
Continuous distribution, 212
Continuous improvement (CI), 313, 318
Contractionary open-market operation, 150
Contribution margin approach, 391
Control(s). See also Internal control; Planning, control, and analysis
foreign-exchange, 152
Control activities
as ERM component, 55
application controls, 97
computer control activities, 94–96
overall control activities, 93
user control activities, 97
Control charts, 313
Control environment
Controllable contribution, 387
Controllable costs, 395
Controllers (computers), 73
Control objectives for information and related technology (COBIT), 89
Control totals, 96
Control unit, 72
Conversion
bonds, 254
preferred stock, 257
Conversion ratio, 257
Convertible securities, 257
Corporate bylaws, 56
Corporate governance, 37–46, 241
legal structure of corporations, 37–38
multiple-choice answers and explanations, 61–62
multiple-choice questions, 57–58
Corporations, legal structure of, 37–38
Corrective controls, 50
Correlation analysis (cost estimation), 351
Cost approach (valuation), 266
Cost centers, 387
Cost flows (cost measurement), 338
Cost functions
defined, 349
Cost management, 395
absorption (full) costing, 352–353
accounting for overhead, 339–340
activity-based costing, 346–347
backflush costing, 346
by-products, 348
cost flows, 338
cost of goods manufactured, 337–338
disposition of under- and overapplied overhead, 341
estimating cost functions, 349–352
hybrid-costing system, 345–346
multiple-choice answers and explanations, 364–372
multiple-choice questions, 356–363
service department cost allocation, 341–342
variable (direct) costing, 352–353
written communication task, 373
written communication task solution, 374
Cost of common equity, 260
Cost of debt, 260
Cost of existing common equity, 260–262
Cost of goods manufactured (CGM), 337–338
Cost of new common stock, 262
Cost of preferred equity, 260
Cost-push inflation, 149
Cost-volume-profit (CVP) analysis, 375–377, 395
Counterparties, 196
Countervailing duties, 153
CPI (consumer price index), 149
CPM (critical path method), 317
CPU (central processing unit), 72
Creditors, as corporate governance device, 44
Credit rating agencies, 44
Credit risk, 150, 194, 197, 219, 255
Credit scoring, 249
Critical path, 316
Critical path method (CPM), 317
Cross-elasticity of demand, 136–137
Cross-sectional analysis, 310–311, 318
Cumulative average-time model, 352
Cumulative dividends (preferred stock), 257
Cumulative voting rights, 38
Current account (balance of payments), 153
Current assets
defined, 309
Current liabilities, 309
Currently attainable standards, 388
Customers, bargaining power of, 158
Customer perspective (balanced scorecard), 298–300
CVP (cost-volume-profit) analysis, 375–377, 395
Cyclical businesses, 148
Cyclical unemployment, 149
D
Database(s)
backup of, 79
client-server architectures, 82–83
controls for, 79
for data organization, 77
defined, 78
Database administration, 92
Database administrator (DBA), 79
Database management systems, 78
Database replication, 79
Database servers, 83
Data control, 92
Data control language (DCL), 78
Data definition language (DDL), 78
Data dictionary, 78
Data directory, 78
Data flow diagrams (DFDs), 100
Data library, 92
Data manipulation language (DML), 78
Data marts, 76
Data mining, 76
Data modeling, 78
Data preparation, 92
Data redundancy, 79
Data repository, 78
Data sharing, 79
Data warehouse, 76
Days sales outstanding, 242, 268
DBA (database administrator), 79
DCL (data control language), 78
DDL (data definition language), 78
Dealers, 265
Debt
cost of, 260
advantages and disadvantages of, 256
debt covenants, 254
leasing as form of financing, 256
methods of payment, 254
security provisions, 254
types of bonds, 255
short-term bank loans, 251–252
Debt covenants, 254
Debt financing, 256
Debt securities, 246
Debt to equity ratio, 310
Debt to total assets, 310
Debt utilization ratios, 306, 310
Debug, 75
Decentralized processing, 76
Decision support systems, 70, 76
Decision tables, 100
Decision trees (capital budgeting), 216–217
Decomposition of time series, 383
Decreasing returns to scale, 142
Decryption, 86
Default risk. See also Credit risk
bonds, 254
defined, 194
Defective units, 345
Defensive business sectors, 148
Delphi technique, 383
consumer demand and utility, 137–138
defined, 165
demand curve shift, 134
factors affecting, 135
income elasticity of, 136
Demand curve shift, 134
Demand elasticity coefficient, 136
Demand-pull inflation, 149
Deming Prize, 312
Design phase
business process management, 314
IT systems, 71
Desk checking, 75
Desktop computers, 72
Detail file, 77
Detective controls, 50
Development phase (IT systems), 71
DFDs (data flow diagrams), 100
Diagnostic routines (computers), 94
Differential (incremental) costs
short-term differential cost analysis, 393–394
Digital information, 72
Diminishing marginal utility, law of, 137
Diminishing returns, law of, 141
Direct access processing, 75–76
Direct method (service department cost allocation), 341, 342
