VIP Handouts

CMA Part 1
VIP Handouts
By Mohamed Samir Rashed
Unit 1
1
Mohamed Samir Rashid CMA Holder
1-Limitations of the Balance Sheet
- The balance sheet shows a company’s financial position at a single point in time;
accounts may vary significantly a few days before or after the publication of the balance
sheet.
-Many balance sheet items, such as fixed assets, are recorded at historical costs, which
may not equal their fair value.
-The preparation of the balance sheet requires estimates and management judgment.
-The balance sheet omits many items that cannot be recorded objectively but have financial
value to the company.
2- Examples of off-balance- sheet financing include
1)Operating leases. The asset itself is kept on the lessor’s balance sheet and the
lessee reports only the required rental expense for use of the asset.
2)Factoring receivables with recourse. The firm remains contingently liable to the
finance company in the case of debtor default and the contingent liability does not
have to be reported on the company’s balance sheet.
3) Special purpose entities. A firm may create another firm

for the sole purpose of keeping the liabilities associated with a
specific project off the parent firm’s books.
4) Joint venture. Generally accounted for on the equity basis; hence, the joint
venture’s debts are not reflected as debt of the members of the joint venture.
3- Limitations of the Income Statement
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a. The income statement does not always show all items of income and expense.
Some of the items are reported on a statement of other comprehensive income and
not included in the calculation of net income.
b. The financial statements report accrual-basis results for the period. The company
may recognize revenue and report net income before any cash was actually received.
1) For example, the data from the income statement itself is not sufficient enough for
assessing liquidity. This statement must be viewed in conjunction with other financial
statements, such as the balance sheet and statement of cash flows.
c. The preparation of the income statement requires estimates and management
judgment.
4- the major items included in other comprehensive income:
a) The effective portion of a gain or loss on a hedging instrument in a cash flow hedge
b) Unrealized holding gains and losses due to changes in the fair value of available-
for-sale debt securities
c) Translation gains and losses for financial statements of foreign operations
d) Certain amounts associated with accounting for defined benefit postretirement
plans
5-The accounting for stock dividends depends on the
percentage of new shares to be issued.
1) An issuance of shares less than 20% to 25% of the previously outstanding common
shares should be recognized as a stock dividend.
2) An issuance of more than 20% to 25% of the previously outstanding common
shares should be recognized as a stock split in the form of a dividend.
c. In accounting for a stock dividend, the fair value of the additional shares issued is
reclassified from retained earnings to common stock (at par value) and the difference
to additional paid-in capital
d. For a stock dividend that is accounted for as a stock split in the form of a dividend,
the par value of the additional shares issued is reclassified from retained earnings to
common stock.
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6- Limitations of the Statement of Changes in Equity
a. The financial statements report accrual-basis results for the period. The
company may recognize revenue and/or expense and report net income before
any cash was actually received and/or paid.
1) Hence, the data for retained earnings is not sufficient for assessing the
amount actually available to be reinvested in the company or to pay debt.
b. The statement of changes in equity illustrates a company’s equity based on a
specific time period; equity may vary significantly a few days before or after
publication of the statement.
7.1-Limitations of the Statement of Cash Flows
a. A cash flow statement is not sufficient for forecasting the profitability of a firm as
non-cash items are not included in the calculation of cash flow from operating
activities.
b. A cash flow statement may not represent the true liquid position of an entity.
1) Hence, decisions regarding large expenditures could be based on misconceived
information when decisions are based only on the statement of cash flows.
2) This statement must be viewed in conjunction with other financial statements,
such as the balance sheet and the income statement.
c. Information can be manipulated in the statement of cash flows. For instance,
management can schedule vendor payments to occur after year end to increase net
cash flows reported on the statement of cash flows.
7.2 Direct method.
- The presentation of the major classes of operating cash receipts (such as receipts
from customers)
minus the major classes of operating cash disbursements (such as cash paid for
merchandise) is best described as the
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8- the five-step model for recognizing revenue from contracts
with customers.
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the
contract.
Step 5: Recognize revenue when (or as) a performance obligation is satisfied.
9-Revenue is recognized for a contract with a customer if all of
the following criteria are met:
1) The contract was approved by the parties.

2) The contract has commercial substance.
3) Each party’s rights regarding (a) goods or services to be transferred and (b) the
payment terms can be identified.
4) It is probable that the entity will collect substantially all of the consideration to
which it is entitled according to the contract
10- It is accounted for as a separate contract if the following

conditions are met:
a) The scope of the contract increases because of the addition of promised goods or
services that are distinct, and
b) The price of the contract increases by a consideration amount that reflects the
entity’s standalone selling prices of the additional promised goods or services.
11- factors should be considered in assessing whether a

contract includes a significant financing component:
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a) The difference between
(1) the cash selling price of the promised goods or services and
(2) the amount of consideration to be received
b) The combined effect of
(1) the expected time between the payment and the delivery of the promised
goods or services and
(2) market interest rates
12- The transaction price should not be adjusted for the effect
of the time value of money if
1-The time between the payment and the delivery of the promised goods or services to
the customer is 1 year or less
2-The customer paid in advance and the transfer of goods or services is at the discretion
of the customer
a-An example is a bill-and-hold contract in which the seller provides storage services for
goods it sold to the buyer.
3-A substantial amount of the consideration promised is variable and its amount or
timing varies with future circumstances that are not within the control of the entity or
the customer
a-An example is consideration in the form of a sales-based royalty.
13- the contract price may vary because of the following:
a) Refunds due to a right of return provided to customers

b) Sales incentives
c) Prompt payment discounts
d) Volume discounts
e) Other uncertainties in contract price based on the occurrence or nonoccurrence of
some future event
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14- Variable consideration is estimated using one of the
following methods:
a) The expected value is the sum of probability-weighted amounts in the range of

possible consideration amounts. This method may provide an appropriate estimate if
an entity has many contracts with similar characteristics.
b) The most likely amount is the single most likely amount in a range of possible
consideration amounts. This method may provide an appropriate estimate if the
contract has only two possible outcomes; e.g., a construction entity either will
receive a performance bonus for finishing construction on time or will not.
15- The volume discount may be applied
(a) prospectively on additional goods purchased in the future or (b) retrospectively

on all goods purchased to date.
16- If the standalone price is not directly observable, it must be

estimated. The following are suitable approaches:
1) Adjusted market assessment. An entity evaluates the market in which it sells

goods or services and estimates the price that a customer in that market would
be willing to pay for them.
a) For example, the prices of competitors for similar goods or services adjusted
for the entity’s costs and margins are estimates of standalone selling prices.
2) Expected cost plus an appropriate margin. An entity forecasts its expected
costs of satisfying a performance obligation and adds an appropriate margin for
that cost.
3) Residual. An entity estimates the standalone selling price by reference to the
total transaction price minus the sum of the observable standalone selling
prices of other goods or services promised in the contract.
a) The residual approach may be used only in limited circumstances.
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17- b. Control of an asset is transferred when the customer
1) Has the ability to direct the use of the asset and

2) Obtains substantially all of the remaining benefits (potential cash flows) from the
asset
18- indicators of the transfer of control should be considered:
i) The entity has a present right to payment for the asset.

ii) The customer has legal title to the asset.
iii) The entity has transferred physical possession of the asset.
iv) The customer has the significant risks and rewards of ownership of the asset.
v) The customer has accepted the asset.
19-Examples of output methods include
(1)appraisals of results achieved,

(2)(2) milestones reached,
(3)(3) units produced, and
(4)(4) units delivered
20-Notes about Statement of cash-flows:

a. Interest paid and received to be reported in operating activity.
b. Dividends paid to shareholders to be reported in financing activity.
c. Purchase of equipment to be reported in investing activity.
d. Under equity method, increasing investment in the investee, will result in increasing non cash
income which should be adjusted in the SCF.
e. To evaluate the corporation’s solvency, the most important item is the cash flows from
operating activity.
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f- Most entities apply the indirect method because the reconciliation must be prepared
regardless of the method chosen.
g-The statement of cash flows is not designed to provide information with respect to the
efficient and
profitable use of the firm’s resources.
H-Cash receivable from the issue of common stock ‫ يف اسئلة ال كاش فلو ( هنا‬39 ‫دي هتالقيها يف سؤال رقم‬
) ‫الفلوس لم يتم استالمها‬
2- Stockholder’s Equity:
a. Treasury stock is a contra account recorded at Par value.
b. Stock split reduces the par value of each stock and increases the number of the shares.
c. When small stock dividends are declared (10 – 20%) RE is debited by the FMV of the stock.
d. Stock dividends are considered reclassification of different equity account
e. Property dividends is measured at the market value on the declaration date.
f. At the date of declaration of cash / property dividends, RE account is decreased.
g. At the time of payment of dividends, no effect on SHE accounts.
h. Changing of inventory valuation is change in accounting principal and hence to be reported
retrospectively in the FS.
3- Balance Sheet:
a. Operating leases is a part of off-balance sheet financing.
b. Noncurrent debt should be classified as current if it matures within one year and will be retied
through use of current assets.
c. A/R classified as current if expected to be collected within one year or operating cycle
whichever is longer.
d. Off-balance sheet debt includes any type of liability for which company is responsible but
doesn’t appear on the balance sheet. Such as the amount due in the future years on operating
lease.
e. Prepaid expenses are reported in the balance sheet by the cost (minus) expired portion.
4- Income statement
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a. GOGS = COGM+B.Inv -E.Inv
b. GOS = BInv+DM+DL+MOH-EInv.
c. GOGM = DM+DL+MOH+B.WIP-E.WIP
d. Revenue that results from changes in estimates, shall be reported in the other revenues and
gain section in the current period income statement
5- Revenue recognition
a. Under using % of completion (input method), when the cost cannot be reasonably
estimated, and the cost could be recovered, then the revenue could be recognized to the
extent to the cost incurred.
b. The transaction price should be adjusted for the effect of the time value of money when
the contract
includes a significant financing component. The interest income or expense is recognized
using the
effective interest method. Interest income or expense must be presented in the income
statement
separately from revenue from contracts with customers
c- The standalone selling price is the price at which an entity would sell a promised
good or service
separately to a customer. The best evidence of a standalone selling price is the observable
price of a
good or service when it is sold separately in similar circumstances and to similar
customers
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b. In the input method, revenue recognized in the last year of the contract is the total
amount of the contract amount minus the previous % of the revenue recognized the
previous years.
c. Short-term debt which is refinanced by long-term debt should be reclassified as long-
term liability.
d. When the outcome of the contract cannot be reasonably measured but the cost
incurred satisfying the performance obligation are expected to be recovered, revenue is
recognized to the extend to the cost incurred based on a zero-profit margin.
e. An entity is recognizing revenue when it satisfies a performance obligation by
transferring a promised good or service to a customer.
6- Comprehensive income (OCI)

a. There are two formats of statement of comprehensive income:
i. In a continuous financial statement
ii. Two separate but consecutive financial statements
b. Comprehensive include all changes in equity excluding investment by owners (distribution
to owns and from owners)
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CMA Part 1
VIP Handouts
Unit 2
12
1-The following equation illustrates the reconciliation of the beginning and ending balances of gross accounts
receivable (accounts receivable before adjustment for allowance for uncollectible accounts):
Beginning accounts receivable Plus: Credit sales during the period
Minus: Cash collected on credit sales during the period Minus: Accounts receivable written-off during the
period Ending accounts receivable .
Beginning accounts receivable Plus: Credit sales during the period

Minus: Cash collected on credit sales during the period
Minus: Accounts receivable written-off during the period
= Ending accounts receivable
2-The following equation illustrates the reconciliation of the beginning and ending balances of the allowance
for uncollectible accounts:
Beginning allowance for uncollectible accounts

Plus: Bad debt expense recognized for the period
Minus: Accounts receivable written off
Plus: Collection of accounts receivable previously written off
Ending allowance for uncollectible accounts
3- Net purchases =
Purchases
– Returns and allowances
– Purchase discounts
+ Transportation-in
= Net purchases
4- The main reasons for factoring transactions.

- The seller tries to speed up its collections.
- The seller tries to avoid bad debts.
- By factoring the seller eliminates credit department and A\R staff.
5- Types of factoring of AR
- With recourse (secured borrowing ).
- Without recourse.
6- An advantage of the perpetual inventory system
- is that the amount of inventory on hand and the cost of goods sold can be determined at any time.
7- A disadvantage of the perpetual inventory system
- is that the bookkeeping is more complex and expensive

8- An advantage of the periodic inventory system
- Bookkeeping is simpler under this system.
9- A disadvantage of the periodic inventory system.
- No continuous monitoring of inventory and cost of goods sold.
10- The difference between FOB shipping point and FOB destination .
FOB shipping point -
‫البضاعه انا اللي هجيبها من البائع من مكانه فبكدا انا اللي هبقا مسؤول عنها فبكدا هتتسجل في دفاتري لحد ما توصل ز‬
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FOB destination -
.‫دي ببساطه عكس االولي البائع هيوصلهالي لحد عتبة شركتي فبكدا هو مسؤوول عنها لحد ما يجيبهالي وبكدا هي متسجله في دفاتره لحد ما يتم استالمها‬
11- weighted-average method

-
12- 3. First-in, First-out (FIFO)

 This method assumes that the first goods purchased are the first sold. Thus, ending inventory
consists of the latest purchases.
 Cost of goods sold includes the earliest goods purchased.
 Under the FIFO method, year-end inventory and cost of goods sold for the period are the
same regardless of whether the perpetual or the periodic inventory accounting system is used.
 Its advantage that it approximates its ending inventory .
13-Measurement of inventory in financial statements under IFRS and US GAAP.
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14-Inventory costing methods.
15-
During a period Gross Profit

of inflation Ending Inventory Cost of Goods Sold (Net Income)
LIFO Lowest Highest Lowest
FIFO Highest Lowest Highest
16-Decision Tree: Classification and Measurement of an Investment in Equity

Securities.
15
17-
IFRS Difference
1. An investment in equity securities that does not result in significant influence or
control over the investee is measured at fair value through profit or loss (as
under U.S. GAAP). However, the investor also may irrevocably elect at initial
recognition to measure the investment in equity securities that is not held for trading
at fair value through OCI. The holding gains and losses accumulated in OCI are
never reclassified to profit or loss even when the investment is sold.
2. The measurement alternative is not an option under IFRS. Under IFRS, an investment
in equity securities that does not result in significant influence or in control over the
investee is measured at fair value.
3. Decision tree for Classification and Measurement of an Investment in Equity
Securities
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18- Transfer between categories
19- f. Acquisition-related costs,

such as
- finder’s fees
- professional and consulting fees,
- general administrative costs,
allof them are expensed as incurred
20 Issue costs for securities are accounted for as follows:
17
- Equity issue costs (underwriting, legal, accounting, tax, registration, etc.) reduce
additional paid-in capital.
- Debt issue costs are reported in the balance sheet as a direct deduction from the
face amount of the debt.
21-Some notes about Acquization.
- Intraentity balances, transactions, income, and expenses must be eliminated in full.
- No investment in subsidiary account is presented in the consolidated financial
statement since all the assets and liabilities of the subsidiary are reported.
- All the equity amounts of the subsidiary are eliminated (not presented in the
consolidated financial statements).
22- Ending balance of warrantyliability
Beginning warranty liability
+ Warranty expense recognized in the current period
Minus: Warranty payments in the current period
=Ending warranty liability
(, ‫ دي معظم الملحوظات اللي هتحتاجها واللي موجوده في اسئلة اليونت دي وال تريكات اللي ممكن تقابلك‬-23
‫ ادعوله بالتوفيق‬Ahmed Nashaat ‫ دي البعض منها جايبها من صديق عزيز اسمه‬Tricks ‫ ال‬: ‫ملحوظه مهمه‬
) ‫في حياته وانا كمان بليييييييييييز‬
23-‫السؤال دا مهم جدا يا جماعه‬

