What is the Risk of Material Misstatement? The risk of material misstatement is a function of inherent risk and control risk. In effect, the risk of material misstatement is the susceptibility of the financial statements, accounts, and assertions to material misstatement, and the risk that the client’s current internal controls would be ineffective in proactively…
What is Elasticity? Elasticity is a general measure of the responsiveness of an economic variable in response to a change in another economic variable. Economists utilize elasticity to gauge how variables affect each other. The three major forms of elasticity are price elasticity of demand, cross-price elasticity of demand, and income elasticity of demand. Price…
What is After-Tax Income? After-tax income refers to the net income after deducting all applicable taxes. Therefore, the after-tax income is simply one’s gross income minus taxes. For individuals and corporations, the after-tax income deducts all taxes, which include federal, provincial, state, and withholding taxes. It can also include local taxes, such as sales and…
What are Asset-Backed Securities (ABS)? Asset-backed securities (ABS) are securities derived from a pool of underlying assets. To create asset-backed securities, financial institutions pool multiple loans into a single security that is then sold to investors. The pools can include many types of loans, such as mortgages, credit card debt, student loans, and auto loans….
What is Asset and Liability Management (ALM)? Asset and liability management (ALM) is a practice used by financial institutions to mitigate financial risks resulting from a mismatch of assets and liabilities. ALM strategies employ a combination of risk management and financial planning and are often used by organizations to manage long-term risks that can arise…
What are Actuarial Gains or Losses? Actuarial gains or losses refer to the differences between an employer’s actual pension payments relative to the expected payments. When the employer’s payments are higher than expected, it is referred to as an actuarial loss. In contrast, an actuarial gain is when the payments are lower than expected. When…
What are Ponzi vs. Pyramid Schemes? Investors need to be knowledgeable about where they put their money into, particularly about Ponzi vs. pyramid schemes. While the schemes are somewhat similar in how they are operated, there are distinctive differences in their structure. Additionally, while a Ponzi scheme is an outright case of fraud, it…
What are Downstream Operations? Downstream operations refer to the final processes in the production and sale of goods, where finished products are created and sold to consumers. Sales may be at the wholesale level, business-to-business (B2B), or at the retail level, business-to-consumers. Downstream operations stand in contrast to upstream operations, which are part…
What is Panic Buying? Panic buying is a phenomenon of mass purchasing that typically occurs either just before or just after some sort of disaster – whether the disaster is real or only predicted. It often happens related to severe weather incidents, such as an impending major snowstorm or hurricane. Consumers fear not being to…
