Abnormal Spoilage : Unacceptable units that are not expected to occur under an efficient production process.

(IMA) Absorbed Overhead: That portion of factory indirect cost that has been allocated to a specific product, or saleable service. (Also called Applied Overhead.) (IMA) Absorption Costing: A costing system that assigns to inventory all types of manufacturing costs, including direct, indirect, fixed and variable. (Also called Full Absorption Costing.) (IMA) Accelerated Depreciation: A pattern of depreciation in which the amount of depreciation computed in the early years is greater than the amounts computed in the later years. (IMA) Accounting: The process of identifying, classifying, measuring, recording and communicating in monetary terms transactions and events of an economic entity that are of a financial character. (IMA) Accounting Controls: Controls that are concerned with the integrity and accuracy of the accounting system and the financial reports being generated. (HOCK) Accounting Profit: Revenue less all expenses included in the entity's income statement. (IMA) Accounting Rate Of Return: A method of evaluating capital projects, it is a ratio of the amount of the increase in the accounting income to the required investment. (HOCK) Accounting Standards: Principles and procedures to be followed by accountants as formulated by an authoritative body. (Also called Accounting Principles.) (IMA) Accounting System: Methods, procedures, and standards followed in accumulating, classifying, recording and reporting business events and transactions. (IMA) Accounts Payable : Monies that are due to a vendor (supplier) for merchandise or services rendered. (IMA) Accounts Payable Turnover: A financial ratio used to measure the rate at which an entity pays off its suppliers. (IMA) Accounts Receivable : Monies due to an entity from customers who have bought merchandise or received services on account. (IMA) Accounts Receivable Turnover: A financial ratio used to measure asset utilization and a company's ability to collect cash from credit sales to its customers. (IMA) Accrual Accounting: The method of recognizing and recording (a) revenues when earned, and (b) expenses when incurred, both irrespective of the time when cash is received or paid. (IMA) Accrued: The accumulation of income that is due but has not been received or a cost that is incurred but has not been paid by an entity during the accounting period. (IMA) Accumulated Depreciation: The amount of depreciation expense related to a fixed asset that has been recognized as an expense from the date of acquisition of that asset. (IMA) Acid-Test Ratio: A ratio that measures an entity's ability to pay off short-term obligations using the most liquid current assets (excluding inventory). (Also called Quick Ratio.) (IMA) Acquisition Cost: The value of cash or other resources given up in exchange for goods or services. It includes all costs necessary to get the asset ready for its intended use. (Also called Historical Cost or Original Cost.) (IMA) Activity: Any event, task or unit of work with a specified purpose. Examples of activities are designing products, setting up machines, operating machines, making orders or distributing products. (HOCK) Activity Analysis: Involves identifying and evaluating all the input factors and activities that are required to complete a job, a project or an operation efficiently. If it is properly executed, it is the most accurate way of determining standard costs. (HOCK) Activity Driver (Cost Driver): A factor used to assign cost from an activity to a cost object. A measure of the frequency and intensity of use of an activity by a cost object. (IMA) Activity-Based Budgeting: An approach to budgeting that involves quantifying activities and processes and forecasting their costs in order to achieve strategic goals and improve performance. (IMA) Activity-Based Costing (ABC): A costing system that (a) identifies the relationship between the incurrence of cost and activities, (b) determines the underlying "driver" of the activities, (c) establishes cost pools related to individual "drivers," (d) develops costing rates, and (e) applies cost to product on the basis of resources consumed (drivers). (IMA)

Activity-Based Management: Management and decision making method using activity based costing information in an effort to improve customer satisfaction and profits by enhancing activities that add value and reducing activities that do not add value to the customer. (IMA) Actual Cost: Acquisition cost, historical cost, or original cost. (IMA) Actual Costing System: A costing system in which the actual direct labor and materials costs are charged to the units, and the actual manufacturing overhead costs are allocated to the units. (HOCK) Additional Paid-in Capital: The amount received by a company from its shareholders for purchase of shares of stock above the par or stated value of the stock. (IMA) Administrative Controls: Controls that are focused on management's operating objectives. (HOCK) Administrative Expense : Costs incurred for the general operation of an enterprise as a whole, as contrasted with costs related to a more specific function such as manufacturing or selling. (Also called General and Administrative Expense.) (IMA) Allocate : Identification of costs with cost objectives; apportioning or distributing costs to products, processes, jobs, or departments. (IMA) Allocation Base : The basis used to assign indirect costs to cost objects, such as labor or machine hours. (IMA) Allowance for Uncollectible Accounts: A contra account to Accounts Receivable established to record the estimated percentage of Accounts Receivable that will not be collected. (IMA) American Depository Receipts: ADRs are the method by which a foreign company can, in a sense, sell shares in the U.S. without having to go through the formal SEC share registration process. (HOCK) American Option: An option in which the owner has the right to buy or sell the covered asset at a fixed price at any time before or on the expiration date. (HOCK) Amortization: The accounting process of allocating costs to the time periods during which such costs are consumed. (IMA) Annual Report: A report prepared by entities after the close of each reporting year that includes financial statements and disclosure, an audit report, information from management, and other pertinent information concerning the entity's financial condition and operating performance. (IMA) Annuity: A series of payments of an equal amount at fixed intervals for a specified number of periods. (IMA) Antivirus Software : Software that recognizes and incapacitates viruses before they can do damage. (HOCK) Application Controls: Controls, such as input controls, adopted to safeguard specific data processing activity, such as payroll. Their purpose is to provide reasonable assurance that data is properly processed, recorded, and reported. (IMA) Application System Controls: Controls that are specific to individual applications. They are designed to prevent, detect, and correct errors in transactions as they flow through the input, processing, and output stages of work. (HOCK) Appraisal Costs: Costs incurred to determine whether products and services are conforming to customer and/or manufacturing requirements. Examples include inspection and testing costs. (IMA) Appreciation: The situation where there is an increase in economic worth caused by rising market prices. (IMA) Arbitrage Pricing Theory (APT): A framework for analyzing the relationship between risks and rates of return on securities, especially common stocks. It asserts that the risk elements that influence returns on securities include (1) inflation, (2) industrial production, (3) risk premiums, and (4) the slope of the term structure of interest rates. (IMA) Asset: 1. Probable future economic benefits obtained by an entity as a result of past transactions. 2. Any owned physical object or right having economic value to its owners, expressed for accounting purposes in terms of its cost or other value (such as current replacement cost). (IMA) Asset Coverage : A measure of the extent to which a company is able to cover its debt obligations after all liabilities have been satisfied. (IMA) Asset Turnover: A financial ratio that assesses how efficiently an entity is utilizing its assets; it relates sales to assets. (Also called Total Asset Turnover.) (IMA) Assurance Services: Engagements that perform an objective examination of evidence for the purpose of providing an independent assessment on governance, risk management, and control processes for the organization. (HOCK)

Audit: The systematic examination by analyses, confirmation, and tests of accounting records to confirm with reasonable assurance that the records adequately reflect economic status and operations. (IMA) Audit Committee : Members of the board of directors (in the case of corporations), trustees, legislative bodies, or similar governance boards, with responsibilities for oversight and direction of the internal auditing function. (IMA) Audit Evidence : Information that is collected to support the assertions in an audit engagement. (HOCK) Audit Report: A written document that presents the scope and results of the audit. (IMA) Authoritative (top-down) Budgeting: A budgeting process where all budgets for the organization are prepared by top management, including budgets for lower-level operations. (IMA) Authoritative Standard Setting: A standard setting process in which management sets the standards and they are handed down to those charged with their execution. (HOCK) Authority: The formal and legitimate right of a manager to make decisions, issue orders, and allocate resources to achieve organizationally desired outcomes. (IMA) Authorizing: One of the four duties that needs to be segregated, this is the authorization of a transaction or event. (HOCK) Available-for-Sale Securities: Securities not classified as either trading or held-to-maturity. Average Collection Period: A measure of the average number of days it takes to collect receivables (credit sales). (Also called Days Sales Outstanding and Days Sales in Receivables.) (IMA) Average Fixed Cost: Total fixed costs divided by the number of units produced. (Fixed cost per unit) Average Total Cost: Total manufacturing costs divided by the number of units produced. Sometimes called per unit cost. (IMA) Average Variable Cost: Total variable cost divided by the number of units produced. (IMA) Avoidable Costs: A cost that can be avoided if a particular option is selected. Avoidable costs are relevant costs to the decision-making process because they will continue if one course of action is taken but they will not continue if another course of action is taken. (HOCK) Avoiding The Risk: One of the four responses to risk, avoiding the risk involves the company eliminating the risky event or item. This might be done by selling (or otherwise disposing of) the business unit or product line. (HOCK) Backflush Costing: A product costing approach used in a Just-in-Time operating environment in which some or all of the costing is delayed until the goods are finished. Standard costs are then pulled backward through the system to assign costs to products. (IMA) Backup Controls: Controls, such as file duplicating, in an Information Technology (IT) environment to insure that data is not lost. (IMA) Bad Debts: Accounts or notes receivable that management determines to be uncollectible after reasonable efforts to collect them have not been successful. (IMA) Bailout Payback: A variation on the Payback Period method of evaluating potential projects, the Bailout Payback recognizes the possibility that the project may be ended prematurely and the equipment sold. (HOCK) Balance Sheet: A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a particular point in time. (IMA) Balanced Scorecard: An approach using multiple measures to evaluate performance, including financial measures, and the non-financial measures of customers, internal business processes, and learning and growth. (IMA) Banker's Acceptances: Financial instrument of an entity stating that payment is guaranteed by a bank, commonly used in foreign trade. (IMA) Bankruptcy: A condition in which a court has granted a company legal protection from creditors because it cannot meet its obligations as they come due. (IMA) Basis Of Allocation: A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects. (HOCK) Batch Costing: The costs of activities related to a group of units of products or services rather than to each individual unit of product or service. (IMA)

Batch-Level Activities: These activities occur each time a batch is produced. Some examples are machine setup, purchasing, scheduling, materials handling and batch inspection. (HOCK) Benchmarking: A process of measuring an entity's performance, products, and services against standards based on best levels of performance achievable or achieved by other entities. (IMA) Best Efforts: A method of selling the shares of a new issuance in which the lead manager acts only as an agent, agreeing to sell as many shares as possible, but it does not guarantee any sale price for the company and it does not purchase the shares itself for resale. (HOCK) Best Practice : A technique, method, process, or activity that is more effective at delivering a particular outcome than any other technique, method, process, or activity. (IMA) Beta: A measurement of the movement of the price of a particular stock compared with the movement of the market as a whole during the same period. If a stock has a beta value less than 1, it is regarded as less risky than the overall market. If a stock has a beta value greater than 1, it is regarded as more risky than the market Binomial Option-Valuation Models: Option pricing models in which the underlying asset can take on only two possible, discrete values in the next time period for each value that it can take on in the preceding time period. (IMA) Black-Scholes Option-Valuation Model: A model for pricing options in which the value of an option depends on (1) the value of the underlying asset, (2) the time to expiration of the option, (3) the exercise price, (4) the volatility of the underlying asset, and (5) the risk-free rate or time value of money. (IMA) Board of Directors: A group of individuals elected by a corporation's shareholders to oversee the management of the corporation. The members of a Board of Directors meet periodically and assume legal responsibility for corporate activities. (IMA) Bond: A long-term debt instrument signifying the promise of the issuer to pay the face amount at the maturity date. Periodic interest payments are often required. (IMA) Bonds Payable : A long-term liability account used to record the amount of bonds that are outstanding. (IMA) Book Value : The amount at which an asset or a liability is carried on the books of account, net of any contra account. (Also called Net Book Value.) (IMA) Book Value per Share : Measures common shareholder equity on a per share basis. (IMA) Bottleneck: Operational constraints or inefficient usage of available resources creating work-in-process inventory buildup and/or idle time. (IMA) Bottom Up Budgeting: A budgeting system in which the budget is developed by starting at the lowest levels in the operations systems and building revenues and costs from there. (HOCK) Bottom-Up Approach: An approach to auditing internal controls whereby all controls are documented irrespective of risk. (IMA) Break-Even Pricing: A pricing strategy in which the firm determines a price at which it will break even. (HOCK) Breakeven Analysis: An analysis of the relationship of cost and revenue. It determines the volume at which there is neither profit nor loss for a product or group of products. (Also called Cost/Volume/Profit Analysis.) (IMA) Breakeven Point: The volume of sales at which total revenues and total costs are equal. (IMA) Budget: A schedule of planned or expected revenues, expenses, assets, and liabilities. A budget provides guidelines for future operations and appraisal of performance. (Also called Profit Plan.) (IMA) Budget Manual: The details of the budgeting process. It includes the communication and distribution process. (HOCK) Budget Process: The process used by an organization to prepare a plan for a future period, allocate resources, determine revenues and expenditures, and compile reports pertaining to that plan. (IMA) Budgetary Slack: Intentional underestimation of revenues and/or overestimation of expenses. (IMA) Budgeting: The process of planning flows of financial resources into, within, and from an entity during a specified future period or for a specified project. (IMA) Business: A commercial or industrial enterprise. (IMA) Business Combination: A grouping of a company with other businesses into a single accounting entity for reporting purposes (consolidated financial statements). The company and the other businesses continue to operate as separate entities. (IMA)

Business Ethics: A systematic study of morality as it is applied to the business world. (HOCK) Business Plan: A document prepared by a company's management, detailing the past, present, and future of the company. It forms the basis for preparing budgets for the individual company units. (IMA) Business Portfolio: A collection of products, projects, services, or brands that are offered for sale by an entity. (IMA) Business Process: A sequence of logically related and time based work activities to provide a specific output for a customer. (IMA) Business Process Reengineering: The analysis and design of workflows and processes within an organization. (HOCK) Business Risk: The variability of the firm's earnings before interest and taxes (or operating income). (HOCK) Business Unit: Any segment of an organization, or an entire business entity that is not divided into segments. Sometimes treated as a Profit Center. (IMA) By-Product Pricing: The pricing of by-products. While immaterial by definition, the company should attempt to maximize its revenues from the sale of by-products. (HOCK) Byproduct: An item resulting from a production process that has relatively little value compared to the company's main product. (IMA) Call Option: A contract that gives the buyer the right to buy an asset (for example a share of stock) at a specified price within a specified period of time. (IMA) Call Provision: Enables the issuing company to repurchase bonds (or preferred shares) at their option. This is very beneficial to the issuer and will increase the required return for the investor (and therefore the cost of the financing to the issuing company). (HOCK) Capacity: The ability of the company to produce its products or services. (HOCK) Capacity Constraints: Resources that limit the maximum performance possible considering the conditions of the existing physical plant, labor force, method of production, or supply of material. (IMA) Capacity Management: Management of an entity's costs of unused (excess) capacity such as production facilities, distribution channels, etc. (IMA) Capital: 1. The equity invested in an entity by its owners. Total assets less liabilities. 2. Long-term assets (e.g., equipment) Capital Adequacy: The amount of capital relative to a company's assets. A useful measure in risk management (particularly for banks). (IMA) Capital Asset Pricing Model (CAPM): A general framework for analyzing the relationship between risks and rates of return on securities, especially common stocks. (IMA) Capital Budget: A plan of proposed outlays for acquiring long term assets and the means of financing the acquisition. (IMA) Capital Budgeting: The evaluation and making of long-term investment decisions. (IMA) Capital Gain or Loss: The extent by which the net realized value from sales of a capital asset exceeds (or in the case of a capital loss is less than) the cost of acquisition plus additional improvements, less depreciation and/or depletion charges. (IMA) Capital Investment: Any expenditure which increases the capacity, efficiency, life span, or economy of the operation of an existing fixed asset. Outlay of money from which future cash inflows are expected for more than a year. (Also referred to as Capital Expenditure.) (IMA) Capital Lease : A lease that transfers substantially all the benefits and risks inherent in the ownership of the property to the lessee, who accounts for the lease as an acquisition of an asset and the incurrence of a liability. (IMA) Capital Markets: Markets where long-term debt and equity instruments are traded. (HOCK) Capital Rationing: A situation that exists when a constraint is placed on the total amount of the entity's capital investment funds. The limited investment funds available must be allocated to the highest priority projects. (IMA) Capital Resources: The company's fixed assets. (HOCK) Capital Stock: Ownership shares in a corporation issued to shareholders. May consist of Common Stock and Preferred Stock. (IMA)

Capital Structure : The relative proportions of short-term debt, long-term debt, and owners' equity in the company. (IMA) Capitalize : To record expenditure that is expected to benefit a future period as an asset rather than treating the expenditure as an expense of the period in which it occurs. (IMA) Captive-Product Pricing: The pricing process when a product requires the use of additional or "captive products," such as a low-priced razor that requires high-priced replacement blades. (HOCK) Carrying Cost: Costs of storing and holding inventory, including the cost of capital from the time of acquisition or manufacture until the time of sale or use. (IMA) Cartel: An organization of sellers coordinating supply decisions to maximize joint profits. A cartel seeks to create a monopoly in the market. (IMA) Cash: Refers to money in the form of liquid currency that a bank will accept for immediate deposit, such as coins, checks, and money orders. (IMA) Cash Budget: An estimate of the amount and timing of cash receipts and disbursements at various points over a future period, and cash on hand at the end. (IMA) Cash Cows: One of the classifications of products by the Boston Consulting Group. A cash cow is in an industry with a low market growth rate, but the product has a high share of the market. Cash cows are in mature markets in which the growth rate has slowed, but they are market leaders. Cash cows generate more cash than they consume. (HOCK) Cash Cycle : The period of time during which cash is converted into inventories, and inventories are converted back into cash through the sale of goods or collection of accounts receivable. (Also called Cash Conversion Cycle or Earnings Cycle.) (IMA) Cash Discount: A reduction in the basic price, commonly used to encourage prompt payment or promote sales. (IMA) Cash Equivalents: Short-term financial instruments of high liquidity and safety which can be converted to cash on short notice Cash Flow: The stream of cash inflows and outflows of an entity or segment of an entity. (IMA) Cash Flow at Risk: A probabilistic estimate of the sensitivity of cash flow; how budgeted cash flow might be affected by changes in certain risk factors and other variables. (IMA) Cash Flow Ratio: A liquidity measure, whereby operating cash flow is divided by current liabilities. (IMA) Cash Flow to Fixed Charges: A leverage ratio that measures the cash flow available to meet fixed charges. (IMA) Cash Management: The processes an entity uses to collect, disburse, and invest its cash. (IMA) Cash Ratio: A measure of a company's liquidity that relates cash and marketable securities to current liabilities. (IMA) Cash Surrender Value : The amount that the holder of the policy would get from the insurance company if he or she cancelled their insurance. (HOCK) Causal Forecasting: Forecasting methods used when the value that is being forecasted can be determined to be affected by some other value. (HOCK) Centralization: An organizational structure in which senior management maintains significant direction, authority, and control over all operations and policies. (IMA) Certainty Equivalent: The amount a recipient would require with certainty to be indifferent between this certain riskfree amount and a particular uncertain risky amount. (IMA) Certainty Equivalent NPV: A method of evaluating capital projects, this method adjusts the risky after-tax cash flows to a level judged by the decision-maker to be certain. It is more conservative than the standard NPV method. (HOCK) Certifies Of Deposits (Cds): A form of savings deposit with a bank that may not be withdrawn before their maturity without a high penalty. CDs usually have a higher rate of interest when compared with other savings instruments because they are for fixed, usually long-term periods. (HOCK) Change in the Quantity Demanded: A change in the quantity that buyers are willing to purchase at different price levels due only to a change in price. Often referred to as a movement along the demand curve. (IMA) Change in the Quantity Supplied: A change in the quantity sellers are willing to supply due only to a change in price. Often referred to as a movement along the supply curve. (IMA)