Question: 8A company owns 30% of the outstanding common stock and 100% of the outstanding noncumulative
nonvoting preferred stock of A Corp. In Year 1, A declared dividends of $100,000 on its common stock and $60,000
on its preferred stock. The company exercises significant influence over A’s operations and uses the equity method
to account for the investment in the common stock. What amount of dividend revenue should the company report in
its income statement for the year ended December 31, Year 1?
A. $0
B. $30,000
C. $60,000
Answer (C) is correct.
Under the equity method, the receipt of a cash dividend from the investee should be credited to the
investment account. It is a return of, not a return on, the investment. However, the equity method is not
applicable to preferred stock. Thus, the company should report $60,000 of revenue when the preferred
dividends are declared.
D. $90,000
18
‫عل هيئة كبسوالت مهمه جدا جدا‬
‫دي كمان شوية تلخيصات من األسئلة نفسها ي‬
1- Account Receivables (A/R)
a. Current A/R are reported at NRV
b. Non-current A/S are reported at NPV
c. Direct write off of bad debts are not accepted by GAAP
d. Write off A/C reduces A/R and reducing Allowance for uncollectible accounts.
e. Collection of previously written off receivable will increase the allowance and debit to cash. (Dr. cash…. Cr
Allowance for uncollectible accounts)
f. When a right of return exists, an entity recognizes sales revenue when the amount of future returns can be reliably
estimated.
2- Inventory:
a. In the rising costs conditions, changing from FIFO to weighted average will result in higher income.
b. Lower cost or marker: Ceiling>>NRV (sales-cost to sale), Floor>>>NRV-Gross profit margin, and RC>>> select the
middle value and compare to cost, whichever is lower.
C VIP: Under periodic system, we have to wait until end of the period to calculate the avg. cot per unit to calculate
the COGS, ie. Total purchase / total unit = cost/unit * unit sold.
d. If the agreement of sales is shipping point, the inventory will not be recognized by the buyer until the goods are
received at the shipping point.
e. When question asks for ending inventory under moving average (perpetual), we have to apply the formula: Beg
inv. + all purchases – COGS (and take the moving avg. cost per unit) = Ending inventory.
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f. In the interim period under US GAAP, the inventory is reported at its historical cost even though the NRV is lower
because no write down in the inventory in the interim period, however under IFRS, the inventory is written down if
NRV is lower in the in interim period.
g. Weighted average method >>> only Periodic (Waited 😊)
h. Moving average method>>> only perpetual
i. COGS + Ending inventory = Goods available for sale.
j. Both IFRS and GAAP allows writing down of inventory. IFRS only is allowing writing up inventory to the extent of
the previously written down amount.
k. The best advantage of LIFO in rising prices is that, it matches the recent cost with the recent revenue (matching
principal).
l. When calculating purchase for the COGS formula, take care that in case of reduction of A/P to be reduced from
purchase because reduction represents payment of prior period purchase, that is to calculate net purchase for the
current year.
m. Overstating of Ending Inventory this year, will result in lower (understatement of Net income) and
understatement of RE this year. To correct the error in the following period, B. Inventory and COGS should be
overstated to lower the net income to correct the RE next year
N. A significant advantage of the LIFO method is its matching of current revenues with the most recent
product costs. When prices are rising (which is most of the time), the most recent costs are the highest
costs, resulting in higher cost of goods sold and lower net income. The lower net income means lower
taxes.
3- Consolidation:
a. Goodwill is the excess of:
i. Consideration given
ii. Non-controlling interest (NCI)
iii. Previous held equity securities in the accquiree.
Over
i. Asset FV – Liabilities FV
c. Bargain purchase: it occurs when net assets/liabilities acquired exceeds the consideration paid. The bargain
purchase is recognized by the acquirer as gain in earning.
d. Acquisition related costs such as:
i. Admin cost, Consulting fees, finder’s fee >>>> charge to I/S
ii. Direct issue cost of the securities>>> reduce APIC.
e. Consolidated FS should eliminate any inter-entity transactions between the two companies such as recorded gain
from sale of equipment at gain from investee company to investor company>> record the equipment by the investee
equipment CV
4- Contingencies:
a. Loss contingencies will be accrued only if 2 conditions are met:
i. It’s probable
ii. Amount is reasonably estimated
b. If amount is in range a specifc amount, record the minimum
c. If not accrued, at least to be disclosed
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d. In case of contingency gain, will be recorded when realized.
5- Equity method / cost method:
a. If equity method is used, no dividend revenue is recognized by the investor company, however, return in
investment by Dr. Cash or Dividend receivable and CR investment income. This rule doesn’t apply for the preferred
stockholders, as divided revenue should be recognized.
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b. If the company received stock dividends, it increases the number of share owned by the investor. If the investee
company later declared dividend, hence the dividend income is calculated based on the total number of dividends
(original + stock dividends).
c. Change in FV has no effect on an investment in securities accounted for under equity method.
d. In calculation of equity method, we have to take care of the date of the share acquisition, means if the purchase
took place on July (mid of the year), then the recognized income should be proportionate.
6- Securities:
a. Debt securities (bonds) are initially classified as available-for-sale security if it is not intended for sale in the near
future and not planned to hold till maturity. If later decided to be sold in the near future, then to be reclassified to
trading security and to be remeasured at FV in the balance sheet date.
b. If the decline in the available for sale securities is OTHER THAN TEMPORARY, then the decline is reported in the
earnings (I/s).
c. Reclassification from AFS securities to held to maturity will result in amortization of the unrealized G/L existing in
the OCI on the transfer date.
d. Realized holding gain/loss from sale of AVFS securities are reported in earnings (IS). However UNREALIZED holding
gains and losses are reported in the OCI.
e. Commission and taxes paid to broker to sale the securities will be part of the loss (loss on disposal) in case of loss
from sale of security>> all will be recorded in the I/S as loss from disposal = Commission paid + decline in the FV.
f- 9Under the measurement alternative for an investment in equity securities, the investment is measured
at Cost minus subsequent impairment, plus or minus changes resulting from observable price changes for
the identical or a similar investment of the same issuer.
g-A measurement alternative may be elected for an investment in equity securities if the Fair value of the investment
is not readily determinable and the investment does not result in control or significant influence over the investee.
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CMA Part 1
VIP Handouts
Unit 3
23
Some important notes :
1- Lease:
a. Interest expense in lessee book: carrying value of lease obligation x effective interest rate.
b. Depreciation exp in the capital lease will be based on the useful life if the lease is capitalized because of transfer of ownership
or contains a bargain purchase option. Otherwise to be depreciated based upon the lease term.
c. In the leasee book:
i. Dr. Asset Cr. Lease liability (Minimum lease payment)
ii. Dr. Lease liability (diff) Dr. Interest exp (minimum lease payment x int rate) Cr. Cash (annual lease instalment).
d. The calculation of minimum lease payment should exclude the executory cost from the calculation
3- Deferred Tax:
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a. Deferred tax liability = enacted tax rate x temporary difference.
b. Income tax expense has 2 components:
a. Current income tax which is the net income (x) tax rate.
b. Deferred income tax expense: the net change during the year in d.taxes.
4- Assets:
a. Test for impairment is performed whenever circumstances indicates that the CV is not recoverable.
b. In double declining depreciation method, don’t consider the salvage value in calculating the depreciation expense/Accum.
Dep.
c. Under GAAP, restoration of previously impaired assets is not permitted, however under IFRS, the restoration is possible
provided that the restoration value does not exceed the previously impairment loss.
d. Under IFRS, the impairment test is the comparing the carrying amount with recoverable amount. Recoverable amount is the
greater of FV-cost to sell and value in use (PV of future cash flows). Impairment loss = CV – Recoverable amount.
e. Under GAAP, two steps for impairment
i. If the carrying value exceeds the undiscounted cash flow
ii. Impairment loss = CV – FV.
f. Patent to be amortized over the shorter of legal life and useful life.
g. Under IFRS revaluation model, is the FMV minus depreciation.
i. Revaluation surplus is recognized in OCI
ii. Revaluation surplus is recognised in I/S to the extent to the amount recognized in the I/S earlier.
5- Bonds:
a. We have to differentiate between Interest paid and Interest expense:
i. Interest paid is the Bond face amount x face rate (bond rate)
ii. Interest expense is the Bond CV x Effective interest (market rate)
iii. Difference between interest paid and interest exp. Is the amortization of discount / premium.
b. Debenture bonds, are unsecured bonds which are issued based on the full faith and credit of the issuer. (reputation).
c. Zero coupon bond, has no interest to be paid by the bond issuer. The bond is sold at discount and the discount is amortized
over the life of the bond.
# Carrying amount of PPE disposed of =

Beginning Carrying amount of PPE
+ Carrying amount of PPE acquired duiring the period
-Ending carrying amount of PPE
# Interest should be capitalized for

- 1 assets constructed or otherwise produced for an entity’s own use,including those constructed or produced by others;
- (2) assets intended for sale or lease that are constructed or produced as discrete projects (e.g., ships); and
- (3) certain equity-based investments. An asset constructed for an entity’s own use qualifies for capitalization of interest
if
(1) relevant expenditures have been made,
(2) activities necessary to prepare the asset for its intended use are in progress, and
(3) interest is being incurred.
Impairment under GAAP
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Determination of an Impairment Loss
1. Events or changes in circumstances indicate a possible loss
2. Carrying amount of an asset > Sum of undiscounted cash flows
3. Impairment loss = Carrying amount – Fair value
Impairment under IFRS
Determination of an Impairment Loss

1. Reporting-date assessment indicates a possible loss
2. Impairment loss = Carrying amount – Recoverable amount
- The entity assesses at each reporting date whether an indication of impairment exists. Given such an indication, IFRS
requires a one-step impairment test.
- The carrying amount of an asset is compared with its recoverable amount. An impairment loss is recognized equal to
the excess of the carrying amount over the recoverable amount.
- The recoverable amount is the greater of an asset’s (1) fair value minus cost to sell or (2) value in use. Value in use of
the asset is the present value of its expected cash flows.
An impairment loss on an asset (besides goodwill) may be reversed in a subsequent period if a change in the estimates
used to measure the recoverable amount has occurred. The reversal of an impairment loss is recognized immediately in
profit or loss as income from continued operations
# IFRS Difference
- Intangible assets may be accounted for under either the cost model (as under U.S. GAAP) or the revaluation model.
- The revaluation model can be applied only if the intangible asset is traded in an active market.
- revalued amount equal to fair value at the revaluation date (minus subsequent accumulated depreciation and
impairment losses).
- Revaluation is needed whenever fair value and the asset’s carrying amount differ materially. Accumulated depreciation is
restated proportionately or eliminated.
- A revaluation increase must be recognized in other comprehensive income and accumulated in equity as revaluation
surplus. But the increase must be recognized in profit or loss to the extent it reverses a decrease of the same asset that
was recognized in profit or loss.
- A revaluation decrease must be recognized in profit or loss. But the decrease must be recognized in other
comprehensive income to the extent of any credit in revaluation surplus for the same asset.
# Intangible assets valuation methods under IFRS and GAAP

 IFRS uses the cost model or the revaluation model
 GAAP uses the cost model only
 Impairment occurs when events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable
- Under GAAP there is a Two-Step Impairment Test
26
1. Recoverability test. The carrying amount of a long-lived asset to be held
and used is not recoverable if it exceeds the sum of the undiscounted
future cash flows
2. If the carrying amount is not recoverable, an impairment loss is recognized.
It equals the excess of the carrying amount of the asset over its fair value.
A previously recognized impairment loss must not be reversed
- Under IFRS there is a one-step impairment test.

 The carrying amount of an asset is compared with its recoverable amount.
An impairment loss on an asset may be reversed in a subsequent period
 Inventory Valuation
- Under GAAP
 Inventory accounted for using LIFO or the retail inventory method is measured at
the lower of cost or market (LCM).
 Inventory accounted for using any other cost method (e.g., FIFO or average cost)
is measured at the lower of cost or net realizable value.
A reversal of a write-down of inventory recognized in the annual financial
statements is prohibited in subsequent periods.
- Under IFRS
 Inventory is measured at the lower of cost or net realizable value.
A write-down may be reversed but not above original cost
# Development costs are capitalized if

the entity can demonstrate the
(1) technical feasibility of completion of the asset,
(2) intent to complete,
(3) ability to use or sell the asset,
(4) way in which it will generate probable future economic benefits,
(5) availability of resources to complete and use or sell the asset, and
(6) ability to measure reliably expenditures attributable to the asset.
# The amortizable amount

- Amortizable amount = Historical (initial) cost – Residual value
# 3The amount recorded initially by the lessee as a lease liability should

normally.
27
- Equal the present value of the lease payments at the beginning of the lease
# In a sales-type lease,
- each periodic lease payment received has two components: interest income and
the reduction of the net investment in the lease. Interest income is calculated using the
effective interest method. It equals the carrying amount of the net investment in the lease at
the beginning of the period times the discount rate implicit in the lease.
# Quick Company’s lease payments are made at the end of each period. Quick’s
liability for a finance lease will be reduced periodically by the
- Lease payment minus the portion of the lease payment allocable to interest.
# Amortization of right of use asset.

- Amortization of a right-of-use asset. A lessee amortizes the right-of-use asset on a
straight-line basis.
- The right-of-use asset is amortized over the shorter of (a) its useful life or (b) the lease term.
- However, if, at the end of the lease term, (1) the ownership of the leased asset is transferred to
the lessee, or (2) the lessee is reasonably certain to exercise the purchase option, the
amortization period is the useful life of the leased asset.
#Comparison between Annuity due and Ordinary annuity.

- Annuity due ) ‫دي بستخدمها لما يكون الدفع اول السنه ( بداية السنه‬
- Ordinary annuity .‫دي لما يكون الدفع في اخر السنه‬
# A temporary difference exists

when
1- the reported amount of an asset or liability in the financial statements differs from the tax basis
of that asset or liability, and
2- the difference will result in taxable or deductible amounts in future years when the asset is
recovered or the liability is settled at its reported amount. A temporary difference may also exist
although it cannot be identified with a specific asset or liability recognized for financial reporting
purposes.
3- Temporary differences most commonly arise when either expenses or revenues are recognized
for tax purposes either earlier or later than in the determination of financial income.
# Deferred taxes
- Deferred tax liabilities arise when temporary differences in book and taxable income result in
future taxable amounts.
- Deferred tax assets arise when temporary differences in book and taxable income result in
future deductible amounts.
# The purpose of interperiod income tax allocation

- Interperiod tax allocation is designed to recognize a tax asset or liability for the tax consequences
of temporary differences that exist between a company’s financial accounting records and its tax
28
records at the balance sheet date. These temporary differences result when the GAAP basis and
the tax basis of an asset or liability differ.
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CMA Part 1
VIP Handouts
Unit 4
INTEGRATEG REPORTING
30
# integrated report
- 0 is designed to provide a holistic view of the organization by connecting financial and nonfinancial information to the
long-term value-creation possibilities of the organization.
- report concisely communicates how strategy, governance, performance, and prospects lead to value creation over the
short, medium, and long term.
- Integrated reports should be prepared in accordance with the <IR> Framework published in 2013 by the IIRC.
- An integrated report provides a holistic view of the organization for all relevant stakeholders.
# Purpose of the Integrated Report

- The main goal of an organization’s integrated report is to give providers of financial capital more information about how
the entity creates value over a period of time.
# Integrated reporting
- is a relatively new concept. It gained momentum with the creation of the International Integrated Reporting Council
(IIRC) in 2010.
- a process founded on integrated thinking that results in a periodic integrated report by an organization about value
creation over time and related communications regarding aspects of value creation.”
- This definition of IR requires an understanding of three major concepts:
- Integrated thinking,
- The integrated report, and
- Value creation.
- The ultimate goal of IR is to become the corporate reporting norm for public and private organizations worldwide.
- Integrated reporting is a new reporting concept. Integrated reporting was introduced because
a Traditional financial reporting increasingly did not provide adequate nonfinancial information about
value creation.
- Integrated reporting is a process that continuously improves reporting, internal decision making, and
integrated thinking.
# Integrated thinking
- is a process of decision making, management, and reporting. It is based on the connectivity and interdependencies
among the organization-specific factors that affect the organization’s ability to create value over time.
- Integrated thinking is a prerequisite to IR.
- Integrated thinking cannot be done in a stand-alone department. Different departments must work together to measure
and report the value creation of the organization for both itself and its environment.
- The basis for integrated reporting and the integrated report.
-
# Integrated reporting, integrated thinking, and the integrated report

- are three distinct concepts and interconnected.
# The framework promulgated by the International Integrated Reporting Council.
- Is principles-based
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# An entity’s value-creation process is influenced by
- The external environment in which the organization operates,
- Relationships with stakeholders, and
- Various resources (e.g., the six capitals defined below).
# Externalities
- are the effects on the capitals not owned by the organization itself. These effects can be positive or negative.
# six capitals:
1) Financial capital
2) Manufactured capital
3) Intellectual capital
4) Human capital
5) Social and relationship capital
6) Natural capital
# Natural capital
- consists of the renewable and nonrenewable environmental resources and processes that are used, produced, or
affected by the company. These resources include land, air, water, minerals, flora, fauna, biodiversity, and ecosystem
health .
# Intellectual capital
- is the intangible knowledge of the organization. It includes intellectual property, e.g., software, patents, copyrights, and
licenses, and organizational capital, e.g., systems, procedures, and protocols
- Employees’ competencies are not intellectual capital. They can be transferred to another organization
# Importanat notes
- Not all capitals are equally important for a given organization. Also, sometimes one capital may need to decrease in
order to make another capital increase.
- organizations may categorize the capitals differently
- All six capitals need not be present in every integrated report.
- Some capitals may not be relevant for a particular organization.
- Capitals need not be identified by the same name in every integrated report.
- The way the organization shows the three fundamental concepts in the integrated report is not fixed. Organizations can
either show all of the capitals and depict the whole value-creation process or they can stress certain details.
- Employees’ competencies are not intellectual capital. They can be transferred to another organization.
- Manufactured capital Need not be owned
- The six capitals are affected by the regular course of business. They are increased, decreased, or
transformed by the activities and outputs of the organization.
- The Guiding Principles are guidelines and cannot always be applied strictly.
- Judgment is needed in applying these guidelines because they sometimes conflict (e.g., conciseness and completeness).
- The integrated report is merely a vehicle to show the value-creation process. Publishing the integrated
32
report and the document itself are not part of the value-creation process.
- All Content Elements defined in the <IR> Framework should be addressed in the integrated report.
How these topics are addressed, and in what order, is decided by the preparers of the report.
- When applying the Guiding Principles for an integrated report, Tension may exist between principles.
- A description of the business model in the integrated report includes Identification of dependencies.
- potential advantage of integrated reporting is Providing assurances on nonfinancial information.
- The greatest challenge for an organization that adopts integrated reporting (IR) is Defining materiality for providers of
financial capital.
- the most likely benefit of adopting integrated reporting is Lower long-term costs.
- The most persuasive argument for adoption of integrated reporting (IR) is that Investments in systems, data collection,
and analysis will yield positive long-term results
# The ability to create value is affected by the following factors

- The external environment is the environment in which an organization operates.
 It includes constant changes in political conditions, economic conditions, technology, societal issues,
and environmental challenges.
 It affects multiple aspects of the value-creation model.
- Governance. An organization should create a proper oversight structure to ensure its value-creation ability.
- Mission and vision. The integrated report identifies the organization’s mission and vision.
- Strategy and resource allocation. Strategies are means of mitigating risks and maximizing opportunities. Resource
allocation plans implement strategies to achieve objectives.
- Performance. The organization sets up measurement and monitoring systems to obtain information for decision making.
- Outlook. The outlook addresses the challenges and uncertainties of pursuing a strategy and the implications for the
business model and performance.
The Value-Creation Process Described by the <IR> Framework
33
#The elements of the value-creation process
- InputS
- the business model business activities
- Outputs
- outcomes.
# Outcomes
- are the internal and external effects of business activities and outputs on the capitals.
- Outcomes relate directly to the external environment and are not necessarily controlled by the organization.
- Outcomes determine the status for new inputs. In this sense, the value-creation process is circular
# Outputs
- are the results of the organization’s business activities. Outputs may be products, services, by-products, or waste.
# Inputs
- are resources and relationships (capitals) used in business activities.
- The organization obtains inputs from the external environment.
# The business model

- transforms inputs through business activities into outputs and outcomes.
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- A business model is sensitive to changes in quality, cost, and availability of inputs.
- It may or may not be able to adapt quickly to changes.
# Business activities
- are the core of the business model that transforms the inputs (capitals) into outputs
# Guiding Principles
1. Strategic focus and future orientation.
2. Connectivity of information.
3. Stakeholder’s relationships.
4. Materiality.
5. Reliance and completeness.
6. Conciseness.
7. Consistency and comparability.
# The guiding principles may be in conflict, How ?

