BEC Mnemonics 2020
ORC - Three categories of objec ves on COSO Framework
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O - Opera ons Objec ves
R - Repor ng Objec ves
C - Compliance Objec ves
CRIME - Internal Control Components
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C - Control Environment
R - Risk Assessment
I - Informa on and Technology
M - Monitoring Ac vi es
E - Exis ng Control Ac vi es
EBOCA - Principles of Control Environment
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E - Commitment to Ethical Values and Integrity
B - Board independence and oversight
O - Organiza onal structure
C - Commitment to Competence
A - Accountability
SAFR - Principles of Risk Assessment
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S - Specify objec ves
A - Iden fy and Assess changes
F - Consider the poten al for Fraud
R - Iden fy and analyze Risks
OIE - Informa on and Communica on Principles
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O - Obtain and use informa on
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SO - Separate and/or Ongoing Evalua ons
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CA - Select and develop Control A
I - Internally communicate informa on
E - Communicate with External Par es
SO D - Monitoring Ac vi es Principles
D - Communica ons of Deficiencies
CA T P - Exis ng Control Environment Principles
c vi es
T - Select and develop Technology controls
P - Deploy through Policies and P rocedures
ARTS - Help respond to risk
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A - Avoid (high frequency, high severity)
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O - Overall Assessment - supported by complement evalua ons
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C - Value Crea on
R - Reduce (high frequency, low severity)
T - Transfer (low frequency, high severity) {Share}
S - Self-Insure (low frequency, low severity) {Accept}
COPS - Steps to compile and document the internal control assessment
C - Component Evalua on - supported by principal evalua ons
P - Principal Evalua on - The source for isola ng and defining internal control deficiencies
S - Summary of Internal Control Deficiencies (if any) - Summarized and impact the overall assessment
CPER - Develop value - make it CPER
P - Value Preserva on
E - Value Erosion
R - Value Realiza on
CCPIS - To Manage risk and create value
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C - Culture
C - Capabili es (Compe
ve Advantage)
P - Prac ces
IS - Integra on With Strategy-Se ng and Performance
GOPRO - Components of Enterprise Risk Management
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G - Governance and Culture
O - Strategy and Objec ve Se ng
P - Performance
R - Review and Revision
O - Informa on, Communica on, and Repor ng (Ongoing)
DOVES - Governance and Culture Principles
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D - Defines Desired culture
O - Exercises board Oversight
V - Demonstrates commitment to core Value (tone at the top)
E - A racts, developes, and retains capable individuals (Employees) ●
SOAR - Strategy and Objec ve Se ng Principles
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S - Evaluates alterna ve Strategies
O - Formulates business Objec ves
A - Analyze business context
R - Defines Risk appe te
VAPIR - Performance Principles of COSO enterprise risk management
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V - Develops por olio View
A - Assesses severity risk
P - Priori zes risk
I - Iden fies risk (events)
R - Implements Risk Responses
SIR - Review and Revision Principles
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S - Assesses Substan al change
I - Pursues Improvement in Enterprise Risk Management
S - Establishes opera ng Structure
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R - Reviews risk and performance
TIP - Informa on, Communica on and Repor ng (Ongoing) Principles
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T - Leverages informa on and
Technology
I - Communicates risk Informa on
P - Reports on risk, culture, and performance
DUNS - Categories of Risk
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D - Diversifiable
U - Unsystema c (non market/firm specific)
N - Nondiversifiable
S - Systema c (market)
OWNES - Must meet one of the following to classify as finance lease (or opera ng)
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O - Ownership transfer at the end of the lease
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E - Economic life of the underlying asset is primarily encompassed within the term of the lease
W - Wri en purchase op on that the lessee is reasonably certain to exercise
N - Net present value of all lease payments and guaranteed residual value is equal to or substan ally exceeds the underlying
asset’s fair value
S - Specialized asset such that it will not have an expected alterna ve use to the lessor when the lease end
ESOC - The EOQ equa on and equa on components
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E - Order Size (EOQ)
S - Annual Sales (in units)
O - Cost per Purchase Order
C - Annual Carrying cost per unit
CALM - Valuing Tangible Assets (stay “CALM”)
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C - Cost Method (original cost and poten ally adjustments for deprecia on)
A - Appraisal Method (professional appraiser)
L - Liquida on Method (If the asset had to be sold today)
M - Market Value Method (Similar assets in marketplace - replacement cost and NRV)