Check Digits: A number that is a part of an account or other type of number. The check digit is a function of the other digits within the number, determined by a mathematical algorithm. It is used to ensure the accuracy of information. (HOCK) Circumstantial Evidence : Evidence that is consistent with a particular inference. Circumstantial evidence can be used to narrow competing explanations, but it is not persuasive in demonstrating fact. It can only be supportive evidence. (HOCK) Code of Conduct: A set of rules outlining acceptable ethical behavior for employees within an organization. (IMA) Coefficient Of Correlation: A numerical measure that measures both the direction (positive or negative) and the strength of the linear association (represented by the letter R or r) . (HOCK) Coefficient Of Determination: The percentage of the total amount of change in the dependent variable that can be explained by changes in the independent variable (represented by the term R2, or r2). (HOCK) Coefficient of Variation: A statistical measure of relative dispersion or relative risk. It is computed by dividing the standard deviation by the expected value. (IMA) Cold Site : A facility where power and space are available to install processing equipment, but it is not immediately available. If an organization uses a cold site, its disaster recovery plan must include arrangements to get computer equipment installed there quickly. (HOCK) Collateral: An asset pledged as a guarantee to a lender until a loan is repaid. If the borrower defaults, the lender has a right to sell the collateral asset. (IMA) Collusion: When two or more individuals work together to overcome the internal control system and perpetrate a fraud. (HOCK) Commercial Bank: An institution that accepts deposits, offers checking accounts, makes loans, and offers a variety of other related services. (IMA) Commercial Paper: A short-term unsecured loan of a corporation having maturity up to 270 days. It is typically issued on a discount (from face value) basis. (IMA) Commitment Fee : A fee paid to a financial institution by an entity to secure a line of credit and maintain the unused portion thereof. (IMA) Committed Cost: A cost that the company has already committed to in the future, even if it is not currently recognized in the accounting records. A long-term lease is an example. (HOCK) Committed Costs: Costs for the company's infrastructure. They are costs required to establish and maintain the readiness to do business. (HOCK) Committee of Sponsoring Organizations (COSO): A voluntary private-sector organization, established in the U.S., dedicated to providing guidance on organizational governance, business ethics, internal control, enterprise risk management, fraud, and financial reporting. (IMA) Commodity Futures: Future contracts that are about commodities. Examples of commodities include agricultural products, metals, energy products, and forest products. (HOCK) Common Base Year Statements: Financial Statements showing the percentage change over a base year. (Also called Horizontal Analysis.) (IMA) Common Cost: A cost of operating a facility that is shared by two or more users. (IMA) Common Stock: An ownership share in a company, having voting and dividend rights. (IMA) Common-Size Financial Statements: Financial statements used for comparison between firms. A common size Income Statement shows all amounts as a percent of revenue. A common size Balance Sheet shows all values as a percent of total assets. (IMA) Company Risk: The risk due to the unique circumstances of a specific enterprise, as opposed to the overall market. (Also called Unsystematic Risk.) (IMA) Comparability: The quality of information that enables users to identify similarities in and differences between two sets of economic phenomena. (IMA) Comparable Companies: Similar companies that are used to attempt to value a company. The more similar the companies are the more useful this method is. (HOCK)

Compensating Balance : An amount required to be kept on deposit at a bank. (IMA) Compensating Controls: Controls that are designed to compensate for an internal control weakness by doing more of other controls. (HOCK) Compensation: Employee or management wages and other financial benefits earned from labor. (IMA) Competence : An ethical standard in IMA's Statement of Ethical Professional Practice that requires members to maintain an appropriate level of professional expertise and perform duties in accordance with relevant laws and standards. (IMA) Competition-Based Pricing: A pricing strategy wherein the price of a product is determined primarily by the price being charged by one or more competitors. (IMA) Competitive Advantage : An advantage that a company has over its competitors which it gains by offering consumers greater value than they can get from its competitors. (HOCK) Completed-Contract Method: An accounting method that defers recognition of revenues until the completion of a contract, but recognizes anticipated losses immediately. (IMA) Compliance Audit: A type of internal audit that reviews an organization's adherence to laws, rules, policies, and procedures. (IMA) Compliance Risk: Risk to earnings or capital arising from violations of laws, rules, regulations, policies, procedures, and/or ethical standards. (IMA) Composition: A partial payment of a debt that is accepted by the creditors as full payment of the debt. (HOCK) Compound Interest: Interest resulting from the periodic addition of simple interest to principal, establishing the new base as the principal for computation of interest for the next period. (IMA) Comprehensive Income : All changes in equity during a period except those resulting from investments by owners and distributions to owners. (IMA) Concentration Banking: A procedure utilized to manage cash wherein an entity utilizes a large bank (the Concentration Bank) to gather all the cash from smaller local (depository) banks where customers make payments. (IMA) Conclusive Evidence : Evidence that is indisputable. Direct evidence, well corroborated, may be conclusive evidence. (HOCK) Conditional Probability: The probability that the second event will occur when it is known that the first event has already occurred. (HOCK) Confidentiality: An ethical standard in IMA's Statement of Ethical Professional Practice that requires members to keep employer information confidential and to not use confidential information for personal advantage. (IMA) Conglomerate Merger: A merger involving companies that are not in similar businesses. (HOCK) Conservatism: 1. An accounting concept that states that revenues are recognized only when they are reasonably certain, but expenses are recognized when they are probable. 2. A prudent reaction to uncertainty to try to ensure that uncertainty and risks inherent in business situations are adequately considered. (IMA) Consistency: Conformity from period to period with unchanging policies and procedures. (IMA) Consolidated Financial Statements: Financial Statements showing financial condition or operating results of two or more associated enterprises as they would appear if they were one entity. (IMA) Constant Dollar Accounting: An accounting method that measures general changes in the price level and reports financial statement elements in dollars having similar purchasing power from one year to the next. (HOCK) Constant Gross Profit Method: A method of allocating joint costs where costs are allocated so that the overall grossmargin percentage is identical for each individual product. (Also called Gross Margin Method.) (IMA) Constraint: An activity, resource, or policy that limits or bounds the attainment of an objective. (IMA) Consulting Services: Advisory and other related client service activities. Usually they are performed at the request of the client, and their nature and scope are agreed upon with the client (for internal auditors the client is usually a department within the company). (HOCK) Contingency Planning: Planning for the response to situations that may occur such as emergencies or setbacks Continuous Budget: A moving projection of financial operations for a series of weeks, months, or quarters immediately ahead. At the end of each period, the portion of the projection then lapsed is removed and a new projection for a period of similar length is added to the series. (Also called Rolling Budget.) (IMA)

Continuous Improvement: A management approach to productivity improvement, where planned improvements occur in small incremental amounts by refinement of all components of a process. (Also called Kaizen.) (IMA) Continuous Random Variable : A random variable that can take on any value whatsoever within an interval or a collection of intervals. (HOCK) Contribution Margin: The excess of sales revenues over variable costs. (Also called Marginal Contribution or Marginal Income.) (IMA) Contribution Margin Ratio: The unit contribution margin expressed as a percentage of the sales price. (HOCK) Contribution Pricing: A method of establishing the price of the product based on variable costs and usually a profit margin. (IMA) Control Activities: The policies that address the identified risks and procedures that ensure that management directives are carried out, thus helping ensure that the organization's objectives will be achieved. (HOCK) Control Environment: This is the attitude towards controls and the atmosphere regarding controls that exists in a company. It provides the foundation for all the other components of internal controls. It influences the control consciousness of all the people in the organization and sets the tone for the entire organization. (HOCK) Control Risk: A measure of the auditor's assessment of the likelihood that misstatements exceeding a tolerable level will not be prevented or detected by the client's internal control system. (IMA) Controllable Cost: A cost that can be influenced by the actions of the responsible manager. (IMA) Controllable Fixed Costs: Fixed costs that the segment manager is able to control and influence. (HOCK) Controllable Margin: The measurement of all the revenues and expenses (variable and fixed) that are controllable by the individual managers on a short-term (less than one year) basis. (HOCK) Controller: The individual within an entity who is responsible for the accounting function. (Also called Comptroller.) (IMA) Controls: Measures put in place to monitor activities and ensure they are functioning as designed. (IMA) Conversion Cost: The sum of all manufacturing costs except direct material. (IMA) Convertible : Securities (bonds or preferred stock) issued by companies which can be converted into common shares at a given price at a future date. (IMA) Convertible Bonds: Bonds that can be converted into shares at the option of the bondholder. (HOCK) Convertible Preferred Shares: Preferred shares that can be converted into shares at the option of the bondholder. (HOCK) Corporate Governance : The set of rules, processes, policies and/or laws by which an organization is directed, operated and controlled. (IMA) Corrective Controls: Controls designed to correct an undesirable event that has already occurred. (HOCK) Correlation: The extent or degree of statistical association among two or more variables. (IMA) Correlation Coefficient: A measure of the degree of correlation in the returns of any two securities. (HOCK) Corroborative Evidence : Evidence that supports other evidence. The greater the amount of corroborating evidence, the more persuasive it is. (HOCK) Cost (noun): 1. In management accounting, a measurement in monetary terms, of the amount of resources used for some purpose. 2. In financial accounting, the sacrifice measured by the price paid or required to be paid, to acquire goods or services. (IMA) Cost (verb): To ascertain the cost of something. (IMA) Cost Allocation System: A method by which costs are allocated to cost objects (Job order costing, Process costing, Activity-based costing, and Life-cycle costing). (IMA) Cost Behavior: The change or lack of change in the amount of a cost item associated with changes in the level of activity. (IMA) Cost Benefit Analysis: A tool for planning and reporting that involves the identification and measurement of all costs and benefits attributed to an activity. (IMA) Cost Center: A grouping of operating costs having some common characteristics for measuring performance and assigning responsibility. A Responsibility Center where the manager is responsible for costs only. (IMA)

Cost Driver: A variable causally affecting costs over a time period. (IMA) Cost Management: Actions undertaken by managers to satisfy customers while continuously controlling and reducing costs. (IMA) Cost Objects: A function, organizational subdivision, contract, or other work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, products, jobs, capitalized projects, etc. (IMA) Cost of Capital: A measure of the cost of using capital. A weighted average of the interest cost of debt capital and the implicit cost of equity capital. It is the minimum rate of return that must be earned on new investments that will not dilute the interests of the shareholders. (IMA) Cost Of Conformance : The costs that the company incurs to assess quality internally during the production process to insure that no defective products are produced. (HOCK) Cost of Goods Sold: The inventory costs of the goods sold during a specific time period; the difference between the costs of goods available for sale during a specific period of time and the cost of goods on hand at the end of the period. Inventory costs include all costs necessary to get the product ready for sale. (IMA) Cost of Quality: Costs incurred to detect, prevent, or rectify poor quality production. (IMA) Cost of Sales: The cost of products or services whose sales are reported as revenue. (Also called Cost of Goods Sold.) (IMA) Cost Pools: The collection of cost elements that have a common cause and that can be assigned to other cost objects according to a common basis of allocation. (IMA) Cost System: The system an entity utilizes to collect and assign costs to intermediate and final cost objects. (IMA) Cost Tracing: Assigning direct costs to a particular cost object. Direct costs (also called traceable costs) are costs that are incurred specifically because of the cost object. If it were not for the cost object, the direct cost would not have been incurred. (HOCK) Cost-Based Approaches: Pricing strategies that are based in one way or another on the cost of producing the item. (HOCK) Cost-Based Pricing: The practice of establishing the selling price of a good or service based primarily on the cost to produce it. (IMA) Cost-Plus Pricing: A pricing practice in which the selling price is determined by adding a percentage or monetary amount to the cost of a product. (IMA) Cost/Volume/Profit Analysis (CVP) : An analysis of the relationship of cost and revenue emphasizing both the volume at which there is zero profit and the influence of fixed and variable factors on the profit expectations at various levels of operation. (Also called Breakeven Analysis.) (IMA) Costing: The accumulation and assignment of costs to cost objects. (IMA) Costs Of Goods Manufactured (COGM): An internal number that is not reported on either the balance sheet or the income statement. It represents the cost of the goods that were completed during the period. (HOCK) Countertrade : The trading of goods for other goods. (Also called Barter.) (IMA) Coupon Rate : The annual rate of interest stated on a debt instrument. (IMA) Covariance : A statistical measure of the amount by which two securities' returns move together. (HOCK) Covered Option: A call option that is for stock that is held in the option writer's portfolio. A person who writes a covered call option on a stock that they already own is obligating him- or herself to sell that stock at a specific price up until the expiration date. (HOCK) Credibility: An ethical standard in IMA's Statement of Ethical Professional Practice that requires members to communicate information fairly and objectively, disclose all relevant information, and to disclose delays or deficiencies in information. (IMA) Credit: A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at a later date. (IMA) Credit Risk: An investor's risk of loss arising from a borrower who defaults; i.e., does not make payments as promised. (IMA)

Credit Standards: The criteria that are used by a company to determine to whom they grant credit. (HOCK) Credit Terms: The specific terms of credit that a company grants. This will include the time for payment, penalties for late payment, discounts for early payment and any other specific terms of the credit. (HOCK) Critical Success Factors: The important things an entity must do to be successful. (IMA) Crossover Rate : The interest rate at which the net present values of two projects are equal. (HOCK) Crown Jewel Transfer: A takeover defense in which the target corporation sells or otherwise disposes of one or more assets that made it a desirable target. (HOCK) Cumulative Average-Time Learning Model: A learning curve model in which the cumulative average time per unit declines by a constant percentage each time the cumulative quantity of units produced is doubled. (IMA) Cumulative Dividends: A type of preferred dividends in which the dividend is earned each year. If the dividend is not distributed in a specific year, it accumulates and carries forward into future periods. All cumulative preferred dividends must have been paid before common dividends may be paid. (HOCK) Currency Of Record: The currency in which a company keeps its accounting records. (HOCK) Current Assets: Cash and other assets that are expected to be sold, consumed or converted into cash during the normal operating cycle of a business. (IMA) Current Cost: The amount of cash needed if the same asset, an identical asset, or an asset with equivalent productive capacity were acquired currently. (IMA) Current Cost Accounting: An accounting method in which many items are measured not at historical cost, but at replacement cost. (HOCK) Current Liability: A liability required or expected to be discharged (fulfilled) by using current assets within one year or the operating cycle, whichever is longer. (IMA) Current Ratio: A financial ratio used to measure short-term solvency. (Also called Liquidity Ratio.) (IMA) Customer Satisfaction: A measure of the extent to which customers are satisfied with the products and related services they received from a supplier. (IMA) Customer's Profitability: The profitability of a customer to a company. (HOCK) Cybercrime : Crimes where the computer is a major factor in committing the criminal offense. (HOCK) Cycle Time : The total elapsed time to move a unit of work from the beginning to the end of a physical process, as defined by the producer and the customer. (IMA) Cyclical: A type of trend where something (e.g., sales) varies in a regular pattern; a repeated sequence. (IMA) Data Communications: Transfer of data among functional units through data transmission protocols. (IMA) Data Encryption: In computer security, the process of transforming data into an unintelligible form in such a way that the original data either cannot be obtained or can be obtained only by using a decryption process. (IMA) Data Warehouse : A central repository for all or significant parts of the data that an organization's business systems collect. (IMA) Database : 1. A set of data that is sufficient for a given purpose or for a given data processing system. 2. A collection of data fundamental to a system or to an enterprise. (IMA) Database Management: The management of an organization's data. (IMA) Days Purchases in Payables: A financial ratio measuring the portion of accounts payable that is current. (IMA) Days Sales in Inventory: A measure of the age or adequacy of inventory. (IMA) Days Sales in Receivables: A measure of the average number of days a credit sale is outstanding. (Also called Days Sales Outstanding and Average Collection Period.) (IMA) Debenture Bonds: Bonds that are issued without any collateral property supporting them. (HOCK) Debt Ratio: A financial ratio used to measure the extent to which an entity utilizes debt. (Also called Debt to Total Assets Ratio.) (IMA) Debt Security: A promise in writing to repay a debt. For example a bond, bill or note. (IMA) Debt to Total Assets Ratio: A financial ratio used to measure the extent to which an entity utilizes debt, expressed as total debt divided by total assets. (Also called Debt Ratio.) (IMA) Debt-to-Equity Ratio: A measure of leverage, represented by total debt divided by equity. (IMA)