- Applying the reliability and completeness principle tends to result in reporting more information. Applying the
conciseness principle tends to exclude information. Thus, the principles are guidelines that cannot always be strictly
applied. The preparers of reports must use judgment when applying the guidelines.
# The Guiding Principle of reliability and completeness
- states, “An integrated report should include all material matters, both positive and negative, in a balanced way and
without material error.”
# Consistency and comparability guidelines.
- state that.
1. the material information in an integrated report should be consistent through time.
2. changes and improvements can be made but should be explained.
3. comparability among companies is difficult due to the refined application of the framework for the specific
situation of the organization.
4. comparability can be enhanced by using industry standards, benchmarks, ratios, and the specific Content
Elements defined in the <IR> Framework
# Content Elements
- Each integrated report should contain the nine Content Elements.
- The Content Elements are interrelated.
# Content Elements of integrated report.

1. Organizational overview and external environment.
2. Governance.
3. Business model.
4. Risks and opportunities.
5. Strategy and resource allocation.
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6. Performance
7. Outlook.
8. Basis of preparation and presentation.
9. General reporting guidance.
# outlook
- What challenges and uncertainties is the organization likely to encounter in pursuing its strategy, and what are the
potential implications for its business model and future performance?
# General Reporting Guidance

- This item in the Content Elements is not based on a question. It provides information about essential issues that should
be considered during the preparation process, such as materiality, capital disclosures, and an explanation of the business
model.
# The benefits of IR include

1. Linking financial and nonfinancial information, which provides more clarity about the value-creation process
2. Better decision making and resource allocation
3. Better relationships with stakeholders
4. More employee engagement
5. Lower reputational risk
6. More committed customers
7. Better measurement and internal control systems for nonfinancial information
8. Breaking down silos within the organization by requiring different departments to work together to produce an
integrated report
9. Lower costs of, for example, debt and equity over the long term
# Challenges.
1. Materiality.
2. Data quality.
3. Assurance.
4. Lack of standards.
5. Tone at the top.
# IR incurs costs.
- When building the business case for IR, management needs to address the costs associated with
a. Collecting and analyzing new types of data;
b. Setting up new data sets;
c. Hiring people with the proper analytical skills;
d. Setting up new internal control systems;
e. Assurance on the integrated report; and
f. Disclosing true (but sometimes negative or competitive) information.
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Unit 5
37
# The difference between financial , management, and cost accounting.
Financial accounting
- is concerned principally with reporting to external users, usually through a set of financial statements
produced in accordance with GAAP.
- Financial accounting thus has a historical focus.
Management accounting
- is concerned principally with reporting to internal users. The management accountant’s goal is to
produce reports that improve organizational decision making.
- Management accounting is thus future-oriented.
Cost accounting
- supports both financial and management accounting. Information about the cost of resources acquired
and consumed by an organization underlies effective reporting for both internal and external users.
# cost object
- is any object to which costs can be attached.
- Examples are products, processes, employees, departments, and facilities.
#cost driver
- is the basis used to assign costs to a cost object.
- Cost driver is defined by the IMA as “a measure of activity, such as direct labor hours, machine hours, beds
occupied, computer time used, flight hours, miles driven, or contracts, that is a causal factor in the incurrence
of cost to an entity.
- Activities that cause costs to increase as the activity increases.
# Direct costs
- are ones that can be associated with a particular cost object in an economically feasible way, i.e., they can be
traced to that object.
# Indirect costs
- are ones that cannot be associated with a particular cost object in an economically feasible way and thus must
be allocated to that object.
# cost pool
- is an account into which a variety of similar cost elements with a common cause are accumulated.
# Product vs. Period

- Product costs (also called inventoriable costs) are capitalized as part of finished goods inventory. They
eventually become a component of cost of goods sold. Such costs include direct materials and direct labor.
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- Period costs are expensed as incurred, i.e., they are not capitalized in finished goods inventory and are thus
excluded from cost of goods sold.
The theory is that period costs are caused by the passage of time and would occur even if production was
zero.
# Variable portion of mixed cost using high-low method =

- (Cost at highest activity level – Cost at lowest activity level ) \ (Driver at highest activity level – Driver at
lowest activity level)
# Marginal cost
- is the cost incurred by a one-unit increase in the activity level of a particular cost driver.
# Controllable vs. Noncontrollable

- Controllable costs
- are those that are directly influenced at a given level of managerial authority within a given time
period. Thus, they are costs that a particular manager has the authority to change.
- Are likely to respond to the amount of attention devoted to them by a specified manager
- Noncontrollable costs are those that a particular manager does not have the authority to change.
# Avoidable vs. Committed

- Avoidable costs are those that may be eliminated by not engaging in an activity or by performing it more
efficiently. An example is direct materials cost, which can be saved by ceasing production.
- Committed costs
- arise from holding property, plant, and equipment. Examples are insurance, real estate taxes, lease
payments, and depreciation. They are by nature long- term and cannot be reduced by lowering the
short-term level of production.
- Establish the current level of operating capacity and cannot be altered in the short run.
- Costs that are governed mainly by past decisions that established the present levels of operating
and
organizational capacity and that only change slowly in response to small changes in capacit
# Incremental vs. Differential

- Incremental cost is the additional cost inherent in a given decision.
- Differential cost is the difference in total cost between two decisions.
- In practice, these two terms are often used interchangeably.
# Engineered vs. Discretionary

- Engineered costs are those having a direct, observable, quantifiable cause-and-effect relationship between the
level of output and the quantity of resources consumed.
39
- Examples are direct materials and direct labor.
- Discretionary costs
- are those characterized by an uncertainty in the degree of causation between the level of output and
the quantity of resources consumed. They tend to be the subject of a periodic (e.g., annual) outlay
decision.
- Management decides to incur in the current period to enable the company to achieve objectives
other than the filling of orders placed by customers
- Examples are advertising and R&D costs. Some routine maintenance costs might also fit this
classification
# Outlay vs. Opportunity

- Outlay costs require actual cash disbursements. They are also called explicit, accounting, or out-of-pocket
costs.
- An example is the tuition payment required to attend college.
- Opportunity cost is the maximum benefit forgone by using a scarce resource for a given purpose and not for
the next-best alternative. It is also called implicit cost.
- An example is the wages foregone by attending college instead of working full-time.
- Economic cost is the sum of explicit and implicit costs.
- Imputed costs
- are those that should be involved in decision making even though no transaction has occurred that
would be routinely recognized in the accounts. They are a type of opportunity cost.
- A cost that does not entail any dollar outlay but is relevant to the decision-making process.
- An example is the profit lost as a result of being unable to fill orders because the inventory
level is too low.
# Relevant vs. Sunk

- Relevant costs are those future costs that will vary depending on the action taken. All other costs are assumed
to be constant and thus have no effect on (are irrelevant to) the decision.
- An example is tuition that must be spent to attend a fourth year of college.
- Sunk costs are costs either already paid or irrevocably committed to incur. Because they are unavoidable and
will therefore not vary with the option chosen, they are not relevant to future decisions.
- An example is 3 years of tuition already spent. The previous 3 years of tuition make no difference in the
decision to attend a fourth year.
- Historical cost is the actual (explicit) price paid for an asset. Financial accountants rely heavily on it for balance
sheet reporting.
- Because historical cost is a sunk cost, however, management accountants often find other
(implicit) costs to be more useful in decision making.
# Joint vs. Separable

- Joint costs are those costs incurred before the split-off point; i.e., since they are not traceable to the end
products, they must be allocated.
40
- For example, the cost of a tree would be a joint cost for a lumber yard.
- Separable costs are those incurred beyond the split-off point, i.e., once separate products become identifiable.
- By-products are products of relatively small total value that are produced simultaneously from a common
manufacturing process with products of greater value and quantity (joint products).
- For example, a lumber yard might have leftover lumber and sawdust that could be sold as
by-products for a small amount.
# Normal vs. Abnormal Spoilage

- Normal spoilage is the spoilage that occurs under normal operating conditions. It is essentially uncontrollable
in the short run.
- Since normal spoilage is expected under efficient operations, it is treated as a product cost; that is, it is
absorbed into the cost of the good output.
- Abnormal spoilage is spoilage that is not expected to occur under normal, efficient operating conditions. Thus,
it is generally thought to be more controllable than normal spoilage. The cost of abnormal spoilage should be
separately identified and reported to management.
- Abnormal spoilage is typically treated as a period cost (a loss) because of its unusual
nature.
# Rework, Scrap, and Waste

a. Rework consists of end products that do not meet standards of salability but can be brought to salable
condition with additional effort.
- The decision to rework or discard is based on whether the marginal revenue to be gained
from selling the reworked units exceeds the marginal cost of performing the rework.
b. Scrap consists of raw material left over from the production cycle but still usable for purposes other than
those for which it was originally intended.
- Scrap may be used for a different production process or may be sold to outside customers,
usually for a nominal amount.
c. Waste consists of raw material left over from the production cycle for which there is no further use.
- Waste is not salable at any price and must be discarded.
# Other Costs
- Carrying costs are the costs of storing or holding inventory. Examples include the cost of capital, insurance,
warehousing, breakage, and obsolescence.
- Transferred-in costs are those incurred in a preceding department and received in a subsequent
department in a multi-departmental production setting.
- Value-adding costs are the costs of activities that cannot be eliminated without reducing the quality,
responsiveness, or quantity of the output required by a customer or the organization.
41
- Stockout costs are the opportunity costs of missing a customer order. These can also include the costs of
expediting a special shipment necessitated by insufficient inventory on hand.
# Manufacturing Capacity
1. Normal capacity is the long-term average level of activity that will approximate demand over a period that
includes seasonal, cyclical, and trend variations.
- Deviations in a given year will be offset in subsequent years.
2. Practical capacity is the maximum level at which output is produced efficiently. It allows for unavoidable
delays in production for maintenance, holidays, etc.
3. Theoretical (ideal) capacity is the maximum capacity assuming continuous operations with no holidays,
downtime, etc.
# The difference between standard costs used for cost control and budgeted
costs.
- difference between standard costs used for cost control and budgeted costs.
- Standard costs are predetermined, attainable unit costs. Standard cost systems isolate deviations (variances)
of actual from expected costs. One advantage of standard costs is that they facilitate
flexible budgeting. Accordingly, standard and budgeted costs should not differ when standards are
currently attainable. However, in practice, budgeted (estimated actual) costs may differ from standard
costs when operating conditions are not expected to reflect those anticipated when the standards were
developed.
# very important question ‫السؤال دا فيه فكره علي غير المعتاد المفروض اعلي قيمه‬
‫قصادها اعلي كميه والعكس – لكن هنا جايب العكس اعلي قيمه مش قصادها اعلي كميه – فكدا انا‬
‫هحسب علي اساس الكميه وما يقابلها من القيمه حتي لو ما كانتش اعلي قيمه‬
Question: 39A conglomerate outsources the cleaning of its theaters. The cleaning vendor’s charges are based
upon the total hours needed to clean the facilities, and more cleaning time is needed as more people attend the
theater. The conglomerate has accumulated the following historical data.
Month
Cleaning
Cost Number of Theater Tickets Sold
April $11,000 19,700
May 9,000 17,000
June 15,600 28,000
July 15,000 29,000
The conglomerate anticipates selling 25,000 theater tickets in August. If the conglomerate uses the high-low method
of separating costs into their fixed and variable components, the conglomerate’s budget for August cleaning costs
would be
A. $13,000
Answer (A) is correct.
The high-low method takes the difference in cost between the highest and lowest levels of activity for
a group of periods and divides it by the difference in the cost drivers (activity level) at the two levels,
which yields 0.5 [($15,000 – $9,000) ÷ (29,000 – 17,000)]. The fixed portion can then be calculated by
inserting the appropriate values for either the high or low period in the range: Fixed portion = Total
42
cost – Variable portion, which yields a fixed portion of 500 [$15,000 – (29,000 × 0.5)]. Total cost for
25,000 theater tickets is $13,000 [$500 fixed cost + (0.5 × 25,000) variable cost].
B. $13,400
C. $13,500
D. $13,800
# The least reason to adopt a standard cost system.

- Setting standards at an ideal level can motivate employees. Because
- Setting standards at an ideal level can motivate employees. However, if the standards are too high, employees may be discouraged. If
the standards are too low, employees may not be competitive. Setting the correct level of standards is difficult, but it can motivate
employees when done correctly
# Very importantnt notes on unit 5

Cost allocation is often used for purposes of measuring income and assets for external reporting purposes.
Cost allocation is an internal matter that does not affect demand (except to the extent it results in a
change in price .
straight-time wages would be treated as direct labor; however, because the overtime premium cost is a cost
that should be borne by all production, the overtime hours times the overtime premium should be charged to
manufacturing overhead.
The allocation of general overhead costs to operating departments can be least justified in
Determining Costs for making management’s decisions.
The relevant range refers to the activity levels over which Cost relationships hold constant
Total costs, being a mixture of fixed and variable costs, are assumed to be linear.
In target costing, The market price of the product is taken as a given.
A standard costing system is most often used by a firm in conjunction with Flexible budgets.
In a variable costing system, only the variable costs are recorded as product costs. All fixed costs are
expensed in the period incurred. Because changes in the relationship between production levels and
sales levels do not cause changes in the amount of fixed manufacturing cost expensed, profits more
directly follow the trends in sales (Profits fluctuate with sales).
A standard-cost system can be used in job-order, process-costing, and activity-based systems to isolate
variances.
In both normal and standard costing, immaterial efficiency variances are accounted for as an addition
to cost of goods sold.
Using management by exception allows managers to focus their attention on Areas that have deviated most
from expectations.
Contribution margin focuses on the amount of revenue available to cover fixed costs and contribute toward
profits.
In the growth stage, sales and profits increase rapidly, cost per customer decreases, customers are early
adopters, new competitors enter an expanding market, new product models and features are introduced, and
promotion spending declines or remains stable.
Introduction stage is characterized by slow sales growth and lack of profits because of high expenses of
promotions to encourage customers to buy the product.
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# Actual costing.
#Standard costing.
44
# Normal costing.
45
# Extended normal costing.
# Summary for costing techniques.
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CMA Part 1
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Unit 6
47
# Identify and explain two differences between a traditional cost allocation system and an
activitybased costing (ABC) system.
- Activity-based costing systems focus on activities rather than on departments. Costs areallocated to
products based on the activities that are required to complete each product. In ABC, nonmanufacturing
as well as manufacturing costs may be assigned to products and some manufacturing costs may not be
included in product costs. For example, costs related to sales, distribution and servicing products may
be included in product costs while costs that are not affected by which products are made will not be allocated.
- Traditional cost allocation usually picks one or two predetermined plant-wide overhead rates to allocate
overhead costs.
# peanut-butter costing.
# Advantages & disadvantages of traditional based costing.
48
# Advantages of ABC ( activity based costing ).
49
 One of the benefits of activity-based costing is the discovery of cost
relationships that went unnoticed under traditional accounting methods.
# Disadvantages of ABC ( activity based costing ).
# Steps in ABC
50
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# Value engineering
- is a means of reaching targeted cost levels.
- Value engineering is a systematic approach to assessing all aspects of the value chain cost buildup for a product.
- The purpose is to minimize costs without reducing customer satisfaction
# The process value analysis

 performed as part of ABC provides information for eliminating or reducing nonvalue-adding activities. The result is
therefore not only more accurate cost assignments, especially of overhead, but also better cost control and more
efficient operations.
# Benefits of Life-cycle costing

- emphasizes the relationships among costs incurred at different value- chain stages.
# Target pricing.
- Is a pricing strategy used to create competitive advantage
# Value adding activity and non value adding activity .