MIC - Valuing Intangible Assets (Just ask “MIC”)
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M - Market Approach (preferred approach - actual arms length transac on)
I - Income Approach (DCF)
C - Cost Approach (Replacement cost and reproduc on cost are itera ons of this approach)
PIE - Most frequent objec ves of cost accoun ng systems
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P - Product cos ng (inventory and cost of goods manufactured and sold)
I - Income Determina on (profitability)
E - Efficiency measurements (comparisons to standards)
CRPI - four financial measures of responsibility units (SBUS)
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C - Cost SBU (managers held responsible for controlling costs)
R - Revenue SBU (managers held responsible for genera ng revenues)
P - Profit SBU (managers are held responsible for producing target profit)
I - Investment SBU (manager held responsible for return on assets)
FICA- Cri cal success factors of a balanced scorecard
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F - Financial
I - Internal business processes
C - Customer Sa sfac on
A - Advancement of innova on and human resource development
APIE - Costs of Quality
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A - Appraisal Costs (conformance cost, detect before)
P - Preven on Costs (conformance cost, prevent)
I - Internal failure (nonconformance costs, cure a defect before customer receives)
E - External failure (nonconformance costs, cure a defect a er customer receives)
TWICE Government - factors that shi aggregate demand
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T - Taxes
W - Wealth
I - Interest Rates
C - Consumer Confidence
E - Exchange rates
G - Government spending
GICE - GDP calculated under expenditure approach
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G - Government purchases of goods and services +
I - Gross private domes c Investment +
C - Personal Consump on expenditures +
E - Net Exports (exports minus imports)
I PIRATED- GDP calculated under the income approach
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I - Income of proprietors
P - Profits of corpora ons
I - Interest (net)
R - Rental income
A - Adjustments for net foreign income and misc. items
T - Taxes (indirect business taxes)
E - Employee compensa on (wages)
D - Deprecia on (also known as capital consump on allowance)
WRITEN - Factors that shi demand curves (factors other than price)
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W - Changes in Wealth
R - Changes in the Price of Related Goods (subs tutes and complements)
I - Changes in Consumer Income
T - Changes in Consumer Tastes or Preferences for a Product
E - Changes in Consumer Expecta ons
N - Changes in the Number of Buyers Served by the Market
ECOST - Factors That Shi Supply Curves
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E - Changes in Price Expecta ons of Supplying Firm
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New minus Old divided by Old
C - Changes in Produc on Costs (Price of Inputs)
O - Changes in the Price or Demand for Other Goods
S - Changes in Subsidies or Taxes
T - Changes in Produc on Technology
NOO - % change
BRIC - Emerging Economies
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B - Brazil
R - Russia
I - India
C - China
IT TA DO - Factors that drive globaliza on
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IT - Improvements in Transporta on
TA - Technological Advancement
D - Deregula on of Interna onal Financial Markets
O - Organiza onal/Opera onal Op ons for Interna onal Business
FIL JVS
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F - Franchising
I - Interna onal Trade
L - Licensing
JV - Joint Ventures
S - Global Sourcing
(& Direct Foreign Investment (DFI) )
PEE - Risk of Interna onal Business
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P - Poli cal
E - Exchange Rate (Currency Risk)
E - Economic
PDCA - Process Management
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P - Plan: design the planned process improvement
D - Do: Implement the process improvement
C - Check: Monitor the process improvement
A - Act: Con nuously commit to the process and reassess the degree of improvement
DMAIC - Six Sigma: Exis ng Product and Business Improvements
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D - Define the Problem
M - Measure Key Aspects of the Current Process
A - Analyze Data
I - Improve or Op mize Current Processes
C - Control
DMADV - Six Sigma: New Product or Business Process Development
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D - Define Design Goals
M - Measure CTQ (cri cal to Quality Issues)
A - Analyze Design Alterna ves
D - Design Op miza on
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V - Verify the Design
BIG - Big Data
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B - Big
I - Informa on
G - Generates Opportuni es
IRAC - Wri en Communica on
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I - Intro (what’s the problem)
R - Rules
A - Analysis
C - Conclusion
BEC Formulas
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Beta = % Δ stock price
% Δ market price
CAPM = RFR + Beta*(Mark R – RFR)
DCF = (Curr Div*(1+g)/Curr stock price) + g AKA… (D1/P0) + g
BRRP = pretax cost of LT debt + market risk premium
Market risk = RFR + inflat prem
Net cost of debt = effec ve rate * (1 – TR)
● (when compu ng WACC remember that debt needs to be made reduced by tax rate)