Decentralization: An organizational structure in which senior management maintains minimal control over individual operations and policies. (IMA) Decision Tree : A diagram of possible alternatives and their expected consequences used to formulate possible courses of actions in order to make decisions. (IMA) Decline Stage : The final stage in the life cycle of a product. In the decline stage sales drop and profits fall. (HOCK) Declining-Balance Method: An accelerated depreciation method in which an asset's net book value is multiplied by a constant depreciation rate resulting in higher depreciation charges in the early years of an asset's life. (IMA) Default Risk: The risk that a debtor may not be able to meet the terms of a loan. (IMA) Deferrable Cost: A cost that can be deferred to future periods without creating a significant impact in the current period. (HOCK) Deferred: When an asset or liability is not realized as an expense or income until a future date. (IMA) Deferred Expenses: Expenditures not recognized in the period in which they were made. They are carried forward as assets that will become expenses in future periods. (Also called Deferred Charges.) (IMA) Deferred Income Taxes: In general, the difference between the income tax expense recorded for financial accounting purposes and the amount of income tax paid. (IMA) Deferred Revenue : Generally, revenues received or recorded but not yet earned. (Also called Deferred Credit.) (IMA) Deflation: A persistent decrease in the level of consumer prices or a persistent increase in the purchasing power of money because of a reduction in available currency and credit. (HOCK) Degree of Financial Leverage : A financial ratio represented as the % change in net income divided by the % change in Earnings Before Interest and Taxes. (IMA) Degree of Operating Leverage : A financial ratio represented as the % change in Earnings Before Interest and Taxes divided by the % change in sales. (IMA) Delegation of Authority: The assignment of authority and responsibility to another person to carry out specific activities. (IMA) Demand: The quantity of a commodity or service wanted at a specified price and time. Along with supply and other factors, a key determinant of price. (IMA) Demand-Pull System: A production system in which goods are produced only when they are ordered by the customer. Thus, the customer's order "pulls" the unit through the factory. (HOCK) Department: A division or distinct section of an organization. (IMA) Departmental Overhead: The total overhead costs incurred by a department. (IMA) Dependent Variable : A variable (often denoted by y) whose value depends on that of another. (HOCK) Depletion: The process of allocating the cost of wasting assets (natural resources) to expense over the periods benefiting from the cost. (IMA) Depreciation: The process of allocating the cost of tangible assets to operations over periods benefited (generally the expected life of the asset). (IMA) Derivatives: A collective term for financial instruments whose prices are based on the price of another (underlying) investment (e.g., futures, options, warrants, and convertible securities). (IMA) Design Effectiveness: Assesses whether the controls are properly designed and whether the controls satisfy the company's control objectives and can effectively prevent or detect errors or fraud that could result in material misstatements in the financial statements. (HOCK) Detection Risk: The risk that errors not detected or prevented by the control structure will also not be detected by the auditor. (IMA) Detective Controls: Controls designed to detect (discover) an unwanted event that has already occurred. (HOCK) Differential Cost: The difference in total cost between two alternatives. (Also called Incremental Cost). (IMA) Differential Costs: Costs that differ between two alternatives. (HOCK) Diluted Earnings per Share : Earnings (net income) per share where "share" includes common stock, preferred stock, unexercised stock options, unexercised warrants, and some convertible debt. (IMA) Direct Cost: A cost that is specifically identified with a single cost object. (IMA)

Direct Costing: Method of inventory costing that includes all direct manufacturing costs and variable indirect manufacturing costs as inventory (fixed indirect manufacturing costs are excluded). (Also called Variable Costing.) (IMA) Direct Evidence : Evidence that was acquired directly by the party offering it and thus that party has personal knowledge of it. The person either inspected the documents, witnessed the transaction or testified as to his or her actions. (HOCK) Direct Foreign Investment: Overseas investment by multinational enterprises. (IMA) Direct Labor Cost: The compensation of all labor that can be identified with a cost object. (IMA) Direct Materials Cost: The acquisition cost of all materials that can be identified as part of the cost object. (IMA) Direct Method: 1. Method of allocating service department costs that ignores any services rendered by one service department to another, allocating each service department's costs directly to the production departments. (Also called Direct Allocation Method.) 2. A method of preparing The Statement of Cash Flows where net cash flow from operating activities are reported as major classes of operating cash receipts and cash disbursements (as opposed to indirect method.) (IMA) Directive Controls: Controls designed to ensure (encourage) the occurrence of a desirable event. (HOCK) Disaster Recovery: A procedure for storing an installation's essential data in a secure location, and for recovering that data in the event of a catastrophic problem. (IMA) Disbursement: The payment of cash. (IMA) Disbursement Float: The value of checks that an entity wrote that have not yet cleared the banking system and not yet deducted from the entity's bank account. (Also called Payment Float.) (IMA) Disclosure : An explanation or exhibit attached to a financial statement, or report. (IMA) Discount: 1. In the case of debt securities, the difference between the price paid by an investor and the face value. 2. In the case of products for sale, the difference between the price paid by a customer and the full price of the item. (IMA) Discount Factor: The present value of one unit of currency that is expected to be received in future years. (IMA) Discount Rate : The interest rate used to convert future cash flows to their present value. (IMA) Discounted Cash Flow: A method of evaluating future net cash flows by discounting them to their present value. The two methods most commonly used are Internal Rate of Return (IRR) and Net Present Value (NPV) methods. (IMA) Discounted Interest: A method of calculating interest in which the interest that will be due at the end of the loan is withheld from the amount that is given at the start of the loan. Discounted interest will increase the effective interest rate of the loan. (HOCK) Discounted Payback: The amount of time expected to elapse before the discounted present value of cash inflows equals the discounted present value of the cash outflows. (IMA) Discrete Random Variable : A random variable that can take on any one of a number of values that can be counted and that are usually whole numbers. (HOCK) Discretionary Cost: A cost whose amount within a time period is governed by a management decision to incur the cost. (Also called Managed Cost or Programmed Cost.) (IMA) Diseconomies of Scale : Increases in average total costs occurring from an increase in the scale of production in the long run. (IMA) Distribution: The mechanism by which products or services are delivered to the customer. (IMA) Distribution Channels: A chain of intermediaries, each passing the product down the chain to the next organization, until it finally reaches the consumer or end-user (e.g., retailer, wholesaler, agent). (IMA) Diversification: A technique used by an investor to reduce risk by distributing investment funds among a variety of asset classes. (IMA) Divestiture : The sale of one or more of a company's subsidiaries or divisions. (IMA) Dividend: The distribution of part of a company's earnings to shareholders. (IMA) Dividend Discount Model: A method used to place a value on a share of stock based on the net present value of the dividends that are expected to be received in the future. Expressed as D / (k g), where D = the expected dividend per share, k = the expected rate of return, and g is the expected growth rate. (2 forms: constant growth model and twostage model.) (IMA) Dividend Payout: The amount of the dividend paid on a share of stock in a year. (IMA)

Dividend Payout Ratio: The annual dividend per share of stock as a proportion of Earnings per Share. (IMA) Dividend Reinvestment Plans (Drips): A program that automatically reinvests cash dividends received by the shareholder in additional shares of the company. (HOCK) Dividend Yield: The annual dividend income per share received from a company as a proportion of the current market price per share. (IMA) Documentary Evidence : Any original record, deed, contract or written instrument that documents a transaction. Originals of documentary evidence are required to substantiate their validity. (HOCK) Dogs: One of the classifications of products by the Boston Consulting Group. A dog is in a mature industry with a low market growth rate, and it has a low share of the market. A dog does not consume much cash, but it does not generate much cash, either. It is usually barely breaking even. Dogs should be sold off, and pricing is not a major concern. (HOCK) Downstream Costs: Costs incurred after a product is manufactured, including marketing, distribution, and customer service. (IMA) Draft: An instrument signed by a one person to another person requesting payment at a future time to a third party. (IMA) Drum-Buffer-Rope System: The Theory of Constraints production application, where drum refers to the constraint, buffer refers to the material release duration, and rope refers to the release timing. The aim is to protect the constraint in the system against process dependency and variation, maximizing the systems' overall effectiveness. (IMA) Dual Allocation Method: A method of allocating service department costs where costs are classified into two cost pools a variable cost cost-pool and a fixed-cost cost-pool. Each of these pools uses a different cost-allocation base. (IMA) Dual-Rate Transfer Pricing: A method where the transfer price is set at different levels for the supplying and receiving divisions of an organization. (IMA) Due Diligence Engagement: An engagement to confirm company records, both financial and those of ownership of property, utilized especially when a unit is being acquired, merged or sold. (HOCK) Dumping: Occurs when a company sets the price of the product artificially low and then sells it in another country. Though this may not be illegal, it is unethical and will often lead to retaliatory tariffs and taxes by the country in which the product was dumped. (HOCK) DuPont Model: A method used to analyze the components of Return on Equity (ROE), where ROE is expressed as the product of Profit Margin, Total Asset Turnover and the Equity Multiplier (Financial Leverage Ratio). (IMA) Duration: A measure of the volatility of fixed income securities or of a portfolio of fixed income securities to changes in interest rates (i.e., the weighted average number of years until cash flows are received). (IMA) Earnings: The excess of revenue over expenses for an accounting period. Sometimes used synonymously with net earnings, net income, or income. (IMA) Earnings at Risk: A probabilistic estimate of the sensitivity of earnings; how forecasted earnings might be affected by changes in certain risk factors and other variables. (IMA) Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): A metric used to evaluate profitability; it eliminates the effects of financing and accounting decisions. (IMA) Earnings Coverage : The availability of a company's cash flows to service its debt. (IMA) Earnings Distribution: A probabilistic distribution of earnings outcome such that one can estimate the probability of obtaining a certain level of earnings. Used in risk management. (IMA) Earnings Per Share (EPS): Net income available to common shareholders on a per share basis. (IMA) Earnings Persistence : The stability of earnings over time for a company. Persistent earnings are consistent earnings from one period to the next. (HOCK) Earnings Quality: The extent that net income is a realistic portrayal of operating performance (i.e., that reported results have not been intentionally overstated or understated by management). (IMA) Earnings Trend: The trend of the company's earnings over time. (HOCK) Earnings Variability: The fluctuation in earnings from one period to the next. (HOCK) Earnings Yield: Earnings per share for the most recent 12 months as a proportion of the current price per share. (IMA)

Earnings-Based Valuation: Techniques used to value a share of stock or entity based on earnings expected to be generated by the item or entity. Generally involves present value models. (IMA) Economic Order Quantity (EOQ): The optimal amount of an item to order when inventory is reduced to the reorder point. (Also called Optimal Lot Size.) (IMA) Economic Profit: A return to investors that exceeds the opportunity cost of financial capital. (IMA) Economies of Scale : Reduction in an entity's per unit cost associated with production processes that produce large volumes of output. (IMA) Effective Interest Rate : The internal rate of return or yield to maturity of a bond at the time of issue. (IMA) Effectiveness: Whether or not a specific goal or objective was accomplished. (HOCK) Efficiency: The attempt to fulfill the objectives of the company while using the least amount of inputs. (HOCK) Efficiency (Usage) Variances: The difference between the actual quantity of input used and the budgeted quantity of input, multiplied by the budgeted price. (IMA) Efficient Market Hypothesis: The hypothesis that security prices always fully reflect all publicly available information concerning traded securities. (IMA) Elasticity: A measure of the degree to which a price change for an item results in a unit change in supply or a unit change in demand. (IMA) Elasticity of Demand: A measure of consumer response to a change in the price of a product or service. Calculated as the percent change in quantity demanded divided by a percent change in price. Depending on the response, the product or service is called either elastic or inelastic. (IMA) Electronic Eavesdropping: Occurs when a computer user is able to observe transmissions intended for someone else. (HOCK) Embedded Audit Routines: Modifying a regular production program by building special auditing routines into it so that a specific transaction or type of transaction data can be analyzed. (HOCK) Employee Benefit Statement: A statement that outlines all of the employee related costs. In addition to salary, it might include pension costs, employer taxes and any other costs that the company needs to pay as the result of having an employee. (HOCK) Encryption: A procedure that transforms information, using an algorithm, to make it unreadable to anyone who does not have the key to decode the message. (IMA) Engineered Costs: Costs that have a definite physical relationship to the activity base or measure. They result from activities that have well defined cause and effect relationships between inputs and outputs and between costs and benefits. (HOCK) Enterprise Resource Planning (ERP): ERP systems integrate (or attempt to integrate) the data and processes of an organization into a single unified system. (IMA) Enterprise Risk Management (ERM): A process applied across the enterprise designed to 1. Identify potential events that, if they occur, could negatively impact the enterprise; and 2. Manage this risk to provide reasonable assurance to management and the Board of Directors. (IMA) Enterprise-Wide: Used to describe systems and processes in use throughout an organization. (IMA) Entity: A person, partnership, corporation, or other separate identifiable unit. (IMA) Entity-Level Controls: Controls that relate to the control environment in the company, management override, risk assessment processes, centralized processing controls and any other control that is relevant to the organization as a whole. (HOCK) Equilibrium: In economics the state of a market for a product or service where there is a balance of supply and demand Equity: The residual amount after deducting an entity's liabilities from its assets. The amount that shareholders own in a corporation. (IMA) Equity Carve-Out: When a parent company sells a minority (usually 20% or less) stake in a subsidiary for an IPO. (Also called partial spin-off.) (IMA) Equity Multiplier: Total assets as a proportion of common equity. (Also called Financial Leverage Ratio.) (IMA)

Equivalent Units: A measure of the physical quantities of inputs necessary to produce output of one fully complete unit. (IMA) Error Term: The distance between the regression line and any particular data point. (HOCK) Ethics Code : A list of principles and/or standards governing the conduct of individuals within an organization. (IMA) Ethics Help-Line : A resource for obtaining guidance on ethical dilemmas; generally in the form of an exclusive telephone number that connects to an ethics counselor. (IMA) Eurodollars: Deposits denominated in U.S. Dollars at financial institutions outside the United States. (IMA) European Option: An option that gives the owner the right to buy or sell an asset, but it is exercisable only on the maturity date. (HOCK) Event Identification: The process undertaken by management in which the look to identify events. An event is an incident or occurrence emanating from internal or external sources that affects implementation of the organization's strategy or achievement of its objectives. Events may have positive or negative impact, or both. (HOCK) Everyday Low Pricing: A pricing strategy used at the retail level to charge an everyday low price with few temporary price reductions. (HOCK) Exception Reporting: Reporting that alerts management by focusing on significant deviations from planned performance. (IMA) Exchange Rate : The price of one country's currency in terms of another country's currency. (IMA) Exchange Rate Risk: The risk that the value of a cash flow will decline due to a change in exchange rates. (IMA) Exercise Price : Price at which a call option or put option may be exercised (carrying out terms of agreement). (Also called Strike Price.) (IMA) Expected Costs: A level of costs that would be challenging to attain, but attainable under normal conditions . (HOCK) Expected Loss: The amount that management expects to be lost to a given risk on average in one year. Because it is expected, the business should budget to cover it. (HOCK) Expected Value : The weighted average of the outcomes of an action, in which the values of the possible outcomes are weighted by their probabilities. (IMA) Expenditure : Payment for goods or services received that may be made at either the time the goods or services are received or a later time. (IMA) Expense : Cost of goods and services used in the current accounting period. (IMA) Expense Recognition: The recording in the accounting system of a cost. (IMA) Expiration Date : The date on which the option to purchase (or sell) expires. (HOCK) Explicit Cost: A cost that can be identified and accounted for. Explicit costs represent obvious cash outflows from a business. (HOCK) Exploiting (Or Accepting) A Risk: One of the four responses to risk, exploiting a risk is the strategic process by which a firm deliberately exposes itself to risk because its management believes they can take advantage of a situation and generate value for shareholders. (HOCK) Exponential Smoothing: A methodology used to produce a smoothed time series which assigns exponentially decreasing weights as the observation get older. (IMA) Expropriation Risk: The risk of a foreign government seizing the private property of a company. (IMA) Extension: A voluntary agreement in which creditors agree to postpone the maturities of their obligations to allow the debtor to have a better chance to repay the debt. (HOCK) External Factors: Factors beyond the control of an entity that influence overall economic conditions or the market for its product. (IMA) External Failure Costs: Costs that an entity incurs when it detects nonconforming products or services after delivering them to customers (e.g., warranty repairs and product liability). (IMA) External Financial Reporting: The reporting of financial information focused on an external audience (lenders, investors, and the general public). (IMA) External Funds: Sources of financing raised outside the company through the issuance of debt and/or equity securities. (HOCK)

Facility-Sustaining Activities: These activities are incurred to support production in general, such as security, maintenance, plant management, depreciation of the factory and property taxes. (HOCK) Factoring: The sale of accounts receivable at a discount to a factor (usually a financial institution). The financial institution then collects the accounts from the customer. (IMA) Factoring Fee : The fee charged by the company buying receivables. The fee is usually a percentage of the face value of the receivables and the assessed risk of the receivables determines the amount of the fee. (HOCK) Factory Overhead: All manufacturing costs except direct materials and direct labor. (IMA) Factory Overhead Control Account: The account in which overhead costs are accumulated as they are incurred. The costs are then moved from this account to work-in-process as the overhead is allocated to the units produced. (HOCK) Factory Overhead Variances: Variances connected to factory overheads, both variable and fixed overheads. (HOCK) Fair Market Value : The exchange price that would prevail for a good or service traded in an active market consisting of a large number of well-informed buyers and sellers dealing at arm's length. (IMA) Fair Value Method: A method used to value an entity's investments in marketable securities. If the carrying value of marketable securities falls below the Fair Market Value, then the value of the security should be reduced to the Fair Market Value. (IMA) Fairness: Acting in an impartial manner and being free from bias, dishonesty or injustice. It requires a person to be openminded, tolerant and accepting. (HOCK) Fama-French Three-Factor Model: A model used to value securities, it has been applied to small-cap stocks and to firms with a high book-to-market ratio to explain why they have historically provided above average returns. (HOCK) Favorable Budget Variance : A variance arising when actual or current performance exceeds expected performance. (IMA) Federal Agency Securities: Securities that are issued by the federal agencies of the United States government. These securities are guaranteed only by the issuing agency, not the entire federal government of the United States. (HOCK) Feedback: The process of informing users of information about how actual performance compares with the expected or desired level of performance. (IMA) Financial Accounting: The accounting for assets, equities, revenues and expenses of an entity; primarily concerned with the historical reporting to external users of the financial position and operations of the entity on a regular periodic basis. (IMA) Financial Accounting Standards Board (FASB): An independent board consisting of seven members responsible for establishing generally accepted accounting principles for the U.S. (IMA) Financial Budget: The part of the Master Budget that includes the Capital Budget, Cash Budget, Budgeted Balance Sheet, and Budgeted Statement of Cash Flows. (IMA) Financial Instrument: An instrument having monetary value (e.g., bond). (IMA) Financial Leverage : The extent to which the assets of an entity are financed with debt. (IMA) Financial Leverage Ratio: Total assets as a proportion of total common equity, which measures the extent of financial leverage. (IMA) Financial Reporting: Presentation of financial information indicating an entity's financial position, operating performance, and funds flow for an accounting period. (IMA) Financial Risks: Risks that are connected to the financial health of the company. Examples include volatility of foreign currencies, volatility of interest rates, volatility of prices of commodities (inputs), credit risk, liquidity risk and market risk. (HOCK) Financial Statement: A report containing financial information about an organization, including the Balance Sheet (or Statement of Financial Position), Income Statement, and Cash Flow Statement. (IMA) Financing Activities: The activities that a company undertakes to raise capital to finance the business. (HOCK) Financing Decisions: Decisions concerned with obtaining the funds to acquire the resources the company needs. (HOCK) Financing Expenses: Expenses incurred by an entity in order to issue debt or equity securities. (IMA) Finished Goods Inventories: The part of inventory that accounts for the completed product, ready for sale or other disposition. (IMA)

