‫ﻣﻠﺨﺺ ﻛﺎﻣﻞ ‪CMA Part 1‬‬

‫ﻟﻤﻨﻬﺞ‬

‫ﻣﺼﺪر اﻟﻤﺤﺘﻮى‬ ‫اﻟﻤﻠﻒ ﻣﻌﻤﻮل ‪mindmaps‬‬ ‫‪23 Pages‬‬ ‫اﻟﻤﻠﻒ ﻳﺤﺘﻮي ﺗﻘﺮﻳﺒﺎ ﻋﻠﻰ‬
‫ﻋﻠﻰ ﺷﻜﻞ ﺧﺮاﺋﻂ ذﻫﻨﻴﺔ‬ ‫‪- size A3‬‬ ‫ﻛﻞ‬
‫ﻋﻤﻼﻗﺔ‬ ‫اﻟﺘﻌﺮﻳﻔﺎت ✿‬
‫اﻟﻘﻮاﻧﻴﻦ ‪ /‬اﻟﻤﻌﺎدﻻت ✿‬
‫اﻟﻜﻠﻤﺎت اﻷﺳﺎﺳﻴﺔ ✿‬
‫اﻟﻤﻘﺎرﻧﺎت ✿‬
‫وأﻛﺜﺮ ✿‬

‫‪90%‬‬ ‫‪10%‬‬ ‫اﺗﻤﻨﻰ ﺗﻄﺒﻌﻪ ﻣﻠﻮن ‪A3‬‬ ‫ﻟﻮ ﻃﺒﻌﺘﻪ ﻋﻠﻰ ورق ‪A4‬‬
‫ﻣﻘﺎس وﻣﺘﺴﺘﺮﺧﺼﺶ‬

‫ﻟﺨﺼﺘﻪ ﺑﻨﻔﺴﻲ‬ ‫ﺑﻌﺾ اﻟﺠﺪاول ﻣﻦ ﺻﻔﺤﺔ‬ ‫ﻣﻌﻠﺶ ﺣﺘﺘﻜﻠﻒ ﺷﻮﻳﻪ‬ ‫ﻳﺒﻘﻰ ﺑﺘﻀﻴﻊ وﻗﺘﻚ 😀‬
‫وﻣﻜﺘﻮب ﻋﻠﻰ اﻟﻜﻴﺒﻮرد ‪Typing‬‬ ‫وﻓﻴﺪﻳﻮﻫﺎت أﺳﺘﺎذﻧﺎ اﻟﻐﺎﻟﻲ ﻃﺎرق‬
‫اﻋﺘﻤﺎدا ﻋﻠﻰ اﻟﻤﺬاﻛﺮة واﻟﻜﻠﻤﺎت‬ ‫ﻧﻌﻴﻢ‬
‫اﻷﺳﺎﺳﻴﺔ ﻓﻲ اﻟﻤﻨﻬﺞ‬ ‫وأﺗﻤﻨﻰ اﻧﻪ ﻳﻜﻮن ﻣﻮاﻓﻖ ﻋﻠﻰ ﻧﺸﺮ‬
‫اﻋﺪاد اﻟﻄﺎﻟﺐ ‪ /‬أﻧﺲ اﻟﻤﻐﺮﺑﻲ‬
‫اﻟﻤﻠﻒ ﻋﻠﻰ ﺻﻔﺤﺘﻪ ﻋﺸﺎن ﻳﺴﺘﻔﻴﺪ‬
‫أﺗﻤﻨﻰ اﻧﻪ ﻣﻴﻜﻮﻧﺶ ﻓﻴﻪ اﻧﺘﻬﺎك‬ ‫اﻟﻜﻞ وﺗﻌﻢ اﻟﻔﺎﺋﺪة ﻟﻠﺠﻤﻴﻊ‬
‫ﺣﻘﻮق ﻣﻠﻜﻴﺔ ﻷﺣﺪ‬
 Short term (3 months or less from first Acquired) / Highly liquid (cash/checking/saving accounts)
Cash & Cash equivalents Not Cash (Certificate of deposits CDs) / Money
market funds / Legally restricted deposits )

Gross method / Net method

Valuing A/R
Credit losses
1- % of receivable method 2- % of sales method

Use receivable as an immediate source of cash

Factoring A/R
without recourse / with recourse

In-Transit Goods (FOB shipping point / FOB Destination)

Consigned Goods
Inventory recording
Good out on Approval
Obsolete inventory

Inventory formulas

adv: Ending Inv approxmates current replacement costs adv:

1. FIFO dis: Current revenues are matched with older costs 1. matches current costs against current revenues
- NOT Allowed under IFRS - 2. if price rises, higher COGS lower income tax, increase
in cash flow
2. LIFO
dis:
1. in inflamation (rising prices), income will show lower
than other methods
2. in inflamation (rising prices), lower value of inventory

Cost flow
Inventory
1. perpetual Cost = Total cost of purchase ÷ number of purchased units
3. Average Costs
2. Periodic : Cost = (Beginning costs + Purchases) ÷ (Beginning units + Purchased units)

4. Specific identification

Inventory count

1. If using (LIFO) or (Retail Method)

Write-Down we select (Designated Market Value) use (LCM)
& LCM
2. If using any Other than LIFO use LowerOf (Cost or NRV)
(Permanent
Declines) NRV is the estimated selling price in the ordinary course of
business, (minus) reasonably predicatable costs of selling

if COGS is Overstaeted then... Profit is Understated

Inventory Errors 3 Steps 1. Actual formula 2. Correct formula 3. difference (Effect)
if COGS is Understaeted then... Profit is Overstated

MACRS Tables
Fixed
Recording
Assets
1) Asset Tax purpose:
Keywords - Ignore Salvage value when
Valuation calculating dep for Tax purpose
- use Half-year convention for
the (acquision & disposal) years
Depreciation
for Tax purpose,
3 Ctgries 1. Straight
do not deduct
/ ways Line
salvale value

Methods 2. Double Line (Accelerated)

3. Sum-of-years-digits (Accelerated)

4. Units of Production

Compare:
1. Recover Carrying amount >
Invest- -ability Test total undiscoutned
ments cashflows
Impairment 2 Steps:
2. Recognize Imp Loss
Disposal impariment = Carrying value
Investment
in Equity loss - current fair value
Securities
Depreciation for Tax purposes

Initial Recording
.
.
.
.
.
Ex: (new technology
1) determined life (finite) amortized
Exclusive granted in US for usually 20 years
Amortization
2) no determinable life (indefinite) Not amortized, only tested regulary
Amortized at the shorter of (Economic life), or (Legal life)
Intangible
assets 1. Patents Purchased patent -> historical costs -> to be amortized
Internal generated -> only Registration & legal fees are
2. Tradename/Trademarks capitalized / amortized (R&D is expensed)
3. Copyrights (Ex. publisher) Effective of life + 70 years
if Succeed -> costs are capitalized/amortized
4. Franchises Defending patent
if failed -> all costs should be expensed (and
legally
patent to written off)
5. Goodwill (only purchased) Impairment 3 Steps 1. Qualitative 2. Quantitative 3. Test/Compare

1. Definite life same as Fixed assets (2 steps)

Impairment
2. Indefinite (not including Goodwill) 3 Steps 1. Qualitative 2. Quantitative 3. Writedown
 Reclassifying short term debt

1) Assurance Type
Warranties
1. Ownership transfer
2) Service Type
2. Option to purchase
3. major part of remaining eco life (75% or more) at least ONE criteria Finance
4. present value equal or greater than fair value (90% or more)
5. No alternative use to the lessor

1. Recognize (right use) & (Lease Liability)

2. Lease Liability at start, is measured at Present Value
3. Assets include the PF of all future payments & any direct costs Lesse will: Operating Leases
4. Recognize interest exp
5. Recognize Asset-amortization each year

in BS/Notes: Finance & Operating Leases must NOT be presented together in same 2) Valuation
of Liabilities
in Cashflow: Fianance lease (Principle is Financing Activities) & (interests are Operating)

Want to pay / Must pay

Keywords
Book income / Taxable income

Deferred tax Expense if position worsens: Deferred tax Benefit if position imporves: Accounting for
Df. tax Assets gets Smaller/ tax Liability gets Bigger Df. tax Assets gets bigger/ tax Liability gets smaller income Tax
(Deferred Tax)
Single Period of creation & single period of reversal
1. Municipal Bond Interest (Tax exempted)
Multiple periods of Reveersal & Constant future tax rate
2. Diviends-Received Deduction
3. Exp incurred for earning tax-exempt income Permanent
4. Life insurance expense is not deductible Differences:
& same time proceeds are not taxable
5. Exp incurred as result of violating the law
Recognition,
Additional-paid-in-Capital (APIC) Contributed
Capital
Measurment,
Liquidating dividends -> reduce APIC
Rights of Common Shareholders Valuation
Voting
with Par value Common
& Disclosure
Dividends if declared
without Par value
Preemptive
Distribution or residual assets (in liquidation) Common Shareholdors called Residual owners

Have the highest risk

Characteristics : Can be callable / Redeembale / May can vote

Convertible to Common / Participaing in Common dividends

How similar to debts:

Preferred
Generally don't vote / usually a fixed percentage of par value 3) Equity
Preference in liquidation / Preference in dividends / others like Callable, Convertible Capital Stock Transaction
Classification
Two Types : Cumulative / Noncumulative
of Shares
Issued stock / Treasury Stock / Outstanding Shares = (issued - treasury)

1. Authorized 2. Issued. 3. Outstanding

3 Classifications

Small stock dividends (less than 20-20%) -> Fair Value. / Large Stock dividends -> Par value Stock dividends

Increase by After-tax Net income / Decrease by Dividends Retained earning

issueance of Stock / Dividends / Equity Journals

Agreed to combine the Principles of Revenue Recognition GAAP & IFTRS

Dr. AR / Cr. Revenue Un-Conditional

Cont. Assets Un-earned rev Cont. Liabilities
Dr. Cont assets / Cr. Revenue Conditional

1. Identify Contract 2. Identify Performance obligation 5 Steps to Revenue

3. Determine Transaction Price 4. Allocate price to Performance Recongition
5. Recognize Reveune when satisfied (CPTAR) 4) Revenue
Recognition
A. Contract with Right of Return

(make 2 Accounts) CIP Assets / BCP Liabilities

Speical & Income
B. Consiged Goods
Revenue Measurement
Any (Future Expecting Loss) .. must be Added to CIP acc .. at Current Prd Point in Time Recognition
C. Long
Term issues
Calc.: 1. Estm Profit 2. Satisfaction Any of - Simultaneous receipt - Customer Overtime
Progress 3. monthly profit Control - Payment Enfoceable Recognition Cont.

