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70 Cards in this Set
- Front
- Back
While financial audits performed by external auditors focus on an organization's financial statements, financial audits by internal auditors do focus on what?
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internal controls'
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The objectives of which organizational processes should form the basis for the majority of internal controls?! |
financial reporting'
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In a financial audit engagement, the IA audits controls regarding their effectiveness that are surrounding which processes? |
processes supporting the development of the financial report'
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The critique of the contemporary accounting controls in the COSO 1987 report was that unethical behavior in organizations too often goes undetected because of which accounting procedures' feature?! |
too narrow focus on financial accounting only'
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Internal control is management's responsibility and requires the participation of which persons within the organization if it is to be effective? |
all persons'
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Nonfinancial ratios compare relationships between to business elements with which two features?! |
measurable and correlated'
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The objective of ratio analysis is to detect what kind of relationships between quantities? |
relationships unexpected by the IA'
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A drawback of financial ratio analysis is that is difficult to do what which financial statements of different organizations? |
to compare them'
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Common-size statements express all accounts balances as percentages of usually which aggregate balance? |
sales revenue (e.g. marketing expenses / sales revenue)'
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What kind of analysis is the conversion of all income statement items into percentages of sales revenues? |
vertical analysis'
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What are the 4 catagories of financial ratios? |
"- activity
- liquidity - leverage - profitability' |
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Activity ratios are used to measure an organization's efficiency in turning what into sales or cash? |
balance sheet accounts'
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How is the inventory Turnover calculated? |
Cost of Goods / average inventory'
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Inventory Turnover does measure the number of what? |
the number of times during the year inventory is replaced'
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A lower Inventory Turnover indicates a greater or a lower efficiency? |
a lower efficiency'
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How is Days' Sales Outstanding calculated? |
(AR / Sales)*360 Days'
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Days' Sales Outstanding does measure the company's effectiveness in what? |
collecting AR'
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A lower Days' Sales Outstanding indicates a lower or a greater effectiveness in collecting AR? |
a greater effectiveness'
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How is Accounts Payable Turnover calculated? |
Purchases / Avg AP'
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How are the Purchases determined? |
Purchases = COGS + Ending Inventory - Starting Inventory'
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Accounts Payble Turnover does measure the number of times of what? |
the number of times the company generates its average of account payables in a year'
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As long as accounts are paid in a timely fashion, which Accounts Payable Turnover ratio is preferable; greater or lower? |
a lower'
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How is Fixed Assets Turnover calculated? |
Net Sales / Avg Net Fixed Assets'
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How are Net Sales calculated? |
Sales - Discount - Returns - Allowances'
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Fixed Asset Turnover does measure how efficient a company is using what to generate what? |
is using fixed assets to generate sales'
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Fixed Asset Turnover might be used to measure the effectiveness of significant investments in what? |
property, plant, equipment (PPE)'
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Which Fixed Asset Turnover does indicate a more efficient use of fixed assets to generate sales: a greater or a lower? |
a greater'
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How ist Total Assets Turnover calculated? |
Net Sales / Avg Total Assets'
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Fixed Assets Turnover does measure how efficent a company is using to generate what? |
is using its assets to generate sales'
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Which Total Asset sTurnover does indicate a more efficient use of assets to generate sales: a greater or a lower? |
a greater'
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Liquidity ratios measure an organization's solvency by comparing what to what? |
assets to liabilities'
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How is the Current Ratio calculated? |
Current Assets / Current Liabilities'
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The Current Ratio does measure an organization's potential for what? |
for paying down current liabilities'
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Which Current Ratio indicates a greater ability to repay short-term debt: a greater or a lower? |
a greater'
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How is the Quick Ratio calculated traditionally? |
(Current Assets - Inventory)/ Current Liabilities'
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How is the Quick Ratio calculated alternatively? |
(Cash + Cash Equivalents + Receivables) / Current Liabilities'
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The Quick Ratio expresses the proportion of what kind of assets to liabilities? |
the proportion of the most liquid assets to liabilities'
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What could a stable current ratio and a declining quick ratio indicate? |
an increase in inventory'
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How is Net Working Capital calculated? |
Current Assets - Current Liabilities'
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Which Net Working Capital is indicated a higher short term liquidity: a greater or a lower? |
a greater'
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In contrast to liquidity ratios, leverage (or debt) ratios do measure what kind of solvency? |
long-term solvency'
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How is the Debt Ratio calculated? |
Total Liabilities / Total Assets'
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Which Debt Ratio does indicate a higher investment risk to investors: a higher or a lower? |
a higher'
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How is the Debt to Equity Ratio calculated? |
Total Liabilities / Total Equity'
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Which Debt to Equity Ratio does indicate a higher investment risk to investors: a higher or a lower? |
a higher'
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How ist Times Interest Earned Ratio calculated? |
Earnings Before Interest and Taxes (EBIT) / Interest Expense'
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Times Interest Earned Ratio does measure the ability to service what? |
liabilities'
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Which Times Interest Earned Ratio does indicate a greater ability to repay creditors? |
a higher'
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Profitability ratiso indicate ability to make a profit by comparing what to what? |
earnings to revenues'
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How are earnings generally calculated? |
revenues reduced by expenses'
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How is the Gross Profit Margin calculated? |
(Net Sales - COGS) / Net Sales'
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How is the Operating Profit Margin calculated? |
(Net Sales - COGS - Operating Expenses) / Net Sales'
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How is the Net Profit Margin calculated? |
Operating Profit - Interest - Taxes) / Net Sales'
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How is Return on Investment (ROI) calculated? |
Total Assets Turnover x Net Profit Margin'
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How is ROI called as well? |
DuPont formula'
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ROI does measure an operation's effectiveness in using what to generate profits? |
assets'
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In the ROI, efficiency in turning over assets may compensate for a relatively low what? |
low net profit margin'
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How is Return of Equity (ROE) calculated? |
Net Profits / Shareholders' Equity'
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How is Return on Capital calculated? |
ROE x (1 - Dbe to Capital)'
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In what kind of leveraged operations does ROE provide a more meaningful measure of success than ROE alone? |
in high leveraged operations'
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How are Earnings per Share calculated? |
Total Earnings / Number of Shares Outstanding'
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Earnings per Share do measure what of a company? |
a company's value'
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Compliance Audit
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Compliance audits evaluate the adequacy and effectiveness of an organization's controls to ensure what?(3)! |
compliance with applicable laws, regulations, and the organization's own policies'
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What should compliance audits do with the compliance standards and procedures established by the organization to reduce the prospect of criminal conduct by employees and other agents? |
review and assess them'
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IAs should start an audit of the compliance process by developing a working knowledge of what that compliance professionals use to assess compliance? |
the framework'
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IAs should verify that compliance standards and procedures include written policies that clearly what kind of activities? |
required and prohibited'
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Studies show that hotlines for reporting suspect activities work best when they connect to an inhouse representative who is not a member of which department and when they are backed by what kind of policies? |
"- not a member of legel departmens
- backed by nonretaliation policies' |
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Detecting a violation that was not prevented by the compliance program signals a need to do what? |
to review the program if it needs changing'
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Why should Environmental audits be conducted by a technically-oriented department under the direction of the internal auditing department?(2) |
"- EH&S has the technical expertise
- IA the necessary independence which the EH&S executive does not have as environmental compliance audit functions usually report to him' |