Discounted cash flow analysis, 267
Discounted payback (capital budgeting), 204–205
Discount rates, 150
time-adjusted, 215
Discrete distribution, 212
Discretionary costs, 204, 219, 395
Distributed database structure, 79
Distributed systems, 83
Dividend payout ratio, 308
Dividend-yield-plus-growth-rate approach, 261–262
DM budget, 379
DML (data manipulation language), 78
Documentation (IT systems), 94
Document flowcharts, 100
Dual pricing, 392
Dual transfer pricing, 393
Dun & Bradstreet Information Services, 249
DuPont ROI analysis, 301
E
Earnings
capitalization of, 267
multiple of, 267
Echo check, 94
Econometric models, 383
aggregate demand and supply, 146–147
economic theories, 151
fiscal policy, 151
foreign exchange rates, 154–156
foreign investment, 156
global economy and international trade, 152–154
monetary policy, 150
multiple-choice answers and explanations, 178–188
multiple-choice questions, 167–177
strategy and the global economic environment, 156–165
estimating effects of economic changes, 164–165
general environment, 156
industry environment, 157
written communication task, 189
written communication task solution, 190
Economic analysis, 150
Economic changes, estimating effects of, 164–165
Economic order quantity (EOQ), 247–248, 268
Economic profit, 142
in value-based management, 303
Economic theories, 151
Economic value added (EVA)
appropriate use of, 301
defined, 318
in value-based management, 303
EDI (electronic data interchange), 74, 86–88
Edit (programming), 75
Effective annual interest rate, 194
Efficient frontier, 218
Efficient portfolio, 194
EFT. see Electronic funds transfer
Electronic commerce, 74, 86–88
Electronic data interchange (EDI), 74, 86–88
Electronic funds transfer (EFT), 86, 245, 268
Embargo, 152
Employee stock ownership plans (ESOPs), 258
End-user computing (EUC), 85
Enterprise Resource Planning (ERP), 74, 249
Enterprise risk management (ERM), 53–56
COSO definition of, 53
COSO framework for, 37
defined, 56
limitations of, 56
multiple-choice answers and explanations, 63–64
multiple-choice questions, 59–60
Entity-relationship modeling, 78
Environmental scan, 160
EOQ (economic order quantity), 247–248, 268
convertible securities, 257
employee stock ownership plans, 258
going private, 258
going public, 258
preferred stock, 257
spin-offs, 257
tracking stocks, 258
venture capital, 258
Equity risk premium, 191
Equity securities, as short-term investments, 246
Equivalent units of production (EUP), 343, 344
ERM. see Enterprise risk management
ERP (Enterprise Resource Planning), 74, 249
ESOPs (employee stock ownership plans), 258
Estimation
of effects of economic changes, 164–165
EUC (end-user computing), 85
EUP (equivalent units of production), 343, 344
Eurodollar certificate of deposit, 246
European Quality Award, 312
EVA. see Economic value added
Event identification (ERM), 54–55
Excess present value (profitability) index, 206
Exchange rate regime, 154
Execution phase (business process management), 314
Executive compensation
Executive information systems, 70
Executive perquisites (perks), 39, 56
Expansionary open-market operation, 150
Expansion options, 218
Expectations, rational, 150
Expectations theory, 196
Expected returns, estimating, 192
Exponential smoothing, 383
Extensible Business Reporting Language (XBRL), 81
Extensible Markup Language (XML), 80–81
External failure cost, 314
Externalities, 140
External labels (IT systems), 95
Extranets, 82
F
Factoring
accounts receivable, 252
defined, 268
Fair value hedge
accounting for, 197
Fax servers, 83
Federal agency securities, as short-term investments, 245
Federal Open-Market Committee, 150
Federal Reserve, 150
Feedback controls, 50
Feed-forward controls, 50
Field, 77
Field check, 96
Field size check, 96
FIFO work in process assumption, 344–345
File, 77
File processing systems, traditional, 77
File servers, 83
Financial futures market, 253
Financial intermediaries, 196, 265
asset and liability valuation, 266
evaluating best source of financing, 258–264
financial markets, 265
share repurchases, 265
functions of, 241
key terms, 268
mergers, 267
multiple-choice answers and explanations, 283–294
multiple-choice questions, 269–282
working capital management, 241–253
cash conversion cycle, 241–243
financing current assets, 250–251
marketable securities management, 245–246
receivables management, 249–250
sources of short-term funds, 251–253
written communication task, 295
written communication task solution, 296
Financial management function, 241
Financial performance measures, 297
Financial perspective (balanced scorecard), 298, 299
Financial planning models, 377–378, 395
asset utilization, 306, 308–309
Financial risk management, 191–203
derivatives and hedging, 196–199
multiple-choice answers and explanations, 230–232
multiple-choice questions, 221–223
portfolio returns and risk, 193–194
return on a single asset, 192–193
valuation of bonds, 203
Financial statements
effects of derivative transactions, 197–198
traditional financial statement analysis, 305–312
asset utilization ratios, 306, 308–309
debt utilization ratios, 306, 310
interpreting financial ratios, 310–311
limitations of financial ratios, 311–312
liquidity ratios, 306, 309–310
profitability ratios, 305, 307–308
Financing
debt, 256
evaluating best source of, 258–264
cost of existing common equity, 260–262
cost of new common stock, 262
for optimal capital structure, 263–264
leasing as form of, 256
sources of short-term funds, 251–253
Financing function, 241
Financing stage (capital budgeting), 203
Firewalls, 81
Firms, valuation of, 267
Fiscal policy, 151
Fishbone diagrams, 313
Fixed assets, controls over, 53
Fixed asset turnover, 309
Fixed costs, 395
Fixed exchange rate, 154
Fixed overhead variance, 391
Flat yield curve, 195
Flexibility options, 218
Flexible budgets, 386–387, 395
Float
in cash management, 243
managed, 154
Floating exchange rates, 154
Floating rate
bonds, 255
preferred stock, 257
Flow of units, 343
Follow-up investment options, 218
Forecasting (industry environment), 157
Foreign bonds, 255
Foreign currency hedge
accounting for, 197
defined, 197
Foreign-exchange control, 152
Foreign exchange rates, 154–156
Foreign investment, 156
Foreign key, 78
Forward rates, 154
Free trade, obstacles to, 152–153
Frictional unemployment, 149
F-statistic, 386
Full (absorption) costing, 352–353, 392
Full product cost, 393
Future cash flows, in capital budgeting, 208–212
Future value (FV)
of an amount, 200
of an ordinary annuity, 200–202
G
G-20, 153
Gant chart, 316
Gateway, 81
GDP deflator, 149
General business environment, 156
Geometric average return, 192
GERT (Graphical Evaluation and Review Technique), 317
Global economic environment
and international trade, 152–154
estimating effects of economic changes, 164–165
general environment, 156
industry environment, 157
GNP (Gross National Product), 145
Going private, 258
Going public, 258
Goods, balance of, 153
Goodness of fit, 384
Governance. see Corporate governance
Government budget surplus (deficit), 150, 165
Government fiscal policy, 148, 151
Government intervention
and foreign exchange rates, 154
and market equilibrium, 140
Grandfather-Father-Son method, 97
Graphical Evaluation and Review Technique (GERT), 317
Graphical user interface (GUI), 73
Gross margin, 307
Gross National Product (GNP), 145
GUI (graphical user interface), 73
H
access controls, 95
for local area networks, 84
Hash totals, 96
Hedging
defined, 197
financial risk management, 197–199
foreign currency risk, 156
to reduce interest rate risk, 253
types of hedges, 197
Heteroscedasticity, 384
Hierarchical database structure, 78
High-end accounting software, 74
High-low method (cost estimation), 350
Horizontal analysis, 310–311, 318
Horizontal mergers, 267
Hot site, 98
HTML (Hypertext Markup Language), 80–81
HTTP (Hypertext Transfer Protocol), 81
Humped yield curve, 195
Hurdle rate, 207
Hybrid-costing system, 345–346
Hypertext Markup Language (HTML), 80–81
Hypertext Transfer Protocol (HTTP), 81
I
Ideal standards, 388
Identification code, 95
Identification stage (capital budgeting), 203
IMF (International Monetary Fund), 154
Implementation and control stage (capital budgeting), 203
Implementation phase (IT systems), 71
defined, 165
net income target, 376
Income approach (valuation), 266, 267
Income bonds, 254
Income effect, 137
Income elasticity of demand, 136
Income statement, common-size, 311
Income tax, 151
Increasing returns to scale, 142
Incremental approach (differential cost decisions), 394
Incremental budgeting, 395
Incremental costs. see Differential (incremental) costs
Incremental unit-time learning model, 352
Independence, data, 78
Indifference curves, 137
Industrial engineering method (cost estimation), 349
Industry environment, 157
Inferior goods, 136
Inflation
causes of, 149
as economic measure, 149
and foreign exchange rates, 154
Informal line of credit, 252
Information. See also Information and communication
digital, 72
Information-acquisition stage (capital budgeting), 203
Information and communication
as ERM component, 55
internal control, 48
Information systems
defined, 69
Information Systems Audit and Control Association (ISACA), 89
Information technology (IT), 69–100
computer service organizations (bureaus, centers), 89
control objectives for information and related technology, 89
end-user computing, 85
information systems within a business, 69–71
computer control activities, 94–96
disaster recovery and business continuity, 97–98
information and communication, 92–93
monitoring, 93
overall control activities, 93
risk assessment, 92
user control activities, 97
multiple-choice answers and explanations, 114–129
multiple-choice questions, 101–113
systems design and process improvement, 70–71
written communication task, 130
written communication task solution, 131
Inherent risk, 56
Innovation process (balanced scorecard), 298
Input controls (IT systems), 96
Input interface, 73
Inside directors, 40
Interest
compounding, 200
defined, 149
short-term bank loans, 251