1. disaggrtegation of revenue 2. Significant judgements Disclosures for

Info about
3. Any assets to fulfill contract Revenue Reconition

Inventory - Long-Lived Assets - Impairment of Assets IFRS principles based /

5 Accounts
- Intangible Assets - Leases GAAP rules based General
5) GAAP & IFRS
Differences
IFRS is more flexible
 Direct (investors, potential investors, suppliers ..)
Indirect (represent direct users, advisors, stock markets, financial analysts .. ) 2. Users of FS 1. Basics of FS
Internal (within the firm) / External (make decisions from outside the firm)
Concepts
1. Purpose, 2. Elements 3. Notes to be disclosed 4. Limitations for all FS

Relationship among the FS

1. Past Transactions / 2. Presently owned by the company / 3. Future benefit to/sacrific by the company Assets / Libailities 1. Balance Sheet
Unusual Gains & Losses (inventory damage / restructuring charge)

Include all company transactions Except for transx made with the owners Discontinued Operations
Other 2. Income
items Statement
Net income goes to Retained Earnings / Comp income is a line in the Equity section Intra-period Tax Allocation

Unrealized gains/losses on available for sale debt securities 3. Stt of

Coperhensive
Unrealized gains on debt securities reclassified from
Income
held-to-maturity to available-for-sale 4. Stt of Changes in
7 Common Stockholders' Equity
Reclassifiction adjustment for gains included in net income
Items
Foreign currency translation ( x 2 items )

Derivative instruments

Pension benefits x 2 items )

Cash received/paid,
interest paid,
interest received & dividened received,
Paid to government for taxes/fines Cash / Cash equivalents / Restricted cash Concepts
Operation
Payment for interest on zero-coupon debt
activities Cash inflows & Outflows presented separately SCF Preparation
instruments
Paid for asset retirement obligation Steps
Paid for operating/variable lease 1. Eliminate noncash (depreciation ... )
Purchase/sale of trading securities 2. Eliminate Investing & Financing activities (subtract gains & add losses ..)

Purchase/Sell property, plant & equipment

3. Include any operating activities (Changes in Assets/ Liablilites/ Bonds/ Premiums)
4. Cashflow from trading securities (debt & equity) ( + cash rcvd/ - cash purchase) 5. Stt of Section A
Making/Collecting Loans 5. (Cash paid for interest) & (Cash paid for income taxes) .. must be disclosed Cash 15%
Available-for-sale or held-to-maturity debt flows
securities Investing SCF Indirect
Equity instruments (other than trading)
Contingent consideration liablility after
Activities Method
External
business combination
Shared Value Michael E. Porter & Mark R. Kramer) - The Big Idea
Financial
Settlement of life insurance policies 1. Sustainable development
Reporting
2. expectaion of stakeholders
Issuance of stock
Treasury stock
3. Complies with law
ISO 26000 Social Responsibility 2010
Decisions
4. integrated throughout the org
Paying cash dividends
issuing debt (bonds, morgages, notes ..) Financing European Commission - Directive 2014
Obtaining a loan & repaying the loan principal Activities
Debt prepayment / debt extingushment costs South Africa
Financial
Settlement of the principal of zero-counpon Internatinal Framework (IR) 2013
debt instruments
The International Integrated Statements
IIRC's mission, vision, objective Reporting Council 2010 (IIRC)

Primary purpose: explain to (financial capital providers) how the org creates value overtime

1. improve the quality of information / Purpose & Goals

2. Promote a cohesive & efficient approach to org's reporting
IIRC's IR goals
3. Enhance accountability & stewardship for the broad base of capitals
4. Support integrated thinking & actions that focus on value creation over short/med/long term

is the Process of creating OUTPUTS that are more valuable than the INPUTS

Value is created for the Org (profits) & for the others (stakeholder - society)
Diffenitions
The ability of an Org to create value for (itself), is dependednt on the value it creates to (others)
/Keywords
Value is created when the benefit derived from its use of capitals is Greater than the capitals used
Value Creation Integrated
Value is maintained through (Continuous impr - Superior quality - Superior service - Customer satisfaction) Reporting
6 capitals /External environment / Org's mission & vision / Governance
(IR)
graphic elements
/Business model / Business activities lead to outcomes / The outcomes / Performance

Well-educated labor force (+Positive externality) the effects on capitals that are not
Pollution emitted by factories (Negative externality) owned by the Org or Externalities
Integrated Report should include
1- The external env 2- The resources & relationships used by the Org
3- How the Org interacts with the external enviroment & the capitals insight. about :
to create value over short/med/long term

1. Org overview & external environment /2. Governance /3. Business model / 4. Risks & opportunities
The Content of Integrated Report
/5. Stratey & resource allocation /6. Performance /7. Outlook /8. Basis of presentation

A concise communication about the org's Strategy, Governance, Performance & Prospects
integrated report
lead to value creation in short/med & long term

A process on integrated thinking results in a periodic integrated report about value creation integrated reporting Relationships

Active consideration of the relationship between Operating, functional and Capitals. Integrated thinking
integrated thinking
leads to integrated decision making & actions that consider the creation value over short/med /long term

1. Focus in future /2. Connectivity of information /3. Stakeholder relationships

Principles for Preparation & Presentation
4. Materiality /5. Conciseness /6. Realibility & completeness /7. Consistency & comparability

Who can be significantly affected by org's business activities, outputs or outcomes

Stakeholders
Or. whose actions can signficantly affect the ability of org's value creations

1. Financial /2. Physical /3. Intellectual /4. Human /5. Social /6. Natual The 6 Capitals
 A set of actions by mngmt to increase the performance
Strategy
Operational plan (short-term) / Tactical plan ( intermediate )

is formulation of strategies
Strategic Planning
keywords
purpose is to guide the company 1. Organization Structure, 2. Control Structure, 3. Organization Culture
Differentation / Cost SWOT 4 Superiors - collection & evaluation of external & internal forces
Situation
The systematic - that can affect the organization’s performance & choice of strategies
Reason to be Mission Analysis
- assessing the organization’s current & future SWOT (Strn, Wkn, Oprt, Thrt)

- Motivate employees - Drive the strategies Vision 1. PEST Analysis Political, Economical, Social, Technological
Mission,
Culture Values
Vision - Strengths & weakness of competitors - Demographics & need of the market

Objectives are the 1. Precise & measurable Values - Strategies to improve the comp’s position
Goals Determine - Impediments to the company’s entering
steps to the Goals 2. Crucial (important issues)
Competitive - Barriers can erect to limit competitors’s ability to erode the comp’s
3. Limited goals & Goals
- Effectiveness Analysis place Then, developing a strategic plan
4. Challenging (realistic)
- Efficiency 5. When to be achieved (deadline) ● Define the competitors ●Analyzing competitors’ strengths & weakness
(Similar to Competitive
● Analyzing company internal strengths & weakness
1. risk for entry of competitors SWOT) analysis
● Analyzing Customer needs & wants ● Studying impediments to the market
2. Rivalry established companies ‫ﻣﻨﺎﻓﺴﺔ‬ Other includes:
for both Company & Competitor ● Develop a strategic plan
3. Bargaining power of Buyers 5 Forces - (Michael Porter) Planning
4. Bargaining power of Suppliers Tools
2. Contingency Planning Planning a company does to External contingencies
5. Substitutes to the industry products & Scenario Planning prepare for possible events. Internal contingencies
External
- Industry, - Country, - Macro-environment 3 environments 5.
Utility (U) – Costs (C) = Created Value
Developing &
Utility (U) – Price (P) = Consumer Surplus
Utility & Profitability Implementation

1- Barriers to imitation
Durability of
2- Capability of competitors to imitate
Competitive Advantage
3- Dynamism of the industry environment
BCG Boston Consulting Group
1. Inertia 1. Growth-Share Matrix
2. prior strategic commitments
3. Icarus paradox
Internal analysis SWOT Analysis Strategic
To avoid Planning
1. Focus on all 4 generic building blocks (GBB)
superiors (efficioncy - quality - innv - respn)
Failure Process
2. continuous improvements & learning Several
3. benchmarking Tactics
4. overcome the internal forces of inertia
withing the organization
● Ongoing processes. ● Integrated throughout the organization
Characteristics ● All former assumptions should be challenged ● Long-term in nature
of Successful ● Employees at all levels should have input ● Communicated clearly and often to everyone
3. Strategic Plans ● The success of the strategy lies in its execution
Internal ● An opportunity to develop a shared vision (joint-ownership among the staff)

Functional Level
(( 4 Superiors )) 1. Efficiency, 2. Quality, 3. Innovation, 4. Responsiveness to customers
Strategy
1. Customers’ needs - & - what needs are to be satisfied
3 Set of
2. What products - & - to which customers group
Decisions
3. How customer needs are to be satisfied using the company’s distinctive competencies
Business Level
Strategy
4.
Formulating 4 Generic Competitive Strategies

Global
1. Global standardization, 2. Localization, 3. Transnational, 4. International
Strategy

Corporate Level 1. Horizontal integration, 2. Vertical integration, 3. Strategic alliance, 4. Strategic outsourcing,
Strategy 5. Diversification
 Goal Congruence Defined as: Aligning the Goals of Two or more groups

Advantage 1. Coordination & Communication 2. Measuring Performance 3. Motivations for managers & employees 4. Efficiently
of Budget allocation the resources 5. Controlling operations 6. Check on progress toward objectivs

Charactesristics Start with Plan - Management Support - Perople whos responsible for delivering - (should have input) -
of / Successful Motivational - Accurate & expected future events - Flexible (allow changes) - Not be rigid (force actions
Budgeting without mgmt review) - Coordinated among divisions - Budget's time match the Purpose (usually 1 year)
Concepts
Budget Participants Participative (Involve individuals) / Autoritative (By Mngmt) / Consultative (Mngmt 1st ask for input)

1. Guidelines are set & communicated

2. Intital Budget proposals are prepared by Responsibility Centres
Budget 3. negotiate by all managers, review & approval the budget to Directors
Development 4. Revisions / Changes (if initial assumptions changed)
Process 5. Compare with Actuals
Difference between
6. Variance Reports every level - to identify problems & make adjustments
(what's expected)
& (what's recorded)
2. Budgeting Budgetary Slack
Concepts how much SHOULD cost to produce 1 unit Managers may do it to
be Easily Achievable
Company must know (expected Production Level) & ( Usage of inputs)

Setting - Activity analysis - Historical data - Target Costing

Standard Standards - Strategic decisions - Benchmarking

Costs who set the budgets? Authoritative / Participative (employees invovled)

OH Stadards Based on Normal conditions, Normal volume, Desired efficiency

2 relate to (what Plant Can Supply) 1. Theoretical (ideal) 2. Practical (currently attainable)
Output Level
2 relate to (the demand) 1. Master budget capacity 2. Normal capacity

makes 2 assumptions b = y-intercept (the value when time is 0)

1. Time Series Simple Regression Analysis 1. Variations for the passage of time a = slope of regression
Analysis 2. Relationship y = ax + b x = independent variable

Simple linear Regression y = ax + b

2. Causal
forecasting Multiple linear regression ŷ = a1x1 + a2x2 + a3x3 + b
Coefficient of Correlation
value is between -1 & +1

Benefits Nnumerical & quantitative - It's used to forecast the fixed & variable portions of costs.
Benefits &
Limitations of 1. Historical data is required.
Regression Analysis Limitations
2. it will not work if there are changes in the environment after the data was collected.
3. If independent variable was not appropriate, the resulting forecast will be invalid.
4. The conclusions are valid only for the range covered.

