ACCT 152 Chapter 1 Exam verified solutions and explanations

ACCT 152 Chapter 1 Exam verified solutions and explanations financial accounting - Correct Answers: concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators managerial accounting - Correct Answers: concerned with providing information to managers for use within the organization the fundamental difference between financial and managerial accounting: - Correct Answers: financial accounting serves the needs of those outside the organization whereas managerial accounting serves the needs of managers employed inside the organization - financial accounting emphasizes the financial consequences of past activities, objectivity and verifiability, precision, and companywide performance - managerial accounting emphasizes decisions affecting the future, relevance, timeliness, and segment performance segment - Correct Answers: a part or activity of an organization about which managers would like cost, revenue, or profit data - ex: product lines, customer groups, geographic territories, divisions, plants, departments managerial accounting helps managers perform 3 vital activities: - Correct Answers: planning, controlling, and decision making planning - Correct Answers: involves establishing goals and specifying how to achieve them; also developing budgets controlling - Correct Answers: involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change feedback in the form of performance reports that compare actual results with the budget are an essential part of the control function - Correct Answers: decision making - Correct Answers: involves selecting a course of action from competing alternatives - asking questions like: what should we be selling? who should we be serving? how should we execute? plans are often accompanied by a budget - Correct Answers: budget - Correct Answers: a detailed plan for the future that is usually expressed in formal quantitative terms part of the control process includes preparing performance reports - Correct Answers: performance report - Correct Answers: compares budgeted data to actual data in an effort to identify and learn from excellent performance and to identify and eliminate sources of unsatisfactory performance the most important function of the public accounting profession is to protect investors and other external parties by assuring them that companies are reporting historical financial results that comply with applicable accounting rules - Correct Answers: 80% of professional accountants in the U.S. work in non-public accounting environments - Correct Answers: Certified Management Accountant (CMA) - Correct Answers: a management accountant who has the necessary qualifications and who passes a rigorous professional exam earns the right to be known as a CMA The Institute of Management Accountant's (IMA) Statement of Ethical Professional Practice provides guidelines for ethical behavior - Correct Answers: a management accountant has ethical responsibilities in 4 broad areas: - competence - confidentiality - integrity - credibility competence - Correct Answers: - maintain professional competence - recognize and communicate professional limitations that preclude responsible judgment - provide accurate, clear, concise, and timely support information - follow applicable laws, regulations, and standards confidentiality - Correct Answers: - do not use confidential information for unethical or illegal advantage - do not disclose confidential information unless legally obligated to do so - ensure that subordinates do not disclose confidential information integrity - Correct Answers: - refrain from conduct that would prejudice carrying out duties ethically - mitigate conflicts of interest and advise others of potential conflicts - abstain from activities that might discredit the profession credibility - Correct Answers: - communicate information fairly and objectively - disclose all relevant information that could influence a user's understanding of reports and recommendations - disclose delays or deficiencies in information timeliness, processing, or internal controls IMA Guidelines for Resolution of Conflict - Correct Answers: if following employer's established policies does not work: - discuss the conflict with immediate supervisor or next highest uninvolved managerial level - if immediate supervisor is the CEO, consider the board of directors or the audit committee - contact with levels above the immediate supervisor should only be initiated with the supervisor's knowledge, assuming the supervisor is not involved consider: - except where legally prescribed, maintain confidentiality - clarify issues in a confidential discussion with an objective advisor - consult an attorney as to legal obligations why have ethical standards? - Correct Answers: - essential for a smooth functioning economy - without them, the economy and all of us who depend on it for jobs, goods, and services would suffer - abandoning them leads to a lower quality of life with less desirable goods and services at higher prices strategy - Correct Answers: a "game plan" that enables a company to attract customers by distinguishing itself from competitors - focal point of a company's strategy should be its target customers customer value propositions tend to fall into 3 categories: - Correct Answers: - customer intimacy - operational excellence - product leadership customer intimacy strategy - Correct Answers: understand and respond to individual customer needs operational excellence - Correct Answers: deliver products and services faster, more conveniently, and at lower prices product leadership - Correct Answers: offer higher quality products enterprise risk management - Correct Answers: a process used by a company to identify risks