CPA Business Environment and Concepts (BEC) : CPA Business Environment and Concepts (BEC)
Study concepts, example questions & explanations for CPA Business Environment and Concepts (BEC)
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Example Questions
Example Question #1 : Sox (Sarbanes Oxley) 2002
Which of the following criteria is necessary to be an audit committee financial expert, specified in SOX 2002?
A limited understanding of GAAS
Experience with internal accounting controls
Education and experience as a certified financial planner
Experience in the preparation of tax returns
Experience with internal accounting controls
The issuer's audit committee's financial expert must have experience with internal controls. The may be through past experience or education.
Example Question #2 : Sox (Sarbanes Oxley) 2002
An audit committee members of an issuer is required under SOX 2002 to maintain which of the following attributes:
Independence
Integrity
Diligence
Proficiency
Independence
SOX 2002 states that members of the audit committee are to be members of the board of directors but otherwise independent. To be independent, the members may not accept compensation or be an affiliated person.
Example Question #2 : Sox (Sarbanes Oxley) 2002
The Sarbanes-Oxley Act of 2002 seeks to improve investor confidence by allowing for greater transparency for all of the following issues except:
Adequacy of internal controls
Means and methods for balancing risk and growth
Compliance of senior officers with a code of ethics
Competency of audit committees
Means and methods for balancing risk and growth
ERM concepts specifically address investor issues surrounding risk and growth however SOX 2002 focuses on less strategic operations and more on financial reporting issues including ethics.
Example Question #4 : Sox (Sarbanes Oxley) 2002
According to the Sarbanes-Oxley Act of 2002, a chief executive officer who misrepresents the company's finances may be penalized by being:
Removed from corporate office and fined
Imprisoned but not fines
Fined and imprisoned
Fined but not imprisoned
Fined and imprisoned
An individual who knowingly executes securities fraud will be both fined or imprisoned not more than 20 years or both.
Example Question #5 : Sox (Sarbanes Oxley) 2002
According to SOX 2002, anyone who knowingly alters, destroys, covers up, or makes false entry in a document with the intent to obstruct an investigation within any agency of the United States may be fined and/or imprisoned for up to:
10 years
20 years
5 years
15 years
20 years
The penalty for altering documents is punished up to 20 years.
Example Question #3 : Sox (Sarbanes Oxley) 2002
The SOX 2002 code of ethics for senior officers includes and promotes:
Full, fair, accurate, and timely disclosures in periodic financial reports
Compliance with laws, rules, and regulations
Honest and ethical conduct including handling of conflicts of interest
Competitive pay for staff
Competitive pay for staff
SOX 2002 does not involve or necessitate fair pay for members of a company. It promotes the ethical and legal promotion of business.
Example Question #1 : Financial Management Formulas
Which one of a firm's sources of new capital usually has the lowest after-tax cost?
Retained earnings
Bonds
Preferred stock
Common stock
Bonds
Debt is a cheaper source of financing than equity. In addition, there is a tax deduction for interest paid on debt.
Example Question #1 : Weighted Average Cost Of Capital Formula
Which of the following rates is most commonly compared to the internal rate of return to evaluate whether to make an investment?
Short term rate on US Treasury bonds
Weighted average cost of capital
Long term rate on US Treasury bonds
Prime rate of interest
Short term rate on US Treasury bonds
WACC is used as the hurdle rate within capital budgeting techniques. Investments that provide a return that exceeds the WACC should continuously add to the value of the firm.
Example Question #2 : Weighted Average Cost Of Capital Formula
Which one of the following factors might cause a firm to increase the debt in its financial structure?
An increase in the PE ratio
Increased economic uncertainty
A decrease in the times interest earned ratio
An increase in the corporate income tax rate
An increase in the corporate income tax rate
Interest on debt financing is tax-deductible whereas dividends from equity are not. An increase in tax rates might cause a firm to increase debt financing.
Example Question #2 : Financial Management Formulas
The marketable securities with the least amount of default risk are:
Bankers acceptances
Repurchase agreements
Federal government agency securities
US Treasury securities
US Treasury securities
Default risk is the risk that the security will not be paid. US Treasury securities are issued by the Treasury Department which has no risk of non payment.
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