50.01% (maximum learning) / 100% (no learning).

Total Time -> Average Time LC Learning Curve % No. of Double is it ?

Average Time -> Total Time n No of doubling 1/2 - 2/4 - 3/8 - 4/16 - 5/32 Units /or Lots

Cumulative Average Time per unit (per doubling)

1. Average Time
= Time required for the first unit × LCn
1. Cumulative per unit
Average-time Total Time = Avg. Cumul. Time * # of units

average for All 2. Total Time Total time = Time required for first lot × (2 × LC)n
3. Forecasting units Produced for all Total Time ÷ No of units = Average time per lot
Techniques 3. Total Time Total Time for 8 units (-) Total Time for 4 units

Learning for a certain = Amount of time needed to produce units 5-8.

Curves block of units That Time for units 5-8 (÷) Four = the Average Time for those 4 units

2. Incremental unit-time (Not on Exam)

- Make or buy decisions (analysis of the cost to make product)

- In calculating the cost of a contract over its life, learning curve analysis can lead to better bidding.
- In determining a breakeven point, if learning is not considered, the result may be overstatement of the number of
units required to break even.
Benefits
- Standard costs can be adjusted regularly to recognize the fact that learning causes labor costs to decrease.
- In capital budgeting, labor costs can be projected more accurately over the life of the capital investment.
- Production and labor budgets can be adjusted to accommodate learning curves.
- More effective evaluation of managers.

- Only applicable in a situation in which experience leads to improvement (labor intensive tasks).
- Assume that the learning curve rate is constant, when in reality it probably is not.
Limitations
- Assume that all increases in productivity are due to the learning process, when there may be other factors
causing the productivity increase.

Calculate: Each of the possible outcomes (x) the likelihood (probability) of that outcome occurring.
All of the results are then added together to determine the (Expected value)

Classical method
Expected Value Methods of assigning Probability Relative frequency method
Subjective method

- Both (Variance σ2) & (Standard Deviation σ) give us the variability of the
Variance &
possible values in a probability distribution
Standard Deviation
- Both measure the diversity of the possible outcomes.
 the Goal of & Result of the Budgeting Process.
Annual Master (Static) Budget
Compilation of all separate (Operational) and (Financial) budget schedules.

- Makes the evaluation process better After the actual Production level is known Flexible Budget

Short /or Long term (Project lenth) Project Budget

Continuous
Adv. Budget for next period always available, Up-to-date, Managers pay more attention
(Rolling) Budget

- Activities that drive the costs are identified.

- A budgeted level of activity for each of these drivers is determined based on a Activity Based
4. Budgeting
budgeted level of production. Budget (ABB)
Methodologies
- Budgets are based on budgeted activity levels and the costs to perform them.
(Types)
Zero-Based Budget (ZBB)

Incremental Budget
is a process that goes on throughout the year.
Budget Cycle
accountants assist managers in investigating the variances from the plan

The FIRST to Prepare Sales Budget

DM Usage & Purchase Budget

DL Budget Production Budget

Manufacturing OH Budget

(Finished Goods & DM) Ending Inventory Budget Operational

Budget
Beginning Inventory
+ Expected Budgeted Purchases or Production
Cost of Goods Sold
= Expected Goods Available for Sale
− Desired Ending Inventory
(COGS) Budget 5. Annual
= Budgeted Cost of Goods Sold Profit
Plan &
Selling, marketing, admin, Accounting, Research & development Non-Manufacturing OH Budget Section B
Prepared on Monthly basis The LAST to prepare Cash Budget Supporting 20%
Schedules
Budgeted Balance Sheet Financial Budget Planning,
Budgeted SCF Budgeting &
Fixed Assets - Years in advance Capital Budget Capital Expenditures (CAPEX) Forecasting
Pro-forma Income Statement

- Experience - Probability - Correlation 3 primary approaches are (depend on situation)

is Difficult because so many external factors to take into account.

If forecast is too low, won’t be able to meet demand Sales Forcasting
If forecast too high, will be excess capacity and excess inventory

Projected increase in assets = (Assets that increase with increase in Projected increase
sales ÷ Sales during the past year) x Expected change in sales in Assets Forecasting
for Planning
Projected increase in spontaneous liabilities
= (Liabilities that increase spontaneously when sales increase Increase in Spontaneous
÷ Sales during the past year ) Liabilities
x Expected change in sales

Increase in retained earnings Increase in

= Profit margin on sales × Projected Sales × Retention ratio Retained Earnings

Common Reasons for Preparing:

1. To compare the anticipated performance with its target performance and with investor expectations.
2. Used for “what if” analysis in order to forecast the effect of a proposed change. Financial
6. Top-Level
3. To determine in advance what the future financing needs will be. Statement
Planning &
4. Various cash flow projections & sets of pro-forma statements may be prepared / using different Projection
Analysis
assumptions / for different operating plans.
5. To determine if the company will be able to remain in compliance with any required covenants.

Expected increases in assets can be funded in 3 ways.

Spontaneous liability increase (A/P)
Forecast future cash needed
Profits from additional sales
External financing (loans, debt, securities)

Projected increase in assets - Increase in spontaneous liabilities Additional Funds

- Increase in retained earnings = Additional funds needed Needed Formula Cash Flow
Projection
Company’s rate of sales growth.
Company’s capital intensity ratio (the amount of assets required per dollar of sales) Determinants
Company’s spontaneous liabilities-to-sales ratio. of Need for
Company’s net profit margin. External
Company’s retention ratio. Financing
Planned changes in policies and procedures.

1. Establish the Standards of Performance, 2. Measure Actual Performance

Budget Control
3. Analyze & Compare (Variance Reporting) 4. Investigate
5. Devise & implement the Corrective Actions 6. Review & Revise if necessary
Loop
 Income results +Favorable -Unfavoraable
Variance direction is (Actual - Budget/Applied)
Expenses results +Unfavorable + Favorable
Variance Analysis
Activity analysis
overview Variance does allow Management by Exception areas deviated from expectations.
Historical data
Source of
Benchmarking
Standards
Management by Objectives (congruence) / Management by Exception (areas) Target costing
Stratetic decisions
Any Price/Cost/Rate variance -> per unit
Any Quantity/efficiency variance -> Total
1. in Sale + Var is Favorable / Cost +Var is Unfavorable
2. in Sale price we use Cont margin when able
Diff between
3. in Sale we use Master budget level / Cost we use flexible budget quanitiy
Revenue Sale Var. vs Input Sale Var are:

in Multiple units, calculate each, then sum the variances

Price / Rate variances (AP - SP) x AQ

(waspAM - waspSM) x AQ
DM variances Mix variances
(similar to Price var. formula)
DL variances
(Manufacturing / Input ) Quantity / Efficincy variances (AQ - SQ) x waspSM
Yield (total usage) variances
(AQ - SQ for actual output) x SP (similar to Qty var. formula)

waspSM = Total Std cost ÷ (SP x Std Mix)

waspAM = Total Actual cost ÷ (SP x Actual Mix)

Spending (AP - SP) x AQ + Unfavorable

Section C (AQ - SQ) x SP

VMOH V
20%
(AP x AQ) -
Performance Level 3 (SP x SQ)

Management
Efficiency

1. Cost &
Variance
Measures
((Unfavorable: inadequate maintenance, unmotivated,
inexperienced, underskilled workers))

Spending A. OH - B. OH ((Unfavorable: Unexpected actual prices increase))

Overhead B. OH - Applied OH
Flexible Budget
variances FMOH V
Variances ((Unfavorable: only due to Production budgeted, or due to lower
demand or supply (production stoppage))
Actual (-) A. OH (-)
Actual - Flexible
Applied / B. Applied
Allowed Production
Efficient
Volume
(No much
control)

Master / Static
Budget
Variance

Actual - Static

(Operatign
Income Only 3 Greens above
variance) Level 3 are
Level 2
the Total OH Flexible
Effectivness budget variances
(Controllable
Level 1
Variance)

We can use Price /or

Price variances. (Actual - Flexible) (AP - SP) x AQ / (ACM - SCM) x AQ
Sales variances Contribution Margin
Volume variances (level 2)

Quantity variances (AQ - SQ) x Market / Sales Size variances

Sales Volume Variances
1. Flelixbe - Static waspSM Market Share variances
2. (AQ - Static Q ) x SP Mix variances (waspAM - waspSM) x AQ
 Controllability : Motivation / Degree of influence De-Centralization
Accounting System (Budget & Variances) - Center (controllable activities) Responsibility types
Concepts
No performance measurment for Controllable costs -> De-Motivation Performance measurment for Non-Controllable costs -> De-Motivation
/Keywords
Transactions should be the same as if the Two parties were not related Tranactions supposed to be
Transactions shouldn't be adjusted to reduce the overall tax priced as “Arm’s-Length”
(HR, IT, maintenance...) 1. Cost Centres (Service Departments)
Effectiveness is the key for their evaluation (Revenue) 2. Revenue Centres 4 Main
each center's usage 1. Cause & effect
Branch, Point of sale (Revenue & Cost) 3. Profit Centres Class.
same as separate Company (Revenue, Cost & Investment / Assets) 4. Invesment Centres each center's benefits 2. Benefits received 4
Considrations
personal judgment (not recommndd) 3. Fairness or Equity
Common Cost
preferred only for small (not major) costs * if done for major costs -> will de-motivate the centers 4. Ability to bear Allocation
Cost allocation by considering each user of the cost as a Separate entity 1. Sand-alone cost allocation 2 main ways
A. Primary Centers (take major costs) B. Incremental centers (secondary) 2. Incremental allocation of Cost Allocating

Evaluating the Manager (vs) Evaluating the Business Unit 2.