and develop responses to them that enable it to be reasonably assured of meeting its goals - once a company identifies its risks, perhaps the most common risk management tactic is to reduce risks by implementing specific controls corporate social responsibility (CSR) - Correct Answers: a concept whereby organizations consider the needs of all stakeholders when making decisions ex: considering the needs of customers, employees, suppliers, communities, stockholders, and environmental and human rights advocates CSR extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations business process - Correct Answers: a series of steps that are followed in order to carry out some task in a business value chain - Correct Answers: consists of the major business functions that add value to a company's products and services; often used to describe how an organization's functional departments interact with one another to form business processes business functions making up the value chain: - Correct Answers: - research and development - product design - manufacturing - marketing - distribution - customer service lean production or Just in Time (JIT) Production - Correct Answers: a management approach that organizes resources such as people and machines around the flow of business processes and that only produces units in response to customer orders ex: - customer places an order - create production order - generate component requirements - goods delivered when needed - production begins as parts arrive - components are ordered traditional manufacturing: - produce goods in anticipation of sales - store inventory - make sales form Finished Goods Inventory because lean thinking only allows production in response to customer orders, the number of units produced tends to equal the number of units sold - Correct Answers: the lean approach also results in fewer defects, less wasted effort, and quicker customer response times than traditional production methods organizational leaders unite the behavior of employees around 2 common themes - pursuing strategic goals and making optimal decisions - Correct Answers: factors that influence behavior: - intrinsic motivation - extrinsic motivation - cognitive bias intrinsic motivation - Correct Answers: refers to motivation that comes from within us extrinsic motivation - Correct Answers: highlighting important goals and motivating employees to achieve them cognitive bias - Correct Answers: distorted thought processes that can adversely affect planning, controlling, and decision making - all people possess cognitive biases corporate governance - Correct Answers: the system by which a company is directed and controlled - the board of directors provides incentives and monitoring for top management to pursue objectives of stockholders Sarbanes-Oxley Act of 2002 - Correct Answers: intended to protect the interests of those who invest in publicly traded companies by improving the reliability and accuracy of corporate financial reports and disclosures 6 Key Aspects of the Sarbanes-Oxley Act: - Correct Answers: 1.) The Act requires both the CEO and CFO to certify in writing that their company's financial statements and disclosures fairly represent the results of operations 2. The Act establishes the Public Company Accounting Oversight Board to provide additional oversight of the audit profession 3.) The Act places the power to hire, compensate, and terminate public accounting firms in the hands of the audit committee 4.) The Act places restrictions on audit firms, such as prohibiting public accounting firms from providing a variety of non-audit services to an audit client 5.) The Act requires a public company's independent auditor to issue an opinon on the effectiveness of the company's internal control over financial reporting to accompany management's assessment and both are included in the company's annual report 6.) The Act establishes severe penalties for certain behaviors, such as up to 20 years in prison for altering or destroying any documents that may eventually be used in an official processing or up to 10 years in prison for retaliating against a whistle blower internal control - Correct Answers: a process designed to provide reasonable assurance that objectives are being achieved preventive control - Correct Answers: deters undesirable events from occuring detective control - Correct Answers: detects undesirable events that have already occurred Authorization Control - Correct Answers: a preventive control requiring management to formally approve certain types of transactions Reconciliation Control - Correct Answers: a detective control relating data sets to one another to identify and resolve discrepancies Segregation of Duties - Correct Answers: a preventive control separating responsibilities related to authorizing transactions, recording transactions, and maintaining custody of the related assets Physical Safeguards - Correct Answers: a preventive control using cameras, locks, and physical barriers to protect assets Performance Reviews - Correct Answers: a detective control comparing actual performance to various benchmarks to identify unexpected results Maintaining Records - Correct Answers: a detective control maintaining written and/or electronic evidence to support transactions Information Systems Security - Correct Answers: a preventive/control using controls such as passwords and access logs to ensure appropriate data restrictions internal controls cannot guarantee that objectives are achieved because - Correct Answers: - even well-designed internal control systems can break down - two employees may collude to circumvent the control system - Senior leaders may manipulate financial results by intentionally overriding prescribed policies and procedures