Chapter 5: Exam Content Overview

The content of the Business Environment and Concepts (BEC) examination includes a number of general business and accounting topics. The areas are covered as shown below.

The BEC section of the exam tests knowledge and skills using multiple-choice questions and written communication skills using task-based simulations.

The basic concepts for preparation are the same as for other sections of the exam. You need to have the skills and knowledge necessary to solve both how (number crunching) and why (conceptual) type questions. In addition, you must be prepared for the simulations that require written communication.

First, become acquainted with the nature of the BEC exam itself. With the computerization of the exam, the AICPA has issued a set of content specifications. These content specifications are printed below.

Relatedly, you should evaluate your competence by working 10 to 20 multiple-choice questions from each of the modules (40–47). This diagnostic routine will acquaint you with the specific nature of the questions tested on each topic as well as indicate the amount of study required per topic. However, do not get discouraged. Remember, more difficult questions are more heavily weighted in determining your score. See discussion of self-study programs (Chapter 1) and examination grading (Chapter 2).

Second, study the content of modules 40–47, emphasizing the mechanics of each topic such as economic concepts, strategic performance measurement, working capital management, etc. Use simple examples, journal entries, and diagrams to get a handle on the basic concepts underlying each topic. You may have to refer to your textbooks, etc., for topics to which you have had no previous exposure.

Third, work as many multiple-choice questions as time allows and take the sample examination in Appendix A of this manual.

Fourth, prepare for the simulations by studying the methods to improve your writing skills presented in Chapter 3 of this manual, and practice, practice, practice writing short memos.

AICPA CONTENT AND SKILLS SPECIFICATIONS

The AICPA Content and Skills Specifications for the Uniform CPA Exam set forth the coverage of topics on the BEC exam. This outline was issued by the AICPA and is effective beginning in 2014. The first part of the outline describes the topical coverage of the BEC exam, and the second part provides some insights into the skills tested on all sections of the Uniform CPA exam.

Content Specification Outlines (CSOs)

The BEC section tests knowledge and skills necessary to demonstrate an understanding of the general business environment and business concepts. The topics in this section include knowledge of corporate governance; economic concepts essential to understanding the global business environment and its impact on an entity's business strategy; financial risk management; financial management processes; information systems and communications; strategic planning, and operations management. In addition to demonstrating knowledge and understanding of these topics, candidates are required to apply that knowledge in performing audit, attest, financial reporting, tax preparation, and other professional responsibilities as certified public accountants. To demonstrate such knowledge and skills, candidates will be expected to perform the following tasks:

• Demonstrate an understanding of globalization on the business environment.
• Distinguish between appropriate and inappropriate governance structures within an organization (e.g., tone at the top, policies, steering committees, strategies, oversight, etc.).
• Assess the impact of business cycles on an entity's industry or business operations.
• Apply knowledge of changes in the global economic markets in identifying the impact on an entity in determining its business strategy and financial management policies, including managing the risks of inflation, deflation, commodity costs, credit defaults, interest rate variations, currency fluctuation, and regulation.
• Assess the factors influencing a company's capital structure, including risk, leverage, cost of capital, growth rate, profitability, asset structure, and loan covenants.
• Evaluate assumptions used in financial valuations to determine their reasonableness (e.g., investment return assumptions, discount rates, etc.).
• Determine the business reasons for and explain the underlying economic substance of transactions and their accounting implications.
• Identify the information systems within a business that are used to process and accumulate transactional data, as well as provide monitoring and financial reporting information.
• Distinguish between appropriate and inappropriate internal control systems, including system design, controls over data, transaction flow, wireless technology, and internet transmissions.
• Evaluate whether there is appropriate segregation of duties, levels of authorization, and data security in an organization to maintain an appropriate internal control structure.
• Obtain and document information about an organization's strategic planning processes to identify key components of the business strategy and market risks.
• Develop a time-phased project plan showing required activities, task dependencies, and required resources to achieve a specific deliverable.
• Identify the business and operational risks inherent in an entity's disaster recovery/business continuity plan.
• Evaluate business operations and quality control initiatives to understand its use of best practices and the ways to measure and manage performance and costs.

The outline below specifies the knowledge in which candidates are required to demonstrate proficiency:

1. Corporate Governance (16%–20%)
   1. Rights, Duties, Responsibilities, and Authority of the Board of Directors, Officers, and Other Employees
      1. Financial reporting
      2. Internal control (including COSO or similar framework)
      3. Enterprise risk management (including COSO or similar framework)
   2. Control Environment
      1. Tone at the top—establishing control environment
      2. Monitoring control effectiveness
      3. Change control process
2. Economic Concepts and Analysis (16%–20%)
   1. Changes in Economic and Business Cycle—Economic Measures/Indicators
   2. Globalization and Local Economies
      1. Impacts of globalization on companies
      2. Shifts in economic balance of power (e.g., capital) to/from developed from/to emerging markets
   3. Market Influences on Business Strategies
   4. Financial Risk Management
      1. Market, interest rate, currency, liquidity, credit, price, and other risks
      2. Means for mitigating/controlling financial risks
3. Financial Management (19%–23%)
   1. Financial Modeling, Projections, and Analysis
      1. Forecasting and trends
      2. Financial and risk analysis
      3. Impact of inflation/deflation
   2. Financial Decisions
      1. Debt, equity, leasing
      2. Asset and investment management
   3. Capital Management, including Working Capital
      1. Capital structure
      2. Short-term and long-term financing
      3. Asset effectiveness and/or efficiency
   4. Financial Valuations (e.g., Fair Value)
      1. Methods for calculating valuations
      2. Evaluating assumptions used in valuations
   5. Financial Transaction Processes and Controls
4. Information Systems and Communications (15%–19%)
   1. Organizational Needs Assessment
      1. Data capture
      2. Processing
      3. Reporting
      4. Role of information technology in business strategy
   2. Systems Design and Other Elements
      1. Business process design (integrated systems, automated, and manual interfaces)
      2. Information technology (IT) control objectives
      3. Role of technology systems in control monitoring
      4. