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CPA BEC EXAM QUESTIONS AND 100% CORRECT
ANSWERS
Internal controls - ANSWER Process that is designed and implemented by an
organization's management, board of directors and other employees to provide
reasonable assurance that it will achieve its compliance, operating, and reporting
objectives
Cost Estimation Method: Parametric Estimating - ANSWER A cost estimation method
PR
that relies on a statistical relationship between historical costs and other variables,
such as square footage.
Cost Estimation Method: Analogous estimating - ANSWER A cost estimation method that
O
says the cost of similar sized project conducted in the past is used to approximate the
cost of the current project.
FD
Cost Estimation Method: Work Breakdown Structure Estimation (WBS) - ANSWER A
bottom-up analysis because each activity is estimated and the the cost of each activity
are aggregated to form the project budget
O
Cost Estimation Method: Three point Estimations - ANSWER Refers to the range of cost
estimates based on a most-likely assumption (realistic) of project costs. Optimistic
C
assumption and pessimistic assumptions
Cost Estimation Method: Project management software - ANSWER Programs usually
include a feature that can be used to estimate project costs
Cash Flow Hedge - ANSWER Designed to hedge exposure to variability in expected
future cash flows that could impact earnings
Fair Value hedge - ANS Created to hedge the fair value of an asset or liability that may
affect earnings
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A foreign currency hedge - ANS a hedge created to hedge exposure to foreign currency
variability. It can be categorized as a cash flow hedge, a fair value hedge, or a hedge of
exposures to changes in value of a net investment in foreign operations.
Derivative - ANSWER a contract between two or more parties whose value is based on
an agreed-upon underlying financial asset, index or security. Common underlying
instruments include: bonds, commodities, currencies, interest rates, market indexes
and stocks.
Economic Rate of Return on Common Stock - ANSWER measures the dividend income
PR
and capital growth in relation to the initial investment, the beginning price of the stock.
Zero-coupon bonds - ANSWER Bonds that have a fixed stated rate of return that would
require assignment of a premium or discount to the underlying security to produce a
O
market rate of interest if that market yield is different from the stated rate.
FD
Constant (Gordon) Growth Dividend Discount Model - ANSWER The dividend discount
model that assumes that dividend payments are the cash flows of an equity security and
that the intrinsic value of the company's stock is the present value of the expected
future dividends
O
Negative Arbitrage Effect - ANSWER This occurs when interest Obligations exceed
C
interest income from cash reserves
change control system - ANSWER A system put in place to authorize and track changes
to information technology such as implementation of software, software development,
application programs, database administration, etc. While system implementations
frequently take longer and cost more than budgeted, such issues - as well as scope
creep can be reduced with better management thru an established system
control Activities are most closely related to. - ANSWER Risk Response
Components of Internal controls- ANSWER 1.Control Environment Tone at the
top--ethics 2. Risk Assessment f/s misstatement or fraud 3. Information and
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communication fair, accurate, complete, timely FACT 4.Monitoring efficiency of IC,
report deficiencies 5. Existing control activities--policies/procedures to mitigate risk
Effective internal controls- ANSWER Present-included in design
Functioning-operating as designed
Enterprise Risk Management ERM Purpose- ANSWER Integrated framework to assist
organizations in developing a comprehensive response to risk management.
Enterprise Risk Management (ERM) definition - ANSWER Designed to identify potential
PR
events that may affect the entity, and manage risk to be within its risk appetite, to
provide reasonable assurance regarding the achievement of entity objectives
Criteria to evaluate ERM - ANSWER The components of the enterprise risk management
O
framework.
FD
business judgment rule - ANSWER Management from liability for actions that result in
corporate losses or damages if the actions are undertaken in good faith and are within
both the power of the corporation and the authority of management to make.
O
organizational structure principle - ANSWER reporting relationships should not impair
the responsibility for effective financial reporting and internal control. Maintenance of
C
reporting independence of the internal auditor is one means of applying this principle.
nature of the Board of Directors of XYZ Co.'s relationship to the company - ANSWER
Fiduciary
Internal Environment - ANSWER Tone at the top
EBOCA-Ethical values, Board oversight, Organization structure, Commitment to
Competence, Accountability
HR-Human resources standards, Risk Management Philosophy, Risk Appetite
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Event Identification (Ear) - ANSWER Internal and external risks
Inherent risk - ANSWER Risk that an organization that exists if management takes no
action
Residual risk - ANSWER risk to an organization that exists after management takes
action to mitigate impact
Risk Assessment techniques - ANSWER Benchmarking
PR
Probabilistic models-statistical data
Non-probabilistic models
O
Risk Response options - ANSWER Avoidance
Reduction
FD
Sharing
Acceptance
O
Elements of effective ERM - ANSWER IS EAR AIM
C
each element must be present and functioning
Financial performance measures - ANSWER Profit
Return on Investment
Variance Analysis-actual vs expected
Balanced Scorecard-for implementing strategy
Non financial measures - ANSWER these measures are a good way to see problems as
they happen and thus focus attention on likely mistakes or inefficiencies before
unfavorable financial outcomes are generated.
External Benchmarking
Internal Benchmarking
CPA BEC EXAM QUESTIONS AND 100% CORRECT
ANSWERS
Internal controls - ANSWER Process that is designed and implemented by an
organization's management, board of directors and other employees to provide
reasonable assurance that it will achieve its compliance, operating, and reporting
objectives
Cost Estimation Method: Parametric Estimating - ANSWER A cost estimation method
PR
that relies on a statistical relationship between historical costs and other variables,
such as square footage.
Cost Estimation Method: Analogous estimating - ANSWER A cost estimation method that
O
says the cost of similar sized project conducted in the past is used to approximate the
cost of the current project.
FD
Cost Estimation Method: Work Breakdown Structure Estimation (WBS) - ANSWER A
bottom-up analysis because each activity is estimated and the the cost of each activity
are aggregated to form the project budget
O
Cost Estimation Method: Three point Estimations - ANSWER Refers to the range of cost
estimates based on a most-likely assumption (realistic) of project costs. Optimistic
C
assumption and pessimistic assumptions
Cost Estimation Method: Project management software - ANSWER Programs usually
include a feature that can be used to estimate project costs
Cash Flow Hedge - ANSWER Designed to hedge exposure to variability in expected
future cash flows that could impact earnings
Fair Value hedge - ANS Created to hedge the fair value of an asset or liability that may
affect earnings
,@PROFDOCDIGITALLIBRARIES
A foreign currency hedge - ANS a hedge created to hedge exposure to foreign currency
variability. It can be categorized as a cash flow hedge, a fair value hedge, or a hedge of
exposures to changes in value of a net investment in foreign operations.
Derivative - ANSWER a contract between two or more parties whose value is based on
an agreed-upon underlying financial asset, index or security. Common underlying
instruments include: bonds, commodities, currencies, interest rates, market indexes
and stocks.
Economic Rate of Return on Common Stock - ANSWER measures the dividend income
PR
and capital growth in relation to the initial investment, the beginning price of the stock.
Zero-coupon bonds - ANSWER Bonds that have a fixed stated rate of return that would
require assignment of a premium or discount to the underlying security to produce a
O
market rate of interest if that market yield is different from the stated rate.
FD
Constant (Gordon) Growth Dividend Discount Model - ANSWER The dividend discount
model that assumes that dividend payments are the cash flows of an equity security and
that the intrinsic value of the company's stock is the present value of the expected
future dividends
O
Negative Arbitrage Effect - ANSWER This occurs when interest Obligations exceed
C
interest income from cash reserves
change control system - ANSWER A system put in place to authorize and track changes
to information technology such as implementation of software, software development,
application programs, database administration, etc. While system implementations
frequently take longer and cost more than budgeted, such issues - as well as scope
creep can be reduced with better management thru an established system
control Activities are most closely related to. - ANSWER Risk Response
Components of Internal controls- ANSWER 1.Control Environment Tone at the
top--ethics 2. Risk Assessment f/s misstatement or fraud 3. Information and
,@PROFDOCDIGITALLIBRARIES
communication fair, accurate, complete, timely FACT 4.Monitoring efficiency of IC,
report deficiencies 5. Existing control activities--policies/procedures to mitigate risk
Effective internal controls- ANSWER Present-included in design
Functioning-operating as designed
Enterprise Risk Management ERM Purpose- ANSWER Integrated framework to assist
organizations in developing a comprehensive response to risk management.
Enterprise Risk Management (ERM) definition - ANSWER Designed to identify potential
PR
events that may affect the entity, and manage risk to be within its risk appetite, to
provide reasonable assurance regarding the achievement of entity objectives
Criteria to evaluate ERM - ANSWER The components of the enterprise risk management
O
framework.
FD
business judgment rule - ANSWER Management from liability for actions that result in
corporate losses or damages if the actions are undertaken in good faith and are within
both the power of the corporation and the authority of management to make.
O
organizational structure principle - ANSWER reporting relationships should not impair
the responsibility for effective financial reporting and internal control. Maintenance of
C
reporting independence of the internal auditor is one means of applying this principle.
nature of the Board of Directors of XYZ Co.'s relationship to the company - ANSWER
Fiduciary
Internal Environment - ANSWER Tone at the top
EBOCA-Ethical values, Board oversight, Organization structure, Commitment to
Competence, Accountability
HR-Human resources standards, Risk Management Philosophy, Risk Appetite
, @PROFDOCDIGITALLIBRARIES
Event Identification (Ear) - ANSWER Internal and external risks
Inherent risk - ANSWER Risk that an organization that exists if management takes no
action
Residual risk - ANSWER risk to an organization that exists after management takes
action to mitigate impact
Risk Assessment techniques - ANSWER Benchmarking
PR
Probabilistic models-statistical data
Non-probabilistic models
O
Risk Response options - ANSWER Avoidance
Reduction
FD
Sharing
Acceptance
O
Elements of effective ERM - ANSWER IS EAR AIM
C
each element must be present and functioning
Financial performance measures - ANSWER Profit
Return on Investment
Variance Analysis-actual vs expected
Balanced Scorecard-for implementing strategy
Non financial measures - ANSWER these measures are a good way to see problems as
they happen and thus focus attention on likely mistakes or inefficiencies before
unfavorable financial outcomes are generated.
External Benchmarking
Internal Benchmarking