Firewall: A network configuration (usually both computer hardware and software) that prevents unauthorized traffic into and out of a secure network. (IMA) Firm: A business entity, such as a corporation First-In-First-Out (FIFO): A method of inventory valuation and cost flow assumption, where the ending inventory cost is computed from the most recent purchases and the cost of goods sold is computed from the oldest purchases, including beginning inventory. (IMA) Fiscal Year: Any accounting period of 12 successive calendar months (or 52 weeks, or 365 days), used by an entity for financial reporting. (IMA) Fixed Asset: A noncurrent, nonmonetary, tangible asset used in the normal operations of a business. (IMA) Fixed Asset Turnover: Measures an entity's ability to generate sales from fixed assets. It relates sales to net property, plant, and equipment. (IMA) Fixed Budget: A budget with fixed and unchangeable amounts of revenues and expenses. (Also called a static budget.) (IMA) Fixed Charge Coverage Ratio: A leverage ratio, represented as earnings before fixed charges and taxes divided by fixed charges. Fixed charges include interest, required principal repayments, and leases. (IMA) Fixed Charges: Fixed financial costs such as interest payments and lease (rent) payments. (IMA) Fixed Cost: A cost that does not vary with the volume of activity in the short term. (Also called Nonvariable Cost or Constant Cost.) (IMA) Fixed Exchange Rate : A monetary system in which a country's currency is set at a fixed rate relative to other currencies. (IMA) Fixed Overhead: Overhead Costs that do not vary with the level of output Fixed Overhead Production-Volume Variance : The difference between the budgeted amount of fixed overhead and the amount of fixed overhead applied. (HOCK) Fixed Overhead Spending Variance : The difference between the fixed overhead incurred and the fixed overhead budgeted. (IMA) Flexible Budget: A budget in which the budgeted amounts may be adjusted to any activity level. (IMA) Flexible Budget Variance : The difference between the actual results and the flexible budget. (HOCK) Flexible Exchange Rate : An exchange rate for a country's currency that is determined by the market forces of supply and demand. (Also called Floating Exchange Rate.) (IMA) Flip-In Rights: Rights that are activated upon the acquisition of more than a specified ownership interest in the target corporation by an individual raider. (HOCK) Floating Exchange Rate : An exchange rate for a country's currency that is determined by the market forces of supply and demand. Also referred to as a Flexible Exchange Rate. (IMA) Flowchart: A graphical representation of the flow of information in which symbols are used to represent operations, data, reports generated, equipment, etc. (IMA) Forecast: A projection of the expected financial position, results of operations, and cash flows based on expected conditions in the future. (IMA) Foreign Corrupt Practices Act: A U.S. federal law requiring any company having publicly-traded stock to maintain records that accurately and fairly represent the company's transactions, and have an adequate system of internal accounting controls. Enacted with the intent to bring an end to bribery of foreign officials. (IMA) Foreign Exchange : Financial instruments, such as paper currency, notes, and checks, used to make payments between countries. (IMA) Foreign Exchange Risk: The risk that a transaction that has been denominated in a foreign currency will be impacted negatively by changes in the exchange rate. (HOCK) Foreign Exchange Swaps: The simultaneous purchase and sale of a given amount of foreign exchange for two different value dates. (HOCK) Forfaiting: A form of finance where a third party purchases trade receivables from an exporter at a discount, and then collects from the importer the payment using the shipped goods as collateral. (IMA)

Forward Contract: A non standardized cash market transaction in which the delivery of the commodity is deferred until after the contract has been made. (IMA) Forward Delivery: A transaction in which the settlement will occur on a specified date in the future at a price agreed upon on the trade date. (Also called Forward Trade.) (IMA) Forward Market: A market in which participants agree to trade some commodity, security, or foreign exchange at a fixed price for future delivery. (IMA) Four-Way Overhead Analysis: Overhead variance analysis in which the 4 overhead variances are used. (HOCK) Franchise : A license granted by one entity (franchisor) to another entity (franchisee), entitling the franchisee to produce or market a product or service in a specific area, for a specific time. (IMA) Fraud: An intentional misrepresentation of material existing fact made with knowledge of its falsity. (HOCK) Fraudulent: Intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right. (IMA) Fringe Benefit: Non-wage forms of compensation, including pensions and health insurance, provided to an employee in addition to monetary compensation. (IMA) Full Cost: The sum of all the costs in all the business functions. (IMA) Function: The general end or purpose to be accomplished by an organizational unit, such as administration, selling, or research. It can also be a group of related activities serving a common end. (IMA) Functional Currency: The currency of the primary economic environment in which the entity operates. (IMA) Future : A legal agreement to make or take delivery of a specified instrument at a fixed future date at a price determined at the time of dealing. (IMA) Futures Contracts: An agreement to buy or sell a specified quantity of a specified asset on a future date for a specified price. Futures contracts are traded on a formal exchange. (HOCK) Gains: Increases in equity as a result of transactions that are not part of the company's main or central operations and that do not result from revenues or investments by the owners of the entity. (HOCK) General Systems Controls: Relate to the general environment within which transaction processing takes place. They are designed to ensure that the company's control environment is stable and well managed. (HOCK) Generalized Audit Software : Software that permits the computer to be used by auditors as an auditing tool. The computer can select, extract, and process sample data from computer files. (HOCK) Generally Accepted Accounting Principles (GAAP) : The body of accounting rules, methods, and procedures endorsed by the accounting profession, either by convention or by authoritative literature, as a guide to the preparation of financial statements. (IMA) Geographical Pricing: Product and service pricing based on the marketplace in which it is provided. (IMA) Goal: What is intended to be accomplished at the unit or departmental level. Goals are similar to objectives, but goals are created for smaller units within the organization. (HOCK) Goal Congruence : A characteristic of a management control system that is structured so that the goals of individuals are consistent with the goals of the organization. (IMA) Going Concern: The assumption that, in the absence of evidence to the contrary, a firm will continue to exist indefinitely. (IMA) Goodwill: The excess of the fair market value an entity above its identifiable net assets. (IMA) Gross Profit Margin: Net sales less cost of sales. (Also called Gross Profit.) (IMA) Gross Profit Margin Percentage : Gross profit divided by sales. (IMA) Gross Revenue : Total unadjusted revenue. (Also called Gross Sales.) (IMA) Growth Stage : The third stage in the life cycle of a product. If the introduction stage is successful, the product will experience rapid sales growth and increasing profits in the growth stage. (HOCK) Hardware : The physical components of a computer system. (IMA) Hardware Controls For Networks: Controls that are required for networks because of the fact that the hardware is located in many different locations. (HOCK)

Hash Totals: Totals of nonmonetary information. A hash total can be run on a group of records to be input before processing or transmission and again after processing. (HOCK) Hazard Risk: The risk within a situation that has the potential for harm to humans, property and damage of environment or a combination of these. (IMA) Hearsay Evidence : A secondhand account where the witness does not have personal, direct knowledge of what occurred but heard it from someone else. (HOCK) Hedging: A method of reducing exposures to fluctuations in prices, exchange rates, or interest rates. (IMA) Held-to-Maturity Securities: Securities that are held with the intent to hold to maturity. Only debt can be classified as held-to-maturity, since only debt has a maturity date. High-low method: Method of estimating cost behavior by using only the highest and lowest values of the cost driver within the relevant range. (IMA) High-Low Pricing: A pricing strategy that involves charging high everyday prices but offering frequent discounts and sales. But constant sales and promotions increase costs and erode consumer confidence in the everyday prices. (HOCK) Historical Cost: The amount originally paid for an asset, unadjusted for subsequent changes in value. (Also called Acquisition Cost or Original Cost.) (IMA) Holding Gain or Loss: Unrealized gains or losses from holding assets or liabilities during a period of changing prices. (IMA) Honesty: Fairness and straightforwardness of conduct. It is the quality of being upright, having integrity, truthfulness, sincerity, frankness, and freedom from deceit or fraud. (HOCK) Horizontal Analysis: Compares each amount on a financial statement with a base amount for a selected base year. (Also called Common Base Year Statements.) (IMA) Horizontal Merger: A merger that takes place between or among firms in the same line of business. (HOCK) Hot Site : A backup facility that has a computer system similar to the one used regularly. The hot site must be fully operational and immediately available, with all necessary telecommunications hookups for online processing. (HOCK) Hurdle Rate : The minimum acceptable rate of return that companies will consider from a prospective project or investment. (Also called Required Rate of Return.) (IMA) Hybrid Cost System: A cost system having characteristics of both Job Costing and Process Costing systems. (IMA) Ideal Capacity: The level of activity that will occur if the company produces at its absolute most efficient level at all times. (This means no allowances for idle time and downtime and no decrease in sales demand). A company will not be able to achieve this level in the long run. (HOCK) Ideal Costs: The level of costs that would be attainable only under the best possible conditions. (HOCK) IMA Statement of Ethical Professional Practice : A commitment to ethical professional practice made by members of the Institute of Management Accountants (IMA) that includes standards that guide the conduct of members including competence, confidentiality, integrity, and credibility. The statement also includes guidelines for the resolution of ethical conflict. (IMA) Impaired Asset: An asset whose fair market value is less than the amount listed on the balance sheet. (IMA) Implicit Costs: Costs recognized in particular situations that are not regularly recognized in the accounting records of an entity. (Also called Imputed Costs.) (IMA) Implicit Interest Rate : Rate that would have resulted from two independent parties negotiating an interest rate. (Also called Imputed Interest Rate.) (IMA) Imposed Budget: A budget that is decided by higher level management without the participation of the manager of the unit to whom that budget relates. (Also called Top-Down Budget.) (IMA) Imputed Cost: A cost that does not show up in the accounting records and is not a cash outlay, but it represents a cost that must be considered in decision-making. An opportunity cost is a type of imputed cost. (HOCK) Imputed Costs: A cost that does not exist but is needed for use in a decision-making process. Interest or a cost of capital is often an imputed cost. (HOCK) In-The-Money: When the exercise price of the option is favorable to the holder of the option, the option is in-the-money because the option has immediate value due to the difference between the option price and the market price. (HOCK)

Income Statement: A financial statement that reports the results of operations for a period of time. By presenting revenues, expenses, gains, losses, and net income, it measures a company's success over a time period. (Also called Statement of Earnings.) (IMA) Income Tax: An annual tax levied by a government on the financial income of an entity. (IMA) Incorporated (Inc.): A company formed into a legal corporation. (IMA) Incremental: The difference in cash flow, both as to amount and as to timing, between two alternative courses of action. (IMA) Incremental Analysis: A method of analyzing managerial decisions that emphasizes incremental rather than the total costs and benefits associated with an action (or set of alternative actions). (Also called Marginal Analysis or Differential Analysis.) (IMA) Incremental Cost-Allocation Method: This method ranks the users of a cost object according to their total usage or on some other basis. The first-ranked user of the activity is called the primary user and they are charged for costs up to what its cost would be if it were the only user. Then, the next-ranked user(s) are called the incremental users and are allocated the additional cost, proportionately if more than one. (HOCK) Incremental Costs: Costs that are incurred additionally as a result of an activity or decision. (HOCK) Incremental Unit-Time Learning Model: A learning curve model in which the incremental unit time (the time needed to produce the last unit) declines by a constant percentage each time the cumulative quantity of units produced is doubled. (IMA) Indenture : A written agreement (also called a deed of trust) between a debt issuer and a purchaser, stating the maturity date, interest rate and other terms. (IMA) Independent Auditor: An external auditor who has no financial or other interest in the client whose financial statements are being examined. (IMA) Independent Directors: Directors of the company who are not employed by the company itself . (HOCK) Independent Variable : A variable (often denoted by x) whose variation does not depend on that of another. (HOCK) Indirect Cost: Any cost not directly identified with a single final cost object, but identified with two or more final cost objects or with at least one intermediate cost object. All costs other than direct materials and direct labor. (Also called Overhead Cost or Burden.) (IMA) Indirect Labor: Salaries and wages not directly attributable to a specific product or job, such as plant superintendent, janitorial services and quality control. (HOCK) Indirect Materials: Materials not identifiable with a specific product or job, such as cleaning supplies, small or disposable tools, machine lubricant and other supplies. (HOCK) Indirect Method: A method of preparing the Cash Flow Statement where net cash flow from operating activities is determined by adding back to or deducting from net income those items that had no effect on cash. (IMA) Industry Risk: Risks companies face by virtue of the industry they are in. (IMA) Inelastic: The demand for a product that is inelastic is not very sensitive to changes in prices as a change in price of a certain percentage will result in a change in demand of a smaller percentage. (HOCK) Inflation: A rise in the general level of prices of goods and services. (IMA) Information And Communication: The process of collecting and distributing information in a company so that individuals are able to fulfill their duties. (HOCK) Information System: A system consisting of people, computers, voice and data communications, and methods organized to accomplish data and information operations. Information systems support the running of the enterprise's business. (IMA) Information Technology (IT): IT deals with the use of electronic hardware and software to convert, store, protect process, transmit, and retrieve information. (IMA) Inherent Risk: 1. The risk related to the very nature of the activities the company undertakes in the course of business. 2. The auditor's assessment of the likelihood that there are material misstatements in the financial statements before considering the effectiveness of internal controls. (IMA) Initial Public Offering (IPO): A company's first public issue of common stock. (IMA)

Input Controls: Controls that ensure the complete and accurate recording of authorized transactions by authorized users and identify rejected and duplicate items. (IMA) Insider Trading: The buying and selling of a corporation's stock by individuals with access to non-public information. (IMA) Installment Sale : An arrangement where the buyer takes possession of the property immediately but does not receive the deed and title until a series of payments have been made. (IMA) Insurance : A form of risk management used to hedge against the risk of a contingent, uncertain loss; the transfer of the risk of a loss from one entity to another, in exchange for payment. (IMA) Intangible : A type of non-current asset that has no physical substance and whose value comes from rights or advantages conferred upon the owner. Examples are patents, copyrights, trademarks, brand names, licenses, and goodwill. (IMA) Integrated Test Facility: The use of test data and also the creation of test entities that do not really exist, such as vendors, employees, products, or customers. The fictitious entities are actually included in the system's master files, and the test data are processed concurrently with real transactions. The auditor can check to see if the incorrect data is properly identified and excluded by the system. (HOCK) Integrity: An ethical standard in IMA's Statement of Ethical Professional Practice that requires members to avoid conflicts of interest and refrain from activities that would discredit the profession. (IMA) Interest: The cost incurred or amount earned for the use of borrowed capital. (IMA) Interest Rate Risk: The risk that the value of the investment will change over time as a result of changes in the market rate of interest. (HOCK) Interest Rate Swaps: Contracts between two parties that agree to trade payment streams, specifically interest payments on debts. The most common form involves one payment at a fixed rate and one at a floating (or variable) rate that is pegged to some sort of market rate of interest and changes whenever the market rate changes. (HOCK) Interest-Bearing: A debt instrument that includes a provision that interest be paid. (IMA) Interim Financial Reports: Financial statements prepared for periods shorter than one year, such as monthly or quarterly. (IMA) Interim Reports: Reports that are issued during the process of the audit engagement. (HOCK) Internal Auditing: An appraisal activity within an entity that measures and reports on the extent to which various organizational policies are followed and goals are met. (IMA) Internal Control: Controls established by management to ensure adherence to management policies, safeguarding of assets, and completeness and accuracy of records. (IMA) Internal Control Risk: The risk that internal controls are not effective, because of either inadequate set-up and design or lax execution. (IMA) Internal Factors: In strategic planning, an analysis of the internal strengths and weaknesses of an entity. (IMA) Internal Failure Costs: Costs incurred when an entity detects nonconforming products or services before delivering them to customers. Examples include scrap, rework and retesting. (IMA) Internal Funds: Sources of finance that are available from profits that the company generates but decides not to distribute to the owners. (HOCK) Internal Rate of Return (IRR): The discount rate that equates the net present value of a stream of cash outflows and inflows to zero. (IMA) International Accounting Standards Board (IASB): An independent, privately-funded accounting standard-setter based in London, UK, with board members from nine countries, committed to developing a single set of high-quality, understandable and enforceable global financial accounting standards International Bonds: Bonds that are sold outside of the issuing company's home country. (HOCK) Internet: The worldwide collection of interconnected networks that use the Internet suite of protocols and permit public access. (IMA) Intranet: A private network that integrates Internet standards and applications within an organization's existing computer networking infrastructure. (IMA) Intrinsic Value : The amount by which the option is in-the-money at any point in time. (HOCK)