Cost of PS = div paid (par * % div)
net proceeds (SP – iss costs)
Times interest earned = EBIT a
Interest Exp
Turnover Ra os are IS/Av BS
Inventory Turnover =
CGS a
Avg Inventory
AR Turnover =
Sales (net) a
Avg AR (net)
AP Turnover=
CGS
a
Avg AP
Days Ra os are end BS/(IS/365)
Days Inventory = End Inventory
CGS/365
Days AR =
End AR a
Sales (net) /365
Days AP= End AP a
CGS/365
CCC = days Inv + days AR – days AP
Effec ve rate = [(1 + (i/p))^p] - 1
Cost of inves ng in AR = Sales * VC Ra o * Req rate of return * (Avg coll/360)
Pretax cost of carrying addi onal investment in AR
● 1) Avg AR = Annual sales a
(360/Avg coll period)
● 2) Answer 1 * VC ra o
● 3) Answer 2 * req rate of ret
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Constant grow mod (Pt) = Dt (1+G)
(R – G)1 (yrs)
● R = use CAPM model to get
Zero growth model P = D / R
PEG Ra o = (P0 / E1) / G
Free cash flow = NI + noncash exp – increase WC – capital expenditures
Issue price = (face * stated rate) a
(1 + market price) 1…2…3
Investment TO = Sales / Avg Invest
ROI = NI / Avg invested capital
ROA = NI / Avg total assets
Or… NPM * Asset TO
ROE = NI / Avg total equity
Or… ROA * DFL
DOL =
Q*(S-VC) a
(Q* (S-VC) – FC)
DFL =
EBIT
a
(EBIT – I – (P / (1-TR)))
Reorder point = safety stock + (lead me * sales during lead me)
EOQ = ESOC = sqrt ( (2*S*O) / C )
S = units annual sales
O = order cost per purch order
C = carrying cost per unit
# mes to purch =units to be purch
EOQ
Discounts = 360
* discount %
pay per – disc per 100%-disc %
PI = PV CFs / PV ini al investment
(PI is used for capital ra oning)
Deprecia on tax shield = Dep * TR
(added to a er tax CF)
Payback period = Net ini al invest
Inc in net a er tax CFs
Factor of IRR = Net increme invest
Net annual CFs
Weighted average (ignore beg WIP)
units comp&transf out (100%)
ending WIP (%)
RM beg + curr = total/EU = per unit
FIFO
beg WIP (% to complete)
complet&transf – beg WIP (100%)
end WIP (% complete)
only this period/EU = per unit
CGM = CGS + End FG – Beg FG
CGS = DM + DL + OH applied
Economic Value Added (EVA) = EBIT*(1-TR)*Cost of capital = NOPAT*WACC
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Asset TO = Sales/Assets
ROI = Income / Invested Capital
or… Profit Marg * Investment TO
or… Inc/Sales * Sales/Invest Capital
RI = Income – (Invest * hurdle rate)
ROE = NI/Equity
or… NPM * Asset TO * Fin Leverage
or… NI/Sales * S/Assets * A/Equity
EVA = NOPAT – required return
(req ret=cost of equity+cost of debt)
(weight % * cap * % return)
ROS = NI / Sales
ROA = NI / Average Assets
ROA = PM * Asset TO
or… NI/Sales * S/Assets
BEP units = FC / UCM
BEP $ = FC / CMR
Marg of safety = Total sales – BEP $
CMR = (SP-VC)/SP
Total debt ra o = Liabili es / Assets
Gross Margin = Revenue - CGS
Opera ng Margin = Op Inc / Rev
Pretax Margin = EBIT / Rev
Net Profit Margin = Net Inc / Rev
VARIANCES (PURE DADS) (d = difference)
DM price var = (A price-S price) * A quant
DM usage var = (A quant-S quant) * S price
DL rate var = (A rate-S rate) * A hours
DL effic var = (A hours-S hours) * S rate
OH VARIANCES
VOH rate var = (A rate – Std rate) * A hrs
VOH effic var = (A hours-S hours) * S rate
FOH budget var = (A FOH – Budget FOH)
FOH vol var = Budg FOH – (A prod*S rate)
ECONOMICS
Mul plier = 1 / (1 – MPC)
Δ in real GDP = mul plier*Δ in spending
Disposab Inc = personal inc * (1-TR)
Velocity of money = nominal GDP
money supply
Elas city of demand = %Δ D / %Δ P
IT NOTES
IT 5 focus areas = value delivery, strategic alignment, resource management, risk management, performance measurement
Steering commi ee = oversee system development and acquisi on a er an assessment of data processing needs
Primary goal of IT governance = balance risk versus return over IT and its processes
Electronic Data Interchange = exchange of business transac ons documents from one computer to another, faster than paper exchange,
inventory can be reordered faster (inventory stockout = less of risk (stockout = customer orders > inventory on hand))
Monetary value of risk = if happens $ * prob % + if not $ * prob not % = answer
EFT = reduce frequency of data entry errors
ERP = integrate data from all aspects of organiza on’s ac vity
CRM system = provide sales force automa on and manage customer contracts, manage sales people, forecast sales and sales
targets/goals, manage sales leads and poten al sales leads, provide and manage online quotes and product specifica ons and pricing, and
analyzes sales data
AIS type of MIS type of BIS
Business Informa on System = BIS = collect, store, transform and distribute data
BIS = hardware, so ware, network, people, data
Transac on Processing System = TPS = rou ne, payroll, data input, data storage, data processing. and informa on output, large numbers
of common business events that are processed in predefined highly structured way
Decision Support System = DSS = interac ve
Execu ve Informa on System = EIS = for senior managers, immediate and easy access to internal and external informa on, assist in
making non rou ne decisions (involving analysis of cyclical data, acquisi ons, and compe tor behavior)
Accoun ng Informa on System = AIS = solve problems with uncertainty and ill-derived report req
Cold site = no actual equipment
Warm site = compromise b/w cold&hot
Hot site = fully equipped to take over data processing
Incremental = only changed since last backup
Differen al – ALL changes since last FULL backup
PKI = system and process issue and manage asymmetric keys and digital cer ficates