and financial risk management, 194–196
and foreign exchange rates, 154
risk-free, 255
and time value of money, 202
Interest rate effect, 146
Interest rate risk
hedging to reduce, 253
with long-term fixed-rate bonds, 253
Internal business processes perspective (balanced scorecard), 298–300
application controls, 97
classification of, 50
computer control activities, 94–96
control environment, 46–47, 91–92
disaster recovery and business continuity, 97–98
information and communication, 48, 92–93
and information technology, 90–98
application controls, 97
computer control activities, 94–96
disaster recovery and business continuity, 97–98
information and communication, 92–93
monitoring, 93
overall control activities, 93
risk assessment, 92
user control activities, 97
limitations of, 50
multiple-choice answers and explanations, 63
multiple-choice questions, 58–59
overall control activities, 93
over business processes, 50–53
reporting on, 53
user control activities, 97
Internal control (audit) flowcharts, 100
Internal environment (ERM), 54
Internal failure cost, 314
Internal labels (IT systems), 95
Internal rate of return (IRR), 206–208, 219
Internal Revenue Service (IRS), 45
Internal site, 98
International cash management, 245
International Monetary Fund (IMF), 154
International purchasing power effect, 146
International trade
and global economic environment, 152–154
obstacles to free trade, 152–153
Internet developer, 92
Interpreting financial ratios, 310–311
Intranets, 82
Intranet/extranet developer, 92
Inventories, controls over, 52
Inventory conversion period, 242, 268
Inventory financing, 253
Inventory turnover, 309
Inverted (abnormal) yield curve, 195
Invested capital, determining amount of, 304
Investment(s)
foreign, 156
operating income as percentage of, 392
Investment banks
as corporate governance device, 44
defined, 265
Investment centers, 387
IP address, 82
IRR (internal rate of return), 206–208, 219
IRS (Internal Revenue Service), 45
ISACA (Information Systems Audit and Control Association), 89
Ishikawa diagrams, 313
ISO 9000 Series, 312
ISO 14000, 313
ISO quality standards, 312–313
ISP (Internet Service Provider), 82
IT. see Information technology
J
JIT production. see Just-in-time production
JIT (just-in-time) purchasing, 248, 268
Job costing, 345
Joystick, 73
Junk bonds, 255
Just-in-time (JIT) production, 248–249, 268, 346
Just-in-time (JIT) purchasing, 248, 268
K
Kaizen budgeting, 380
Key (encryption), 86
Keynesian theory, 151
Key-to-disk, 73
Key-to-tape, 73
L
Laffer Curve, 151
Lagging indicators (business cycles), 148, 298
LANs (local area networks), 80, 83–84
Laptop computers, 72
Law of diminishing marginal utility, 137
Law of diminishing returns, 141
LBOs (leveraged buyouts), 255, 258
Leadership, cost, 161–162, 165
Leading indicators (business cycles), 148
Lean manufacturing philosophy, 315
Learning and growth perspective (balanced scorecard), 298–300
Learning curves, 351
Lease versus buy decision, 218
Leasing, as form of financing, 256
Legal risk, 197
Legal structure of corporations, 37–38
Letter of credit, 252
Leveraged buyouts (LBOs), 255, 258
LIBOR (London Interbank Offered Rate), 251, 253
Life-cycle approach, 316
Life-cycle budgeting, 395
Light pens, 73
Limitations of financial ratios, 311–312
Limited physical access (computer facilities), 95
Limit (reasonableness) test, 96
Line of balance, 316
Liquidity (marketability), 245
Liquidity preference (premium) theory, 195
Liquidity ratios, 306, 309–310
Local area networks (LANs), 80, 83–84
Logical views (databases), 79
Logic check, 96
Logs of transactions, backup of, 79
London Interbank Offered Rate (LIBOR), 251, 253
Long-run total costs, 142
advantages and disadvantages of, 256
debt covenants, 254
leasing as form of financing, 256
methods of payment, 254
security provisions, 254
types of bonds, 255
Loop (programming), 75
Low-end accounting software, 74
M
Macro, 82
aggregate demand and supply, 146–147
economic theories, 151
fiscal policy, 151
foreign exchange rates, 154–156
foreign investment, 156
global economy and international trade, 152–154
monetary policy, 150
Magnetic disks, 72
Magnetic ink character reader (MICR), 73
Magnetic tape (or cartridge), 72
Magnetic tape reader, 73
Mainframe computers, 71
Maintenance phase (IT systems), 71
Malcolm Baldrige National Quality Award, 312
MANs (metropolitan area networks), 80
Managed exchange rate, 154
Managed float, 154
Management by exception, 395
Management information systems, 70
Management reporting systems, 69–70
Management techniques, 314–317
business process management, 314–315
key terms, 318
multiple-choice answers and explanations, 331–332
multiple-choice questions, 325–326
Manual follow-up of computer exception reports, 93
Manufacturing cells, 248
Manufacturing contribution margin, 387
Manufacturing lead time, reducing, 248
Marginal cost (MC), 141
Marginal propensity to consume (MPC), 138, 147
Marginal propensity to save (MPS), 138, 147
Marginal revenue per-unit, 143