(Net Revenue - Manufacturing VC) Level 1: Manufacturing CM Responsibility
(Manufacturing Contribution - Nonmanufacturing VC) Level 2: Contribution Margin CM 4 Levels of Centres
(Contribution Margin - Controllable FC) Level 3: Controllable Margin (Short-Term) performance
evaluation
Level 4: Segment Margin (Long-term)
(Controllable Margin - Non-controllable, Traceable FC)
(Contribution by Strategic Business Unit (SBU) & Reporting
segments

Contribution
Margin IS

Major Factors: 1. Goal Congruence 2. The Capacity 3. Legal requirements Traceable FC : that can be assigned to particular segment ((Cause & Effect) (ABC)
Transfer Pricing (6) Objectives
The Best price decision is the most motivation for both Seller &
1. Promote Goal Congruence (overall company goals) Challenge
Buyer managers (Market /or Negoiated) are the best
2. Segmental performance evaluation (help senior managers for evaluation) Decision maker
3. it should motivate each profit center manager should consider:
Maximum price (for Buying dep) is Market Price
4. It should preserve autonomy (freedom for decision) among managers
Lowest price (for Seller/Production Dep) is either
5. it should meet legal & external reporting requirements Max &
Variable Cost -> if Excess Capacity
6. it shoud be easy to apply (understandable / not-complicated) Lowest
/or Variable + Lost opportunity (lost contribution margin) if Full Capacity
VC + OC ≤ Transfer Price ≤ Market Price
the most effected if we use market-based price is the Market-price will lead to the greatest good behavior for the company 1. Market Price
Profit Centre ((also called - Revenue Centre)) in the long-term (Monitor & Control any Bad Behaviors) (Arm-Lenth)
2. Cost of (Production) + (Opportunity Cost / Lost contribution) Setting the Transfer
transfer
works well if selling dep has excess capacity 3. Variable Costs pricing
price
4. Fulll Cost
if Actual costs -> Huge risk for the company as whole when Production center has Cost of Prudutction (defined in contract) + Fixed Dollar
(intermediate
8 mehtods
No Motivation to control the costs -> so better to use Standard costs amount (lump sum) or/ % of Costs (markup percentage)
5. Cost plus product)
are they able to decide to buy/sell it internally or externally? / Consider Quality & Delivery time 6. Negotiated Price
easy, simple & might serve the Goal congruence - /De-Motivation 7. Arbitrary pricing (impose by top mng)
Sellers - high price / Buyers - Low price (both Centers are profitable & happy)
8. Dual-rate
Not Actual results - High Risk - Against overall Goal Congruence

Also name (Accrual accounting rate of return)

ROI for business unit (%) = Income (profit) ÷ Investment (Assets)
including 1. Leased and owned 2. working and idle assets Investment in the formula are all Assets under CONTROL of the business unit ...
(if Sales & Exp increased by SAME %) -> ROI will INCREASE ROI increase by Sales (more) Expenses (less) / Assets (less) Return
Adv. 1. within manager's control 2. can achinve goal congruence 3. ability to compare performance of investment ROI
Dis. 1. percentage % not amount
RI (amount not %) = net Income B4 tax - (requried % of return x investment) Return after a certain required return on the assets in use by the division.
Residual income
if negative (-) means Actual acheived is Less than the Targeted/Required Required rate = WACC (Weighted Average Cost of Capital)
Only for investment centers/segments (not profit, revenue or cost center) Timing is important Multiple financian & Nonfinancial measures
Investment = Total Assets - Current Libailities Comparison (as measurement) neet to consider accounting POLICIES impact on income Notes for
ROI & RI
Profit (in ROI & RI formulas) is (Operating income) /if not available, so (Net income)
3. Perfomrance
multiple performance measures Non financial measure
Measures
(evaluation)

Difficulties :
Long term process, Balance
difficult to compare ScoreCard
Huge data,
No specific measure to quanitify
 (DM Used* + DL Used + MOH applied = Manufacturing costs ) + Beginning WIP − Ending WIP = C.O.G.M
Cost Management
Terminology Beginning Finished inventory + Purchases for a reseller /or C.O.G.M for a manufacturer − Ending Finished inventory = C.O.G.S

Variable (cost per unit increase - production increase)

Cost behavior Fixed (cost per unit decrease - production increase)
& relevant range
Note: (semi-variable) &
Mixed high low method : (highest - lowest cost ) ÷ (highest - lowest units) = V. per unit
(semi-fixed) costs
Direct
1) Measurment Tracteability
Indirect Allocation rate = indirect costs ÷ Allocation base (cost driver)
Concepts
Manufacturing (Production / Inventoriable costs)
Nature of cost
Non-manufacturing (SG&A / Period costs / Non-inventoriable)

Purpose

Cost
Classification

Price costs = DM + DL /& Coversion costs = DL + MOH

Note: period costs may allocated to production for INTERNAL decision (for pricing)

Controllable / Non-controllale (specified manager)

Relevant (1) future scenario (2) differs for multiple options

Relevant / Sunk Costs
Sunk costs incurred (historical) or Committed (past decisions)

Incremental / Differential Cost

Outlay (explicit cost) / Opportunity costs (implicit costs) (Note: Economic costs = implicit + implicity costs

Avoidable / Committed (past decisions / un-avoidable)

Other Costs
Engineered (direct) / Discretionary (budgeted - to achive - no strong input & output)
Classifications
(For decission Joint & Separable costs (Oil, Petrol & Asphalt)
making) normal to pruduct (manufacotring) costs
Normal / Abnormal spoliage
& Abdnormal to period costs

Rework , Scrap & Waste Rework (related to finished goods) & Scrap /Waste (related to Raw materials)

Carrying costs / Stock

Carrying costs : Storing or inventory costs includes implicity & explicit
out costs

Transferred in costs (between production departments)

Value adding / non-value adding costs (process analysis) (affect quantitiy, quality & responsiveness )

1) Supply Not Used Theoretical (ideal) (bigger capacity gave wrong allocation rate per unit
denominator
Currently attainable (practical) capacity
Capacity level concepts Best for pricing decision
= theorectical capacity - idle time & downtime
Levels
Best for current performance evaluation (Master budget capacity)
2) Demand denominator
level concepts Best for long (Required for (GAAP), Normal capacity
term planning OH standard costs, Average of master capacity

FOH ACCOUNT BALANCE

- if balance is IMMATERIAL
-> to Only C.O.G.S

- if balance is MATERIAL
-> to
1- WIP,
2- Finished Goods
3- C.O.G.S
 3 main
measurement
systems
Differ in what rate is used to allocate
DM, DL
& OH application rate
& OH allocation base

Meas-
urment

2) Cost
Accum-
ulation
Systems
Mass Production, homogeneous
Step 1:

.
.
.
.
.
.
Process
. Costing

Accumulation
(just standard OH allocaton) Customized, Unique, heterogeneous Job Order Costing

different materials (job costing) + conversion (DL & MOH) similar (process) Operation Costing (combination)

significant R&D costs

3 catergories:
Life Cycle
1) upstream costs Costing
2) Manufacturing costs
3) Downstream costs

(Plant-Wide range)
Over/under applied Traditional SINGLE Rate
(Peanut-butter-costing) Volume
(Cause & effect relationship) base
Traditional Deparmental Rate
Terms: 1. Cost object /2. Cost driver (Structural / Executional)
Activity Based
Types: Value adding / Non-value adding Costing (ABC) Allocation
Categories: 1. Unit-level 2. Batch-level 3.
Product=sustaining 4. Facility-sustaining Normal (product cost) / Abnormal (period exp) Accounting for Spoilage

(go to page D-P1) Absorportion & Variable Costing

Direct Method - Step Down Method - Reciprocal Method Multiple Service Departments Service Departments
Sum Total (fixed + variable ) Single-rate One service
(differentally) Fixed / Variable Dual-rate method department

too optimistic (many units- low MOH per unit) too pessimistic (less units / high MOH per unit) if the Company is

best for PERFORMANCE 1. Expected Actual Capacity / or Master budget capacity

Level Overhead
Activity Cost
best for PRICING 2. Practical or currenetyly attainable capacity Choices for to use Allocation 3) Cost
level of activity
best for LONG-TERM planning 3. Normal Capacity Allocation
Not used 4. Theoretical or ideal capacity Systems
(X) Product sales / total sales of all x joint cost 1) Relative Sales Value at Splitoff
Joint
Future sales price - Seprable costs after splitoff = Est net realizable value 2) Estimated Net Realizable Value products
weight, volume or other phisical measure 3) Physical Measure and Average Cost allocation
methods Joint Products
1) Gross profit for all in % 2) Gross profit for each 3) Profit - separable costs = joint cost for each 4) Constant Gross Profit (Gross Margin) percentage & Byproducts
(estimated NRV) reduces (inventory cost of Main Products) 1) Production method (inventory acc) Byproducts
Costs
only if it is sold Either (a) Revenue or (b) reduce costs of Main products 2) Sales method
 1. identify the Activities that Add Value or non-added Value) to the Customer (ABM) Value Chain Analysis
2. identify the Cost Driver for each activity (ABM) (customer's
3. Develeop a COMPETITIVE ADVANTAGE (add value / reduce costs) point of view)
1. Primary Activites : (Upstream (R&D) + Manufacturing + Downstream)
made up of 2. Support activites -not Secondary : Infrastructure, IT, materials, HR Value Added
Value Chain Measure (Manufacturing cycle efficiency) Concepts
= Time of value added manfuacturing ÷ Total time of manufacturing cycle

Divided into:

Operational
ABM Activity Based
Management
& ABM

Strategic
ABM

less risk & great results Process analysis : Incremental & Constant Changes
high risk
Process Reengineering:
Steps : 1. identify what we do better
/ Fundmential Changes Process Analysis
2. determine what process uses for value products
/ radical Section D
Priority : 1. process is most dysfunctional / dramatic 5) Business 15%
2. greatest impact on customers / heavy blasting Process
3. most feasible
Cost
Improvement
Management
1. Best in class levels 2. Best practice analysis 2 Types
Benchmarking
IN ORDER : 1. Identify Cretical Success Factors the Processes / (mix-skills team)
2 Do best practice analysis & document it / Steps
3. identify improvements areas
design, supplier evaluation, training, ... Prevention costs
Conformance costs
inspection, testing Appriasal costs Cost of
Quality Analysis
we findout (rework, scrap ...) Internal (Before shipped) Non-Conformances * Exam *
customer findout (warranty, ...) External (after Shipped) costs (failure costs )

Enhance product quality / Timely response / Eliminate non-value

Objectives:
adding work /flexibility in customer requests

1. Support of Top mngmt / 2. Clear & measurable objectives / Core

3. Reqcogize quality achivements 4. Training / 5. continuous impr Principles
Total Quality
(Kaizen) / 6. Satisfying the customer's expectations / 7. Involve all of TQM
Management
Employees ** EXAM **
1. Control Chart / 2. Histogram / 3. Pareto diagram (Machine, Materials, Analyzing Quality
4. Cause & effect diagram (Iishikawa diagram) Methods & Manpower) Problems
most compatible TQB & ABC
Process Analysis
Continuous Improvements Concepts
(slow / incremental changes) - or Re-
(KAIZEN)
engieering