Asymmetric encryp on = public key used to encrypt message, private key used to decrypt message at other end
User = enter data, use informa on processed by system
So ware developer = design/write system/program to: collect, process, store, transfer, distribute data
Data librarian = maintain custody of data
Network admin = manage remote access so mul ple computers can share the same data and informa on
Edit check = applica on control that validates data before data successfully input
Database admin = responsible for design, maintain, security of database, control data and structure
Systems analyst = design system, prepare specifica ons for program, serve as intermediary between user and programmers
Hardware technician = sets up and configures computers
Data security controls = ensure storage media, subject to auth prior to
Applica on programmer = access/change/destruc on, code approved changes to a payroll program
System programmer = work with opera ng systems and compliers
Data mining process = looking at large database and data sets to derive new informa on, find previously unknown info
Disaster recovery planning = ensuring able to restore and con nue its opera ons in the event that its compu ng systems are shut down or
destroyed
Program modifica on controls = controls over the modifica on of programs being used in produc on applica ons, include both controls
that a empt to prevent changes by unauthorized personnel and also that track program changes so that there is an exact record of what
versions of what programs were running in produc on at any specific point in me, normally includes a so ware change management tool
and change request tracking tool
Biometric control = fingerprint, eye scanner, facial recogni on
Digital signature = ensure that the sender of a message is authen c
Real me processing = current status of inventory can be properly replenished and so that quick price reduc ons can be made for
inventory that is not selling (new retail loca on)
Batch processing = upload transac on data from individual stores to retailer’s centralized processors
Batch processing system = data input controls include report showing excep ons and a control total for all invoices processed in each
batch
Firewall = system of user iden fica on and authen ca on that prevents unauthorized users from gaining access to network resources,
protec ve devise allows private intranet users to access internet without allowing internet users to access private intranet informa on
Offsite mirrored web server = take over almost immediately in the event of a disaster, uninterrupted service
Primary key = unique a ribute that iden fies a specific record in a table
Foreign key = column found in a rela onal database table that links data between two tables
Secondary key = non-iden fying column used to find a row in a table Decision Support Systems (DSS) = interac ve
Cloud compu ng = virtual servers over the internet rather than housing data-on-site, cri cal aspects of data security evalua on include
third party suppliers, architecture to support users, cloud of cloud agreements
Electronic data interchange (EDI) = computer to computer exchange of business transac on documents in formats that allow direct
processing of data by the receiving system, having computer ac vity logs that show where transac ons have failed is a key component to
evalua ng the effec veness of EDI
Ver cal scalability = adding more memory, compu ng power, and resources to the cloud, but does not relate to data security
FARHART IT NOTES:
General controls apply to all aspects of IT func on BEFORE transac ons are processed
General controls – 6 catergories
1) admin of the IT func on
2) separa on of IT du es
3) system development
4) physical and online security
5) backup and con ngency planning
6) hardware controls
Input controls = designed so that the informa on entered is authorized, accurate, and complete
Typical input controls:
1) management authoriza on
2) adequate prepara on of input source docs
3) competent personnel
Typical input controls in IT
1) input screens with preforma ed prompts for transac on info
2) online based input controls for e-commerce where suppliers/customers perform ini al part of trans input
3) check digit = verify info on the barcode has been entered correctly
4) validity check = computer performed valida on test of input accuracy, verify customer number against customer master file
5) edit checks = automated controls programmed to prevent invalid or unreasonable (# or text field only)
6) limit test = SS 9 digits, date fields, $ limit over is void
7) pull down menu
8) immediate error correc on procedures
9) accumula on of errors follow up by data input person
Processing controls = prevent and detect errors while transac on data is processed
Processing controls examples:
1) valida on test = type appropriate
2) sequence test = submit in correct order
3) arithme c accuracy test = sum equal gross pay
4) data reasonableness test = over limits?
5) completeness test = every field entered
Output controls = a er processing is completed, review data for reasonableness by someone knowledgeable about the output
Output controls examples:
1) reconcile computer produced output to manual control total
2) compare number of units processed to number of units submi ed for processing
3) compare a sample of transac on output to input source documents
4) verify dates and mes of processing to iden fy any out of sequence processing