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- value-adding activity
- contributes to customer value or satisfies a need of the entity.
- nonvalue-adding activity
- does not make such a contribution.
-
# important notes and tricks.
 Whole-life cost equals the life-cycle cost plus after-purchase costs.
 The cost of reworking these defective units should be charged to Manufacturing overhead control.
Normal rework costs incurred because of factors common to all units produced ordinarily are charged to
manufacturing overhead control to spread the costs over all good unit.
 During the growth stage, the opportunity for cost reductions is at its maximum because production
volume is increasing at a high rate. Thus, fixed costs are being spread over more units of production, and
the benefits of the learning curve are being realized.
 In the maturity stage, sales growth declines and competitors are most numerous
 ‫ملحوظه مهمه جدا جدا ( لما يقولك انه هيضيف المواد الخام علي حسب نسبة ال تكاليف التحويل فتخلي بالك ان نسبة تكاليف التحويل اللي‬
‫ مثال هو قالك انه بيضيف المواد الخام كل لما نسبة‬, ‫عاطيهالك في بداية المده مش هي دي اللي هتحدد انك تحط المواد الخام علي اساسها‬
‫ فمعني كدا انا هقدر اضيف المواد الخام عشان نسبة‬%25 ‫ وكان عاطيتلك ان نسبة تكاليف التحويل في اول المده‬%65 ‫تكاليف التحويل‬
16.2 ‫ في هذه الوحده‬16 ‫ ودي بكدا تبقا عدن النسبة المسموح بها ) انظر سؤال رقم‬75%=100-25 ( ‫تكاليف التحويل هتبقا‬
 The equivalent units for transferred-in costs are calculated in the same way as those for materials
added at the beginning of the process
 Scrap can be sold, disposed of, or reused.
 major advantage of the first-in, first-out (FIFO) process-costing method over the weightedaverage
process-costing method is That current-period cost per unit is highlighted under the FIFO method
 Normal spoilage costs would be allocated between the cost of good units completed during the period and
the ending work-in-process inventory
 A difficulty in applying ABC is that, although the first three levels of activities pertain to specific
products or services, facility-level activities do not. Thus, facility-level costs are not accurately
assignable to products. The theoretically sound solution may be to treat these costs as period
costs.Nevertheless, organizations that apply ABC ordinarily assign them to products to obtain a full
absorption cost suitable for external financial reporting in accordance with GAAP. However, for
internal purposes, facility-level costs should be treated as period costs to avoid distorting decisions
about cost efficiency, pricing, and profitability.
 Q no 17-18-36 very imprtantin ABC questions.
 Activity-based costing is founded on the idea that drivers for indirect cost assignment should be based on
some level of activity. Cost of materials does not directly reflect a level of a given activity
 the focus of activity-based management To improve the effectiveness of activities.
# Very important question

53
37During the month of May, a company completed 50,000 units costing $600,000, exclusive of
spoilage allocation. Of these completed units, 25,000 were sold during the month. An additional 10,000 units,
costing $80,000, were 50% complete at May 31. All units are inspected between the completion of manufacturing
and transfer to finished goods inventory. Normal spoilage for the month was $20,000, and abnormal spoilage of
$50,000 was also incurred during the month. The portion of total spoilage that should be charged against revenue in
May is
A. $50,000
B. $20,000
C. $70,000
D. $60,000
Answer (D) is correct.
Normal spoilage is an inventoriable cost of production that is charged to cost of goods sold when the
units are sold. Abnormal spoilage is a period cost recognized when incurred. The $50,000 of abnormal
spoilage is therefore expensed during May. In addition, 50% of the normal spoilage is debited to cost
of goods sold because 50% (25,000 ÷ 50,000) of the units completed were sold during the period. No
spoilage is allocated to work-in-process because inspection occurs after completion. Thus, the normal
spoilage expensed during the month is $10,000 ($20,000 × 50%). Total spoilage charged against
 revenue is $60,000 ($50,000 + $10,000).
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CMA Part 1
VIP Handouts
Unit 7
# Explain why absorption costing is required under U.S. GAAP.

55
Absorption costing is required under GAAP because in theory, all costs of production should be
treated as product costs, associated with finished goods inventory and carried as an asset until the
units are sold. Fixed overhead is a necessary cost of production and is thus treated as an
inventoriable cost.
# Explain why variable costing is more appropriate for management decision-making.
Variable costing is more appropriate for internal decision making, because it is not affected
by the level of production, as is absorption costing. Under absorption, net income will
increase as more units are produced due to the inventorying of fixed overhead. Such is not
the case under variable costing, where fixed overhead is expensed as incurred.
# Absorption costing treats all manufacturing costs as product costs.

Advantages
 conform with US GAAP
 takes into account all of the costs of production, not just the direct costs as is the case
with variable costing
 provides a company with a more accurate picture of profitability than variable costing
Disadvantages
 Manager can manipulate absorption income by overproducing.
 Variable costing considers only variable manufacturing costs to be product costs.

Advantages
 Most agree about its superiority for internal reporting. It is far better suited than
absorption costing to the needs of management.
 Under the variable costing method, a production manager can manipulate income
levels by deferring costs but not by overproducing.
 Under variable costing, the cost data for profit planning and decision making are
readily available from accounting records.
 Profits and losses reported under variable costing have a relationship to sales
revenue.
 Proponents of variable costing maintain that fixed overhead is more closely correlated
to capacity to produce than to the production of individual units.
 It concentrates on the contribution that each segment makes to the recovery of fixedcosts.
 leads to better pricing decisions.
Disadvantages
 Not conform with US GAAP
 Variable costing does not assign fixed cost to units of products. So the production
costs cannot be truly matched with revenues.
56
# Discuss how contribution margin can be used as a performance evaluation tool.
Contribution margin is the difference between total revenues and operations costs. It explains
why operating income changes as the number of units sold changes. It helps to evaluate if
sales volume is sufficient to insure profitability. Contribution margin contributes to covering
fixed costs and it is a critical component in breakeven (cost/volume/profit analysis) to
determine if sales are sufficient.
# Identify and explain three disadvantages of using a predetermined plant-wide overhead rate to
allocate overhead costs.
A plantwide allocation system may work well for some companies but may end up distorting product costs if different
departments incur different amounts of manufacturing overhead or if different products use departments to a different extent.
When either or both of these conditions exist, the plantwide overhead rate will likely distort product costs, allocating higher than
actual costs to departments that do not incur certain costs and higher than actual costs to products that do not use all
departments as part of production. It usually does not provide valuable information
to the cost control and improvement of internal controls
# Identify and explain three benefits of using departmental overhead rates to allocate overhead
costs.
1-A departmental overhead rate does a better job of matching each department’s overhead costs to the products that use the
department’s resources.
2- It provides more valuable information to the cost control and improvement of internal controls.
3- It also provides the right incentive for managers to make decisions that are consistent with the top management and evaluate
their performance fairly.
# important notes
 the difference in operating income can be explained by the difference between the Ending inventory in units and the
beginning inventory in units, multiplied by the budgeted fixed manufacturing cost per unit.
 Since beginning inventory was 6,000 and ending inventory was 5,200, inventory decreased by 800
units which means sales exceeded production. If production is less than sales, operating income is
higher under variable costing. It follows that income is lower under absorption costing.
 The two most appropriate factors for budgeting manufacturing overhead expenses are Management judgment and
production volume.
 Practical capacity is based on realistic, attainable levels of production and input efficiency and is the most
appropriate denominator level to use in selecting an overhead application rate.
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 In labor intensive industries, overhead is usually allocated based on a labor activity base. If more overhead is
incurred by the more highly skilled and paid employees, the overhead rate should be based upon direct labor cost
rather than direct labor hours.
 Annual overhead application rates smooth seasonal variability of overhead costs and activity levels.
 Normal costing can provide more timely information about job and product costs, and it can helpfully smooth
product costs throughout a period, but it cannot in and of itself improve the accuracy of costing.
 When allocating service department costs to production departments, the method that does not consider different
cost behavior patterns is the Single-rate method because The single-rate method combines fixed and variable costs.
However, dual rates are preferable because they allow variable costs to be allocated on a different basis from fixed
costs.
 Service department costs are indirect costs allocated to production departments to better determine overhead rates
when the measurement of full (absorption) costs is desired. Overhead should be charged to production on some
equitable basis to provide information useful for such purposes as allocation of resources, pricing, measurement of
profits, and cost reimbursement.
 Gross market method is the same as sales value method.
 The preferable accounting for the by-product’s net realizable value is as A reduction in the common cost to be
allocated to the three main products
# important questions to be solved

- (2.5 -13.5
CMA Part 1 58
VIP Handouts
Unit 8
# Lean manufacturing
 expands the concept of JIT. The central focus is on accomplishing more with fewer resources (labor, equipment, space,
etc.), providing customers with what they want, and meeting their expectations.
# The five principles of lean manufacturing.
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- Value involves identifying the features of the product or service that are valuable for the customer.
- Value stream requires
- processes (if possible) that do not add value.
- examining every process within the production of a product
- identifying processes that add value, and
- Removing Flow and pull incorporates designing the production process to be capable of maximizing the flow of the
product initiated by the pull of customer demand (i.e., only produce what the customer wants). This is where lean
manufacturing and JIT principles coincide.
- Empowerment provides each employee with the knowledge and authority to make valuable and timely decisions in
order to
- add customer value and
- eliminate waste from the process.
- Perfection focuses on making incremental improvement in each process with perfection as the goal
# Role of Kanban
- is one of the many elements in the JIT system and was developed by the Toyota Motor Corporation.
- Kanban means ticket. Tickets (also described as cards or markers) control the flow of production or parts so that
they are produced or obtained in the needed amounts at the needed times.
- basic kanban system includes
- A withdrawal kanban that states the quantity that a later process should withdraw from its
predecessor;
- A production kanban that states the output of the preceding process; and
- A vendor kanban that tells a vendor what, how much, where, and when to deliver
- Kanban is essentially a visual workflow management system.
# How Kanaban works.

- When a worker sees a kanban, the card or ticket acts as authorization to release inventory to the next step. Work cannot
move to the next stage until a kanban indicates the next stage is ready for it.
#Theory of constraints (TOC) is a system to improve human thinking about problems.

Steps in a TOC
-
1. Identify the constraint.
2. Determine the most profitable product mix (short-term profit
maximization)TM/Unit – Hour
3. Maximize the flow through the constraint (Drum-Buffer-Rope system)
4. Increase capacity at the constraint (Short-term – Medium-term)
5. Redesign the manufacturing process for greater flexibility and speed (Long-term)
 Throughput costing (supervariable costing), recognizes only direct materials costs as
being truly variable. Throughput margin = Sales – DM
# Outsourcing is the day-to-day execution of a business function by a third-party service

provider.
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Advantages
 enables a company to focus on its core business
 reliable service
 reduced costs
 avoidance of the risk of obsolescence
 access to technology
Disadvantages
 dependence on an outside party
 loss of control over a necessary function
 less information privacy
# JIT views inventory as a liability and limits output to the demand of the subsequent
operation and is a total system of purchasing, production, and inventory control
- Is a pull system----- items are pulled by current demand, not pushed through by
anticipated demand.
- Advantages
 Higher productivity
 reduced order costs as well as carrying costs
 The ultimate goal is increased competitiveness and higher profits
 lower inventory taxes, pilferage, and obsolescence risks.
 elimination of the need for certain internal controls
 eliminate central receiving areas, hard copy receiving reports, and storage areas
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 Materials Requirements Planning (MRP) enables a company to fulfill the requirements of
the MPS by coordinating both the manufacture of finished goods parts and the arrival of
the raw materials.
 MRP is a push system; i.e., the demand for raw materials is driven by the forecasted
demand for the final product.
 Some benefits of MRP are
 Reduced idle time
 Lower setup costs
 Lower carrying costs
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CMA Part 1
VIP Handouts
Unit 9
63
# Simple regression its definition , advantages , and disadvantages.
- Defination.
- is the process of deriving a linear equation that describes the
relationship between two variables using one independent variable.
- Advantages of regression analysis
• It's a quantitative method and as such objective
• Used in forecasting
• Its important tools for budget and cost accounting
• It uses data efficiently.
- Disadvantages of regression analysis
• Outputs of regression can lie outside the relevant range.
• The regression line may be ultrasensitive to outliers.
# Learning curve analysis its definition , advantages , and disadvantages.

The defination
 reflects the increased rate at which people perform tasks as they gain experience so the time
required to perform a given task becomes progressively shorter during the early stages of
production.
 Learning Curve is a mathematical expression of the phenomenon that incremental unit costs to
produce decrease as managers and labor gain experience from practice and as better methods
are developed.
- Benefits of learning curve
• aids in cost control.
• aids in product pricing.
• used in budgeting
• helps improving the productivity of the employees in an organization.
• Passing knowledge to others boosts the learning curve of the other person.
64
- Limitations of learning curve
• the difficulty in knowing the shape of the learning curve and the percentage they
should use in calculations.
• is appropriate only for labor-intensive operations involving repetitive tasks
# Expected value
 is a means of associating a dollar amount with each of the possible outcomes of a
probability distribution
 The expected monetary value of an act is the Sum of the conditional profit (loss) for
each event times the probability of each event’s occurrence.
Benefit --- allows a manager to apply scientific management techniques to
applications.
limitation --- it is based on repetitive trials, whereas in reality, most business decisions
involve only one trial.
# The expected value of perfect information
 is the Difference between the expected profit under certainty and the expected monetary
value of the best act under uncertainty.
# States of nature.
 In decision theory, those uncontrollable future events that can affect the outcome of
a decision are
 Dependent variable is a variable whose variations depend on another variable usually the
independent variable and it is indicated by (Y)
 Independent variable is a variable whose variations do not depend on another variable but
the researcher experimenting and it is indicated by (X)
 Time series analysis (also called trend analysis) is the process of projecting future trends
based on past experience so it uses historical values only. It is a regression model in which
the independent variable is time.
 Coefficient of determination (r 2) (Coefficient of correlation squared) is a measure of how

good the fit between the two variables is and it is the proportion of the total variation in the
dependent variable that is accounted for by the independent variable.
 What does an r2 value of .89 mean?

- It means that .89 of the variation in the dependent variable is accounted for by the
independent variable and it is considered a strong relationship.
65
Give me another technical model for simple regression
 High low method
 Time series
 Benchmarking is an ongoing process that entails quantitative and qualitative measurement

of the difference between the company’s performance and the performance by the best in
the world. The benchmark organization need not be a competitor.
- Benchmarking steps
 select and prioritize benchmarking projects.
 organize benchmarking teams.
 benchmarking team must thoroughly investigate and document internal processes.
 Researching and identifying best-in-class performance. (most difficult phase)
 The data analysis phase entails identifying performance gaps
 Leadership is most important in the implementation phase because the team must
be able to justify its recommendations.
Benefits of benchmarking include

 Best practices are identified and defined.
 Alternative solutions are evaluated.
 The competitive position is strengthened.
 The company goals are questioned.
 More people are held responsible for their performance.
Limitations of benchmarking include

 lack information
 lack of understanding
 increases dependency
 resistance from the employees towards the change
 KEPI –NONFININCIAL
 Customer satisfaction
 Quality
 Retention
 Market performance
66
 Costs of Quality The organization should attempt to minimize its total cost of quality
Conformance costs Nonconformance costs
Internal failure External failure
Prevention Appraisal
(Before Shipment) (After Shipment)
Financial measure of
Financial measure of Financial measure of
customer
internal performance internal performance
satisfaction
Statistical Costs of detecting units Lost profits from a
Design reviews quality control that do not conform to decline in market
programs product specifications share
Preventive maintenance Inspection Scrap – Rework Return products
Scheduled Tooling changes –
Testing Cancel orders
maintenance Retesting
Employee training Unplanned downtime Rejection
Review of equipment Lost output - Redesign
Warranty obligations
design of product
Expediting operations Product liability –
Evaluation of suppliers
after delays Claims
Process engineering Lost learning opportunities Environmental costs (Fines)
Solution is to provide
Solution is to provide
all employees with
all employees with
training about the
quality training to
importance of
reduce all types of
providing quality to
quality costs.
customers.
# Porter’s Five Competitive Forces determines long term profitability by long term ROI.
2- Intensity of rivalry among existing firms.
3- Threats of new entry.
4- Threats of substitutes.
5- Threats of suppliers bargaining power.
6- Threats of customers bargaining power.
# What is strategic planning.
 Strategic planning establishes the general direction of an organization. It embodies the
concerns of senior management and is based specifically on
1. identifying and specifying organizational objectives;
2. evaluating the organization’s strengths and weaknesses;
3. assessing risk levels
4. identifying and forecasting the effect of external (environmental) factors relevant to
67
the organization.
5. deriving the best strategy for reaching the objectives, given the organization’s
strengths and weaknesses and the relevant future trends; and
6. analyzing and reviewing the capital budgeting process and capacity planning.
68
CMA Part 1
VIP Handouts
Unit 10
69
1-Explain the role of a sales budget in the development of the annual
profit plan.
 The sales budget is often regarded as the cornerstone of the entire budget.
 A firm attains its desired goals through sales.
 Almost all activities of a firm emanate from efforts to attain sales
goals and sales growth.
 An inaccurate sales forecast can render the entire budget a futile exercise
and imposes costly expenses to the company as well as its suppliers
2-Identify four factors that should be considered when preparing a sales forecast.
The sales budget should consider:

• Current sales levels and sales trends of the past few years
• General economic and industry conditions
• Competitors actions and operating plans
• Pricing policies
• Credit policies
• Advertising and promotions
# Top-down (authoritative) budgeting is imposed by upper management

-Advantages
 Ensures consistency across all functional areas.
 Increases coordination of divisional objectives.
 less complex and time-consuming.
- Disadvantages
 Imposed by upper management.
 Reduces the communication between employees and management.
 Has less chance of acceptance by employees.
 Bottom-up (participative) budgeting is characterized by general guidance from the
highest levels of management, followed by extensive input from middle and lower
management
Advantages
 Goal congruence
 Encourages employees to have a sense of ownership of the process
 Enables employees to relate performance to rewards or penalties
 Optimal decision making
Disadvantages
70
 Higher costs in time and money
 Quality of participation is affected by the objectives, and beliefs of those involved
 Creation of budgetary slack (Padding)
 Zero-based budgeting is a budget and planning process in which

 Each manager must justify his department’s entire budget every budget cycle.
 Manager must build the budget every year from a base of zero.
 All expenditures must be justified.
 Encourage reexamination of all costs in the hope that some can be reduced or
eliminated.
 Dis. Adv. requires more time and effort to prepare.
71
Mohamed Samir VIP Handouts
 Flexible budget
 is a plan for varying levels of activity
 adjusts for changes in the volume of activity.
 It can be adapted to any level of production.
 Formulated based on the actual quantities and standard costs.
 helps management determine how much of the static budget variance arose
from
- Inaccurate forecasts of sales. (Sales volume var.)
- Ineffectiveness and inefficiency in operations. (Flexible bud. Var.)
 Master budget also called the comprehensive budget or annual profit plan,
encompasses the organization’s operating and financial plans for a specified
period (for one level of activity)
4- Identify and describe two best practice guidelines for the budget process .
The budgeting processes should include

1- the formation of a budget committee,
2- determination of the budget period .
3- specification of budget guidelines .
4- preparation of the initial budget proposal .
5- budget negotiation, review, and approval, and budget revisions.
,,,
A budget committee oversees all budget matters and usually consists of at least one senior manager. The
committee issues budget guidelines based on plans emanating from the reviews of the firm’s strategy, external
and internal factors goals and objectives of the budget period, and experience gained from implementing the
current budget.
Based on the budget guidelines, managers prepare initial budgets and discuss and negotiate their budget
proposal with superiors.
The budget committee or the chief executive officer gives the final approval of the budget.
5- Identify and describe four characteristics that define a successful budgeting

process.
Characteristics that define successful budgeting processes include:
• top management involvement
• participative or bottom-up approach which allows employees throughout the
organization to
have input on the budget-setting process
‫دعواتكم بالتوفيق‬
• promoting coordination between functional areas of the organization
• providing communication and feedback throughout the process
• using different budgets for planning than for performance evaluations to help
alleviate some of the behavioral issues with the budgeting process
• using budgeting to motivate employees
• setting clear goals and expectations at the beginning of a process
6-Discuss the financial impact of excess inventory.

Excess inventory impacts financials in the following ways:
• Consuming large warehouse space.
• Costing additional fees until use or sale of the inventory, e.g. warehousing fees.
• Increasing the risk of inventory obsolesces.
• Using company’s funds.
7-Define the master budget and outline the process that should be followed in order to
prepare the budget at Nile River Company.
Master budget is an organization’s operating and financing plan for the upcoming period; it translates short-term
objectives into action steps.
The budgeting process usually includes the formation of a budget committee; determination of
the budget period; specification of budget guidelines; preparation of the initial budget proposal;
budget negotiation, review, and approval; and budget revision.
8-Identify the components of the sales budget. Explain the interrelationships

of the sales budget with the other components of the master budget.
The sales budget has three components: forecasted sales volume, forecasted sales mix,
and budgeted selling prices.
The role of Sales budget is often regarded as the cornerstone of master budget at any
company, and Nile River Company is not an exception. In budgeting and planning process,
sales budget should be completed first. After preparation of sales budget, the production
budget and all the
other budgets for the company are derived from the sales budget. If sales are expected to be
low, there will be no need for much inventory, many sales manpower, and so on. On the
other hand, if sales are expected to be high, there will be more need for these items.
9-Other than sales, identify two other budgets that should be prepared in order to prepare
budgeted net operating income.
Other than sales, the other two budgets that should be prepared in order to prepare budgeted net operating income
before interest expense and income tax are:
• Cost of goods sold budget
• Selling and general administrative expenses budget
10-Identify and explain two benefits of reducing the incidence of stock-outs
Stock-outs means disappointed customers, sales lost to competitors. Stock-outs may lead torush
production, incurring overtime, more errors, rush shipments of materials.
11-Define budgetary slack. Identify and explain two ways this business can
reduce the incidence and effect of budgetary slack.
Budgetary slack occurs when employees attempt to cushion budgets by either understating
projected sales or overstating projected costs. Employees do this in order to make sure they will
meet the budget later at the end of the period. Employees may also do this in order to appear that
they have exceeded expectations. Budgetary slack will hurt the organization because it misleads
management about the true position of the organization. Budgetary slack can lead to inefficient
resource planning and poor coordination of activities within the organization.
Business can reduce the incidence and effect of budgetary slack by:
• Use budgets for planning, but not evaluation.
• Give rewards for accurate, as well as high budgets.
• Use additional measures for evaluation in additional to budget success.
• Have managers learn more about subordinates’ day-to-day work.
• Use external benchmark performance measures.
#Traditional budgeting focuses strictly on financial measures.

# Practical standards, also called attainable standards, are more likely to meet with worker acceptance
than standards based on an unachievable ideal.
#A team development approach to standard setting involves interaction among various

groups or
individuals, including product line managers, the departments for which the standards are
being
developed, accountants, and industrial engineers.
#Standards should be based on accounting, engineering, or statistical control studies.
# Operating budgets seldom set out long-range strategic concepts because they usually deal
with the quantitative allocation of people and resources. Strategic concepts are overall goals
for the organization and are almost always stated in words.
CMA Part 1
VIP Handouts
Unit 11
1-Identify one disadvantage for the organization to focus only on ROI and RI, respectively.
RI is a flat dollar amount which makes comparing business units of different sizes difficult.
ROI may lead managers to reject investment opportunities with a lower ROI which is lower than
current or targeted RLI but is strategically beneficial to the organization as a whole.
2-Identify the items that Raddix should control if it is to be evaluated fairly by using the ROI
or RI performance measures.
To be evaluated fairly as an investment center, Raddix must control all items related to profit and
investment. The division should control all elements of the business except the cost of invested
capital which would be controlled by Arlington.
3-A firm's capital intensity ratio is.
its assets that increase when sales increase divided by sales
The capital intensity ratio is the amount of assets required per dollar of sales. It is assets that
increase when sales increase divided by sales. The capital intensity ratio of a firm affects its capital
requirements. A company with a high assets-to-sales ratio will require more assets for a given
increase in sales and therefore will have a greater need for external financing than a company with a
lower assets-to-sales ratio
CMA Part 1
VIP Handouts
Unit 13
1-Identify and explain four responsibilities of the Board of Directors’ with respect to
ensuring that the company is operated in the best interest of shareholders.
The Board of Directors’ responsibilities include the following:
• to be a review organ – without such an organ, top management has no way to control itself.
• To remove top management when it fails to perform. A board capable of removing
nonperforming top management has real power.
• To be a public relations and community relations organ. The board needs easy and direct
access to the various publics and constituents.
• To develop policy and implement procedures necessary to limit conflicts of interest and to
ensure compliance with both the law and ethical principles at all levels of the enterprise.
• To ensure that the corporate compliance programs are in place.
The board is obligated to exercise a good faith judgment that the corporation’s information and
reporting system is, in concept and design, adequate to assure that appropriate information will
come to its attention in a timely manner as a matter of ordinary operations. There is a
presumption that in making a business decision that the directors of a corporation will act on an
informed basis, in good faith, and in the honest belief that the action taken was in the best
interest of the company.
2-Describe three activities relating to auditors prohibited under Section 201 of the Sarbanes-
Oxley Act Section 201 relating to auditors’ activities.
Section 201
Services Outside the Scope of Practice of Auditors – Prohibited Activities
An accounting firm providing audit services to a client can’t perform any of the following:
- Bookkeeping or other services related to the accounting records of financial statements.
- Financial information systems design and implementation
- Appraisal or valuation services, fairness opinions, or contribution-in-kind reports
- Actuarial services
- Internal audit outsourcing services
- Management functions or human resources
- Broker or dealer, investment advisor, or investment banking services
- Legal services and expert services unrelated to the audit
3-Will the company be compliant with the Sarbanes-Oxley Act Section 302, if the chairman signs off on the
appropriateness of the financial statements? Explain your answer.
Section 302: Corporate Responsibility for Financial Reports
The CEO and CFO of each public company issuing financial reports must prepare a statement
that accompanies the audit report to certify the appropriateness of the financial statements and
disclosures contained in the periodic report and that those financial statements and disclosures
fairly present, in all material respects the operations and financial condition of the issuer. The
CEO and CFO must knowingly and intentionally violate this requirement in order to be liable.
The company will not be complaint if the Chairman of the board signs off on the financial
statements since Sarbanes-Oxley requires the CEO and CFO to make this certification, not the
Chairman of the Board.
4-In the performance of an internal audit, audit risk is best defined as the risk that an auditor
May fail to detect a significant error or weakness during an examination
Audit risk is the risk that the external auditor may unknowingly fail to modify his or her opinion on financial statements
that are materially misstated. Its elements are control risk, inherent risk, and detection risk. For internal auditing, the
overall audit risk extends not only to financial statements but also to unwitting failure to uncover material errors or
weaknesses in the operations audited.
There may be several different reasons for the failure, and these may be in risk categories such as sampling risk,
detection risk, or control risk
5-In accordance with the Sarbanes-Oxley Act, which one of the following certifications is not included in periodic
statutory financial reports?
The major internal control provisions of the Foreign Corrupt Practices Act cause
The Sarbanes-Oxley Act does not require certification of the major internal control provisions of the Foreign Corrupt
Practices Act.
CMA Part 1
VIP Handouts
Unit 14
1-Explain the objective of a disaster recovery plan.
The objective of a disaster recovery plan is to ensure that a company will be able to operate
despite any interruptions such as power failures, system crashes, natural disasters, etc. It is a
process and set of procedures that organizations follow to resume business after a disruptive
event. Important components include:
• Disaster recovery team, including a primary leader and an alternate leader.
• Designation of a specific backup site to use for alternate computer processing – i.e. hot site or
cold site.
• Test, document and update the plan as required. Review the plan continuously.
• Also include backups for hardware.
2-Explain the importance of backing up all program and data files regularly and storing them at a secure remote site.
The regular backup and proper storage of program and data files will reduce financial risk and
business risk. Misstatements might arise if data is lost due to inadequate backing up. Loss of data
can also cause severe interruptions of business operations and loss of income.
3-Explain the difference between a hot backup site and a cold backup site.
A hot site is fully operational and can come online more or less immediately. A flying-start hot
site has the latest data and software, so it can switch on in only a few seconds after the main site goes down.
A cold site is basically a bare facility, where hardware can be installed relatively quickly (day
not minutes). A warm site is somewhere in between, with some communications andnetworking
capabilities, but requiring some hardware / software installation.
The choice of the level of backup site preparedness is based on the company’s weighing the cost
of being off-line (lost sales, etc.) versus the cost of buying / maintaining the level of backup.
4-Besides disaster recovery, system security is also an important control to the business. Identify three
means by which management can protect programs and databases from unauthorized use.
Means that management can use to protect programs and databases from unauthorized use
include:
Facility and hardware controls: Control access to the building, locate data center away from
public areas, give access to only authorized personnel, use key codes or biometrics for entrance,
etc.
Network controls: Use private network or use virtual private networks to secure connection to
Internet, add password protection and require periodic password change, encrypt data before data
transmission, ensure correct destination address by routing verification, verify message delivery
via message acknowledgement, detect and defend attacks through virus protection software and
firewall, alert intrusion by intrusion detection system, etc.
5-Explain input controls, processing controls, and output controls .
These controls are all application controls and they are necessary to prevent, detect, and correct
errors and irregularities in processing transactions.
Input controls are application controls over data input. Input controls help ensure the validity,
accuracy, and completeness of the data entered into an accounting information system. It is
usually cost effective to test input data for the attributes of validity, accuracy, and completeness
as early as possible. Data that is rejected at time of input can be corrected more easily, and it is
not cost effective to screen data throughout the process. Input controls help assure that what is
received by the machine is complete. Each entry can be checked to make sure that the fields are
filled out properly and for reasonableness or logic. Input controls help with inaccurate recording
of input and preventing missing information.
Processing controls are application controls that are intended to protect the processing of data.
The purpose is to prevent, detect and correct errors and irregularities in processing transactions.
Processing controls have been designed to prevent or discourage the improper manipulation of
data and to ensure the continued satisfactory operating of the hardware and software. Processing
controls prevent duplicate data and the loss of files during processing, processing performed too
late, or incomplete processing. Processing controls focus on the manipulation of accounting data
after they are input. An important objective of processing controls is to contribute to a good audit
trail.
Output controls cover the accuracy and reasonableness of the information processed. They also
cover the retention of output reports. The total records processed can agree with the records
input. Pre-numbered forms can help control output since these can be accounted for. Output
controls ensure the outputs’ validity, accuracy and completeness. Two main types of output
controls are validating processing results and regulating the distribution and use of printed
output.
6-Define data encryption and describe why there is a much greater need for data encryption
methods when using the internet.
Data encryption is scrambling the data in a message in a systematic way in order to prevent
competitors from electronically monitoring confidential data transmissions. Through an
encryption technique, data is converted into a scrambled format prior to its transmission and
converted by into a meaning form once data transmission is finished. The encrypted data can be
read only by a person with a matching decryption key.
Data encryption is particularly important when using the internet as the routine use of systems
includes potential unauthorized access to computer systems and its data through electronic
eavesdropping, which allows computer users to observe transmissions intended for someone
else, or cause errors in data transmission. Managers use data encryption to protect information.
7-Identify two ways that Acme could limit access to its data and computer programs to authorized users.
To better protect its programs and databases from unauthorized use, the company should
consider logical security controls. These controls include e-IDs and passwords, system
authentication requirements, biometrics, logs of log-on attempts, application level firewalls,
antivirus and antispyware software, intrusion detection systems, encryption for data in transits, or smart cards.
8-How can separation of duties enhance systems security?
Highly integrated accounting information systems often combine procedures that used to be
performed by separate individuals. Consequently, an individual who has unlimited access to the
computer, its programs, and live data also has the opportunity to execute and subsequently
conceal a fraud. To reduce this risk, a company should design and implement effective
separation of duties control procedures. It is essential to divide the authority and responsibility
for these two functions. The design and implementation of effective separation of duties control
procedures make it difficult for any one employee to commit a successful fraudulent activity.
9-Identify two accounting system duties that should be kept separate to improve internal controls
Accounting system duties that should be kept separate include:
• The data control group should review records for evidence of unauthorized computer access.
• Computer operators should not have access to program documentation or logic.
• Two operators should be in the computer room during processing of data,
• Maintain a processing log and review periodically for evidence of irregularities.
• Rotate computer operators among jobs to avoid any singles operator always overseeing the
same application.
• Require formal authorizations for program changes, submit written description of changes to
a supervising manager for approval.
• Test changes to programs prior to implementation.
• A data control group should maintain registers of computer access codes, help acquire new
accounting software, coordinate security controls with specific computer personal, reconcile
input and output and distribute output to authorized user. This person should be independent
of computer operation which inhibits unauthorized access to computer facility and
contributes to more efficient data processing authorizations.
10-Identify and explain three ways by which Logan’s management can protect programs such as the payroll system
from unauthorized use.
Management can protect programs such as the payroll system described above from
unauthorized use by the following:
• Facility monitoring (surveillance systems, cameras, guards, exterior lighting
• Access controls to facilities/datacenter or computer (biometrics, access cards)
• Alarm systems (fire, burglar, water, humidly, power fluctuations)
• Shred sensitive documents
• Proper storage and disposal of hard drive and other electronic storage media
• Secure storage of backup copies of data and master copies of critical software.
11-Identify three ways that Logan Associates can ensure that limited access to physical hardware can be achieved.
Management should also ensure that access to physical hardware is limited, using the following:
• e-ids and passwords
• system authentication
• biometrics
• logs of log on attempts
• application level firewalls
• anti-virus and anti-spyware software
• intrusion detection systems
• encryption for data in transit
• smart cards
12-Auditing through the computer techniques key words .

-Integrating test facility key words .
-Live production
- Real time
- Concurrent auditing techniques
- Dummy files
- Generalized audit software
-is a major aid in retrieving information from computerized files
13-Accounting controls are concerned with the safeguarding of assets and the reliability of financial records.
Consequently, these controls are designed to provide reasonable assurance that all of the following take place
except.
Compliance with methods and procedures ensuring operational efficiency and adherence to managerial policies.
Because
An accounting control is concerned with the safeguarding of assets and the reliability of financial records, whereas
an operational or administrative control is concerned with operational efficiency and effectiveness. Thus, compliance
with methods and procedures ensuring operational efficiency and adherence to managerial policies is an objective of an
operational control.
14-Recording of cash receipts and preparation of bank reconciliations this will violate segregation of duties , how ?
Recording of cash establishes accountability for assets. The bank reconciliation compares that recorded
accountability with actual assets. The recording of cash receipts and preparation of bank
reconciliations should therefore be performed by different individuals since the preparer of a
reconciliation could conceal a cash shortage. For example, if a cashier both prepares the bank deposit
and performs the reconciliation, (s)he could embezzle cash and conceal the theft by falsifying the
reconciliation
15-One control objective of the financing/treasury cycle is the proper authorization of company transactions dealing with debt
and equity instruments. Which of the following controls would best meet this
objective?
Written company policies requiring review of major funding/repayment proposals by the board of
directors.
Explaination
The control objective of authorization concerns the proper execution of transactions in accordance with management’s wishes. One
means of achieving this control objective is the establishment of policies as guides to action. When a decision affects the
capitalization of the entity, a policy should be in force requiring review at the highest level.
16-Which group has the primary responsibility for the establishment, implementation, and monitoring of adequate controls in
the posting of accounts receivable?
Accounting management cause
Management is responsible for establishing goals and objectives, developing and implementing control
procedures, and accomplishing desired results
17-An employee in the receiving department keyed in a shipment from a remote terminal and
inadvertently omitted the purchase order number. The best systems control to detect this error would be
Completeness test cause
A completeness test checks that all data elements are entered before processing. An interactive system can be
programmed to notify the user to enter the number before accepting the receiving report.
18-A company makes snapshot copies of some often-used data files and makes them available on theserver.
Authorized users can then download data subsets into spreadsheet programs. A risk associated with this means of
providing data access is that data.
Currency may not be maintained. cause

Snapshot files are created at a fixed time. Thus, by the time an employee downloads the data subset, it could be obsolete. Snapshot
data available to download into spreadsheets may contain old or erroneous information that was later corrected on the main file
system
19-The online data entry control called preformatting is
The display of a document with blanks for data items to be entered by the terminal operator.
20-Field checks in a computerized accounting system.
Should be performed on transactions prior to updating a master file
21-An example of an internal validation check is
Recalculating an amount to ensure its accuracy
22-An internal information systems control questionnaire that includes computer input controls, the distribution
of output, and record-retention procedures is designed to review and assess which one of the following?
Computer operations cause
Computer operations is the part of the information systems function involved in the day-to-day
processing of data and distribution of results to the appropriate parties .
23-Which of the following terms best describes the type of control practice evidenced by a segregation of duties
between computer programmers and computer operators?
General control cause
Segregation of duties is a systems general control. For example, there should be a segregation of
duties between programmers and computer operators
24-Which of the following statements regarding security of email is correct?

Passwords are effective in preventing casual access to another's email
25-11Attacks on computer networks may take many forms. Which of the following uses the computers of innocent
parties infected with Trojan horse programs
A distributed denial-of-service attack cause
A denial-of-service (DoS) attack is an attempt to overload a system (e.g., a network or web server) with false messages so that it
cannot function (a system crash). A distributed DoS attack comes from multiple sources, for example, the machines of innocent
parties infected by Trojan horses. When activated, these programs send messages to the target and leave the connection open. A DoS
may establish as many network connections as possible to exclude other users, overload primary memory, or corrupt file systems.
26 –control designed to catch errors at the point of data entry .
Self checking digit
27- To properly motivate divisionalmanagement , the divisional ROIs should be

Different based upon strategic goals of the firm
CMA Part 1
VIP Handouts
Unit 15
1- The chart of accounts.

includes all of the account numbers used in the accounting information system
but would not include any customer information.
2-Management information system MIS classified by function or activity such as the following :
- Accounting
- Manufacturing
- Finance
- Logistics
- Human resources
- Marketing
3-An accounting information system

- is a subsystem of MIS
- is composed of
- General ledger or financial information system.
- Management reporting system MRS
- Transaction processing system TPS
- Does not use records based on predictive systems.
-
4-Database
Is an organized collection in a computer system.
5-Database management system DBMS
Is a set of computer programs that
- create the database.
- maintain the elements.
- safeguard the data from loss and destruction
- make the data available to programs and applications .
6- DBMS examples
- Oracle.
- Access..
- DB2
- SQL server.
7-Which one of the following distinguishes a management information system from a

transaction processing system?
Capability to provide data for decision-making support
8- OLAP online analytical processing

- Is multi-dimensional data analytics.
- Is the ability of analyzing large amounts of data from various perspectives.
- Is an integral part of data warehouse concept.
- Using OLAP users can analyze data in manydimensions such as sales by product , sales by geography ,
and by sales persons.
- Replacing technologies of OLAP are :
-in memory analytics.
-search engine technology.
9- Data marts.
- Is a subset of data warehouse that can be tailored to data user requirements.
- Are developed for specific groups of users.
- They created for individual lines and departments.
10- Data dictionary

- Is a file that describe both physical and logical characteristics of every data element in
database.
- Data dictionary include
-The name of the element.
-The amount of desk space required to store the data element.
-What kind of data allowed in the data element.
-Format
-Usage.
-Meaning.
-Size.
11- Data base administrator

- Is responsible about maintaining and developing database and create controls to protect its integrity.
- Is responsible about creating ,maintaining ,securing ,restricting access to ,redefining ,and restructuring
the database .
12- Datbase mapping facility

Is a software for evaluating and document the structure of the database.
13- Data warehouse
- Contains not only current data but past and previous data from throughout the
organization
- Data from all operational systems integrated , consolidated , and standardized in an
organization wide database.
- These data can be stored in one place can be read but not changed .
14- Data cleansing

- Is cleansing the dta that is incorrect and incomplete before loading it to database.
- It improves the quality of data .
- Data cleansing increased when multiple data integrated .
15- Enterprise performance management EPM

Is associated with :
- Budgeting and forecasting.
- Business intelligence and ERP.
- Financial reporting.
- Analyzing performance and identifying ways for improve.
16- Ascending hierarchy of storage in database.

Bit – Byte- field – Record –File .
17-Which of the following describes the least effective control to ensure payments are made
only when goods have actually been received?
The remittance advice is matched with the purchase order and approved for payment cause.
Matching the remittance advice with the purchase order only ensures that the payments are legitimate and are invoiced
to the intended vendors.
18-Which of the following controls is most effective in providing assurance that recorded
purchases are free of material errors?
Accounts payable matches the purchase requisition, purchase order, and receiving report and determines
their accuracy.
19-An auditor wants to confirm that every item shipped has an associated sales
order. From what source will the auditor take his or her sample?
Packing slips cause.
The auditor should select the sample from all goods that have been shipped. A packing slip
and a bill of lading are created for every good that has been shipped. Thus, the auditor should
sample, from shipping, copies of packing slips to trace the existence of associated sales orders
.
20-Which of the following procedures ensures that all inventory shipments are billed to
customers?
Shipping documents are prenumbered and are independently accounted for and matched with sales invoices.
21-COBIT.
- Is an acronym for control objective and information technology.
- Is the best known control and governance framework that addresses information technology.
- Its recent version is published in 2018by ISACA.
- framework for the governance and management of enterprise information and technology.
22- Information criteria

- Integrity.
- Reliability.
- Confidentiality
- Compliance.
- Availability.
- Efficiency.
- Effectiveness.
23- Data governance focus areas.

- Strategic alignment.
- Value delivery.
- Resource management.
- IT risk.
- Risk management.
- Performance measurement.
24- Data resources according to COBIT.

- Applications
- People.
- Infrastructure.
- Information.
25- COBIT 5 key principles.
1- Meeting stakeholders needs.
2- Covering enterprise End to End.
3- Applying single ,integrated framework.
4- Enabling a holistic approach.
5- Separating governance from management.
26- Value creation is achieved by balancing 3 components.

1- Realization of benefits.
2- Optimization of risk ( not minimization ).
3- Optimal use of resources.
27- Enabler
Is anything that helps achieve objectives.
28- COBIT 5 the 7 enablers that support IT governance and management.

1- Principles, policies, and frameworks.
2- Organizational structure
3- Services , infrastructure , and application.
4- People , skills , and competencies.
5- Culture , ethics , and behavior.
6- Information.
7- Processes.
29- Governance system and governance framework.

- Governance system is the Rules, practices , and processes that direct and regulate the entity .
- Governance framework is the structure upon which the governance system is built
30 Components or enablers can be

- Generic : can be applied to any circomstances.
- Variant: is designed for specific purpose.
31 –Comparison between Govarnance and management .
Governance Management
Issetting overall objectives , and
Is carrying out activities with the
Concept monitoring progress toward achieve
pursuit of enterprize goals
these objectives.
Practices must
Evaluate, direct,and monitor Build , plan ,run , and monitor
be addressed
COBIT 5
COBIT 5 assocites these activities with
assocites these COBIT 5 assocites these activities with
executive management under the
activities with board of directors
leader of CEO
whome
32- The 3 principles of governance framework.
1- Conceptual model.
2- Open and flexible.
3- Align with major standards.
33- COBIT performance management CPM model.

Measures performance using capability and maturity levels.
34 what are the 3 database cardinalities.

1- One to one.
2- One to many.
3- Many to many.
35- What are the elements of the structure of the database.

- Schema.
- Subschema.
- Record structure.
36- How is the information retrieved from database.

Information is retrieved from database by using a query language such as SQL language .
37- What are the types of the data marts.

1- Dependent : draws on an existing data warehouse.
2- Independent : is created without data warehouse .
3- Hybrid : combines elements of dependent and independent data warehouse.
38- Data governance :

- Encompasses processes , procedures , rules , activities ,methods .technologies that deal with the overall
management of the data assets and data flows within the organization.
- Data governance is a process helps organization manage its assets .
- Data governance is a quality control for data.
- The role of data governance is to ensure that legalities are observed.
39-What data governance manage ?

- Data usibility , integrity , availaibilty , security , privacy , and integrity.
- System availability and maintenance.
- Compliancewith regulations.
- Internal and external data flows within the organization.
40- the six levels of maturity.

0- Incopmplete.
1- Initial.
2- Managed.
3- Defined.
4- Quantitative.
5- Optimizing.
41- Focus area.

Is a governance issue or domain that is associated with group of objectives and their components.
42- Data life cycles.

1- Data capturing.
2- Data maintenance.
3- Data analysis and synsesis
4- Data usage
5- Data publication
6- Data archival
7- Data purging
43- Data can be captured by the following ways :

1- Utilizing data.
2- Data entry
3- Signal reception.
44-4Which of the following control activities should be taken to reduce the risk
of incorrect processing in a newly installed computerized accounting system?
Independently verify the transactions cause.
Independent verification is an important compensating control in the absence of segregation of duties and
reduced individual authorization of transactions. A third party performs the verification to ensure that the
transactions were appropriately processed.
45- Which of the following is an advantage of a computer-based system for

transaction processing over a manual system? A computer-based system
Will be more efficient at producing financial statements cause.
Computer processing permits consistent application of predefined business rules and the performance of
complex calculations in high volume. Hence, computer processing of the accounting transactions reported in
financial statements is more efficient than in a manual system.
46- 10Which of the following statements most accurately describes the impact
that automation has on the controls normally present in a manual system?
Controls must be more explicit in a computer-based system because many processing points that present
opportunities for human judgment in a manual system are eliminated. Cause.
Using a computer does not change the basic concepts and objectives of control. However, the use of computers may modify the
control techniques used. The processing of transactions may be combined with control activities previously performed separately, or
control functions may be combined within the information system activity.
47-Which of the following characteristics distinguishes computer processing from manual processing.
Computer processing virtually eliminates the occurrence of computational error normally associated with manual processing. Cause.
Computer processing uniformly subjects like transactions to the same processing instructions. Once the program is written and tested
appropriately, it will perform the task repetitively and without error. However, if the program contains an error, all transactions will
be processed incorrectly.
48- Factors to be considered in developing a records management policy .
1- Federal , state , local document retention requirements.
2- Requirements of the Sarbanes oxely act of 2002.
3- Statute of limitations information.
4- Accessibilty.
5- Records of records.
49- The COSO framework
consists primarily of a definition of internal control, categories of objectives, components and related
principles, and requirements of an effective system of internal control.
50- Relationship of Objectives, Components, and Organizational Structure.
51- An effective system of internal control

requires that each of the five components of internal control, and relevant principles, is present and
functioning
- Present refers to whether the components and relevant principles exist in the design and
implementation of the system of internal control.
- Functioning refers to whether the components and relevant principles continue to exist in the
operation of the system of internal control.
52- The five components should operate together in an integrated manner how.
- Operating together refers to whether all five components collectively reduce the risk of not achieving
an objective to an acceptable level.
53- Roles and Responsibilities of board of directors Regarding Internal Control.
- Responsible for overseeing the system of internal control.
- Defines expectations about integrity, ethical values, transparency, and accountability through its
authority to select and terminate the CEO.
- Often performs certain duties through committees, which include the
Audit Committee
Compensation Committee
Nomination/Governance Committee
Risk Committee
Finance Committee
54- Roles and Responsibilities of Senior Management Regarding Internal Control.
- Sets the tone at the top and has primary responsibility for establishing proper ethical culture.
- Sets objectives.
- Has overall responsibility for designing, implementing, and operating an effective system of internal
control.
- Maintains oversight and control over the entity’s risks.
- Guides the development and performance of control activities at the entity level.
- Assigns responsibility for establishing more specific internal controls at the different
levels of the entity.
- Communicates expectations.
- Evaluates control deficiencies.
55- Roles and Responsibilities of operational Management Regarding Internal Control.
- Provides the first line of defense for effective management of risk and control.
- Develops and implements control and risk management processes.
56- Roles and Responsibilities of business enabling functions Regarding Internal Control.
- Provide the second line of defense for effective management of risk and control.
- These functions support the entity through specialized skills and include various risk management and
compliance functions.
- Additionally, these functions are typically responsible for the ongoing monitoring of control and risk.
57- Roles and Responsibilities of internal auditor Regarding Internal Control .
- Provide the third line of defense for effective management of risk and control.
- Evaluate the adequacy and effectiveness of controls in responding to risks in the entity’s oversight,
operations, and information systems.
- To remain independent, the internal audit activity cannot be responsible for selecting and executing
controls.
58- Roles and Responsibilities of other entity personnel Regarding Internal Control.
- Everyone in the organization is expected to (1) competently perform his or her appropriate control
activities and (2) inform those higher in the organization about ineffective control.
59- Roles and Responsibilities of external auditor Regarding Internal Control.
- Independent accountants have been required to consider the auditor’s system of internal control as
part of their audit of the financial statements.
- The PCAOB also requires auditors of public companies to examine and report on internal control.
60- Roles and Responsibilities of legislators and regulators Regarding Internal Control.
- The Foreign Corrupt Practices Act and the Sarbanes-Oxley Act set legal requirements regarding internal
control.
61- Internal control only provides reasonable assurance of achieving objectives. It cannot provide absolute
assurance because any system of internal control has the following inherent limitations:
- Established objectives must be suitable for internal control.
For example, if an entity establishes unrealistic objectives, the system of internal controls will be
ineffective.
- Human judgment is faulty, and controls may fail because of simple errors or mistakes.
- Controls may fail due to breakdowns (e.g., employee misunderstanding, carelessness, or fatigue).
- Management may inappropriately override internal controls, e.g., to fraudulently achieve revenue
projections or hide liabilities.
- Manual or automated controls can be circumvented by collusion.
- External events are beyond an organization’s control.
62- The difference between Cyber attacks and Cyber security ?

- Cyber attacks are made for data change , destroy ,and interrupt normal business operations .
- Cyber security is the process of protection of internet connected networks and devices or data from
attacks .
63-what are specific risks of cyber security

- Passwords attacks
- Buffer flow attacks
- Ransomeware
- Malware
- Copy write infringement.
- Phishing
- Denial of service
- Pay per click abuse
64- some defences against cyber attacks

- Firewalls
- Ethical hackers
- Encryption
65- What are the two access controls.

- Logical controls.
- Physical access controls.
66- What are logical access controls.

1- Something you know ( password ).
2- Something you are (fingerprint ).
3- Something you have (security card).
67- What are physical controls.

- Gates and doors.
- Walls and fences.
- Alarm systems.
- Manned guards posts.
- Guard dogs.
- Smoke detectors and fire suppression systems.
- Monitored security Cameras.
68- Which of the following best underlines the need for data archival?
Eventually, the end of lifetime usefulness for the data will be encountered
69- Which of the following is not a reason to have a formal record retention policy?
To enhance the usefulness of records cause
A formal record retention policy only facilitates the management of the records. It does not enhance the
usefulness of records. An organization’s formal policy would include record categorization, record location,
and a retention schedule with guidelines for the length of time to keep records before they are destroyed.
70- A taxpayer is purging old tax returns and related records. Five years ago, he filed a fraudulent return.
What is the length of time the taxpayer’s tax returns and related records should be kept?
No minimum cause.
Returns and related records should be kept indefinitely if a fraudulent return is filed
71- It is too late for an organization to establish a records retention policy.
Once litigation is likely. Cause.
Once litigation is likely, it is too late to establish a records retention policy or to begin complying with a policy
that was not followed in the past. Records of an organization become a focal point when the organization
becomes the subject of litigation.
72- 7Which of the following statements is correct regarding information technology (IT) governance?
A primary goal of IT governance is to balance risk versus return over IT and its processes cause.
According to COBIT, IT governance has several focus areas, including resource management. Resource
management is the optimal investment in and the proper management of critical IT resources. To maintain an
optimal investment in IT resources, the return of the investment should be balanced against the associated
risks of the investment
73- Operating together
the determination that all internal control components collectively reduce the risk of not achieving an
objective to an acceptable level.
74 According to the COSO Internal Control – Integrated Framework, an effective internal controlsystem
requires that‫السؤال دا مهم تريكي في كلمه واحده انا معلمها باللون االحمر‬
A. Internal control components collectively eliminate the risk of not achieving an objective.
B. Each of the internal control components and corresponding objectives is present and functioning.
C. Each of the internal control components is operating independently.
D. Each of the internal control components and relevant principles is present and functioning.
Answer (D) is correct.

According to the COSO Internal Control – Integrated Framework, an effective internal control system requires
that each of the five components of internal control and the relevant principles is present and functioning.
The five components should operate together in an integrated manner.
75-Notes:
- Managing and controlling inventories is part of the production cycle, not the purchasing and
expenditures cycle.
- Managing raw materials is part of the production cycle; the sale of a
single product is not a factor in ordering raw materials.
- Reports from an accounting information system are used internally and are not intended to be used
outside of the organization.
- Transaction files are used to update the information in the master files and serve as the audit trail. The
accountant could compare the receipts to the data in the transaction files to verify that sales are being
recorded correctly.
- Cash budgets are an output of the financing cycle, not an input.
- All records do not need to be preserved indefinitely. Records that are no longer needed should be
destroyed at the appropriate time.
- HR practices are not part of data governance.
- Activity logging provides an audit trail of user activity
76-The data definition language.
defines the database structure and content, especially the schema and
subschema descriptions, including the names of the data elements contained in the database and their
relationship to each other.
77-Bar codes, RFID tags, and GPS are technologies that are used most predominantly in which transaction
cycle?
Production cycle cause.
Automated technology is used in the production cycle to reduce input errors and support fast and accurate
data collection for production.
78-In an accounting information system, where is information such as ledger account numbers, customer
account numbers, and customer histories stored?
Master files cause.
All of the items listed are stored in master files, which store permanent information
79-The chart of accounts.

includes all of the account numbers used in the accounting information system
but would not include any customer information.
80-Transaction files.
store details about every transaction but would not include permanent data such as
customer account histories.

81-the general ledger .
is where journal entries are posted, and the ledger would not contain customer information.
82- Which of the following is not considered a "record" in relation to records management?
A. Recent tax legislation affecting the company's current fiscalyear.correct
B. Monthly bank statements mailed to the company headquarters.

C. Employees' electronic timecards.
D. Customer information in the company's CRM system.
Correct Answer Explanation:
Tax legislation is generated by governmental authorities and is publicly accessible and does not need
to be retained as records subject to record management.
83- Which of the following is a technical computer crime that requires sophisticated knowledge of computers
and/or networks?
A. Social engineering.
B. Phishing.
C. Denial of service attack.correct
D. Dumpster diving.
A denial of service (DOS) attack involves overwhelming a server or cluster of servers to the point that
they are unable to respond to legitimate requests, thereby making them unavailable. A DOS attack
requires a reasonable amount of technical and network skills to successfully execute
84- Which of the following statements most accurately describes how data flows through the data life cycle?
A. Data flows through each stage of the life cycle in a specific order.
B. Data flows through some stages of the life cycle multiple times.correct
C. Data flows through each stage of the life cycle at least once.
D. Data flows through each stage of the life cycle exactly once.
This is an accurate statement. Data may pass through some stages multiple times and may not pass
through other stages at all.
8
CMA Part 1
VIP Handouts
Unit 16
1-Business intelligence
-does refer to the software and procedures to help organizations use data to make better decisions and
optimize performance.
-efers to the collection of applications, tools, and best practices that transform data into actionable information
in order to make better decisions and optimize performance.
2.1 Data analytics methods.

- Descriptive analysis.
- Diagnostic analysis.
- Predictive analysis.
- Prescriptive a,alysis.
- Anomaly detiction.
- Network analysis.
- Text analysis.
2.2-Diagnostic analysis
- is used to compare historical data with other results to help determine why something happened.
- provides insight into the reason certain results occurred.
3-Descriptive analytics
- is used to describe what happened in the past. It is useful to show trends, but not useful in determining why a
failure occurred.
- is the most basic and most used method. It concentrates on reporting actual results.
4-Predictive analytics
- makes predictions of future outcomes based on historical information and variable input, not determine why a
failure occurred.
- involves applying assumptions to data and predicting future results
5.1-Prescriptive analytics
- helps to determine what changes would need to be made to the engine to achieve a set result, not determine
why a failure occurred.
- concentrates on what an organization needs to do in order for the predicted future results to actually occur.
- Prescriptive analytics is most likely to yield the most impact for an organization, but it is also the
most complex type of analytics.
5.2 Anomaly detection

- is used to identify unusual patterns or deviations from the norm or expected results.
5.3 Network analysis
- consists of analyzing network data and statistics to find patterns.
5.4 Text analysis

- involves the utilization of text mining and natural language algorithms to find patterns in unstructured text.
6-Exponential smoothing
uses a weighted average of past time series, selecting only one weight, that of the most recent set of data. The
calculation computes a value comparing the forecast and actual value for the last time series before the series being
forecast. It employs a smoothing constant between zero and 1 that is derived through a series of trials and errors on an
initial set of data.
7- Time-series analyses
- Use past data points to project future data points and have four components:
Trends (upward or downward data movement),
Cycles (data patterns that occur every several years that tie into the business cycles),
Seasonality (data pattern that repeats itself periodically in weeks and months),
and random variation (no data patterns shown as bumps or blips in the data that are caused by chance and unusual
conditions and hence cannot be predicted). This random variation is called the irregular component.
8- The confidence interval
-quantifies the level of confidence that a specific parameter lies in a stated interval.
- refers to the probability that an observed data value lies in a specified rang?
9- Why are regression and time series analyses never 100% accurate?
-Regardless of how many features a model includes, there are always additional real-life circumstances that affect
outcomes that are not, or cannot be, represented in the model. For example, an unexpected political event can have a
residual effect on nearly all aspects of a nation's economy.
-Influencers always exist that are not considered in any model.
10- How does an accounting information system (AIS) add value to an organization?
- An AIS adds value by providing accurate and timely information to directly support efficiently and effectively carrying
out the five primary value chain activities.
-Collecting, analyzing, and presenting pertinent information for the primary value chain functions
11- The sampling error
is computed as: 100 minus confidence level. At the 99% confidence level, the sampling error is 0.01 (i.e., 100% − 99% =
1% = 0.01), which represents the lowest sampling error. Sampling errors and confidence intervals are stated at a certain
confidence level. For example, a confidence interval at the 99% confidence level states that in 99 of 100 instances, the
sampling procedures that were used would produce a confidence interval containing the population value that is being
estimated.
12-Why regression analysis can be used when time-series data is unavailable?
Time series analysis involves breaking down data measured over time into one or more components of trend, cyclical,
seasonal, and irregular. Time-series analysis is similar to regression analysis in that both techniques help to explain the
variability in data as much as possible. Regression model is a causal forecasting method that can be used to develop
forecasts when time-series data are not available.
13- Which of the following is created after automating the accounting and finance functions?
Value chain
Automating the accounting and finance functions can create value chain because daily routine operations can become
efficient, response delays are reduced, human errors are minimized, period-end closing work tasks are completed
successfully, and periodic reporting is done on schedule. More time is available for data analysis and results
interpretation and less time for data collection, data processing, data sorting, data aggregation, and data de-aggregation
tasks.
14-How would an analyst determine that linear regression would be a better model to use than logistic regression in
a specific situation?
Linear regression results are always quantitative and logistic regression results are always categorical.
15-What is the most common noticeable impact of separate financial and nonfinancial systems to workflow when
creating expenditure transactions for matching production activities.
Workflows that involve multiple separate information systems generally require steps that must be carried out in each
system, along with a delay while transferring shared data between systems.
16-Logistic regression algorithms
can help show the relationship between categorical or quantitative input and categorical output.
17-Decision tree
classifiers handle nonlinear and discontinuous data without negatively affecting the output.
18-What is the primary role of the accounting information system (AIS) in the value chain?
Supporting activity
An AIS is an integral part of technology, which is one of the four value chain support activities.
19- The goodness of fit, or coefficient of determination (the coefficient of correlation squared).
- is the calculated proportion of the variance of x that is predictable from y.
- is a measure of the fit between the independent and dependent variables.
- is the proportion of the total variation in the dependent variable that is accounted for by the independent
variable.
- The value of r 2 ranges from 0 to 1. The closer the value of r 2 to 1, the more useful the independent variable (x)
is in explaining or predicting the variation in the dependent variable (y).
observations of the dependent variable.
20- Systems Development Life Cycle (SDLC).

- SDLC consists of the following five steps:
- Systems strategy requires understanding the organization’s needs.
- Project initiation is the process by which systems proposals are assessed.
- In-house development is generally chosen for unique information needs.
- Commercial packages are generally chosen for common needs rather than developing a new system
from scratch.
- Maintenance and support involves ensuring the system accommodates changing user needs.
- is the traditional methodology applied to the development of large, highly structured application systems.
- A major advantage of the life-cycle approach is enhanced management and control of the development process.
- The phases and component steps of a traditional SDLC can be described as follows:
- Initiation, Feasibility, and Planning.
- Requirements Analysis and Definition
- System Conceptual Design
- Building and Development
- Testing and Quality Control
- Acceptance, Installation, and Implementation
- Operations and Maintenance
-
21-The following are various methods available to test systems:

1- Static testing
examines the program’s code and its associated documentation through reviews, walkthroughs, or
inspections but does not require the program to be executed.
2-Dynamic testing
involves executing programmed code with a given set of test cases.
3-White-box testing
tests the internal structures or workings of a program, as opposed to the functionality exposed to the
end-user.
4-Black-box testing
focuses on how well the software works. It treats the software as if it were a “black box” and examines
functionality without any knowledge of the source code supporting the program.
5-Gray-box testing
goes further than a black-box test. A gray-box evaluation involves having knowledge of the program’s
internal data structures and algorithms for the purpose of designing tests .
22- Four levels of tests

1- unit testing
refers to tests that verify
- The functionality or workability of a specific section of code and
- The means of handling data that are passed between multiple units or subsystems
components.
2- Integration testing
- is any type of software testing that seeks to verify the interfaces between components
against a software design. Integration testing works to expose defects in the interfaces
and interactions between integrated components (modules).
3- System testing
- or end-to-end testing, tests a completely integrated system to verify that the system
meets its requirements.
4- Acceptance testing
- is conducted to determine whether the system meets the organization’s needs and is
ready for release.
23-Four strategies for converting to the new system can be used.
1- Parallel
- the old and new systems both run at full capacity for a given period.
- This strategy is the safest because the old system is still producing output (in case there are
major problems with the new system), but it is also the most expensive and time-consuming
2- direct changeover (direct cutover) conversion
- the old system is shut down and the new one takes over processing at once.
- This is the least expensive and time-consuming strategy,
- but it is also the riskiest because the new system cannot be reverted to the original.
3- pilot conversion
- one branch, department, or division at a time is fully converted to the new system.
- Experience gained from each installation is used to benefit the next one.
- One disadvantage of this strategy is extension of the conversion time.
4- phased conversion
- Under this strategy, one function of the new system at a time is placed in operation.
- For instance, if the new system is an integrated accounting application, accounts receivable could be installed,
then accounts payable, cash management, materials handling, etc.
- The advantage of this strategy is that the users are able to learn one part of the system at a time.
24- Robotic Process Automation (RPA)
- RPA systems capture data through a graphical interface and process the data used for repetitive tasks.
- RPA systems capture data through a graphical interface and process the data used for repetitive tasks.
25- Benefits of RPA include, but are not limited to, the following
- Robots can perform continuously without needing to take time off.
- It eliminates the element of human error and improves efficiency (subsequent to successful programming and
implementation).
- Although initial implementation requires capital investment, long-term costs associated with RPA are
considerably lower than labor costs.
26- Artificial Intelligence (AI)

- AI is computer software designed to perceive, reason, and understand
- AI attempts to imitate human decision making, which hinges on this combination of knowledge and intuition (i.e.,
remembering relationships between variables based on experience).
- The advantages of AI in a business environment are that IT systems
- Can work 24 hours a day;
- Will not become ill, die, or be hired away; and
- Are extremely fast processors of data, especially if numerous rules (procedures) must be evaluated.
27- several types of AI

1- Neural networks
are a collection of processing elements working together to process information much like the human
brain, including learning from previous situations and generalizing concepts.
2- Case-based reasoning systems
use a process similar to that used by humans to learn from previous, similar experiences.
3- Rule-based expert systems

function on the basis of set rules to arrive at an answer. These cannot be changed by the system itself.
They must be changed by an outside source (i.e., the computer programmer).
4- Intelligent agents
are programs that apply a built-in or learned knowledge base to execute a specific, repetitive, and
predictable task, for example, showing a computer user how to perform a task or searching websites for
particular financial information.
5- An expert system
is an interactive system that attempts to imitate the reasoning of a human expert in a given field. It is
useful for addressing unstructured problems when there is a local shortage of human experts
28- ways AI can be utilized to improve the efficiency and effectiveness of processing accounting data
1- Automate data entry and analysis .
2- Reduce fraud
3- Strengthen expenditure disbursement policies
29- Cloud computing
- (“the cloud”) is a popular term relating to on-demand access to resources that are accessed on the Internet and
shared by others.
- Advantages of using cloud computing include
- fast access to software,
- a reduced need for investment in IT infrastructure,
- and the ability to use “pay as you go” services.
- Disadvantages of cloud computing
- IT security in the cloud is potentially more difficult due to the convenience and ease of access to
sensitive data provided by cloud computing services.
30-primary categories of cloud services

- Infrastructure-as-a-Service (IaaS)
- Platform-as-a-Service (PaaS)
PaaS is a form of cloud computing wherein a third-party provides both hardware and software tools. These tools
are typically for application development.
- Software-as-a-Service (SaaS)
SaaS is a software distribution model in which customers can subscribe to web- based applications. An example is
a cloud storage service like Dropbox, which enables customers to store, share, and synchronize files across
devices.
31-Benefits of SaaS include

- Users do not have to buy, maintain, support, or update as much computer hardware or software. SaaS products
are maintained and updated by the third-party host.
- Users can subscribe for only the amount of time the service is needed.
- Users can choose only the basic service or add select features.
- Users can access the software from anywhere, allowing for work at home or on site with the client.
32-SaaS can also have disadvantages.

- Users must rely on outsiders to keep the software running and maintain a secure environment for the company’s
data.
- Providers can have service disruptions or experience a security breach, the latter of which can release the user’s
data to a fraud perpetrator.
33- A blockchain
- is an innovative technology that has the potential to change accounting.
- is a type of digital database (or ledger) that provides proof of who owns what at any moment in time because
each transaction has been added to the ledger.
- A public record of transactions in chronological order
34- The ledger
- is a type of distributed ledger that is encrypted, public, and shared widely for anyone to view.
- Every transaction makes the ledger grow larger. Data is not centralized; therefore, there is no central
administrator.
35- A block
- is the current part of a blockchain
- It records some or all of the recent transactions and becomes a permanent database in the blockchain
36- Cryptocurrency
is a digital asset designed to be a medium of exchange using cryptography (encryption) to secure the
transactions, control the creation of additional units of the currency, and verify the transfer of funds.
37- Bitcoin
is a type of cryptocurrency.
38- miners
- authenticate the transaction by agreeing on what the current version of the blockchain should be
- the miners are paid with some new bitcoin for verifying the new chain.
39.1- Smart contracts

- are computerized transaction protocols that execute the terms of a contract.
- A smart contract is a collection of code and data (sometimes referred to as function and state) that is deployed
using cryptographically signed transactions on a blockchain network.
39.2Which of the following is not a benefit of smart contracts?

A. Smart contracts eliminate the risk of mistakes being made executing the contract.correct
B. The distributed nature of blockchain prevents unauthorized modifications.
C. Smart contracts can access data from third-party sources to trigger specific actions.
D. Smart contracts can take actions automatically.
Smart contracts do not eliminate the risk of mistakes. Errors in the coding of a smart contract may
create errors in the execution. There could also be errors made if data is being used from third-party
sources and that data is not retrieved correctly, or is unavailable.
40- The general objectives of smart contract design

- are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even
enforcement),
- minimize exceptions (both malicious and accidental),
- and minimize the need for trusted intermediaries (e.g., lawyers).
41- Business Intelligence (BI)
- BI is associated with the collection of applications, tools, and best practices that transform data into
actionable information for
- (1) managerial control,
(2) strategic planning, and
(3) making better decisions.
-BI gives upper management information about the present status of the organization and how to steer it in
the intended direction.
- BI gives an executive immediate information about an organization’s critical success factors.
- BI tools rely on advanced software to search vast amounts of data obtained from both within and outside the
organization to discover patterns, trends, and relationships.
- BI tools display information about the organization as bar graphs, pie charts, columnar reports, or any other
format considered appropriate to upper management’s decision making.
-These displays are sometimes grouped into what is termed a digital dashboard.
41.2 the correct order for the business intelligence process.

- Data to Information to Knowledge to Insight to Strategic Decisions to Action.
41.3 insight
- is a deep and clear understanding of a complex situation.
42- Data Analytics (DA)

Management utilizes DA to evaluate operational, financial, and other data to identify any deviations from
the norm (e.g., anomaly detection, potential risks) and opportunities for enhancement or advancement.
43- Data analytics contains five stages

- Define questions.
- Obtain relevant data or information discovery .
- Clean or normalize data.
- Analyze data.
- Communicate results.
44- Examples of KPIs include

- Current ratio
- Net profit margin
- Budget variance
- Debt to equity ratio
- Payment error rate
45- Integrity
is ensuring that data accurately reflect the business events underlying them and that any anomalies are rectified.
46- Data Mining

- Data mining is the search for unexpected relationships among data. It combines information technology and
statistics with a goal of analyzing data from different perspectives and summarizing it into useful information.
- Data mining is an art because it involves making thoughtful choices.
- Example is the process Netflix uses to make decisions about which new shows to acquire and produce. Data
scientists at Netflix gather information on trends in what and how consumers are watching, then draw
conclusions from those trends on what consumers are most likely to watch in the future.
- Data mining is an iterative process by means of continuous review and rethinking (i.e., enhancements of previous
analysis) while working to obtain the desired results. Once a finding has been made, further data mining may lead
to even more conclusions.
- Some people claim data mining is a science because a computer system is used to find solutions, while others
claim that data mining is an art because distinguishing meaningful patterns from the computer output is highly
dependent on the judgment, expertise, and intuition of the analyst.
47.1- Steps in data mining.‫دا من جليم‬

1- Finding an anomaly, such as an outlier, cluster, unexpected change, or a deviation from what was expected.
This involves identifying unusual data records, which might be interesting, or perhaps data errors that could
require further investigation.
2- Find relationships between variables and then cluster (group) those relationships in some manner. Clustering is
not always easy because the group structure is not known in advance.
3-Once the data have been clustered, the next step is to generalize the relationships so that the demonstrated
structure applies to new data as well as the original database.
4-Regression analysis, including both linear regression and multiple regression, attempts to find a quantitative
function or equation that models the data with the least error, that is, to estimate the relationships among the
data or datasets.
5-Provides a representation of the data set, including visualizations and reports.

47.2 The typical steps in data mining project are:‫دا من هوك‬
1. Understand the purpose of the project
2. Select the dataset to be used
3. Explore, clean, and preprocess the data
4. Reduce the data dimension if needed
5. Determine the data mining task
6. Partition the data
7. Select the data mining techniques to use
8. Use algorithms to perform the task
9. Interpret the results of the algorithm
10. Deploy the model.
47.3- Clustering.
- Discovering groups in data sets that have similar characteristics without using known structures in
the data
48- Regression analysis

- is the process of deriving a linear equation that describes the relationship between two variables.
- Simple regression is used for one independent variable.
- Multiple regression is used for more than one.
- One extremely common application of simple regression in a business setting is the estimation of a
mixed cost function, one with a fixed component and a variable component
- The y-axis intercept is the fixed portion, and the slope of the regression line is the variable portion.
- The linear relationship established for x and y is valid only across the relevant range, the range from the
highest to the smallest measures in the data set. The user must identify the relevant range and ensure that
projections lie within it.
- Regression analysis assumes that past relationships are a basis for valid projections.
- Regression does not determine causality.
Although x and y move together, the apparent relationship may be caused by some other factor. For
example, car wash sales volume and sunny weather are strongly correlated, but car wash sales do not
cause sunny weather.
-
49- Standard Error

- The standard error measures how well the linear equation represents the data.
- It is the vertical distance between the data points in a scatter diagram and the regression line.
- The closer the data points to the regression line, the lower the standard error.
50- The goodness-of-fit test

- Assists with determining whether the sample is representative of the population (validates assumptions).
- High goodness of fit means that the variables used in the regression are highly correlated with the
observations of the dependent variable.
-
51-The confidence level

- is the percentage of times that a sample is expected to be representative of the population; i.e., a confidence level of
95% should result in representative samples 95% of the time
E.X: A person selecting an item at random from a normally distributed population can be, for example,
95% confident that the value of the item is within 1.96 standard deviations of the mean and 99%
confident that it will fall within 2.57 standard deviations of the mean
‫نبذه بسيطه علي ال ( كونفيدنس انترفال ) معلش كتبت المصطلح بالعربي عشان ترتيب الكلمات‬
52- A confidence interval for a given confidence level

- Is the range around a sample value that is expected to contain the true population value. It is constructed using the
confidence coefficient for the number of standard deviations (based on the normal distribution) for the confidence level
chosen.
E.X: If repeated random samples are drawn from a normally distributed population and the auditor
specifies a 95% confidence level, the probability is that 95% of the confidence intervals constructed
around the sample results will contain the population value.
53- Advantages of regression analysis .

1-It uses data efficiently.
2-Good results can be obtained with relatively small sets of data.
3-The theory associated with linear regression is well-understood and allows for construction of different types of
easily-interpretable statistical intervals for predictions, calibrations, and optimizations.
54- The disadvantages or limitations of regression analysis include the following:

1-Outputs of regression can lie outside the relevant range.
2-The shapes that linear models can assume over long ranges are limited.
3-Sometimes the extrapolation properties will be poor.
4-The regression line may be ultrasensitive to outliers.
55- Various Approaches to Quantify or Understand Risk.

- Sensetivity analysis.
- Time series analysis.
- Monte carlo simulation.
- Simulation.
- Delphi approach.
56-Sensitivity Analysis
- Sensitivity analysis uses trial-and-error to determine the effects of changes in variables or assumptions on final results.
- It is useful in deciding whether expending additional resources to obtain better forecasts is justified.
- The trial-and-error method inherent in sensitivity analysis is greatly facilitated by the use of computer software.
- A major use of sensitivity analysis is in capital budgeting. Small changes in interest rates or payoffs can make a significant
difference in the profitability of a project.
- Sensitivity analysis is limited due to
- The use of assumptions instead of facts
- The consideration of variables individually as opposed to all together
57- Delphi Approach

- The Delphi approach solicits opinions from experts, summarizes the opinions, and feeds the summaries back to the
experts (without revealing participants to each other).
- The process is repeated until the opinions converge on an optimal solution.
58- Time series analysis (also called trend analysis)

- is the process of projecting future trends based on past experience. It is a regression model in which the independent
variable is time.
59- Time-series analyses

- is the process of projecting future trends based on past experience. It is a regression model in which the
independent variable is time.
- Use past data points to project future data points and have 3 components:
- Trends (upward or downward data movement),
- Cycles or cyclical (data patterns that occur every several years that tie into the business cycles),
- Seasonality (data pattern that repeats itself periodically in weeks and months),
- random variation or irregular (no data patterns shown as bumps or blips in the data that are caused by
chance and unusual conditions and hence cannot be predicted). This random variation is called the irregular
component.
60- A seasonal pattern.

- often exists when a time series is influenced by seasonal factors (e.g., the quarter of the year, the month, or the day of
the week).
- For example, a ski resort will typically show a seasonal pattern for its revenues.
- Seasonality is normally always of a known period. Thus, seasonal time series are sometimes called periodic time series.
- Similarly, a manufacturer of lawn mowers will have greater production during the winter and spring than during the
summer and fall months.
61-A cyclical pattern.

- exists when data points show rises and falls that are not of a fixed or seasonal pattern. The duration of these cyclical
fluctuations is usually at least a couple of years.
- An example is business cycles, which typically last several years, but the length of the current cycle is never known in
advance.
- Cyclical behavior is often confused with seasonal behavior. However, if the fluctuations are not of a fixed period, they are
cyclical; if the period is unchanging and associated with some aspect of the calendar, the pattern is seasonal.
- Normally, the average length of cycles is longer than the length of a seasonal pattern, and the magnitude of the depth and
rise of cycles tends to be more variable than the magnitude of seasonal patterns, the latter of which occur at least annually.
62-An irregular pattern

- exists when random or unplanned factors occur. A time series does not occur with irregular information.
- For instance, a ski resort’s revenues may generally be expected to be high during winter; however, the resort may
experience an unplanned increase in revenues in March or April due to an unexpected snow storm.
63- Benefits of time series analysis.

- The ability to project expected upcoming activities
For example, sales of snow jackets are higher during winter than summer.
- Identifying components or elements that impact the anticipated occurrence in the future
- Analyzing current results against activity in the past to determine trend shifts
64-Limitations of time series analysis.

- Components or elements that play a role in projections may become less reliable over time.
- The conclusions resulting from the analysis could be misleading.
For example, higher sales of snow jackets could be the result of an increase in population or could be increasing
at a decreasing rate.
-Predictability of applicable components or elements in the past are assumed to remain unchanged for the future.
65- Predictive Analytics ‫ببساطه عارفين مثال لما الواحد يشتري علبة سجاير دايما طبعا بيحتاج علبة كبريت او والعه دا في حد ذاته تحليل احتياج‬
‫الشخص للوالعه مع علبة السجايردا دا مثال علي ال‬predictive analysis
- Predictive analytics is technology that uses data (historical, current, and predicted), statistical algorithms, and machine
learning techniques to draw insights on such trends as consumer or industry behavior patterns. Additionally,
recommendations can be made based on underlying assumptions to data and predicting future results.
- The likelihood of predicted scenarios can be assessed by calculating probabilities to illustrate their
feasibilities.
- Assumptions (e.g., product type, units sold, unit costs, seasonal product status, etc.) must be true to life to ensure the
accuracy and quality of the results of the analysis.
- Recommendations can then be made of what would be required in order to achieve each predicted
scenario.
- A common use of predictive analytics in the retail sector occurs when a customer selects an item to purchase online
and prepares to finalize the transaction; the web page then displays additional products other customers
purchased in conjunction with the initial item.
- For example, a customer purchases a table saw and, upon checking out, the web page displays images of saw
blades, eye-protection goggles, and gloves that other customers bought along with the table saw.
66- Exploratory Data Analysis (EDA).

- EDA is an approach to data analysis that differs from traditional modeling and analytic techniques by encouraging the
data itself to reveal its underlying structure rather than prematurely applying a hypothesis or statistical method. It is
often used as a first step or pre-step in the data analysis process.
- The main role of EDA is to open-mindedly explore in order to gain some new, often unsuspected, insight into the data.
- EDA seeks to
- Maximize insight into a data set,
- Uncover an underlying structure,
- Identify important variables,
- Check for outliers and anomalies,
- Test underlying assumptions,
- Develop parsimonious models, and
- Determine optimal factors.
- EDA often uses visual and graphical tools, such as histograms and scatter plots
67- What-If Analysis

- What-if analysis is a process of determining the effects on outcomes in a model through changes in scenarios.
68- Goal seeking

- occurs when the decision maker has a specific outcome in mind and needs to determine how it can be achieved.
69- Big data

- is an evolving term that describes any voluminous amount of structured, semi- structured, or unstructured data that
has the potential to be mined for information to reveal relationships and dependencies or to predict outcomes and
behaviors.
- Big Data is often characterized by The “4 Vs” -- volume, variety, velocity, and veracity.
-
70- Structured data
- refers to data with a high level of organization (i.e., relational database).
71-Semi-structured data
- does not conform with the formal structure of data models associated with relational databases or other forms of data
tables; however, there exists some aspect of formatting of records and fields within the data.
72- Unstructured data

- refers to information that is not organized in a pre-defined manner (e.g., text-heavy facts, dates, numbers, and images).
73- Email falls into which category of Big Data.

- Unstructured data has no defined format or structure. Any free-form written text is considered
unstructured data.
73- Big data uses.

Big data can be used to identify opportunities for
- Cost reductions,
- Time reductions,
- New product development and optimized offerings, and
- New customers.
74- Hadoop
- is an open-source, Java-based software framework that stores large amounts of data and runs applications on clusters of
commodity hardware.
- It uses a distributed computing approach.
75-Text mining .
- analyzes text data from the Web, comment fields, books, and other text-based sources through the use of machine
learning or natural language processing technology.
- It can be used to identify new topics and term relationships .
76- In-memory analytics

- analyzes data from system memory instead of secondary storage.
- This approach
1) Derives immediate results by removing data preparation and analytical processing delays and
2)Enables iterative and interactive analytic scenarios more efficiently.
77- Limitations of Big Data.

- User-level data results are incomplete.
Generally, the data available to an organization are restricted to data obtained from individuals who
visited the organization’s Internet resources (i.e., website) or viewed the organization’s
advertisements on the Internet.
- Providing the answer to why the analysis results are what they are is difficult.
Data are processed by (a) separating data into groups and applying analytic methods or (b) analyzing
data directly using algorithmic methods. Both processes can result in forecasting outcomes and
providing guidance, but algorithmic analytic methods tend to make it more difficult for non-technical
people to justify choosing a certain course of action over another course of action (e.g., spending more
capital expenditures on product Z over product P).
- Data are subject to useless information (commonly known as noise).
A single incorrect or useless variable can corrupt the results and require additional labor hours to work
with the data in order to attain meaningful results.
- Data are subject to useless information (commonly known as noise).
A single incorrect or useless variable can corrupt the results and require additional labor hours to
work with the data in order to attain meaningful results.
- User-level data results require interpretation prior to use.
Generally, collected data are converted from text format to data visualizations. Data visualizations assist
with identifying trends and correlations that run the risk of going undetected in text-based data.
78- A dashboard feature .

- is a screen in a software application, a browser-based application, or a desktop
application that displays in one place information relevant to a given objective or process, or for
senior management, it may show patterns and trends in data across the organization.
- A dashboard is a common feature of BI tools that allows management to monitor
key performance indicators and show trends over time.
79- Which of the following is not considered one of the challenges of data mining?
A. Ethical issues
B. Bias amplification
C. Unstructured data
D. Quantity of datacorrect
The quantity of data is not one of the inherent challenges of data mining. The more data that there
is, the more likely it is that valuable information will result from data mining.
80- Data science

- extracts hidden knowledge and insights from data.
- Data science is used to provide actionable insights into issues where the analyst or manager does
not know what he or she does not know ("unknown unknowns").
81- Iteration
- is the repetition of a process in order to generate a sequence of outcomes. Each repetition
of the process is a single iteration, and the outcome of each iteration is the starting point of the next
iteration.
82- Data visualization

- refers to any effort to help readers or other users understand the significance of data by placing it in a visual context,
such as a graph or chart. Trends, correlations, or other arrangements that might often be overlooked in text-based data
can be illustrated and thus recognized more easily with data visualization software.
- Visualizations are for the benefit of decision makers; the computers themselves do not use or need visualizations for
decision making.
- Visualizations facilitate visual comparisons between data elements, which helps decision makers identify patterns,
deviations from patterns, and outliers in the analysis stage. This is accomplished in an efficient manner.
- Visualizations are usually understood by a wider audience because they reduce the message to its core
components and use minimal jargon.
- Business intelligence tools include the capability of grouping the various visualization options onto a digital
dashboard. The dashboard allows the user to pre-select the chart types he or she will use for assistance with
decision making.
83- 18. Statistical Control Charts

- are graphic aids for monitoring the status of any process subject to acceptable or unacceptable variations during
repeated operations.
- They also have applications of direct interest to auditors and accountants, for example,
(a) unit cost of production, (b) direct labor hours used, (c) ratio of actual expenses to budgeted expenses, (d)
number of calls by sales personnel, or (e) total accounts receivable
84-Pareto Diagrams
- A Pareto diagram is a bar chart that assists managers in quality control analysis.
85- Histograms
- A histogram is similar to a Pareto diagram. The major distinction is that histograms display a continuum for the
independent variable.
86-Fishbone Diagrams
- A fishbone diagram (also called a cause-and-effect diagram) is a total quality management process improvement
method that is useful in studying causation (why the actual and desired situations differ).
87- Boxplots
- A boxplot provides a visual to illustrate how tight or spread out data is and whether any outliers exist by displaying the
data distribution in quartiles.
88- Tables
- A table illustrates data in rows and columns.
EXAMPLE 16-8 Table

Type of beverage for refreshments
Beverage Soda Sports Drink Water Wine Beer
Women 6 2 4 3 5
Men 5 1 3 5 6
89-Dot Plots
- A dot plot (similar to a histogram) is a graph that illustrates the distribution for each factor using dots.
90- Line Chart

- A line chart illustrates information as a series of data points (commonly known as markers) connected by a straight line.
It is effective for identifying patterns.
91- Scatter Plots

- A scatter plot (similar to a line chart) utilizes the horizontal (variable x) and vertical (variable y) axes to illustrate the
correlation among two variables.
- A positive correlation is identified by the data points forming a relatively straight line with the x and y values increasing and
decreasing together.
-A negative correlation (or inverse correlation) is identified by the data points forming a relatively straight line, where the
value on one axis decreases as the value of the other axis decreases.
- A lack of correlation is identified by the scattering of data and the general absence of a straight line among the plotted data.
92- Bubble Charts

- A bubble chart is similar to a scatter plot; however, a bubble chart incorporates a third variable consisting of a grouping
of data points represented by the size of the bubble.
93- Pie Charts

- A pie chart is a graph in the shape of a circle with each “pie slice” representing relative sections of a whole population
size.
- A limitation of pie charts is that too many slices makes comparability extremely difficult, which makes them less precise
than other charts.
94-Limitations of Visualizations
- Visualizations can be misleading. The coder who creates an image can influence the viewer’s interpretation of that image.
- Visualization tools can be manipulated to present a biased picture.
95-Best Practices for Visualization Tools
- To avoid distortion in the communication of complex information, best practice guidelines for chart and graph design
include, but are not limited to, the following:
1)Utilize the full axis by ensuring the axis begins with zero and does not skip values.
2)Do not overload the design with too much information.
3)Limit the amount of colors used to ensure differences among data points stand out.
a)Avoid using variant shades of the same color (e.g., use red and not light red, soft red, medium red, etc.).
4)Ensure the design does not require the user to interpret relationships among data.
a)Display calculations to avoid misinterpretation.
5)Ask others for feedback on the design before finalizing the chart. Keep in mind that what might be clear to one
person may actually be confusing to others
‫إن شاء هللا فيه تحديث تاني لل يونت دي‬


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CMA Part 1

By Mohamed Samir Rashed

2- Examples of off-balance- sheet financing include

3) Special purpose entities. A firm may create another firm

3- Limitations of the Income Statement

4- the major items included in other comprehensive income:

7.1-Limitations of the Statement of Cash Flows

7.2 Direct method.

1) The contract was approved by the parties.

10- It is accounted for as a separate contract if the following

11- factors should be considered in assessing whether a

13- the contract price may vary because of the following:

a) Refunds due to a right of return provided to customers

a) The expected value is the sum of probability-weighted amounts in the range of

15- The volume discount may be applied

(a) prospectively on additional goods purchased in the future or (b) retrospectively

16- If the standalone price is not directly observable, it must be

1) Adjusted market assessment. An entity evaluates the market in which it sells

1) Has the ability to direct the use of the asset and

18- indicators of the transfer of control should be considered:

i) The entity has a present right to payment for the asset.

19-Examples of output methods include

(1)appraisals of results achieved,

20-Notes about Statement of cash-flows:

6- Comprehensive income (OCI)

By Mohamed Samir Rashed

Beginning accounts receivable Plus: Credit sales during the period

= Ending accounts receivable

Beginning allowance for uncollectible accounts

4- The main reasons for factoring transactions.

7- A disadvantage of the perpetual inventory system

- is that the bookkeeping is more complex and expensive

11- weighted-average method

12- 3. First-in, First-out (FIFO)

During a period Gross Profit

16-Decision Tree: Classification and Measurement of an Investment in Equity

19- f. Acquisition-related costs,

23-‫السؤال دا مهم جدا يا جماعه‬

By Mohamed Samir Rashed

# Carrying amount of PPE disposed of =

# Interest should be capitalized for

Impairment under IFRS

Determination of an Impairment Loss

# Intangible assets valuation methods under IFRS and GAAP

- Under IFRS there is a one-step impairment test.

# Development costs are capitalized if

# The amortizable amount

# 3The amount recorded initially by the lessee as a lease liability should

# Amortization of right of use asset.

#Comparison between Annuity due and Ordinary annuity.

# A temporary difference exists

# The purpose of interperiod income tax allocation

By Mohamed Samir Rashed

# Purpose of the Integrated Report

# Integrated reporting, integrated thinking, and the integrated report

# The framework promulgated by the International Integrated Reporting Council.

# The ability to create value is affected by the following factors

# The business model

# The guiding principles may be in conflict, How ?

# The Guiding Principle of reliability and completeness

# Consistency and comparability guidelines.

# Content Elements of integrated report.

# General Reporting Guidance

# The benefits of IR include