0. Benchmarking. 1. Prioritizing improvment areas / 2. Assessment

Walkthrough / 3. Mapping / 4. Design / 5. Risk & benefit Current
Effcient Accounting
1. Training / 2. Reducing close cycle / Planning / Implementing Process
3. Centralization / 4. Cloud-based the Redesign
 1. Maximize customer value /
SCM Goals
2. Sustainable Competitive Advantage
7 wasteful (Over-production / Delay / Transportation /
activities Over-processing / Inventory / Motion / Defective parts)
1. Specify customer's value /
Concepts 2. identify value stream
5 Lean 3. Continuous flow /
Principles 4. Pull /
5. Perfection & cont improvement
minimal machine downtime (large Batches x large Inventories)
Kaizen : Continuous improvement
Just in Time
Demand / Pull system
Comperhinsive production & inventory system
Goal (Time / Quality / Low cost)
Concepts
Manufacturing / work CELLS
Few suppliers (high quality / frequent deliveies )
Lean Manfacturing
Kanban : tickets / markers / cards - supplier deliver as needed
(‫ اﻟﺨﺎﻟﻲ ﻣﻦ‬- ‫) اﻟﻨﺤﻴﻠﺔ‬
Backflush costing No Inventory / WIP
1. High Coordinated Work Cells 2. Multi-Skilled workers
Application 3. Reduced setup times / 4. Reduced manufactring lead time
5. Reliable Suppliers
Push system
4) Supply
Section D manage the (ordering) process by
Chain
15% COMPUTER SOFTWARE
Mngmnt
Cost Materials Requirements MRP Calculation
(ERP)
Management (Operation Concepts / Planning (MRP) 1. Deman forecasts finished goods
(MRP)
efficiency) Keywords 2. A bill of material
(MRP 2)
3. Quantities currently on hand
Outsourcing
MRP II (all of production)
Enterprise resrouce Reduced oprtn costs / Invntry mngmnt is facilitated
planning (ERP) / Strategic planning is simplified
Change in One unit Performance in the Constraint Area
Concepts (Slowest area) will impact Overall Profitability
/ Keywords Throughput : produced & shipped or delivered
Throughput time = manufacturing lead time = manufacturing cycle time
Theroy of
Constraints 1. Identify the constraint (the Bottleneck)
(TOC) 2. Exploit the constraint (most profitable product mix)
keeping the operation running / busy / smoothly
& Thoughput Drum Buffer
Costing Used to resolve the conflict (having
Rope DBR
enought work) - (limiting the WIP inventory)
3. short-term:
Maximize the Throughput costing
** EXAM **
Steps (SUPER / TOTALLY /
flow / Throughput Contribution = Revenue - DM
the Contribution STRICTLY variable)
Inventory Cost : only (DM)
Operation costs : all except DM
(short term only)
4. medium-term: Elevate the constraint (increase capacity)
5. long-term: Re-design the process for flexiblity and fast cycle
(value engineering)
1. Ideal / 2. Practical (strategic decisions)
Capacity Management & Analaysis 3. Master-Budget (demand) /
4. Normal (long run - all seasons - up& down)
 includes all the ways of DIRECTION & CONTROL (rules, regulations, processes, customs, policies,
Def. procedures, institutions, & laws)

Spells out the rules & procedures to be followed in making decisions for the corporation

Governance 1. it's regulate the relationships among the various Participants & Stakeholders (int & externally)
is important : 2. Goal & Objective

Agency Shareholder & Managers (their agents) may have different Goals
Problem Governance specifies the distribution of Rights & Responsibilites between Shareholder & Managers
Keywords
(Internal Control + Risk Management) are part of Corporate Goverenance

Strategies ➤relies on Risk Mngmt ➤relies on Internal Control

Relationship between (Internal Control - Risk Mng - Corp Governance) is InterRelated - InterConnected

Source of Corp Governance 1. Corporate charter (articles of incrprn) 2. Board of Directors 3. CEO 4. Audit Committee

Incorprators: -Sign docs Directors: Complete structure, Elect officers, Select Bank, Comply with other
- Elect Directors -Resign states, Adopt bylaws / Contractors / Shares / Stock Subrciptions / Seal (stamp)
1. Corp
Governance Who's responsible? Joint responsibility - of the board - of directors & management.

Purpose To advance the current dialogue & to Continue to promote investors & FS users

1. Board Purpose (protect shareholders interest)

2. Board Responisibility (Monitor CEO / Oversee Strategy & process / Monitor risk & IC)
3. Interaction (Effective Governance) (Board, Mngmt, External /Internal Auditor, Legal Counsel)
4. Independence of Board members (no professional or personal)
Principles 5. Expertise & Integrity (mix backgroungs, continuing education)
6. Leadership (separate Board Chair & CEO)
of Good
7. Committees (Audit, Compensation, Governance....) shud have Charters authorized by Board
Governance
8. Meetings & information (frequently - extended (long))
9. Internal audit (all Public Companies shud have Internal Audit - & report to Audit Committee)
10. Compensation (mix for executives & directors)
11. Disclosure (Proxy statements reflect (Activites & Tranx) in Transparent & Timely manner)
12. Proxy access (process for shareholders to 1. Nominate directors 2. Significant ownership stakes)
13. Evaluation (regular procedure to evaluate (whole Board, Directors, Commettees, CEO) annually

Main responsibility (Governance, Guidance, Oversight) to the managment

B. Specific
Select & Oversee Mngmt, Capital structure, initiate Fundamental Changes, Declare Dividends, Bylaws
O. responsibilities
D.
Governing (setting Policies) / Fiduciary (act on behalf of all
Duties
stockholders) / Loyality (Disclosure & not to usurp opportunities)

min 3 members / min 1 member shud be Financial Expert / All are financially literate /
Requirements
5 yrs after employment
Audit
Cmmtt Select&supervise Ext Auditor / review IC & Int Auditor / link between
Respnsbltes
(mngmt, ext auditor & int auditor) / review FS

2 Reports must provide 1) Openion if the FS (present fairly, in conformity with GAAP).
for Publicly traded Companies 2) how effectively is internal control (wkns) over financial reporting

Under PCAOB, Ext auditor must issue a report on IC (if company is Publicly traded)

4
1) Unqualified Yes - Correct - Fairly represent
Categories 2) Qualified Almost - some exceptions or notes
of External 3) Adverse Not even close
4.External Auditor 4) Disclaimer No idea - no openion
openions
Auditor
Biggest Risk 1. Inherent risk -> there is a mistake (bcuz of complex)
3 risks (Steps) of a
PCAOB Audit Risk if Opinion is 2. Control risk -> Client IC doesn't detect the mistake
Financial Report mistake
Adt Stndrds incorrect 3. Detection risk -> Auditor doesn't detect the mistake

1. Substantive - Vouching (large volume & bal)

2. Balance sheet
Audit Approaches
3. System based (weak areas)
4. Business Risk-based

is an Independent, Objective Assurance &Consulting activity, Designed to Add Value & Improve the Operations. it help
to achive Objectives by (Systematic, Disciplined) approach to Evaluate &Improve Effectviness of Risk, Control &
Internal
Governance
Auditing
must have Orgnizational Independence IA activity established by its Charter Focus in Efficiency & Effectivness
 Purpose : Company Ongoing effected (accomplished) Reasonable Assurance Must be
achieve its Objectives Porcess by people No Guarantee Flexible

COSO is a Process, Effected by an entity’s Board of Directors, Management, & other Personnel, Designed to Provide ((Reasonable Assurance))
of IC - regarding the achievement of objectives relating to ORC ((Operations, Reporting, & Compliance ))

Improving (a. financial performance b. productivity c. quality

Operations
Reasonable d. innovation e. customer satisfaction f. safeguarding of assets
Assurance for
Reporting Reliable, timely, transparent, Finn & non-financial, intrnl or external reprtng
objective for 3
areas ORC Compliance with - Laws - Rules - Standards - & Regulations

- Board of Directors OVERSEES the IC system.

- CEO is responsible for the IC system & the “TONE AT THE TOP.”
No One
Who's - Seniors : Delegate responsibility of IC policies & procedures.
&
responsible - Financial officers & their staffs : are central to the Exercise of control.
Everyone
- Internal Auditors : play a Monitoring role.
- Virtually all employees are involved in internal control

Who's interested Investors, Management, Ext Auditors, Legislative & Regulatory, Customers

1) Control Tone at 1. Mngmt Philosphy 2. Org Structure 3. Policies & Procedures

Environment the Top 4. Objectives & Goals 5. Assignment of Authority & Reposibility

2) Risk Assess Risks (identify) ➤ Control ➤ Mitigation

➤Assessment 6. Specify Objectives
➤Analysis - Significance of each Risk
Risk 7. Idntfy & Analyse risks
➤Managment - Frequency of each Risk's occuring
Analysis 8. Potential Fraud
- needed actions (Risk Management)
9. Changes impact IC

3. 5 (Five) Politicis & Procedures to Control (mitigate) the Risks

Components
Internal Control the forms (permission & authorization)
3) Control
Control ** CRIME ** Activities
10. Activites that mitigating risks to objectives
Control implmeneted ➤ Benefit ➤ Cost of the Control 11. Controls over Technology
12. Establish procedures put Policies into Action

Prevention / Detective Controls

13. Generate & use Relevant, Quality info

4) Information & * Obtained from & Communication to Ppl
14. Communicate internally inc Obj & Rspnsbts
communication * Right info ➤ to right person ➤ in right time
15. Communicate externally

Over a time ➤ Still relevant ➤ Ongoing 16. Separate Evaluations

5) Monitoring Activities
Still functioning ➤ Changes Process 17. Evaluate IC deficiencies

1) Authorization
1. Independent check & verficiations : involve 2 conditions
2) Completeness
(No involvement of assets custody - Unconnected original transactions)
3) Accuracy
7 transx 4) Validity
2. Compensation Controls (when not able to apply previous activities)
Control 5) Physical safeguards & Security Activities
3.Sequential pre-numbered forms
4. Specific docs flow
6) Error handling
Objectives 7) Segregation of Duties (Authrztn,
5. Safeguarding
6. Fraud (intentional, involves collusion)
Recording (shud have), Physical
7. Segregation
Custody (Actually have), Reconciliation)

1) Authorizing 2) Recording (should have) preparing source doc, maintain journal

4 Duties must 3) Physical custody (actually have ) receiving checks in mail 4) Periodic Reconciliation
be segregated
No Guarantee - may Collusion happen (Get Together)

3 classifications 1) Preventive controls Prevention Cheaper & Easier - Highly Visible

Control of controls based 2) Detective controls
Procedures on their timing 3) Corrective controls Detective Attention to Entered Error -Before Negative outcome

Limitations No absolute Assruance / Human judgement / human errors (Breakdown) / Mgmt may override / Collusion (get Together)
 Whole Company Responsibility
Foreign Corrupt
✓ Intentioned of Corrupt Pymnt (done or not) (1977)
1) Anti-bribery provision
Practices Act
✓ all companies
2 Laws / (FCPA)
proper Accounting Records is mandatory Provisions
2) Internal control provision
(or Accounting Provision)
Only Publicly Traded SEC

Applies to All publicly-held companies in the U.S., all of their divisions, & all of their wholly-owned subsidiaries.