Introduction Stage : The second stage in the life cycle of a product, the introduction stage is typically one of slow growth and minimal profits, because of the heavy upfront expenses to introduce a new product. (HOCK) Inventoriable Costs: Costs that go directly into the production process, without which the product could not be made. Product costs are "transferred" to each unit and will be carried on the balance sheet as inventory when production is completed. (also called product costs). (HOCK) Inventory: The actual raw materials, supplies, goods on hand, goods in process of manufacture, and goods in transit, in storage, or consigned to others, or the act of accounting for, listing and pricing inventory. (IMA) Inventory Turnover: A ratio that measures the number of times a firm's average inventory is sold during a year. (IMA) Inventory Valuation: The measurement of the cost assigned to items in inventory. (IMA) Invested Capital: The amount of capital contributed to a business by equity investors, either directly or through the retention of earnings. (IMA) Investing Activities: Those activities that the company undertakes to generate a future profit, or return. (HOCK) Investment: Expenditure to acquire property or other assets in order to produce income; also, the asset so acquired. (IMA) Investment Center: A responsibility center whose performance is measured in the amount of income it earns relative to the investment in its assets. (IMA) Investment Grade : The rating given to the debt of companies that have a high capacity to repay and there is little risk of default. (HOCK) Job Order Costing: A method of cost accounting that accumulates costs for individual jobs or lots. (IMA) Joint Probability: The probability of two or more events all occurring together. The joint probability of two independent events is calculated as the probability of the first event multiplied by the probability of the second event. (HOCK) Joint Product Costing: A method of cost accounting used when simultaneously producing or otherwise acquiring two or more products (joint products) that must, by the nature of the process, be produced or acquired together. (Also called Common Cost.) (IMA) Joint Venture : A business enterprise jointly undertaken by two or more companies, who share the initial investment, risks, and profits. (IMA) Journal: A record of original entry that records transactions in chronological sequence. (IMA) Junk Bonds: Bonds issued in leveraged buyouts and mergers and are very risky. However, they also carry the potential of very high rewards because they pay a high interest rate. (HOCK) Just-In-Time Inventory Management: An inventory management system that is based on a manufacturing philosophy that combines purchasing, production and inventory control into one function. This reduces the level of inventory that is held within the company at all stages of production, and thereby also reduces the cost of carrying the inventory. (HOCK) Just-In-Time Manufacturing (JIT): A manufacturing process where products are produced or procured as they are needed rather than when they can be made. (IMA) Kaizen: A Japanese word that means "improvement." As used in business, it implies "continuous improvement," or slow but constant incremental improvements being made in all areas of business operations. (HOCK) Kanban: A manufacturing strategy wherein parts are produced or delivered only as needed. (IMA) Kinked Demand Curve : A demand curve that is highly elastic for a price increase but inelastic for a price decrease, based on the assumption that rival firms will match a price reduction but not a price increase. (IMA) Labor Efficiency Variance : Measures how much of the total variance was due to a difference in the quantity of hours that we expected to use and that quantity that was actually used. (HOCK) Labor Rate Variance : Measures how much of the total variance was due to a difference in the labor rate between what we expected it to be per hour and what was the rate that was actually paid was. (HOCK) Last-In-First-Out (LIFO): A method of inventory valuation and cost flow assumption, where ending inventory is measured by assigning the most recent costs incurred to costs of goods sold, and the earliest costs to ending inventory. (IMA) Law of Diminishing Returns: The principle that states that as increasingly more units of a variable resource are combined with a fixed amount of other resources, use of additional units of the variable resource will eventually increase output at a decreasing rate. (IMA)

Lead Time : The time expected to elapse between the date an order is placed and the date the goods or services are received. (IMA) Leadership by Example : Leaders living and acting by the company's code of ethics, setting a good example, keeping promises and commitments, and supporting others in adhering to the code of ethics. (Also called "Tone at the Top.") Learning Curve : 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. (IMA) Learning Rate : The rate at which learning takes place in learning curve analysis. They are developed by analyzing historical data. (HOCK) Lease : A contract between the owner of property (Lessor) and the user (Lessee) concerning the financial and operating arrangements for the property. (IMA) Leasehold: An asset representing the right of a Lessee (User) to use property. (IMA) Least-Squares Method: A statistical method for defining a line that best fits the data points and reflects the relationship between variables. (Also called Linear Regression.) (IMA) Ledger: A book of accounts; any book of final entry. (IMA) Legal Risk: Potential for loss arising from the uncertainty of legal proceedings, such as bankruptcy, trademark challenges, liability claims, etc. (IMA) Letter of Credit: A binding document from a bank guaranteeing that a buyer's payment will be received on time and for the correct amount. Often used in international trade to eliminate perceived risks. (IMA) Letter Of Deficiency: When there are substantial deficiencies in the registration statement, the SEC will issue a letter of deficiency, identifying the problems and informing the issuer on how to correct them. (HOCK) Leverage : The extent to which a firm is financed by debt. (IMA) Leveraged Buyout (LBO): Form of ownership change where a company is taken private; the investor finances a significant percentage of the purchase price of the controlling interest with borrowing. (IMA) Leveraged Recapitalization: A takeover defense in which the company borrows money to pay a large, one-time dividend to shareholders. The increased debt discourages any would-be acquirer, because it inhibits them from borrowing against the company's assets to finance the acquisition. (HOCK) Liability: Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. (IMA) Life-Cycle Costing: The accumulation of costs for activities that occur over the entire life cycle of a product, including design and development, acquisition, operation, maintenance, and service. (IMA) Line Item Budget: A budget that classifies items of expense by the nature of the expense, such as salaries, fringe benefits, travel, etc. (IMA) Line of Business: A set of operations directed to the production and sale of a distinctive type of goods or services to customers Line of Credit: An agreement usually by a bank to make loans, not to exceed a specified total amount, when needed by a customer Linear Programming: A mathematical tool used to optimize a function (the objective function) subject to various constraints, all of which are linear. Often used to find the combination of products that will maximize profits or minimize costs Liquidation: A form of bankruptcy in which the assets of the debtor are sold (liquidated) to pay the creditors. (HOCK) Liquidity: Ability to convert an asset into cash quickly. (IMA) Liquidity Risk: The possibility that an investment cannot be sold (converted into cash) for its market value. Whenever an investment must be discounted significantly in order to be sold, the investment has a high level of liquidity risk. (HOCK) Loan Covenants: Clauses in a loan agreement that require one party to do, or refrain from doing, certain things. (IMA) Lockbox System: A system where a financial entity collects and deposits payments on behalf of an entity thereby reducing the mail and processing float. (IMA)

Logical Security: Consists of access and ability to use the equipment and data. It includes Internet security (firewalls) and virus protection procedures; access controls for users to minimize actions they can perform; authentication processes to verify the identity of users; and cryptographic techniques such as encryption of messages and digital signatures. (HOCK) Long Position: The purchase of a security with the expectation that the security will rise in value. (IMA) Long Run: A time period of sufficient length to enable decision makers to adjust fully to a market change; the period of time in which all costs are variable. (IMA) Long-Term Debt to Equity Ratio: Measure of the financial leverage of a firm. (IMA) Long-Term Investments: Investments that are expected to be held for more than one year. (HOCK) Long-Term Liabilities: Debts due for repayment more than one year in the future or beyond the normal operating cycle. (IMA) Loss Frequency: The measurement of how often the loss occurs, on average. (HOCK) Loss Severity: A measure of how serious a loss is when it occurs, in terms of cost. (HOCK) Losses: Decreases in equity as a result of transactions that are not part of the company's main or central operations and that do not result from expenses or distributions made to owners of the entity. (HOCK) Lower of Cost or Market Rule : A method of valuation that results in an asset being valued at either acquisition cost or market value, whichever is lower. (IMA) Maintenance : Expenditures necessary to achieve the originally anticipated useful life of a fixed asset. (IMA) Make Versus Buy: The decision either to produce a good or service with an entity's own resources or to buy it from an outside supplier. (IMA) Managed Floating Exchange Rates: An exchange rate that is mostly allowed to change (float) as demand in currency supply and demand changes but is often altered (managed) by governments through their buying and selling of certain currencies. (IMA) Management: The process of leading and directing all or part of an organization, often a business, through the deployment and organization of resources. (IMA) Management Accounting: The process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information used by internal decision makers in order to plan, evaluate, and control an entity and to assure appropriate use of and accountability for its resources. (Also called Managerial Accounting.) (IMA) Management Control: An organized, integrated process and structure through which management attempts to achieve enterprise goals effectively and efficiently. (IMA) Management Discussion and Analysis: A discussion of Management's views of an entity's performance, required by the US Securities and Exchange Commission to be included in the Annual Report on Form 10-K. (IMA) Management Information System: A system that provides past, present, and prospective information about internal operations and external intelligence. (IMA) Management-by-Exception: The management practice of focusing on areas that deserve attention and ignoring areas that seem to be running smoothly. (IMA) Manufacturing: The transformation of raw materials into finished goods. (IMA) Manufacturing Contribution Margin: The amount of money that is available to cover nonmanufacturing variable costs, all fixed costs and then flow to profit. (HOCK) Manufacturing Cost: The costs incurred to transform materials into other goods through labor and factory facilities. (IMA) Margin of Safety: The excess of budgeted sales over the break-even volume. (IMA) Marginal Cost: Cost resulting from the production of one additional unit. (IMA) Marginal Cost Of Capital: The cost of the next dollar of finance. (HOCK) Marginal Product: The additional output that is produced from adding one additional unit of input. (HOCK) Marginal Profit: The additional profit that is received from producing and selling one more unit of product. (HOCK) Marginal Revenues: The revenue that is obtained from selling one more unit of product. (HOCK)

Mark-Up Pricing: A pricing strategy in which the company determines what its costs are and then adds a standard markup percentage to the cost to arrive at the price for the product. (HOCK) Market Comparables: Estimating the price of an asset by comparing to recent sales prices of assets with similar characteristics. (IMA) Market Equilibrium Price : The price of a good or service that will balance the supply and demand. (IMA) Market Penetration: A measure of an entity's sales of a given product or service compared to the total sales of all suppliers in the market. (Also called Market Share.) (IMA) Market Penetration Pricing: A pricing strategy for a new product in which the company wants to gain market share quickly and sets a low price for its product. (HOCK) Market Price : The current price for which a good or service is offered in the marketplace. (IMA) Market Risk: The portion of stock price (or portfolio) movement that is attributable to the movement of the market as a whole. (Also called Systematic Risk.) (IMA) Market Share Variance : The difference in the budgeted contribution margin caused by the actual market share being different from the expected market share. (HOCK) Market Size Variance : The difference in the budgeted contribution margin caused by the actual market size (in number of units) being different from the expected market size (in number of units). (HOCK) Market Skimming Pricing: Charging a relatively high price for a short time when a new, innovative, or much-improved product is launched onto a market. (IMA) Market Structure : The organizational and other characteristics of a market, in particular those that affect the nature of competition and pricing. (IMA) Market Value : The value of a good, a service, or a security as determined by buyers and sellers in an open market. (IMA) Market-Based Transfer Price : When the price for goods or services charged by one division of a company to another is based on the market price. (IMA) Market-to-Book Ratio: Current stock price divided by book value per share, where "book value" equals common shareholders' equity. (Also called Price-to-Book Ratio.) (IMA) Marketability: A characteristic of a security that allows it to be sold at a reasonable price in a short period of time. (IMA) Marketable Securities: 1. Liquid securities that can be converted into cash quickly. 2. A balance sheet classification for negotiable financial instruments. (IMA) Master Budget: A budget that consolidates all budgets into an overall plan and control document, for a budgeted period. (Also called a Comprehensive Budget.) (IMA) Matching: The process of recognizing expenses in the same accounting period as that in which the related revenues are recognized. (IMA) Material Requirements Planning (MRP): A system that translates a production schedule into requirements for each component needed to meet that schedule. (IMA) Materiality: The concept that accounting should separately recognize only those events that are relatively important for understanding an entity's statements. (IMA) Materials Price Variance : Measures how much of the total variance was due to a difference in the price between what we expected it to be per unit and what it the price paid actually was. (HOCK) Materials Quantity Variance : Measures how much of the total variance was due to a difference in the quantity between what we expected to use and what was actually used. (HOCK) Maturity Date : The date on which a debt becomes due for payment. (IMA) Maturity Matching: The matching of asset and liability maturities; i.e., financing long-term assets with long-term sources and short-term needs with short-term sources. (IMA) Maturity Stage : The fourth stage in the life cycle of a product, during which the sales growth usually slows down and profits level off or decrease. The company has to spend more for marketing to defend the product against the competition. (HOCK)

Maximum Possible Loss: The most pessimistic view of possible loss; when referring to insurance of a building, for example, the risk that the entire structure, its immediate surroundings, and all the building's contents will be destroyed. (Also called Extreme or Catastrophic Loss.) (IMA) Maximum Probable Loss: The largest loss that can occur under foreseeable circumstances. This is the largest amount of damage that is likely to occur in a very bad year. (HOCK) Mean: The average of a set of numbers. (HOCK) Means-End Relationship: When the achievement of the objectives of one level enables the next highest level to achieve its objectives as well. (HOCK) Median: The halfway value if raw data is arranged in numerical order from lowest to highest. (HOCK) Merger: The combining of two or more companies. (IMA) Mix Variance : A variance that results when actual proportions of the components of revenues or costs are different from the proportions used in arriving at the budgeted or planned revenue or cost, or the standard cost. (IMA) Mixed Cost: A cost composed of fixed and variable elements. (IMA) Mode : The most frequently occurring value. (HOCK) Monetary Items: Money or a claim (an obligation) to receive (or pay) a sum of money, the amount of which is fixed or determinable without reference to future prices of specific goods and services. (IMA) Money Market Accounts: An account that pays a higher interest rate than a standard savings account, but may have restrictions on the number of transactions that may be done in the account during a time period. (HOCK) Money Markets: Markets where short-term debt instruments with maturities of less than one year are traded. (HOCK) Monitoring: Assesses the quality of the performance of anything over time. (HOCK) Monopolistic Competition: A situation where there are a large number of independent sellers, each producing a differentiated product in a market with low barriers to entry. (IMA) Monopoly: A market structure characterized by a single seller of a well defined product for which there are no good substitutes and by high barriers to the entry of any other firms into the market for that product. (IMA) Monte Carlo Technique : An analytical technique in which a large number of simulations are run to infer the most likely result, using random quantities for uncertain variables. (IMA) Mortgage : A claim given by the borrower to the lender against the borrower's property. (IMA) Mortgage Bonds: Bonds that have specific asset(s) pledged as the collateral for the loan. This collateral makes the bonds less risky to investors. (HOCK) Moving Average : A method of calculating central tendency over time in an attempt to identify long-term trends. The average is calculated over a specific time period (e.g. years). For each time period after the initial one, the earliest value is dropped from the calculation and the most recent one is added in, to make an average over the same length of time. (IMA) Multinational Company: Company operating in several countries. (IMA) Multiple Regression: A statistical method used to model the relationship between one dependent (or response) variable and one or more independent (or explanatory) variables by fitting a linear equation to observed data. (Also called Multiple Linear Regression.) (IMA) Mutually Exclusive Project: Competing investment projects in which accepting one project eliminates the possibility of undertaking the remaining projects. (IMA) Naked Option: A call option for a stock that the option writer does not hold in his or her portfolio. A naked call option is much more risky than a covered call option, because if the call option is exercised by the option holder, the writer will probably lose money. (HOCK) Natural Hedges: A hedge against foreign currency losses that happens naturally when a company's activities are set up such that they are not exposed to great foreign currency exchange losses. (HOCK) Negotiable CD: A Certificate of Deposit with a very large denomination, usually $1 million or more. They are usually in bearer form, considered low risk and highly liquid. (Also called Jumbo CD.) (IMA) Negotiated Price : In transfer pricing, the price charged by one segment of an organization to another for a product or service that is determined by negotiation between the segments. (IMA)

Net Income : Income for a period after subtracting expenses from all sources for that period. (Also called Net Earnings.) (IMA) Net Present Value (NPV): The difference between the present value of all cash inflows from a project or investment and the present value of all cash outflows required to obtain the investment, or to undertake the project at a given discount rate. (IMA) Net Present Value Method: A method of evaluating capital projects that uses the net present value of the cash flows of the project to determine if the project would be beneficial to the organization. (HOCK) Net Profit Margin: A financial ratio where net income is divided by sales. (Also called Net Profit Margin Percentage.) (IMA) Net Realizable Value : 1. The estimated selling price in the ordinary course of business less the reasonably predictable cost of completion and disposal. 2. Accounts receivable less allowance for bad debts. (IMA) Net Working Capital: Current assets less current liabilities. (IMA) Net Working Capital Ratio: A liquidity financial ratio that measures net working capital as a percent of total assets. (IMA) Network: In data communications, a configuration in which two or more locations are physically connected for the purpose of exchanging data. (IMA) Network Controls: Internal controls to insure accurate and secure flows of data in computer and communication systems. (IMA) No-par Stock: The shares of a company that carry no nominal or par value. (IMA) Nominal: A term signifying that a value has not been adjusted for inflation. (IMA) Nominal Dollar: The data in the time series measured in the dollars that were current at the time each data point was captured. These dollars are affected by inflation. (HOCK) Non-monetary Exchange : The exchange of goods or services between entities for which no monetary instruments are involved. (Also called Barter.) (IMA) Non-price Competition: Methods firms use to attract customers other than price reductions, including advertising, free gifts, special packaging, etc. (IMA) Non-value Added: An activity that increases a good's costs without increasing its value to the consumer. (IMA) Noncash Investing And Financial Activities: A classification of events on the statement of cash flows for those investing and financing activities that do not include cash. (HOCK) Noncontrollable, Traceable Fixed Costs: Fixed costs that cannot be controlled by the manager within a time span of one year or less. (HOCK) Noncurrent Assets: Assets that are not expected to be sold, consumed or converted into cash during the normal operating cycle of a business or one year, whichever is longer. (HOCK) Noncurrent Liabilities: Liabilities that are not expected to be settled within the normal operating cycle of the business or 12 months, whichever is longer. (HOCK) Nonmanufacturing Overheads: Costs that are not involved in the production of the product. Even if these costs were not incurred the product could still be manufactured. Period costs are usually expensed when they are incurred. (HOCK) Nonrecurring Items: One-time occurrences for an entity involving unusual income or expense. (IMA) Normal (Or Extended Normal) Costing System: A cost allocation system that allocates overhead costs based on the actual number of the allocation base that was actually used in production. (HOCK) Normal Cost: A costing system whereby cost objects are assigned the sum of direct materials and labor resources consumed plus an allocation of overhead based on normal capacity. (IMA) Normal Profit: The net earnings for an enterprise that recognizes that a reasonable return on capital (both debt and equity) is one of the costs of the enterprise. (IMA) Normal Spoilage : Inherent product deterioration that is expected even under the best operating conditions. It is unavoidable in the short run. (IMA) Notes Payable : A short-term debt instrument whereby the issuer promises repayment on or before a specified date. (IMA)