Marginal revenue product, 143, 165
Marketability (liquidity), 245
Marketable securities management, 245–246
Market approach (valuation), 266, 267
Market/book ratio, 310
Market equilibrium, 140–141, 165
Market price, 393
Market segmentation theory, 195
Markov techniques, 383
Master file, 77
Materials requirements planning (MRP), 248
Maturity
in marketable securities management, 245
short-term bank loans, 251
Maturity matching approach, 251
Maturity risk premiums, 195
MC (marginal cost), 141
Measurement
absorption (full) costing, 352–353
accounting for overhead, 339–340
activity-based costing, 346–347
backflush costing, 346
by-products, 348
cost flows, 338
cost of goods manufactured, 337–338
disposition of under- and overapplied overhead, 341
estimating cost functions, 349–352
hybrid-costing system, 345–346
service department cost allocation, 341–342
variable (direct) costing, 352–353
benchmarking and best practices, 312
financial and nonfinancial, 297
traditional financial statement analysis, 305–312
value-based management, 300–304
of systematic risk, 194
Memory dump, 75
Menu driven input, 96
Mergers, 267
Meta-data, 78
Metropolitan area networks (MANs), 80
MICR (magnetic ink character reader), 73
Milestone chart, 316
Milestone schedule, 316
Minimum investment required, 245
MIPS (millions of instructions per second), 73
Mirrored Web server, 98
Missing data check, 96
Mission (business), 160
Mistake-proofing, 313
Mixed costs (semivariable), 395
Modeling phase (business process management), 314
Monetarist theory, 151
Monetary policy, 150
Money
measures of, 150
purposes of, 150
Money market accounts, 246
Money market funds, 246
Money market hedge, 156
Monitors, 74
Monitoring
as ERM component, 56
of industry environment, 157
for IT systems, 93
Monitoring phase (business process management), 314
Monopolistic competition, 144, 165
Monopoly(-ies)
natural, 144
Monopsony, 158
Mouse, 73
Moving average, 383
MPC (marginal propensity to consume), 138, 147
MPS (marginal propensity to save), 138, 147
MRP (materials requirements planning), 248
MRP II, 248
Multicollinearity, 386
Multiple of earnings, 267
cost estimation, 351
defined, 395
Multiplier (GDP), 147
Multiprocessing, 74
Multitasking, 74
Mutually exclusive projects (capital budgeting), 207–208
N
NAFTA (North American Free Trade Agreement), 153
Naive models, 383
NASDAQ, 41
Natural monopolies, 145
NDP (Net Domestic Product), 145
Negotiated transfer price, 393
Neo-Keynesian theory, 151
Net Domestic Product (NDP), 145
Net present value (NPV), 205–206, 219
Net present value profile, 207
Network diagram, 316
Networked database structure, 78
Network interface cards, 84
New York Stock Exchange (NYSE), 41
Nominal gross domestic product, 145–150, 165
Nominal interest rate, 150, 165
Nonbottleneck resources, 315
Nonfinancial performance measures, 297
Nonvalue-added activities, 346
No per-unit information given, 376
Normal goods, 136
Normalization, 78
Normal yield curve, 195
North American Free Trade Agreement (NAFTA), 153
NPV (net present value), 205–206, 219
n-tier architecture, 83
Number of days of receivables, 309
Number of days' sales in receivables, 309
NYSE (New York Stock Exchange), 41
O
Objectives, setting (ERM), 54
Object-oriented database structure, 78
Object program, 74
Object-relational database structure, 79
Officers, 39
Official bank checks, 244
Official reserve account, 153
Off-line (term), 73
OLAP (online analytical processing), 75
OLTP (online transaction processing), 75
Online (term), 73
Online analytical processing (OLAP), 75
Online real-time processing, 75–76
Online transaction processing (OLTP), 75
Open-market operations, 150
Operating budget, 378, 380–383, 395
Operating costs, 315
Operating leases, 256
Operating leverage, 258–259, 268
Operating profit margin, 308
Operating systems, 74
Operations, IT, 92
Operations manual, 95
Operations process (balanced scorecard), 298
Opportunities (SWOT analysis), 160
Opportunity costs, 152, 204, 219, 395
Optimal capital structure, 263–264
Optimization phase (business process management), 314–315
defined, 219
Ordinary annuity
Outcome performance measures, 298. See also Lagging indicators (business cycles)
Outlay (out-of-pocket) costs, 204, 220, 395
Output, unemployment and, 147
Output devices, 74
Overall client-server systems, 82–83
Overapplied overhead, 341
Overhead
disposition of under- and overapplied, 341
P
Packets, 88
PANs (personal area networks), 80
Pareto Principle, 313
Parity check, 94
Participation (preferred stock), 257
Passwords, 95
Patch (programming), 75
Payables deferral period, 242, 268
Payments, for DM purchases, 379
Payrolls, controls over, 52–53
PDAs (personal digital assistants), 72
PDCA (Plan-Do-Check-Act), 313
Pegged exchange rate, 154
PE (price-earnings) ratio, 310
Performance drivers, 298. See also Leading indicators
characteristics of, 298
components of, 298
performance measures in, 299–300
perspectives on, 298
strategy maps of cause-and-effect relationships, 298–299
in balanced scorecard, 298–299
benchmarking and best practices, 312
financial and nonfinancial, 297
key terms, 318
multiple-choice answers and explanations, 327–331
multiple-choice questions, 319–325
traditional financial statement analysis, 305–312
asset utilization ratios, 306, 308–309
debt utilization ratios, 306, 310
interpreting financial ratios, 310–311
limitations of financial ratios, 311–312
liquidity ratios, 306, 309–310
profitability ratios, 305, 307–308
value-based management, 300–304
cash flow ROI, 304
determining amount of invested capital, 304
DuPont ROI analysis, 301
economic profit and EVA, 303
residual income profile, 302–303
return on investment, 301
written communication tasks, 333–334
written communication task solutions, 335–336
Performance reports, 395
Period cost, 345
Periodic maintenance (IT systems), 94
Peripherals (computers), 73, 84
Permanent current assets, 250
Personal area networks (PANs), 80
Personal computers, 72
Personal digital assistants (PDAs), 72
Personal disposable income, 138, 149, 165
Personal income, 149
Personnel (IT systems), 85
PERT (Program Evaluation and Review Technique), 316–317
PERT cost, 317
Phillips curve, 149
Plan-Do-Check-Act (PDCA), 313
Planning
defined, 395
Planning, control, and analysis, 375–396
cost-volume-profit analysis, 375–377
multiple-choice answers and explanations, 407–416
multiple-choice questions, 397–406
product and service pricing, 391–392
responsibility accounting, 387
segmented reporting and controllability, 387–388
short-term differential cost analysis, 393–394
standard costs, 388
written communication task, 417
written communication task solution, 418
Planning phase (IT systems), 70
Pledging of receivables, 252
Plotters, 74
Point-of-sale (POS) recorders, 73–74
Point-to-point communications, 87
Poison pill defense, 46
Poka-yoke, 313
Political risk, 156
Portfolio, efficient, 194
Portfolio returns and risk (financial risk management), 193–194
Portfolio risk (capital budgeting), 218–219
POS (point-of-sale) recorders, 73–74
Post-sales process (balanced scorecard), 298
Potential gross domestic product, 145, 165
PPI (producer price index), 149
Precautionary balances, 243, 268
Predatory pricing, 392
Preferred equity, cost of, 260
Preferred stock, 257
Premium (liquidity preference) theory, 195
Preprinted forms, 96
of an ordinary annuity, 201–202
of a future amount, 200
multiple-choice answers and explanations, 232–233
multiple-choice questions, 223–224
valuation of bonds, 203
Prevention cost, 313
Preventive controls, 50
Price-earnings (PE) ratio, 310
Price elasticity analysis, 159–160
Price elasticity of demand, 135–136
Pricing
collusive, 392
dual, 392
dual transfer, 393
predatory, 392
products and services, 391–392
target, 392
Primary key, 78
Primary markets, 265
Primary memory (storage), 72
Prime rate, 251
Printers, 74
Print servers, 83
Private key system, 86
Private networks, 80
Private placement (of bonds), 253
Probability analysis (capital budgeting), 212–214
Probability distribution, 212
Process reengineering, 161
Producer price index (PPI), 149
Product(s)
marginal, 143
threat of substitute, 158
Product differentiation, 161, 166
just-in-time, 248–249, 268, 346
Production activities, simplifying, 248
Production budget, 379
Production cycle time, reducing, 248
Production flexibility, 248
Production pattern, 246
Profit(s)
economic, 165
normal, 165
types of, 142
Profitability (excess present value) index, 206
Profitability ratios, 305, 307–308
Profit centers, 387
Program Evaluation and Review Technique (PERT), 316–317
Program flowcharts, 100
Programmed control activities, 93, 95–97
Project charter, 316
Project crashing, 317
Projected cash flows, 212
Project specifications, 316
Promissory notes, 251
Proof totals, 96
Property tax, 151
Proprietary networks, 88
Protocol, 75
Proxy server, 81
Public domain software, 82
Public long-term debt, 253–254
Public warehouses, 253
Purchasing, just-in-time, 248, 268
Pure competition, 143–144, 166
PV. see Present value
Q
Qualitative factors, 394
Quality, cost of, 313–314, 318
Quality award programs, 312
Quantitative methods (cost estimation), 349
Quick (acid) ratio, 310
Quotas, 152
R
Radio Frequency Identification (RFID), 73
RAID (redundant array of independent disks), 72
Rate of return, 391
Rational expectations, 150
REA data models, 78
Real gross domestic product, 145, 166
Real interest rate, 148, 150, 166
Really Simple Syndication (RSS/ATOM Feeds), 82
Real options (capital budgeting), 217–218
Reasonableness (limit) test, 96
Receivables, pledging of, 252
Receivables collection period (days sales outstanding), 242, 268
Receivables management, 249–250
Receivables turnover, 308
Reciprocal agreement, 98
Reciprocal method (service department cost allocation), 342
Record, 77
Record count, 96
Redeemability (preferred stock), 257
Redeemable bonds, 254
Redundant array of independent disks (RAID), 72
Redundant data check, 96
Reengineering, 315
Registered bonds, 255
Regression analysis, 350–351, 383–385
Relational database structure, 78
Relevant range, 395
Reporting, on internal control, 53
Reserve requirements, 150
Residual income profile, 302–303, 318
Residual risk, 56
Response profile, 158
Responsibility accounting, 387, 395
Restricting privileges, 79
capital budgeting
accounting rate of return, 205
internal rate of return, 206–208
Return on assets (ROA), 301, 308
Return on equity (ROE), 301, 308
Return on investment (ROI), 301, 308
defined, 301
value-based management
cash flow ROI, 304
DuPont ROI analysis, 301
Return on net assets (RONA), 301
Returns to scale, 142
Revenue
marginal, 142
marginal revenue per-unit, 143
marginal revenue product, 143
Revenue decisions, 393
Reverse floaters, 255
Revolving credit agreements, 252
RFID (Radio Frequency Identification), 73
Risk(s), 191–192. See also Financial risk management
basis, 197
capital budgeting considerations, 212–219
lease versus buy, 218
risk-adjusted discounted rate, 214–215
scenario analysis, 215
sensitivity analysis, 215
time-adjusted discount rates, 215
credit (default), 150, 194, 197, 219, 254, 255
inherent, 56
interest rate
hedging to reduce, 253
with long-term fixed-rate bonds, 253
and interest rates, 194
legal, 197
political, 156
residual, 56
transaction, 155
translation (accounting), 155
in using derivatives, 197
Risk-adjusted discounted rate, 214–215
Risk appetite, 56
Risk assessment
defined, 56
as ERM component, 55
internal control, 47
for IT systems, 92
Risk-free interest rate, 255
Risk-management function, 241
Risk-neutral investors, 192
Risk preference function, 194, 218
equity, 191
maturity, 195
Risk response (ERM), 55
Risk-seeking investors, 192
Risk tolerance, 56
ROA (return on assets), 301, 308
Robust design, 313
ROE (return on equity), 301, 308
ROI. see Return on investment
Rollback, 98
Rolling budgets, 378
RONA (return on net assets), 301
Routers, 81
RSS/ATOM Feeds (Really Simple Syndication), 82
Run (programming), 75
S
SaaS (Storage as a Service), 72
Safety, in marketable securities management, 245
Sales and collections, controls over, 51
Sale-leaseback, 256
Sales tax, 151
Scanner, 73
Scanning, of industry environment, 157
Scattergraph method (cost estimation), 349
Scenario analysis (capital budgeting), 215
Scrap (spoilage), 345
Search stage (capital budgeting), 203
SEC (Securities and Exchange Commission), 44–45
Secondary markets, 265
Secondary storage, 72
Securitization of assets, 252
Security (IT systems), 84
Securities analysts, as corporate governance device, 44
Securities and Exchange Commission (SEC), 44–45
Security provisions (long-term debt), 254
Segment contribution, 387
Segmented reporting and controllability, 387–388
between IT department and user departments, 91–92
IT systems, 94
Selection stage (capital budgeting), 203
Self-liquidating approach, 251
Semivariable (mixed) costs, 395
Senior debt holders, 254
Sensitivity analysis
capital budgeting, 215
defined, 220
Serial bonds, 254
Serial payments (bonds), 254
Servers (computer), 72
Services
balance on, 153
Service department, 341
Service department cost allocation, 341–342
Setup time, reducing, 248
Shareholders, as corporate governance device, 38
Share repurchases, 265
Short position, 198
Short-run total costs, 141–142
Short-term bank loans, 251–252
Short-term differential cost analysis, 393–394
Short-term funds, sources of, 251–253
Simulation models (capital budgeting), 215–216
Sinking fund provisions, 254
Six-sigma black belts, 312
Six-Sigma Quality, 312
Slack time, 317
Smart Phones, 72
access controls, 95
for local area networks, 83–84
Solid state drives (SSDs), 72
SOW (statement of work), 316
Speculation, 197
Speculative balances, 243, 268
Spin-offs, 257
Spoilage (scrap), 345
Spot rates, 154
SQL (structured query language), 78
SSDs (solid state drives), 72
Standard costs, 388
defined, 395
Standard error of the estimate, 386
Stated interest rate, 194
Statement of work (SOW), 316
Step functions, 351
Step method (service department cost allocation), 342
Stock(s)
preferred, 257
tracking, 258
Stock dividends, 265
Stock grants, 39
Stock options, 39
Stockouts, 247
Stock splits, 265
Stock warrants, 257
Storage as a Service (SaaS), 72
Storage devices, 72
Strategic alliances, 163
Strategic initiatives (balanced scorecard), 298
Strategic objectives (balanced scorecard), 298, 299
Strategic planning, global economic environment and, 160–164
Strategy maps
of cause-and-effect relationships, 298–299
defined, 318
Strengths (SWOT analysis), 160
Structural unemployment, 149
Structured query language (SQL), 78
Subjective risk estimates, 193
Subordinated debenture, 254, 268
Substitute products, threat of, 158
Sunk (unavoidable) costs, 204, 220, 396
Supercomputers, 71
Suppliers, bargaining power of, 158
defined, 166
factors affecting, 139
supply curve shift, 139
Supply chain management, 161–162, 247
Supply curve shift, 139
Supply-side theory, 151
Switch, 81
Systems analysis, 91
Systematic risk, 194
defined, 220
measuring, 194
System development lifecycle, 91
System flowcharts, 100
Systems logs, backup of, 79
Systems programming, 92
Systems software, 74
T
Table (data), 77
Tablets (computers), 72
Tactical profit plan, 396
Targets (balanced scorecard), 298
Target costing, 396
Target market analysis, 162–163
Target net income, 376
Target net income-percentage of sales, 376
Target pricing, 392
Tariffs, 152
Taxes, 151
T-bills (treasury bills), 245
TCP/IP (Transmission Control Protocol/Internet Protocol), 82
Technology growth, investment and, 148
Temporary current assets, 250
Testing phase (IT systems), 71
Theory(-ies)
accelerator, 149
economic, 151
yield curve, 195
Theory of constraints (TOC), 315
Threats (SWOT analysis), 160
Threat of substitute products, 158
Three-tier architectures, 83
Throughput contribution, 315
Time-adjusted discount rates, 215
Time-adjusted (internal) rate of return, 206–208, 219
Times interest earned, 310
Time value of money (TVMF), 199–203
TIPS (Treasury Inflation Protected Securities), 245
TOC (theory of constraints), 315
Total approach (differential cost decisions), 394
Total asset turnover, 309
Total costs
long-run, 142
Total quality control (TQC), 313
Total Quality Management (TQM), 312, 318
Total revenue, price elasticity of demand and, 136
Touch-sensitive screen, 73
TQC (total quality control), 313
TQM (Total Quality Management), 312, 318
Tracking stocks, 258
Trade
balance of, 153
Trade credit, 251
Trade deficit, 153
Trade surplus, 153
Traditional file processing systems, 77
Traditional financial statement analysis, 305–312
asset utilization ratios, 306, 308–309
debt utilization ratios, 306, 310
interpreting financial ratios, 310–311
limitations of financial ratios, 311–312
liquidity ratios, 306, 309–310
profitability ratios, 305, 307–308
Transaction file, 77
Transaction processing systems, 69
Transaction risk, 155
Transfer pricing, 156, 392–393, 396
Translation (accounting) risk, 155
Transmission media, 84
Treasury bills (T-bills), 245
Treasury Inflation Protected Securities (TIPS), 245
Treasury notes, 245
Trend analysis, 384
Trojan horse, 82
Trust receipts, 253
t-statistics, 386
Turnaround documents, 73
TVMF (time value of money), 199–203
Twitter, 82
2-variance approach, 391
U
Unavoidable costs. see Sunk (unavoidable) costs
Underapplied overhead, 341
Unemployment
as economic measure, 149
and GDP growth, 147
Unemployment rate, 166
AICPA 2014 released questions, 441–455
applying to take, 4
attributes for success in taking, 5–7
content of, 3
Content Specification Outlines for, 29–32
international applicants for, 5
nondisclosure and computerization of, 3–4
obtaining Notice to Schedule, 5
process for sitting for, 4
purpose of, 3
scheduling of, 5
Skill Specification Outlines for, 32–34
types of questions on, 4
Uniform Resource Locator (URL), 81
Unsystematic risk, 194, 220, 246
URL (Uniform Resource Locator), 81
User control activities, 97
User department, 79
US GAAP, 266
Utility, consumer demand and, 137–138
Utility programs, 74
V
Validity check, 96
Valuation
asset and liability, 266
of bonds, 203
Value-added activities, 346
Value-added networks (VANs), 87
Value-added tax (VAT), 151
Value-based management (VBM), 300–304
cash flow ROI, 304
defined, 318
determining amount of invested capital, 304
DuPont ROI analysis, 301
economic profit and EVA, 303
residual income profile, 302–303
return on investment, 301
Value chain (in balanced scorecard), 298
Value engineering, 392
VANs (value-added networks), 87
Variable (direct) costing, 352–353
Variable costs, 396
VAT (value-added tax), 151
VBM. see Value-based management
Venture capital, 258
Verification of processing (IT systems), 84
Vertical analysis, 311
Vertical mergers, 267
Virtual memory (storage), 75
Virus, 82
Vision, 160
Visitor entry logs, 95
Visual display terminal monitors, 73
Voice recognition, 74
Voluntary export restraint, 152
W
WACC (weighted-average cost of capital), 264
Wage taxes, 151
Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), 40, 41
WANs (wide area networks), 80
WBS (work breakdown structure), 316
Weaknesses (SWOT analysis), 160
Wealth effect, 146
Web administrator, 92
Web browsers, 81
Web coordinator, 92
Web designer, 92
Web Manager, 92
Web master, 92
Weighted-average cost of capital (WACC), 264
Wide area networks (WANs), 80
Wikis, 81
Work breakdown structure (WBS), 316
Workflow analysis, 315
Working capital management, 241–253
cash conversion cycle, 241–243
financing current assets, 250–251
marketable securities management, 245–246
receivables management, 249–250
sources of short-term funds, 251–253
Working capital ratio, 309
Work-measurement method (cost estimation), 349
World Bank, 154
World Trade Organization (WTO), 153
World Wide Web (Web, WWW), 81
Worm, 82
WTO (World Trade Organization), 153
WWW (World Wide Web), 81
X
XBRL (Extensible Business Reporting Language), 81
XML (Extensible Markup Language), 80–81
Y
Yield, in marketable securities management, 245
Yield curves, interest rates and, 195
Z
Zero-balance accounts, 243
Zero-based budgeting, 396
Zero-coupon method, 198
Zero-coupon rate bonds, 255