★ 5 members (app by SEC)

★ Financially Literate (not expert)
PCAOB Board Includes
★ must be from Private sector
★ Only 2 can be CPAs 1. Public Company

1. Registering public accounting firms that will audit

Accounting Oversight Section E
Board (PCAOB)
2. Establishing the Standards for Audit Reports 15%
3. Inspections
Responsibility
4. Enforcing Compliance
5. Conducting (Investigations, Disciplinary, Sanctions)
5. Legal 1.
6. Management operations & Board
Aspects
of Int
Governance,
1. Bookkeeping 2. Financial info system 3. Appraisal (valuation) 201.
4. Internal audit 5. Mngmt 6. HR 7. Broker/dealer Services Outside the Scope Controls Risk, &
8. Legal 9. Expert 10. any services PCAOB is not permissible & Practice of Auditors
Compliance
Lead Audit partner - Rotate after 5 - Remain off for 5
& Internal
Other Audit partners - Rotate after 7 - Remain off for 2 203. 2. Auditor
Specialty partners (tax / valuation) - No Rotation Audit Partner Rotation Indepdence Control
Technical partners - No Rotation

1. All critical accounting policies & practicies 204.

2. All alternative treatments within GAAP discussed with Mngmt Auditor Report to
3. other Material written communcation Audit Committees
Sarbanes
3. -Oxley
1. Reveiwed 2. Not-Contain Untrue / Signing the Financial Ofcr
(SOX) -
or Omitted Facts 3. Fairly represent Financial Reports: (F. Rep Cert.)
302. Act 2002
★ (Est & maintaining) Internal Control (IC) Corp
★ Designed the IC to cover (Significant info)
Responisbility
★ Evaluated the IC effectivness 1. Responsible for
for Financial
(90 days prior to Report sign) 4
Reports &
★ Reported their Findings on IC Exect Ofcr Titles
Internal
(IC) Cert.) Control
✓ All Deficiencies in Design/Operations of IC 2. Disclosed to Audit
✓ Any fraud Committe & Ext auditor
✓ Significant changes of IC ( Significant disclosure)

begin with Risks to ICFR Top-down approach

SEC
1- Evaluation is basede on Risk
No33-8810
assessment
Guidance
2 Two for IC
2- Adequately address the risk
principles
(mis-statement of FS not be Req of
prevented or detected in a Mngmt
timely manner)
404.
1. Statement of Mngmt's responisbility for IC
2. Mngmt's assemssment / evaluation of the effectivneness Mngmt
3. Standards used in evaluating the effectiveness (ex. COSO)) Assessment
of Internal
PCAOB Auditing Standard 5 Gudiance
Controls
Req of
1. Issue attested report for IC evaluation
Ext 4.
(integrated with) FS audit report
Auditor Enhanced
2. Express 2 openions of FS (Compliance
with GAAP) + ( Accurate transx) Financial
disclosure
if, NO, must disclose why not Disclosure
if Audit
if One, must disclose his name & if he is independence
Committee has 407.
if more, must may (optional) disclose their names a Fnncl Expert
Disclosure of
1. Understanding of GAAP & FS
Audit Committee
& ability to assess the application of GAAP
Definition Financial Expert
2. Experience in preparation of auditing of FS
of Financial
3. Experience & understanding of internal Accounting
Expert
Contorls & Procedures for FS
4. Understanding of Audit Committee functions
 1. Promoting effectiveness & efficiency of operations 2. maintaining Reliability of FR
Objectives
3. Assuring compliances with Laws & regulations 4. Safeguarding assets

Major Goals Availability / Confidentiality / Integrity

1. Errors in system Design 2. Errors in data Transmission 3. data can be Stolen (internet)
Threats of IS 4. data & programs can be Damaged 5. programs can be altered by dis-honest employee
6. viruses, Trojan horses & worms (crash or stolen or damage) 7. Physical facilities can be damaged

Based 1. Report of the Committee of Sponsoring Org (COSO - Internal Control - Integrated Framework)
Guidlines on 2. Control Objectives for Information & related Technology (COBIT) - authored by the IT Governance Institute
2 Docs - published by the Information Systems Audit & Control Foundation (ISACF)

1. Org & Operation of computer facility (inc. Segregation of duties - Most important)
2. General Operating procedures (inc. written manuals)
3. Equipment & hardware controls (inc. Backups)
1. General 4. Access Control (inc. Physical access & Paswords)
Control Segregation of Basic Responsibilites / Functions / Duties : Authorzation - Record keeping - Assets
custody / System Analysts (design) NOT to be Programmer / Programmer NOT to access Live data /
Operators (users) NOT modify the program / users NOT to access physical assets / Authorized only can Call
Vendors support

Specific to individuals designed to prevent, detect & correct errors

Info Reasonable assurance ➤ (Authorized, Complete, Accurate) data

Systems Highest risk of Errors (bcuz of Human involvement)

(IS) Observation ctrl (Before entry) / Transcription ctrl - entered correctly / Tests (after)

1. Preformatting ➜ forcing data to all necessary fields

1. Input 2. Edit checks ➜ prevent/detect/correct Certian types of
Online
controls incorrect data (dropdown menus)
input
3. Limit checks ➜ Certain amounts can be restricted
4. Check digits ➜ Algorithm, ex. Customer codes

1. Mngmt release ➜ batch release upon review & approval

Batch 2. Record count ➜ batch release when nu of record matches user calculated
input 3. Financial total ➜ batch release when dollar amount matches user calculated
4. Hash total ➜ sum of numeric field that has no meaning can serve as a check

Main Reasonable assurance ➤ 1. Processed correctly 2. Approved

Categories 2. Processing Validation : Idenifiers are matched against master files to determine existence (Codes)
controls Completencess : to reject any record with missing data
2. Application
Sequence check : logical order
Control
Assurance that Input & Processing has resulted a Valid Output
3. Output (valid = Complete & Accurate) (pre-numbered forms)
controls
1. Audit trail (all tranx details) 2. Error listings (all rejected tranx)

Dual write routines ➜ 2 separate physicsal devices

Cate- 4. Storage
Validity checks ➜ structure validity
gories controls
Storage physical controls ➜ hard drives in Secure rooms & Portable in locked storage areas

- Preventive (job rotation, dual access, preformatted)

Different
- Detective (batch totals, Turn arround docs)
Categories
- Corrective (discrepancy reports, upstream, resubmissions)

Rollback processing used to prevent any transactions being written to disk until they are complete

Consistent processing each transaction has access to all the files and data that it needs to be processed

InConsistent processing

Unrecoverable Tranx Any failure during processing (Ex: power), Tranx are only Partially Processed

Deadly embrace (Deadlock)

Two different app/tranx, Each have a LOCK on data that is needed by the other app
/ (Retrieval Contention)

1. Approve development projects 2. Assign resources 3. Ensure that required sys dev are aligned with
Steering Org Strategic Plan
Committee
Changes should be initiated by End User & authorized by Mngmt or Steering Committee

8 stages of the
3. System 1) Objectives 2) Investigation & feasibility study 3) Analysis 4) Conceptual Design 5) Physical
development
Development Design 6) Development & testing 7) Implementation & conversion 8) Operations & maintenance
process
control
1. Changes should be made to a (Working Copy) of the program
2. Should be (Tested)
Steps of IS
3. Testing must be with (incorrect data)
development
4. Changed programe code should be (stored in Secure library) during the testing
5. Unauthorized changes can be detected by (Code Comparison)

4. Physical 1. Physical access Limit access to comp centre to authrozied operators

Controls 2. Enviromental controls Comp centre should be quipmment with a Cooling & Heating system

5. Logical 1. Authentication User & pass 1.Difficult to guess 2. Ideally 3. Force password change periodically
Controls 2. Authorization A. Users can only access programs/data necessary to their job duties B. view data not change
 - Not testing input & output
- Not every possible
1. Test data approach Limitations:
- Separate from live data
- Specific time

For Large systems - Test along with Real / live Data

3 main ways
2. Integrated Test facility (ITF) Limitation:
- Setup cost,
- Fictitious data

Audit / 3. Parallel simulation (Excel) auditing around the Client's Computer

Testing Generalized Audit Software (GAS) ACL-IDEA help to retrieve information from computerized files
Comp System Control Audit Review File (SCARF)
Embedded Audit Routines
Systems or Sample Audit Review File (SARF)

Extended Record (Tag specific tranx -> extend - put in a Record file)
Auditing
within the Snapshot Debugging technique
System
Tracing To verify that Int Control are Executed (reveal Unexcuted code)

Mapping Special Software - determine if Program Contorl Statements (in source langauge) are Executed

Minimum level 1. User account 2. Firewall 3. Antivirus 4. Encryption coding data

Threats to IS Viruses, Worm , Trojan horses (no-replicate), Virus hoax, Logic bombs, Backdoors

Virus : Replicate themselves. alters the way that a computer operates. Damage programs, Delete files,
or reformat HDD

Worm : program that replicates itself from system to system without the use of any host file.

Trojan horse : Do not replicate themselves

• Tel intrusions - Public Switched Network (wiretapping)

• Major computer network intrusions
• Network integrity violations
• Privacy violations
Crimes • Industrial espionage
• Pirated computer software
• Copyright,
Internet • Phishing,
Security • Malware

Defenses Firewalls - Proxy Servers - AntiSniffer - Encryption (Secret) or (public/private key)

2 types of Encryption 1) Secret key 2) Public key/private key

1. Password att (Brute force attack, Trojan horses)

Inherent risk of internet 2. Man in the middle
3. Denial of Service att (DOS) (overload on website)

Routine backup & off site rotation

Specify: 1. Manager (responsible employee) 2. Hard & software 3. Priority of applications

2 major types 1. Data centre is physical available (UPS, ...)

of risks 2. Data centre is Not physical available (Hot / Warm / Cold / Mobile Site)

A hot site: - Equipment similar to the one used regularly - Must be fully operational -
DR planning immediately available.
(Contingency)
A cold site: - all of the needed Equipment can be installed - Equipment &
telecommunications are not immediately available.

A warm site: - has the Equipment & necessary data & communications links installed -
Does not have live data
 Supply
Chain &
AIS

Add Value by providing accurate and timely information so that all of the value chain activities can be performed efficiently and effectively

Journals ✦ General Ledgers ✦ Chart of accounts

Master files : permanent info (G/L account numbers / History or Customer account No / Historical data for each customer)
Elements of
AIS Automated Transaction files : used to update master files Remember (Transaction Codes)
AIS
Block Codes : numbers for accounts in GL chart of accounts

Modules : Special journals are used for specific kinds of transx & in a computerized system

Output of 1. Should include a date or dates 2. Should be consistent over time 3. Should be in convenient format
Automated AIS (info that is easy to identify / Summary reports for financial totals / Comparative reports (Related numbers)

AIS Tranx • Revenue to cash cycle. • Purchasing & expenditures cycle. (FOB shipping point) • Production cycle.
Cycles
• HR & payroll cycle. • Financing cycle. • Fixed asset cycle • General ledger & Reporting systems.