Objective : What it is that is intended to be accomplished at the organizational or enterprise level. Objectives are similar to goals, but objectives are created at the enterprise or company level. (HOCK) Objective Function: In Linear Programming, the variable to be maximized (profit) or minimized (cost). (IMA) Objectivity: A trait of financial reporting that emphasizes the verifiable, factual nature of events or transactions and minimizes personal judgment in the measurement process. (IMA) Obsolescence : The loss in usefulness of an asset caused by technological or market changes. (IMA) Off-Balance Sheet Financing: Financing from sources other than debt and equity offerings that are not reflected on an entity's balance sheet, such as joint ventures, partnerships, and operating leases. (IMA) Off-Peak Pricing: A pricing strategy that charges a lower price for the good during times of the day or year when demand is lower. (HOCK) Oligopoly: A market situation in which a small number of sellers comprise the entire industry. (IMA) Open Interest: The total number of outstanding options contracts for each asset at the end of each day. (HOCK) Operating Activities: Any item that is not classified as either an investing or financing activity is an operating activity. Operating activities are generally part of the company's main business activities and central operations. (HOCK) Operating Budget: Detailed projection of all estimated revenue, expenses, and income based on forecasted sales revenue during a given period (usually one year). (Also called Operational Budget.) (IMA) Operating Cycle : The average time between the acquisition of materials or services and the final cash realization from the sale of products. (IMA) Operating Decisions: Decisions concerned with the best use of the company's limited resources. (HOCK) Operating Effectiveness: An assessment of whether or not the controls are functioning as they are intended to function. (HOCK) Operating Expenses: Expenses incurred in the course of ordinary activities of an entity. (IMA) Operating Income : Earnings before Interest and Taxes. (IMA) Operating Lease : A lease that does not meet the criteria for capitalized a lease; accounted for as rental payments. (IMA) Operating Leverage : The percent of fixed costs in a company's cost structure. (IMA) Operating Profit: The profit from a firm's core ongoing business operation. (IMA) Operating Profit Margin: A financial ratio represented as operating profit divided by sales. (Also called Operating Profit Margin Percentage.) (IMA) Operational Audit: A process of obtaining and evaluating evidence about operating procedures and events as compared with established criteria of good performance. (IMA) Operational Budget: A plan for the revenues and expenses associated with operating activities of a given period. (Also called Current Budget.) (IMA) Operational Plans: Developed from the tactical plans. Operational plans focus on implementing the tactical plans to achieve operational goals, and operational plans include budgeted amounts. It is operational plans that drive the day-today operations of the company. Operational plans are developed by middle and lower-level managers. (HOCK) Operational Risk: Risks resulting from breakdowns in internal procedures, people and systems. (IMA) Operations: Activities of an entity that deal with producing, delivering and selling goods or services. (IMA) Opportunity Costs: The value of the forgone alternatives. (IMA) Option: A legal right to buy or sell something at a specific price within in a specified time. (IMA) Optional-Product (Feature) Pricing: A pricing strategy in which different optional products and/or features are available for the customer to purchase if they choose to. (HOCK) Ordering Cost: The cost of preparing a purchase order, and the special processing and receiving costs related to the number of orders processed. (IMA) Organization Structure : The arrangement of responsibilities within an entity. (IMA) Organizational Culture : The set of key values, beliefs, understanding and norms of an organization. (IMA) Organizational Goals: A desired future state that the organization attempts to attain. (IMA) Organizational Independence: The internal audit function should not be unduly influenced by individuals or departments within the company. This means that the internal audit function should not have any direct relationships

with the various departments it will be auditing. Reporting directly to the board of directors achieves this organizational independence. (HOCK) Out-Of-The-Money: When the exercise price of the option is unfavorable to the holder of the option, the option is outof-the-money because the option has no value due to the difference between the option price and the market price. (HOCK) Output Controls: Output controls ensure that a complete and accurate audit trail of the results of processing is reported to appropriate individuals for review. (IMA) Outsourcing: The process of purchasing goods and services from outside vendors rather than producing the same goods or providing the same services within the company. (IMA) Over-Applied Factory Overhead: During the period the amount of factory overhead that was applied was more than the actual factory overhead incurred during the period. This means that too many costs were allocated to the units produced and there is a credit balance in the factory overhead control account at the end of the period. (HOCK) Overdraft: A facility (usually at a bank or other financial institution) enabling an account holder to borrow up to an agreed amount, often for an agreed time. (IMA) Overhead: Indirect costs. (IMA) Overhead Allocation Rate : The amount of manufacturing overhead that will be charged (allocated) to each unit of a product for each unit of the allocation basis (direct labor hours, machine hours, and so on) used by that product during production. (HOCK) Overhead Allocations: Methods used to assign overhead costs to products, activities, or processes Overhead Budget: The estimated or planned expenditures of an entity for overhead costs (costs other than those directly related to products or services). (IMA) Overhead Rate : The ratio of overhead costs for a specific period related to the amount of some measurable causal factor during the same period. (Also called Burden Rate.) (IMA) Pacman Defense : A takeover defense in which the target company issues more shares to dilute the acquirer's holdings and raise cash, then use the cash to attempt a takeover of the acquirer in a hostile bid. (HOCK) Paid-In Capital: The amount paid by investors in exchange for stock. (Also called Contributed Capital.) (IMA) Par (Face) Value : The value stated on a share. This is the amount of the legal capital of the company and this may not be distributed as a dividend. (HOCK) Par Value : 1. The dollar amount printed on the face of some stock certificates. 2. The face value of a bond. (IMA) Parallel Simulation: An audit technique that uses real data rather than simulated data but processes it through tested or auditor controlled programs. The output from the parallel simulation is compared with the output from the real processing. (HOCK) Participating Bonds: Bonds that earn interest and also receive some, or all, of the dividend paid to common shares. (HOCK) Participating Preferred Shares: Preferred shares that earn the preferred dividend and also receive some, or all, of the dividend paid to common shares. (HOCK) Participative : A type of budgeting that allows managers to participate in the preparation of budgets. (Also called Bottom-Up.) (IMA) Participative Standard Setting: A standard setting process that involves all the employees who will be affected by the standard. When employees participate in setting the standards, they are more likely to accept them and not see them as unreasonable. (HOCK) Payback: The period of time necessary to recover the cash cost of an investment from the cash inflows attributable to the investment. (IMA) Payroll Cost: 1. Payments to employees for labor services. 2. Taxes and tax-like payments an employer incurs as a legal condition of employment such as unemployment insurance paid to state and federal governments. (IMA) Peak-Load Pricing: A pricing strategy that involves charging a higher price for the same product or service at times when demand is the greatest and a lower price at times when demand is lowest. (HOCK)

Penetration Pricing: Pricing technique of setting a relatively low initial price to attract new customers (a price usually lower than the market price.) (IMA) Pension: An amount given to a person usually after retirement. (IMA) Percentage-of-Completion Method: A method of accounting for long-term construction contracts where revenue and gross profit are recognized each period based upon the progress of the construction. (IMA) Perfect Competition: A market structure characterized by a many individual sellers who are selling a standardized product. Because of this they are price takers and are unable to influence the price of the product. (HOCK) Performance : A general term applied to part or all of the conduct or activities of an entity over a period of time, often with reference to some standard. (IMA) Performance Evaluation: A management process of reviewing an employee's performance over a period of time, comparing that performance to expectations or standards, and communicating the results to the employee. (IMA) Performance Measurement: A quantification of the effectiveness and efficiency with which the objectives of a responsibility center have been accomplished. (IMA) Period Cost: An expenditure or loss that is charged to the current period rather than as a cost of the products produced in that period. (IMA) Periodic Reconciliation: One of the four duties that needs to be segregated, this is the periodic reconciliation between how much of the item is supposed to be in the company, and how much actually is. (HOCK) Phishing: A high-tech scam that uses spam e-mail to deceive consumers into disclosing their credit card numbers, bank account information, Social Security numbers, passwords or other sensitive personal information. (HOCK) Physical Access Controls: Computer facility controls should be in place to protect the physical assets of the computer center: the hardware, peripherals, documentation, programs and data files in the library. (HOCK) Physical Custody: One of the four duties that needs to be segregated, this is the keeping of the actual item that is being controlled. (HOCK) Physical Inventory: A physical count of all inventories on hand. (IMA) Physical Security: Involves things such as keeping servers and associated peripheral equipment in a separate, secure room with bars on the windows and use of blinds or reflective film on the windows for heat blocking as well as physical protection. It also includes password protection for servers; monitoring of hardware components to prevent them from being removed from the premises; security for offsite backup tapes; and biometrics to identify a person based on physical or behavioral characteristics. (HOCK) Plant: Land, buildings, machinery, equipment, furniture and other fixed assets used to produce products. (IMA) Plant-Wide Overhead: A single overhead rate for an entire plant used to allocate overhead costs to products produced in the plant. (IMA) Poison Pills: A takeover defense in which provisions included in a corporation's charters, bylaws, or contracts that reduce the value of the target to potential tender offerors. (HOCK) Poison Put: A takeover defense in which bondholders have the right to demand repayment if there is any change in control resulting from a hostile takeover. (HOCK) Political Risk: The risk of loss when investing in a given country caused by changes in a country's political structure or policies, such as tax laws, tariffs, expropriation of assets, or repatriation of profits restrictions. (IMA) Portfolio: A group of investments held by an institution or individual. (IMA) Post-Audit: A set of procedures for evaluating the results of a capital budgeting project. (IMA) Post-Retirement Benefits: Payments to which former employees may be entitled once they are no longer employed, including pension benefits, death benefits, health benefits, and life insurance. (IMA) Postponable Cost: A cost that may be delayed to a future period with very little, if any, effect on the current operations and efficiency of the company. (HOCK) Practical Capacity: Measure of capacity that is the maximum level at which the plant or department can operate efficiently. (IMA) Practical Costs: A level of costs that would be challenging to attain, but attainable under normal conditions. (HOCK)

Preferred Stock: Capital stock that provides a fixed dividend paid before any dividends are paid to common shareholders. It takes precedence over common stock in the event of liquidation. (IMA) Premises: The assumptions that are made during the budgeting process about the outlook for the environment in which its business operates. (HOCK) Premium: The extra amount paid for a security over and above its intrinsic or par value. (IMA) Premium Pricing: The practice of setting a price artificially high in order to encourage a perception of exclusivity or status appeal. (IMA) Prepaid Expenses: Payments made for services to be received after the date of payment. (IMA) Present Value : The value today (or at some specific date) of an amount or amounts to be paid or received later (or at other, different dates), discounted at some discount rate. (IMA) Prevention Costs: Costs incurred by an entity to prevent defects in the products or services it produces. Examples include inspection, design, and quality training. (IMA) Preventive Controls: Controls designed to avoid the occurrence of an unwanted event. (HOCK) Price Discrimination: The practice of charging different prices for the same product to different customers. (HOCK) Price Elasticity of Demand: The percentage change in the quantity of a product demanded divided by the percent change in its price. It indicates the degree of consumer response to a variation in price. (IMA) Price Variance : The difference between actual price and budgeted price multiplied by the actual quantity of input. (Also called Rate Variance or Sales Price Variance.) (IMA) Price-to-Book Ratio: Current Market Price per share divided by Net Book Value per share. (Also called Market-to-Book Ratio.) (IMA) Price/Earnings (P/E) Ratio: Current Market Price per share divided by Earnings per share. (IMA) Pricing: The process of determining the amount to charge customers for products or services. (IMA) Primary Market: The market on which securities are first sold. (HOCK) Prime Cost: The cost of direct materials and direct labor. (IMA) Pro Forma Statements: 1. Financial statements that have one or more assumptions or hypothetical situations built into the data. 2. Budgeted balance sheets and income statements are sometimes referred to as pro forma statements. (IMA) Probability: The likelihood or chance of occurrence of an event. (IMA) Probability Distribution: A collection of data that shows all the values that the random variable can take and the likelihood that each will occur. (IMA) Process Analysis: The review of business processes including definition, monitoring, measurement, and reporting with the goal of improving processes to meet customer requirements profitably. (IMA) Process Costing: A method of allocating manufacturing cost to mass-produced identical or similar products to determine an average cost per unit. Each unit receives the same manufacturing input as every other unit. Refineries, paper mills, and food processing companies are examples that use process costing. (IMA) Processing Controls: Controls on the processing stage of an information system, including Run-to-Run controls, Operator Intervention controls, and Audit Trail controls. (IMA) Procurement Policies: Rules and regulations to govern the process of acquiring goods and services needed by an organization in order to function efficiently. (IMA) Product Cost: The direct material, direct labor, and production overhead cost of a product. (IMA) Product Development Stage : The first stage in the life cycle of a product, during which there are no sales and so no revenues. The company's investment costs increase. (HOCK) Product Life-Cycle : The time span between the initial concept of a product or service and the time when the entity no longer produces the product. Stages are Introduction, Growth, Maturity, and Decline. (IMA) Product Line : A grouping of similar products. (IMA) Product Mix: The array of products offered for sale by a company. (IMA) Product-Bundle Pricing: A product line pricing strategy in which the seller bundles products, features or services together and offers the bundle at a price that is lower than the price of the items if purchased individually. (HOCK)

Product-Line Pricing: The pricing strategy when a company has multiple products that are similar and simply differ in the quality or quantity of features of the product. (HOCK) Product-Sustaining Activities: These activities are incurred in order to support the production of a different product from what is currently produced. Examples include product design and engineering changes. (HOCK) Production Budget: The planned cost of producing goods during a given period. (IMA) Production Costs: The material, labor, and overhead cost of producing products and services. Excludes distribution and selling costs. (Also called Manufacturing Cost.) (IMA) Production Volume Variance : The difference between budgeted fixed overhead and applied fixed overhead. (IMA) Productivity: The relationship between output and inputs; i.e., the effectiveness of using particular inputs (e.g., labor) to produce an output. (IMA) Profit Center: A responsibility center whose financial performance is measured by the difference between its revenue and its expenses or cost. (IMA) Profit Margin: The profit margin on sales; net income as a percent of sales revenue. (IMA) Profit Plan: A schedule of planned or expected revenues, expenses, assets, and liabilities. A profit plan provides guidelines for future operations and appraisal of performance. (Also called Budget.) (IMA) Profitability Analysis: An analysis performed to determine whether a specific product, group of products, or an entire entity is making a profit. (IMA) Profitability Index: A measure used in capital budgeting to rank projects, calculated as the present value of the future cash flows from an investment divided by the initial investment. (Also called the benefit-cost ratio.) (IMA) Profitable Growth: Companies that are growing and also having growth in their profits are more valuable than companies that are only growing. (HOCK) Program Budget: A budget that is structured to show the expenses (and often revenues) of the principal programs that the entity will undertake. (IMA) Progress Payment: A payment of an interim billing based upon partial completion of a contract. (IMA) Project Budget: A budget of costs classified by resources and function for a specific project over the project's life, which may span several operating budget time periods. (IMA) Promissory Note : A signed statement promising to pay to a specified person or the bearer a particular sum of money on a fixed date or on demand. (IMA) Property, Plant, and Equipment (PP&E): A balance sheet classification for fixed assets used in business operations. Property, plant, and equipment items are normally grouped and reported at acquisition cost using separate disclosure of accumulated depreciation or depletion. (Also called Plant Assets, Operational Assets, or Fixed Assets.) (IMA) Prorate : To allocate; to charge an indirect cost to the several cost objects that are assumed to have caused this cost. (IMA) Prospectus: The part of the registration statement that is distributed to the public to inform them of the facts and of the risks inherent in the security. The prospectus cannot be distributed until the SEC has approved the registration statement. (HOCK) Protectionism: Steps taken by countries to protect their domestic industries from foreign competition. (IMA) Provision: Estimated liability or expense when the exact amount is not known. (IMA) Proxy: Authorization given by one person to another so the second person can act for the first. Often used by shareholders to authorize management to vote shares of stock. (IMA) Proxy Contest: A takeover method in which the potential acquirer seeks the support of shareholders at an annual meeting. If they get enough votes, they will be elected to the board. (HOCK) Public Company: A company that has issued securities through an offering, and which are now traded on the open market. (Also called publicly-held or publicly-traded company.) (IMA) Public Company Accounting Oversight Board (PCAOB): A board established by the U.S. Sarbanes-Oxley Act of 2002 which regulates the auditing profession and sets standards for audits of public companies. (IMA) Purchase Variance : A price variance that is calculated using all of the units purchased, not just the units that were put into production. (HOCK)