Financial Reporting Sys (External) (BS, IS, Stt of Cash flows, Stt of Comprehensive income & Changes in Equity) + (Trial Balance / GL)

Management Reporting Sys (Internal) Cost Accounting systems (Profitability) Reporting Systems ✦ & (Responsibility) Reporting System

Collection of Related data-files, Combined in 1 Location, to eliminate Redundancy, Used by different apps, Accessed by multiple users

Data Field ➤ Data Record ➤ Data File (table) ➤ Database

Primary Key a data Field in a record differentiate one record from other Foreign Key Connect record to other record
DB
3 Cardinalities / Relationship types / Relationship models 1. One-to-one / 2. One-to-many / 3. Many-to-many

3 Elements of DB Structure ✦ Schema ✦ Subschema ✦ Record structure

information retrieved from DB using a query language, such as SQL.

DB & (Software) as an (Interface) between users & database, manages the interrelated, centrally-coordinated data files,
DMS Def.
by ((standardizing)) the storage, manipulation, & retrieval of data.

1. DBMS used to Create database, maintain it, safeguard it, make it available for apps & inquiries.

4 DBMS Primary Functions 1.DB development 2.DB maintenance 3.DB interrogation (Querly lang /SQL) 4.App development

Inf DML (Data Maniupliating Lang) insert, delete, update

Sys Components:
• Production planning. determining (what raw materials - when - how much). • Logistics, both inbound (materials
management) & outbound (distribution). • Accounting & finance. • HR • Sales, distribution, & order management.
(IS)
Features 1. Integration. 2. Centralized database. 3. Usually require business process reengineering.

Extended ERP Sys ✦Systems interface with Customers & Suppliers through Supply Chain Management app✦Give them access to internal info

✦ Business re-engineering ✦ Converting data can be time-consuming & costly ✦ if done incorrectly result for (inaccurate info) ✦
Training employees disrupts existing workflows ✦ Unsuccessful ERP transition can result in system-wide failures (so financial losses)
Dis-
✦ Customers who r inconvenienced by the implementation may leave ✦ It is critical that it be completely functional & completely
advantages
understood by all employees before it “goes live” ✦ No opportunities are available to “work out the bugs” or “learn the ropes” when the
business relies on the one system ✦ Ongoing costs after implementation (hardware - maintenance - upgrade)

ERP To be 1) Be free of errors 2) Be uniformly defined 3) Cover a longer time span than the company’s transactions sys to
Data
sys useful enable Historical Research 4) Allow users to write Queries that can draw info from several/different areas of the DB
Warehouse

process of 1) Periodically data is uploaded

(copy of
making the 2) The datasets are transformed to be compatible with one another (Schema-on-Write).
Hist data) data available 3) The transformed data to be used for research, analysis, & other business intelligence functions.

Data subsection of a (Data Warehouse) ✦ provides users with Analytical Capabilities for a restricted set of data ✦ (Sensitive Data Security)
Mart
3 Types 1. Dependent 2. Independent 3. Hybrid

✦ Un-Structured ✦ NoSQL
Data
Lake SQL can be used as a query language with a NoSQL database management system, but
SQL is not the main query language used because its usage is limited to structured data.

EPM KPIs, Balance Scorecards, Strategy Maps EPM software can be on premises or it can be deployed as Software as a Service (SaaS) “Cloud”
sys
✦ Reports comparing actual performance to goals ✦ Reports on attainment of KPIs by department.
CPM
Capabilities ✦ Balanced scorecards, strategy maps, and other management tools ✦ Creating & revising forecasts and performing modeling
BPM
✦ Generating dashboards presenting current information (customized)
 is Quality Control for Data is a Process that helps better manage & control Org data assets

Encompasses the (practices, procedures, processes, methods, technologies & Def

activities) that deal with the overall management of the data assets & data flows

All of the means by which businesses are directed and controlled (rules,
regulations, processes, customs, policies, procedures, institutions & laws) Data Gov.
Includes
spells out the rules and procedures to be followed in making decisions

➤ Data availability, usability, integrity, security, privacy, integration ➤ System availability, System maintenance Data Gov
➤ Compliance with regulations, ➤ Roles & responsibilities, ➤ Data flows (internal & external) Manages
✿ Identify Roles ✿ provide a Benchmark ✿ Higher Likelihood of implementing Effective Governance &
Benefits
Controls ✿ Break down Objectives & Activities into Groups ✿ Regulatory Compliance

CRIME Components COSO’s internal control framework IT

2 most Governance
COBIT® is an I & T (Information and Technology) framework for the governance prominent IT & Control
& management of Enterprise information & technology governance Frameworks
frameworks
it is not limited to the IT department
ISACA’s currently in use
The COBIT® Framework introduced in 1996 by ISACA, an independent, nonprofit, COBIT

COBIT® 5 was introduced in 2012 - COBIT® is now known simply by its acronym.56

ISACA published an updated version COBIT® 2019, in Nov 2018

➤ Stakeholder needs r considered. Conditions & options r evaluated. in order to determine balanced, agreed objectives COBIT's
➤ Prioritization & decision-making are used to set direction. purpose of
➤ Performance & compliance are monitored in terms of the direction & objectives. Govrnnce
Plan, Build, Run, & Monitor Activities, in accordance with the Direction set by the body responsible for Governance purpose of
(such as the board of directors) - in order to achieve the Enterprise Objectives management

Goals Cascade Components Data

Govrnnce

Data Capture / Maintenance / Synthesis / Usage / Analytics / Publication / Archival / Purging Data LifeCycle Life
Cycle
Federal, state, & local document retention requirements / Requirements of the Sarbanes- 4 Factors in Establishing a
of
Oxley Act of 2002 / Statute of limitations information / Accessibility / Records of records Records Management Policy
data

Access, change, or destroy data, interrupt business operations, or, as with Ransomware / Extortion Cyper Attacks
process or methods of protecting Internet-connected networks, devices, or data from Attacks
Cyper Security
Copyright infringement / Denial of Service (DOS) / Buffer overflow attacks /
Password attacks / Phishing / Malware / Ransomware / “Pay-per-click” abuse
Risks Controls
against
Encryption / Ethical Hackers (intrusion, penetration, vulnerability testing) / Advanced Firewalls Defenses
Security
✿ Something you know (password)
✿ Something you are (fingerprint) 3 Strategies breaches
✿ Something you have (security card) Logical
2 independent actions before your access is granted Two Factors Identification Also 2 types of
Access Controls
Walls & fences / Locked gates / Manned guard posts / Cameras / Dogs / Alarm
Physical
systems / Smoke detectors & fire suppression systems
 ➤ Objectives (needs) ➤ Investigation & Feasibility Study of Alternative Solutions (options) System
➤ System Analysis ➤ Conceptual desing (initial) ➤ Physical design (workflow, controls..) Development
➤ Development & Testing ➤ System implementation & Conversion ➤ Operations & Maintenance life cycle
to determine the specific way the process is being accomplished from beg to end Purpose
Buseinss
info to monitor Efficiency & Productivity, locate Weakness, pinpoint potential Improvments Provides
Process
1. Determine the Process to be analyze 2. Collect Process Information 3. Map the process Analysis
5 Steps
4. Analyze the process (cost & benefits) 5. Determine potential improvements

Software, Automates Repetitive Tasks, by interacting with other IT apps, to

Def.
Execute Business Processes

Communicate with other allows automation (without Not part of the Org's Frees-up
apps/software/systems changing Existing Systems) IT infrastructure Employees

a Type of Artificial intelligence no human Errors. Operate Continuously (Repetitive) jobs

3. Tech
Automate portion of tranx Reporting & Budgeting (Accounting)
Automate manual Consolidations of FS (Accounting) -enabled
Automate Account openning & closing (Financial insitiutions/Banks) Uses Robotics
Automate Claims processings (Insurance) Process Finance
Automate Order Processing, Payments, monitor inventory levels (Supply Chain Mngmt) Atmtion. Transf-
(RPA)
⚫ Doesn't require Coding Knowledge ormation
⚫ Enables Emp to be more productive (engaging tasks)
⚫ RPA Tasks can be monitored & recorded, creating valuable data & audit trail Benefits
⚫ Process will more rapidly ⚫ Cost savings ⚫ Better customer service
⚫ follow rules Consistently

⚪ Not infallile (if not programmed correclty)

⚪ Cannot replicate human reasoning (incorrect data)
Limitations
⚪ No common sens (wrong command)
⚪ "non-invasive" manner, without IT assistance

Creating Intelligent Machines (especially comp), that can Simulate Human intelligence
Def.
processes (Picture Recognition)

Sets of step-by-step instructions that a computer can execute to perform a task. uses Algorithms

Some AI applications can learn from data & self-correct, according to the instructions given

1. Weak (or Narrow) AI : Can simulate Human Cognitive funcitons, but it is not Conscious
2 Categroies
2. Strong (or Artificial General Intelligence) (only in theory & not in reality)

used to Analyze Satellite imagery Cameras, Image Sensors, Machine

& Docs data extraction Image Processing Vision
Artifical
Comp can learn by using Algorithms to Interpret Data
Intllgnc
(to predict outcomes & learn from successes & failures) Machine (AI)
Comp can learn to perform repeatable & time-consuming jobs Examples: Checking Exp Learning

reports - Analyzing Payments - Risk assessment - Data analytics - Bank reconciliation

will transform what accountants do (repetitive tasks) will not replace accountants AI & Accounting

♥ Processes should be re-imagined where possible

(not just replicate/replace existing processes)
Considerations
♥ Activities performed by AI should be the Standardized (not often changed)
in instituting AI
♥ Automated Processes should be fully Documented
♥ Data Quality (input & output must be reviewed).
(to add Value)
Potential exceptions & errors requiring human intervention must be identified
& investigated
 is a method of essentially outsourcing the IT function. increase IT Capacity without infrasturcture

is a model for Enabling Ubiquitous, Convenient, On-demand network access to a Shared Pool of configurable computing
Def.
resources - that can be Rapidly Provisioned &Released with Minimal Management effort or service provider interaction

Consumer can't manage/control the infrastructure

SaaS Capability to use provider's app running on a cloud infrast. (minimum Control)

PaaS Capability to deploy onto the cloud infras (platform) (customer create/acquire apps using the supported lang)

Cloud IaaS Capability to provision processing, storage, networks & other fundamental comp resources

Comp- ➤ User pay only what they use (scalable) (decrease / increase)

uting ➤ Decrease Org investments (Hard & software)

➤ Software always updated (no invest in upgrades)
Benefits ➤ Access from anywhere
➤ Responding to new & existing Reports required
➤ Redundancy of System
➤ Strong infrasturecure

○ if no internet, operations stop ○ Quality of Service need to be Monitored ○ Loss of data Control (security concerns)
○ Overseas Language barrier / time-zone problems ○ Customizations are limited ○ Timing for automatic backups
Limitations
(morning/night) ○ Cloud cannot overcome weak internal control (IC) ○ Data Governance (D.G) must be structured to
cover the Cloud inheren risks ○ Expected Cost saving many not materialize

♥ is a Public Record of Transactions in Chronological order ♥ A way for one Internet user to transfer a
(Unique Piece of Digital Property) to another Internet user ♥ Transfer is Guaranteed to be Safe & Secure
♥ Everyone knows that the transfer has taken place, &nobody can challenge the legitimacy of the transfer
node powerful Comp running software that keeps the BkCh running by particiapting in the rely of info

miners nodes (Comp's) on the BkCh that group outstanding tranx into blocks & add them to the BkCh

A database held by each node in a network & each node updates the database independently
Distributed
Block ledger Records are independently constructed &passed around the network by the various nodes (UnCenterlized)
Chain
Hashing Taking an (Input) string & giving an (Output) using a hasing Alogrithm
(BkCh)
is a Record in a BkCh that contains & confirms many waiting transactions
Block Each block has a (1) the details of the transactions in the block (2) the hash of the information in the block just preceding it
header that contains (3) a “nonce” (4) the hash of the information in the block,

nonce random String of charac that is appended to the tranx (before the block is hashed (to verify the block)

➤ Transfer Virtual Currency or CyptoCurrency (1st Usage)

➤ Financial institutions for trading, payments .... etc (only Private & Permissions BkCh)
uses
➤ InterCompany transactions wehre difference ERP systems are in use
➤ Procurment & supply chain operations on BkCh can be used to optimize AP & AR funcitons

is a Contract that has been digitlized & uploaded to a BlockChain

is a set of Promises, specified in digital form, including protocols within which the parties perform
on these promises
translating the terms &conditions of a traditional Agreement into a Computational code written
is created by
by BlockChain developers in a programming language

Executing of SC after it is uploaded to a BlockChain, Validity is checked & required Steps are enabled

➤ To ensure the Authenticity of a Product (genuine) ➤ to protect intellectual property

& Smart Examples

➤ BkCh & Smart Cont have an important place in Supply Chain Management, freight & logistics
➤ On-demand manfuacturing can be performed by Automated Machines & running on a BkCh network
Contracts ➤ Insurance Cont can be in the Smart Contract form

Good Governance is important (Ongoing attemtnion & required actions & revisions)

(2nd Gen Governance

◘ Standards may Assign responsibility for SC design & operations & establish Mechanisms for disputes
◘ Standards may incorporate terms & cond. to hav in order to be enforceable
of BkCh) ◘ Standards could create Presumptions regarding the legal character (its attibutes & manner of use)
◘ Standards may help address the risks

♥ Can authenticate counter-party identities by using digital signatures

♥ can access outside info or data to trigger actions ♥ can self-execute
♥ The decentralized ledger on BkCh Prevents modifications not authorized
Beneifits
♥ can enhance market activitiy & efficiency by facilitating Trade Execution
♥ Standarlized code & execution may reduce costs of negtiations
♥ Automation reduces Tranx time & manual process

○ Operation is only as smart as the info it receives & the Comp code that directs it (prog & setup properly)
Limitations ○ Existing laws & regulations apply to all Cont's Equally ○ Could introduce operational, technical & cyberSecurity risk
○ Subject to fraud & manipulation (damage code)
 Process of Gathering & Analysing data - to produce Meaningful Information - can be used to aid in Decisions Def.
1. DeScriptive (what happened) / 2. Diagnostic ( why )
4 Types
3. PreDictive (what's likely to happen) / 4. PreScriptive (what need to happen)

Combination of (Architectures & Analytical Tools, Data Base, Apps) - Enable access to Data & Prediction

Data (raw /facts) - Info (Data Processed & Analyzed) - Knowledge (understanding)
Data to Action
- Insight (deep & clear) - Decisions (recommendations) - Action (implemented)

1. A data warehouse (DW) (the source data)

2. Business analytics: (mine, manipulate, & analyze the data)
4 Components
3. A business performance management (BPM): monitor/analyze performance.
4. A user interface: dashboard.

Vast DB, Too large to be analyzed using standard software, require New Technologies (Data Analytics) Business
intelligence
1. Structured data 2. Unstructured data (ex: emails) 3. Semi-Structured data 3 Categories Big
Data
1. Volume (amount) 2. Velocity (flow rate) (speed) 3. Variety (forms)
4V's attributes
4. Veracity (accuracy) 5. Variability 6. Value

Data & Data Science are is a field of study & analysis that uses Algorithms & processes
Complmenetary Assets to extract (Hidden knowledge) & insights from data
Data
Science
to use both Structured & Unstructured data to extract info that can be used to
Objective
develop knowledge & insights for forecasting & strategic decision making

Use of Statistical Techniques to search large Data to Extract & Analyze data - in order to Discover
Previously Unknown useful Patterns, Trends & Relationships - used to make Decisions & Prediction

Data Mining : is an Iterative process / is a Science (defined steps) / is an Art 3 Characteristics

uses Specialized Computational methods derived from the fields of Statistics, Machine learning, & Artificial intelligence

in Data mining, the Context of Words & info must be Considered Context

Ability to predict /assign a label to a “new” observation based on a model built from past experience
Generalization
Data Mining invovles Generalization of Patterns from a Data Set 4. Data
Classification (who) / Prediction (amount) / Association rules (related Analytics
use in Predictive
items) / Online recommendation systems / Data reduction (groups) / Clustering
Analysis
(groups) / Dimension reduction / Data Exploration / Data Visualization

used in classification and prediction. Supervised Supervised

/UnSupervised
when there is no outcome variable to predict or classify. Association rules,
UnSupervised Learning
dimension reduction, & clustering are unsupervised learning methods

are systems that can recognize patterns in Data - & use the patterns to make predictions using New Data Data
mining
Neural networks derive their knowledge from their own data by
sifting through the data &recognizing patterns Neural
Network
Results of Neural Networks Predictions (output) becomes (input) for the next iteration model

Stocks for investment / Bankruptcy predictions / Detecting

Uses
Fraud / Identifying digital image / Self-driving vehicles

a weakness of neural networks & occurs when the model fits the training data
perfectly, but does not generalize well & does not do a good job of predicting
Overfitting Data
Underfitting happens - the model is too simple - it will not be flexible enough in
learning from the data

Poor Data quality / Data in multiple locations / Biases are amplified in evaluating data /
Analyzed data displays correlations, not prove Causation / Ethical issues, such as privacy / Challenges
Data Security / Growing volume of unstructred data

1. Understand the purpose of the project 2. Select the dataset to be used

3. Explore, clean &preprocess the data. 4. Reduce the data dimension if needed
10 Steps
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

used to store data from all sources and is a good way to store data when unstructured data is included Data Lake
aims to provide better understanding of data & predictions by showing
Def.
the data in a visual way than simply in a table Data
Scatter plot / Dot plot / Bar chart / Pie chart / Line chart / Bubble chart / Histogram / Boxplot Common
visualization
 Measure the Extent to which an Effect has Historically been the result of a specific Cause

If relationship between Cause & Effect is sufficiently Strong, regression analysis using
historical data can be used for Decisions &Predictions

Time series (patterns) Trend / Cyclical / Seasonal / Irregular

Regression
Analysis Simple linear regression ŷ = a + bx Time Series can be (Descriptive) or (Predictive)

line A formalization, one would fit a trend line through the graphed data just by looking at it
of
best use a ruler &move it up & down, changing the angle, until it appears the differences
fit between the points &the line drawn with the straight edge have been minimized

Multiple regression more than one independent V is known to impact a dependent V & Each independent
analysis Variable can be expressed numerically ŷ = b₂x₂ + b₄x₄ + …

1. Correlation num measure that expresses both the Direction (positive /or negative) &the
coefficient (R) Strength of the linear association between 2 variables (R is between −1 & +1 )

Rep the average distance that the observed values fall from the regression line
2. standard
Correlation Error how wrong the regression model is on average, using units of the
Analysis dependent variable (y) ( ŷ = a + bx + e )
Analytic
the % of the total variation in the dependent variable (y) that can be
tools (4 statistics 3. Coefficient of
explained by variations in the independent variable (x), as depicted
calcultns) determination (R²)
by the regression line. ((Reliability)) ((R² is between 0 and 1))

measures the degree to which the independent variable has a valid (Long-
4. T- term relationship) with the dependent variable
statistics
for the independent variable used in a simple regression analysis T should be > 2

Goodness A measure of how close the (Actual values used) in a (Statistical model) are to the expected
of fit (predicted) values in the model

the Range we expect a Certain % of the items from a sample to fall in. it's used in Regression
Confidence Analysis to describe the Uncertainty amount caused by the (Sample) method used
interval ((mostly Confidence interval is 95%))

Limitations ☻ Require Historical data ☻ use of Historical data is Questionable - if still relevant & useful? ☻
of Reg Results depends on choice of the indpdnt V ☻Statstical relationships maybe valid for 1 sample
Analysis
Sensitivity Analysis determine how much prediction will change if (One) input is changed
known as
used to determine which input parameter is most important
(“What-if”) for achieving accurate predictions

Monte Carlo determine how much Prediction will change if Multiple variables changed

Sensitive Simulation used to develop an expected value when the situation is complex
analysis
Analysis & the values cannot be expected to behave predictably

Benefits of Sens √ Idetnify most Critical Variables √ Simulate is flexible (wide variety) √ Both
& Simu analysis are easily understood √ Many sim models can be impl without Speical Softwre

Results can be ambiguous when inputs used are themselves predictions ☻ Variables
Limitations to be interrelated ☻ Simu is not an Optimization technique ☻ No Guarantee for best
Performance ☻ Only as accurate as model used ☻ Noway to Test the accuracy

√ Process of Data Cleaning (detect Errors, Duplicats, Missing Values)

Benefits of √ Correct results lead to imporve Sales & Profits √ Reduce Fraud √ Improving Forecasting
Data Analysis √ Easy-to-use tools are available (data Science users are able to access data & generate Reports)

☻ Big Data is used to find Correlations (May not be the Causes to each other)
☻ if Wrong Questions are asked to find Correlation, Insights will be meaningless
Limitates of ☻Failure to take all relevant Variables can lead to inaccurate predictions
Data Anaylsis ☻ Data braches are a risk of using Big Data ☻ Customer Privace issues & Risk of misuse
☻ Cost of Data Analytics tools & Training ☻ Selction of the Right Data Analytics is Difficult