Purchasing Power Risk: The risk that the purchasing power of a fixed amount of money will decline as the result of an increase in the general price level (inflation). (HOCK) Pure Competition: A model of industrial structure characterized by a large number of small firms producing a homogeneous product in an industry (market) that permits complete freedom of entry and exit. (IMA) Pure Risk: The chance that an unwanted and detrimental (harmful) event will take place. Insurance is designed to address pure risk, because pure risk yields only a loss. (HOCK) Push System: A production system in which goods are produced by each department and then transferred to the next department. When a finished good is completed, the company then must seek a buyer for the good that was produced. The departments of the company "push" the inventory through the system, without knowing if it is actually needed. (HOCK) Put Option: An option to sell a particular asset within a specified period of time for a specified price. (IMA) Putable Bonds: Bonds that the purchaser of the bond may sell back to the company at the option of the bondholder.(HOCK) Qualitative Factors: Factors that are relevant to a decision but which cannot be expressed numerically. (IMA) Quality: The extent to which a product or service conforms to specifications or provides customers the characteristics that were promised. (IMA) Quality Assurance : The function responsible for providing assurance that products or services are consistently maintained at a high level of quality. (IMA) Quality Control: A process, such as statistical sampling, that monitors the quality of operations. (IMA) Quantitative : A numerical assessment that is based on the quantity of something. Because this is a numerical measure it is much more objective than a qualitative measure. (HOCK) Quantitative Factors: Factors that are relevant to a decision but which can be expressed numerically. (HOCK) Quantity Discount: An allowance given by a seller to a buyer because of the size of an individual purchase transaction or the total size during a specified period. (IMA) Question Marks: One of the classifications of products by the Boston Consulting Group. A question mark is a product in an industry with a high market growth rate, but the product has a low share of the market. Because the market is growing rapidly, the question mark's sales are also growing rapidly, so it will consume a lot of cash for investment. However, because of its low market share, it does not generate much cash. (HOCK) Quick Ratio: A ratio that measures an entity's ability to pay off short-term obligations using the most liquid current assets (excluding inventory). (Also called Acid-Test Ratio.) (IMA) Quotas: Limits on the amount of a good produced, imported into the country, exported, or offered for sale. (IMA) Random Variable : A quantity, resulting from measurement of a random process, that varies, but whose statistical distribution can be determined. (IMA) Rate of Return: A measure of the cash flows from an investment compared to the amount of the investment. (IMA) Ratio Analysis: The calculation of significant financial and other ratios and the comparison of these ratios with those of prior years, industry averages, or standards. (IMA) Real Dollar: The inflation-adjusted time series data, with the effects of inflation removed. (HOCK) Real Option: An alternative or choice that becomes available with a business investment opportunity. For example, by investing in a particular project, a company may have the real option of expanding, downsizing, or abandoning other projects in the future. A value can be calculated using option pricing models. (IMA) Real Required Rate-Of-Return: The rate-of-return that is required to cover the risk inherent in an investment assuming no inflation. (HOCK) Realize : Converting non-cash resources and rights into money, used in accounting and financial reporting to refer to sales of assets for cash or claims to cash. (IMA) Reasonableness Checks: A control that compares input with other information in existing records and historical information to detect data that is not reasonable. (HOCK) Receivable : An amount owed to an entity, whether or not it is currently due. (IMA)

Reciprocal Allocation Method: A method for allocating service department costs by including the mutual services rendered among all departments. (IMA) Recognition: The process of formally recording an item in an entity's financial statements. (IMA) Reconciliation: A schedule or calculation showing how one amount is derived from another amount. (IMA) Recording: One of the four duties that needs to be segregated, this is the recording of a transaction or event. (HOCK) Recourse : The rights of a lender if a borrower does not repay as promised. (IMA) Redeemable Preferred Shares: Preferred shares that can be redeemed (sold back to the company) at the option of the shareholder. (HOCK) Reducing (Mitigating) The Risk: One of the four responses to risk, reducing the risk recognizes that the risk will continue to exist, but looks to reduce the risk to a level acceptable to the company. (HOCK) Reengineering: A technique used to make improvements within an organization, focusing on identifying and abandoning outdated rules and fundamental assumptions. The end result is a new work method to achieve organizational goals within production, support, or decision-making processes. Regression Analysis: A statistical analysis tool that quantifies the relationship between a dependent variable and one or more independent variables. (IMA) Regression Equation: A statistical technique used to explain or predict the behavior of a dependent variable, taking the form of Y = a + bx + c, where Y is the dependent variable that the equation tries to predict, x is the independent variable that is being used to predict Y, a is the Y-intercept of the line, and c is a value called the regression residual. (IMA) Reinvestment Rate : The rate of return at which cash flows from an investment are expected to be reinvested. (IMA) Reinvestment Rate Risk: The risk that invested money cannot be reinvested into in another investment that will provide the same, or a higher, level of return. This impacts short-term bonds more than long-term bonds. (HOCK) Relative Sales Value Method: A method used to allocate joint costs in proportion to the sales value of joint products produced. (IMA) Relevance : The capacity of information to make a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations. (IMA) Relevant Cost: A cost that should be considered in choosing among alternatives. Only those costs yet to be incurred (future costs) that differ among the alternatives (differential costs) are relevant in decision making. (IMA) Relevant Range : The range of economic activity within which estimates and predictions are valid. (IMA) Reliability: The quality of information that assures that information is reasonably free from error and bias and faithfully represents what it purports to represent. (IMA) Remeasurement: The process of converting foreign currency financial statements from the reporting currency into the functional currency. This step is not necessary if the foreign financial statements are kept in the functional currency. (HOCK) Reorder Point: The quantity level of an inventory item that triggers an order to replenish the item. (IMA) Reorganization: 1. A financial restructuring of an organization, such as bankruptcy. 2. A restructuring of a firm's operations in order to focus on core activities and outsource others. (IMA) Repair: The activity of putting assets back into normal or expected operating condition without an increase in the asset's previously estimated service life. (IMA) Reporting Currency: The currency in which an entity prepares its financial statements. (IMA) Repurchase Agreement: A contract in which the seller of securities, such as Treasury Bills, agrees to buy them back at a specified time and price. (Also called Repo or Buyback.) (IMA) Required Rate of Return: The minimum acceptable rate of return on an investment. (Also called Hurdle Rate.) (IMA) Required Reserves: The minimum amount of funds that a bank is required by law to keep on hand in order to back-up its deposits. (IMA) Research and Development Cost: Outlays made in an attempt to discover new knowledge (research) or to use the results of research to develop new or improved products or processes (development). (IMA) Reserve : A term used primarily to segregate part of retained earnings, such as for a reserve for contingencies. (IMA)

Reserve Allowance : In the sale of receivables, the reserve allowance is an amount of cash that is withheld at the original sale in order to protect the purchaser against uncollected receivables. (HOCK) Residual Dividend Policy: A dividend policy in which a dividend will be paid only if the funds are not needed for investment. This is considered a passive dividend policy. (HOCK) Residual Income : A means of measuring performance of an investment center that stresses profit responsibility and the financial management efficiency of the investment center manager. Residual income is typically calculated as the difference between investment center profits and a charge for capital resources committed to the unit. (IMA) Residual Risk: The risk remaining after controls have been put in place to mitigate the inherent risk; or, the exposure to loss after all known risks have been mitigated. (IMA) Resource Allocation: A plan for using available resources, for example human resources, especially in the near term, to achieve goals for the future; the allocation of resources among the various projects or business units. (IMA) Resource Driver: A measure of the quantity of resources consumed by an activity (e.g., floor space occupied by the activity). (IMA) Responsibility: A system of accounting that assigns revenues, costs, and/or capital to units of an enterprise (responsibility centers). (IMA) Responsibility Budget: A budget that sets forth approved plans structured in terms of the units responsible for carrying them out. It is a control device in that it is a statement of performance expected of each responsibility center manager against which actual performance can be compared. (IMA) Responsibility Center: An organizational unit headed by a manager who is responsible for its activities. (IMA) Responsibility Centers: An organizational unit for which a manager is assigned responsibility for the unit's performance. (HOCK) Restatement: The process of converting financial statements that have not been prepared under US GAAP into US GAAP. Usually this is done for the purposes of a consolidation. (HOCK) Restrictive Covenants: Clauses in a debt agreement that limit the actions that a company may take that may be detrimental to the bondholders. These covenants may be related to various ratios that must be maintained, working capital amounts or even dividend payments. (HOCK) Restructuring: A significant modification made to the debt, operations, or structure of a company. (IMA) Retained Earnings: Net income over the life of a corporation less dividends. (IMA) Retained Risk: The portion of a risk not covered by insurance, such as a deductible amount that must be paid before any losses are reimbursed. A retained risk may also be a risk the firm chooses to self-insure against. (HOCK) Return: The change in the value of an investment over an evaluation period, including any cash flows received pertaining to the investment during that period. (IMA) Return on Assets (ROA): A measure of how effective an entity is at earning a return on the assets employed in its business. (IMA) Return on Common Equity: A measure that indicates the rate of return on the shareholders' investment. (Also called return on owners' equity.) (IMA) Return on Invested Capital: A measure of how effectively a company uses the money (debt or equity) invested in its operations. (IMA) Return on Investment (ROI): The ratio of income earned on the investment to the investment made to earn that income. (IMA) Revenue : Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations. (IMA) Revenue Center: A responsibility center in which management control is focused on the revenue that the center earns. (IMA) Revenue Recognition: An accounting principle under generally accepted accounting principles (GAAP) that determines the specific conditions under which revenue is recorded in the financial statements. (IMA)

Reverse Stock Split: The same process as a stock split except that instead of increasing the number of shares and reducing the value of the shares, a reverse stock split reduces the number of shares outstanding, but increases the value of each share. (HOCK) Rework: When spoiled goods are fixed and prepared for sale, this is called rework. (HOCK) Rights: An offer made by a company to its shareholders to enable them to buy new shares in the company at a discount from the market price. (IMA) Risk: A measure of the variability of the return on investment Risk Analytics: The process of defining and analyzing the dangers to firms posed by potential natural and human-caused adverse events; quantitative risk analysis estimates the probabilities of adverse events and the likely extent of the losses; qualitative risk analysis defines the threats, determines the extent of vulnerabilities, and devises countermeasures should an adverse event occur. (IMA) Risk Assessment: 1. In capital budgeting, methods used to identify, and quantify the relative risk of a project. 2. In auditing, a systematic process for exercising and integrating professional judgments about potential adverse conditions and events. (IMA) Risk Premium: The return in excess of the risk-free rate of return that an investment is expected to yield; a form of compensation for investors who take on the extra risk. (IMA) Risk Response : Steps taken to deal with variance types of risk; four different strategies: avoidance, mitigation, acceptance, or transference. (Also called Risk Treatment.) (IMA) Risk Transfer: Shifting risk from one party to another (e.g., insurance). (IMA) Risk-Adjusted Return: In capital budgeting, a rate of return that is adjusted for the expected risk of the proposed project. The net present value of a project whose risk is expected to be greater than average is found by using a higher than average discount rate. (Also called Risk-Adjusted Discount Rate.) (IMA) Risk-Free Rate : The rate of return an investor could receive on an investment in a riskless asset. This is approximated by the return on very short-term U.S. Treasury bills. (HOCK) Rolling Budget: A moving projection of financial operations for a series of weeks, months, or quarters immediately ahead. At the end of each period, the portion of the projection then lapsed is removed and a new projection for a period of similar length is added to the series. (Also called Continuous Budget.) (IMA) Safety Stock: A quantity of inventory held to meet unanticipated demand during the time between placement of an order and its receipt into inventory, or unanticipated delays in receiving the replenishment. (IMA) Sales Budget: A projection of sales for a given period of time. (IMA) Sales on Installment: Arrangements in which the buyer takes possession of the property immediately but does not receive the deed and title until a series of payments (installments) have been made. (IMA) Sales Price Variance : Measures how much of the variance between the actual Total Revenue and the static budget Total Revenue was due to the actual sales prices for each product being different from their planned sales prices. (HOCK) Sales Variances: Variances that explain the differences between actual and budgeted amounts of revenue, variable costs, and contribution margin caused by differences between actual sales results and planned or budgeted sales results. (HOCK) Sales-Mix Variance : The difference between budgeted and actual sales caused by a difference between the budgeted and actual proportions of products with different profit margins. (IMA) Sales-Volume Variance : The difference between the flexible budget units and the static budget units multiplied by the budgeted unit contribution margin. (IMA) Salvage Value : The expected value of an asset at the end of its useful life. (IMA) Sarbanes-Oxley: A U.S. law enacted in 2002 to specify the requirements of corporate governance, including accounting issues. It addresses the regulation of the accounting profession, the standards for audit committees of public companies, the certifications management must make, and standards of internal control that companies must meet. (IMA) Scenario Analysis: The process of estimating the expected value of a portfolio, assuming changes in key factors that would affect security values; more broadly, the process of analyzing possible future events by considering alternative possible outcomes. (IMA)

Seasonal Trend: A consistent rise or drop in business activity that occurs due to predictable changes in the calendar. (IMA) Secondary Markets: Markets that facilitate the trading of existing securities. (HOCK) Secondary Offering: The issuance of new stock for public sale from a company that has already made its initial public offering. (Also called Subsequent Offering.) (IMA) Securities and Exchange Commission (SEC): The U.S. federal agency empowered to regulate U.S. financial markets in order to protect investors. All publicly-traded companies have to comply with SEC rules and regulations, including the filing of annual, quarterly, and other disclosure reports. (IMA) Security Market Line : The graphical representation of the CAPM equation, this line tells us what investors' required rates of return are at each level of risk. (HOCK) Segment: One of two or more divisions, product departments, plants, or other subdivisions of an entity reporting directly to a home office, usually identified with responsibility for profit and/or producing a product or service. (IMA) Segment Margin: A measure of the performance of each business unit. It may also be used as a measure of the longterm performance of the manager, if the manager can control the noncontrollable traceable fixed costs over a long-term period. (HOCK) Segregation of Duties: A basic key internal control used to ensure that errors or irregularities are prevented or detected on a timely basis by employees in the normal course of business. It requires that no single individual should have control over two or more phases of a transaction or operation. (IMA) Selling and Administrative Budget: A budget for costs related to selling or marketing (e.g., sales representatives' salaries, commissions, traveling expense, and advertising) and for the general administration of the corporation (e.g., salaries of top officers, rent, and other general office expense). (IMA) Selling Costs: Any expense or class of expense incurred in selling or marketing. (IMA) Selling Price Variance : A flexible budget variance for a revenue item. It is called a selling price variance, because it is caused exclusively by differences between the actual selling price and the budgeted selling price. (HOCK) Semi-Fixed Cost: A cost that is fixed over a given, small range of activity, and above that level of activity, the cost suddenly jumps. (HOCK) Semi-Strong-Form Efficiency: A market efficiency theory that says that security prices reflect not only historical price and trading volume information but also all other published information. An efficient market will adjust immediately to earnings announcements and other information released by a company or that could affect a company. (HOCK) Semi-Variable Cost: A cost that has both a fixed component and a variable component. (HOCK) Sensitivity Analysis: A technique that identifies and analyzes alternative outcomes of an investment resulting from the alteration of one or more of the variables in the analysis (Also known as What-if analysis). (IMA) Separable Costs: For products produced in a joint process, the costs incurred beyond the split-off point that are assignable to one or more individual products. (IMA) Serial Bonds: Bonds issued so that they mature over a period of time. Some of the bonds mature each year. This enables the issuer of the bonds to retire the bonds over a period of time without the need for a single, large cash payment and investors are able to choose the maturity period that fits their needs. (HOCK) Service Cost Allocation: The allocation of the service departments (non-production departments) to the production departments. After these costs are allocated to the production departments, the production departments will allocate these costs along with their own overhead costs to the finished products. (HOCK) Service Department: A unit (department) within an entity that provides services to other departments of the entity. (IMA) Shareholder: The owner of shares in a company. (IMA) Shareholders' Equity: The owner's equity in a corporation. (Also called Stockholders' Equity.) (IMA) Shelf Registration: When a company goes through the registration process, but does not actually issue the shares. Rather, they will keep the shares ("on the shelf") until the market conditions are correct or the company needs to raise capital, and then the shares will be issued and sold. (HOCK) Short Position: The purchase of a security with the expectation that the security will fall in value. (IMA)

Short Run: A time period of insufficient length to allow decision makers to adjust fully to a change in market conditions. In the short run, producers may be able to increase output by using more labor or raw materials, but they will not have time to expand the size of their plants. (IMA) Short-Term Credit: Credit extended to an entity by a financial institution (Bank Loan), investors (Commercial Paper) or suppliers (Trade Credit). (IMA) Shrinkage : The loss of raw materials, work-in-process, or finished goods in terms of weight or volume due to the nature of the product or the methods employed for production, transportation, and storage. (IMA) Sight Draft: A draft which is payable on demand. (IMA) Simple Interest: Interest on a loan in which the interest is calculated only on the original principal amount. (HOCK) Simple Regression: A regression model that uses only one independent variable to estimate the dependent variable. (IMA) Simulation: A method of studying an operational problem, whereby a model of the system or process is subjected to a series of recalculations of possible outcomes to reflect varying assumptions. (IMA) Single-Purpose Plans: Plan developed for a specific event and that is unlikely to be used again. (HOCK) Slack: In budgeting, the difference between the costs or expenses actually required in the operation of a responsibility center and the costs or expenses that have been proposed or approved in the budget. (IMA) Smoothing: A forecasting technique that attempt to eliminate or reduce the impact of ("smooth out") random fluctuations caused by the irregular component of a time series. (HOCK) Software : A collection of computer programs and related data that provide the instructions telling a computer what to do and how to do it. (IMA) Solvency: The ability to pay all debt obligations as they become due. (IMA) Special Purpose Entity: Entities created by corporations, usually as subsidiaries but sometimes as partnerships or trusts, for a single, well-defined, and narrow purpose, usually the acquisition and financing of specific assets. (Also known as Special Purpose Vehicles.) (IMA) Speculative Risk: In investing, this is the variability of actual returns from expected returns, and this variability may be a gain or a loss. (HOCK) Spending Variance : Actual amount of overhead incurred less the expected amount based on the flexible budget for actual inputs. (IMA) Spin-Off: A new independent company created by divesting part of a parent company's assets and operations, and distributing shares in the new company to the parent company's shareholders. (IMA) Split-Off Point: The point of production beyond which the cost of separate products can be measured. Up to this point, the products were either joint products or byproducts. (IMA) Split-Up: Reorganizing a corporation whereby all capital stock and assets are exchanged for the stock of two or more newly established companies, resulting in the liquidation of the parent corporation. (IMA) Spoilage : Units that are defective and not transferred to the next process in the production process. (HOCK) Spot Rate : The exchange rate for immediate delivery of currencies or commodities exchanged; the rate of interest or price being charged currently. (IMA) Spreadsheet: A work sheet organized in the form of a matrix with rows and columns Stand-Alone Allocation Method: Costs are allocated proportionately among all users on some basis that relates to each user's proportion of the entire organization. (HOCK) Standard Cost: The anticipated cost of producing a unit of output; a predetermined cost to be assigned to products produced. Standard cost implies a norm, or what costs should be. (IMA) Standard Costing System: A cost allocation system that allocates overhead costs based on the standard number of the allocation base that should have been used in production. (HOCK) Standard Deviation: A statistical measure of the spread or dispersion of a set of data, calculated as: the square root of the arithmetic mean of the squares of the deviation of each of the class frequencies from the arithmetic mean of the frequency distribution. (IMA)

Standard Error: A measure of the statistical accuracy of an estimate, equal to the standard deviation of the theoretical distribution of a large population of such estimates. (HOCK) Standing Purpose Plans: Have relevance and use for many different items and will be used more than once. (HOCK) Stars: One of the classifications of products by the Boston Consulting Group. A star is in an industry that has a high market growth rate, and the product has a high share of the market. A star generates a lot of cash because it has a high share of its market. However, because the market is growing rapidly, the star's sales are also growing rapidly. As a result, it has a high need for cash for investment. Therefore, the net amount of cash a star generates is not great. (HOCK) Start-Up Costs: The costs of preparing to operate facilities which can include costs of designing, tooling, recruiting, and training the labor force before production starts; moving; preparation of facilities; and related general and administrative costs. (IMA) Statement of Cash Flow: A statement that classifies cash receipts and payments according to whether they are the result of operating, investing, or financing activities. (IMA) Statement of Changes in Shareholders' Equity: An accounting statement presenting the individual components of Shareholders' Equity at various points in time and the changes that occurred within the individual components. (IMA) Statement of Earnings (Income Statement): A financial statement that reports revenues, expenses, gains, and losses for an accounting period, usually compared with amounts in one or more earlier periods. (IMA) Statement of Financial Position (Balance Sheet): The statement of financial position that discloses the assets, liabilities, and equity accounts of an entity at a particular date. Comparable information from one or more prior periods may be included. (IMA) Statement on Management Accounting (SMA): Practice-based monographs on critical issues that affect the profession of management accounting, published by IMA. Static Budget: A static budget is a budget that does not change as volume changes. (IMA) Step-Down Method: The method of allocating service department costs that begins by allocating one service department's costs to production departments and to all other service departments. A second service department's costs, including costs allocated from the first, are then allocated to production departments and to all other service departments except the first one, etc. The costs of all service departments are ultimately allocated to production departments. (IMA) Stock Dividends: The payment of a dividend to shareholders in the form of stock instead of cash. (IMA) Stock Exchanges: Physical locations where buyers and sellers of stocks come together. (HOCK) Stock Option: The right to purchase or sell a specified number of shares of stock in a company for a specified price at a specified time. (IMA) Stock Rights: The right to buy newly-issued stock from the issuing company at a given price. (HOCK) Stock Split: An increase in the number of common shares outstanding resulting from the issuance of additional shares to existing shareholders without requiring payment from the shareholders. (IMA) Stock-Out Costs: The contribution margin or other measure of profits not earned because a seller has run out of inventory and is unable to fill a customer's order. (IMA) Stop Order: When a share registration statement contains untrue statements of material fact, omits material facts required, fails to provide required current and historical financial information, or has other major problems, a stop order is issued to stop the registration statement from becoming effective. (HOCK) Storage Controls: Internal controls for computer data and business information; e.g. off-site storage, locked rooms, passwords, backups, etc. (IMA) Straight-Line Method: A method of depreciating assets in which an equal amount of depreciation is taken each year over the estimated economic life of the asset. (IMA) Strategic Business Unit (SBU): A business unit within the overall corporate entity which is distinguishable from other business units because it serves a defined external market where management can conduct strategic planning in relation to products and markets. (IMA) Strategic Planning: A process used to make decisions about the long-term goals and strategies of an organization. (IMA)

Strategic Risk: The possible impact on earnings or capital arising from adverse business decisions, improper implementation of decisions, or lack of responsiveness to industry changes. (IMA) Strike Price : Price at which a call option or put option may be exercised (carrying out the terms of agreement). (Also called Exercise Price.) (IMA) Strong-Form Efficiency: A market efficiency theory that suggests that security prices reflect all possible information, including the private information known only to insiders. This hypothesis assumes that even insider trading will not result in abnormal returns for insiders who trade, because the information they have is also already reflected in the stock's price. (HOCK) Subsidiary: A corporation that is controlled, directly or indirectly, by another corporation. The usual condition for control is ownership of a majority of the outstanding voting stock. (IMA) Sunk Costs: A past cost which cannot now be changed and therefore should not enter into current decisions for increasing or decreasing present profit levels. (IMA) Supply: The total amount of a good or service available for purchase. One of the two key determinants of price along with demand. (IMA) Sustainable Equity Growth: The maximum growth rate that a firm can sustain without having to increase financial leverage. (IMA) Sustainable Growth Rate : Maximum growth rate a firm can sustain without increasing financial leverage. (IMA) Swaps: An arrangement whereby two companies lend to each other on different terms; e.g., one at a fixed interest rate and the other at a variable interest rate. (IMA) System: In data processing, a collection of people, machines, and methods organized to accomplish a set of specific functions. (IMA) System Security Audit: An engagement that involves auditing the controls in place for information systems. (HOCK) Systematic Risk: The portion of stock price (or portfolio) movement that is attributable to the movement of the market as a whole. (Also called Market Risk.) (IMA) Systems Development: A process used to determine the needs of an information system and then designing and implementing the system to meet those needs T-Value : A measure of the reliability of each independent variable, which is the degree to which each independent variable has a valid, long-term relationship with the dependent variable. The t-value for each independent variable evaluates the contribution of that independent variable to the multiple regression analysis. (HOCK) Tactical Planning: A plan for achieving the entity's objectives covering a relatively short time period, usually one year. (IMA) Target Costing: A cost management tool used to reduce the overall cost of a product over its entire life cycle. The target is a predetermined cost that should result in an acceptable price to customers as well as an acceptable return to the organization. (IMA) Target Pricing: Setting a selling price for a product or service based on the value of the product or service to the customer, constrained by competitor's prices of similar items. (IMA) Target Return: The amount of return that is the goal of management. (HOCK) Tariffs: Taxes levied on goods imported into a country. (IMA) Taxation: The act of a government imposing a levy on individuals or corporations. (IMA) Technical Insolvency: Not paying liabilities as they are due. This is not bankruptcy, but repeated or long-term technical insolvency may force a company into bankruptcy. (HOCK) Test Data: Input data that is prepared by an auditor that contains both valid and invalid data. The auditor can use this data to test a system to see if the system processes the data correctly. (HOCK) Theoretical Costs: The level of costs that would be attainable only under the best possible conditions. (HOCK) Theory of Constraints: A method of optimizing a process when faced with limiting factors and bottlenecks. (IMA) Theory Of Constraints (TOC): A means of making decisions at the operational level that will impact a company's profitability positively. It requires the maximization of contribution in the department, or stage, of the production process that has the lowest level of capacity. (HOCK)

Three-Way Overhead Analysis: Overhead variance analysis in which three overhead variances are used - the volume, efficiency and spending variances. (HOCK) Throughput Contribution: Revenue less direct material costs of goods sold. (IMA) Throughput Contribution Margin: The rate at which contribution margin dollars are being earned at each step in the production process. This needs to be maximized for the stage of production that is the constraint. (HOCK) Throughput Costing: An inventory costing method that treats all costs except those related to variable direct materials as costs of the accounting period in which they are incurred. The variable direct material costs are the only ones included in inventory values. (Also called Super-Variable Costing.) (IMA) Time Drafts: A financial instrument that is payable at a specified point in the future. (IMA) Time Series: A sequence of observations that are ordered in time. (IMA) Time Value of Money: The concept that money now is worth more than in the future, even after adjusting for inflation, because the money now can earn interest until the time the money in the future would be received. (IMA) Times Interest Earned: The ratio of earnings before interest, income taxes, and extraordinary items (EBIT) to annual interest expense. A measure of the entity's ability to make interest payments when they are due; i.e., the number of times interest is covered by earnings. (Also called Interest Coverage.) (IMA) Tombstone Ad: An advertisement, usually placed in a business periodical, announcing the offering and its dollar amount and identifying members of the underwriting syndicate. It also must state that it is not an offer to sell the securities, that the securities are offered only by prospectus, and indicate where a copy of the prospectus can be obtained. (HOCK) Top Down Budgeting: A budgeting process that starts with the top levels of the organization. (HOCK) Top-Down Approach: An approach to auditing internal controls whereby specific risk factors are identified to determine the scope and evidence required in the assessment of internal control. (Also called Risk-based Approach.) (IMA) Total Fixed Overhead Variance : The difference between the actual fixed overhead incurred and the amount that was applied using the standard rate and the standard usage for the actual level of output. (HOCK) Total Labor Variance : The difference between the standard labor costs for the actual level of output (the flexible budget) and the actual costs incurred by the company. (HOCK) Total Material Variance : The difference between the actual direct materials costs for the period and the standard costs for the standard amount of materials at the standard price per unit for the level of output actually produced (the flexible budget). (HOCK) Total Variable Overhead Variance : The difference between actual variable overhead costs and the variable overhead that was applied to production. (HOCK) Tracking Stock: A class of common stock that is tied to the performance of a particular division within the corporation; a way of divesting a business line without losing complete control. (IMA) Trade Credit: Buying goods and services on account; a form of short-term financing. (IMA) Trade Discount: A reduction in the stated selling price based on quantities ordered or purchased. (IMA) Trading Securities: Securities bought and held principally for the purpose of selling them in the near term with the objective of generating profits from short-term price changes. Transaction Controls: Internal controls within information systems to review individual transactions for accuracy, completeness, and validity. (IMA) Transaction Gains or Losses: Gains or losses that result from a change in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated. (IMA) Transaction Processing: The component of an information system that converts economic events into financial transactions, records financial transactions in the accounting records, and distributes financial information to operating personnel. (IMA) Transfer Pricing: Price at which goods and services are transferred from one profit center to another. (IMA) Transferred-In Costs: The total costs that come with the new product from the previous department. They are similar to Raw Materials but in reality will include all of the costs (material and conversion costs) from the previous department. (HOCK)

Transferring (Sharing) The Risk: One of the four responses to risk, transferring the risk is when the risk of loss is wholly, or partially, transferred to another organization. The main example of transferring risk is the purchase of insurance. (HOCK) Translation Adjustments: Adjustments that result when an entity's financial statements are translated from the entity's functional currency into the reporting currency. (IMA) Transmission: In communications, the mechanism by which the message is transferred from the sender to the intended recipients. (IMA) Treasury Bills (T-bills) : Short term securities issued by the U.S. Treasury with minimum denominations of $10,000 and maturities of three months, six months and one year. They are issued at a discount to face value. (IMA) Treasury Bonds: Long term securities issued by the U.S. Treasury with minimum denominations of $1,000 and maturities of ten years or more. (IMA) Treasury Notes: Medium term securities issued by the U.S. Treasury with minimum denominations from $1,000 and maturities of two to ten years. (IMA) Treasury Stock: Fully-paid capital stock reacquired by the issuing company through gift, purchase, or otherwise, and available for resale or cancellation. (IMA) Trend Projection: A method of forecasting that is used with a time series that has a long-term upward or downward trend. (HOCK) Trojan Horse : A computer program that appears to perform a useful and innocent function, however, it is actually a malicious program that is harmful when executed. (IMA) Unavoidable Costs: A cost that can be avoided if a particular option is selected. It is a cost that would go away if a certain decision were made. (HOCK) Uncollectible Accounts Receivable : An Account Receivable that has been reviewed and a determination made that the amount due will not be collected. (IMA) Under-Applied Factory Overhead: During the period the amount of factory overhead that was applied was less than the actual factory overhead incurred during the period. This means that not enough costs were allocated to the units produced and there is a debit balance in the factory overhead control account at the end of the period. (HOCK) Unexpected Loss: Loss in excess of the expected average loss. (IMA) Unfavorable Variance : The amount by which actual cost exceeds standard or budgeted cost, or the amount by which actual revenue is less than standard or budgeted revenue. (IMA) Unit Contribution: The difference between the selling price and the variable cost of one unit of a product. (IMA) Unit Cost: The cost of one unit of a product or of one unit of a cost element of a product. It is usually obtained by dividing a total cost by the total number of units. (IMA) Unit-Level Activities: These activities are performed for each unit that is produced. Some examples are hours of work, inspecting each item, operating a machine and performing a specific assembly task. (HOCK) Unitary Elasticity: A measure of the price sensitivity of a product in which a certain percentage change in price will lead to an equal percentage change in the demand for the product. (HOCK) Unsystematic Risk: The risk of price change due to the unique circumstances of a specific security or enterprise, as opposed to the overall market. This risk can be virtually eliminated from a portfolio through diversification. (Also called Company Risk.) (IMA) Upstream Costs: Costs incurred prior to the time a product is manufactured, including research and development and design. (IMA) Utility: The relative satisfaction or need gratification derived from a good or service. (IMA) Valuation: The process of determining the value of an asset, a security, or an entire entity. (IMA) Value : Attributed worth, expressed in money and applied to a particular asset, to services rendered, to a group of assets, or to an entire business unit, such as the value of a plant or business enterprise. (IMA) Value at Risk (VAR): The worst loss that might be expected from holding a security or portfolio over a given period of time, given a specified level of probability. (IMA)

Value Chain: The basic business functions that increase the usefulness to the customer of a product or service. For a manufacturing entity, the functions typically include Research and Development, Design, Production, Marketing, Distribution, and Customer Service. (IMA) Value Engineering: An evaluation of the activities in the Value Chain to reduce costs without sacrificing customer satisfaction. (IMA) Value-Added: Activities and processes that add value or usefulness to consumers of a product or service. (IMA) Value-Based Pricing: A pricing strategy where the selling price of a good or service is based primarily on the customer's perceived value of the good or service. (IMA) Variable Cost: An operating expense that varies directly, and proportionately, with sales or production volume, facility utilization, or some other measure of activity. (IMA) Variable Costing: Method of inventory costing that includes all direct manufacturing costs and variable indirect manufacturing costs as inventory (fixed indirect manufacturing costs are excluded). (Also called Direct Costing.) (IMA) Variable Manufacturing Costs: Include all of the variable costs of production - labor, materials and variable overheads that were incurred in the production of the units sold. (HOCK) Variable Nonmanufacturing Costs: All variable costs that are not part of the production process. This includes, but is not limited to, marketing, selling, general and administrative costs that are variable in nature. (HOCK) Variable Overhead Efficiency Variance : Cost driver inputs actually used less the inputs that should have been used multiplied by the budgeted rate. (IMA) Variable Overhead Expenses: The portion of overhead costs that increase (decrease) as the number of units produced increase (decrease). (IMA) Variable Overhead Spending Variance : Actual amount of overhead incurred less the expected amount based on the flexible budget. (IMA) Variable Overhead Variances: Variances connected to variable factory overhead. (HOCK) Variance : The difference between actual results and standard budgeted results. (IMA) Venture Capitalists: Early investors in a company, venture capitalists often receive shares of the business and seats on the board in addition to the interest that they charge. (HOCK) Verifiability: The ability, through agreement among measures, to ensure that information represents what it purports to represent or that the chosen method of measurement has been used without error or bias. (IMA) Vertical analysis: Compares each amount on a financial statement with a base amount selected from the same year; e.g., advertising as a percent of sales. (IMA) Vertical Merger: A merger of two or more companies who are at different stages of production and distribution of a product. (HOCK) Virus: A self-replicating computer program that infects the host computer by spreading copies of itself into other executable programs. (IMA) Virus Hoax: An e-mail telling you that a file on your computer is a virus when it isn't. (HOCK) Warrant: A certificate entitling the holder to buy a specified number of shares for a specified time for a specified price. (IMA) Warranty: A promise by a seller to correct, for a stated period of time, deficiencies in products sold. (IMA) Waste : The material that is left over after production is complete. It is simply unused and is now unusable materials. (HOCK) Weak-Form Efficiency: A market efficiency theory that says that market prices of securities reflect all historical information: price movements and trading volume, and that investors will not be able to "beat the market" by basing their analysis and strategy solely on past price movements. (HOCK) Weighted Average Cost of Capital (WACC): An average representing the required return on all of a company's securities. Each source of capital, such as stocks, bonds, and other debt, is weighted in the calculation according to its percentage of the company's capital structure. (IMA) Weighted Average Standard Price Of The Actual Mix: The standard amount of how much one unit of the actual mix should have cost using the standard prices. (HOCK)

Weighted Average Standard Price Of The Standard Mix: The standard amount of how much one unit of the standard mix should have cost using the standard prices. (HOCK) Weighted Moving Average : A method of calculating central tendency over time in an attempt to identify long-term trends. For each time period after the initial one, the earliest value is dropped from the calculation and the most recent one is added in, to make an average over the same length of time. More recent data points are weighted higher than earlier data points. (IMA) Whistleblower: Person who tells the public or someone in authority about alleged dishonest or illegal activities occurring within an organization. (IMA) White Knight Defense : A takeover defense in which the target company looks for another company to take them over. The target company will search for a company that they see as more favorable for them to be sold to. (HOCK) Work-in-Process Inventory: The costs incurred to date on products for which production has begun but has not been completed. (IMA) Working Capital: Current Assets less Current Liabilities. (Also called Net Working Capital.) (IMA) Worm: A program that replicates itself from system to system without the use of any host file. The difference between a worm and a virus is that the worm does not require the use of an infected host file, while the virus does require the spreading of an infected host file. (HOCK) Write-Off: Charging the cost of an asset to expense or to a loss account. (IMA) Yield: Income as a percentage of price. (IMA) Yield Curve : A graph illustrating the various rates at various maturities at any given moment. (HOCK) Yield Variance : The difference between the actual quantity of material used for a given amount of product and the standard quantity of the material required for that amount of product, priced at the standard cost per unit of material. (IMA) Zero Balance Account: A disbursement (checking) account that has a zero balance. As checks are submitted for payment, funds are transferred from another account to exactly cover the amount of the checks, generally on a daily basis. (IMA) Zero-Base Budgeting: A budgeting process in which the budget is prepared without any reference to, or use of, the current period's budget and the likely operating results for the current period. (HOCK) Zero-Based Budgeting: Preparing a budget from the ground up, as though the budget were being prepared for the first time. Alternative means of conducting activities and alternative budget amounts are evaluated. (IMA) Zero-Coupon Bonds: Bonds that do not pay any interest, but they sell at a price significantly less than the face value. The large discount on the sale of the bonds offsets the fact that there is no interest payment. (HOCK)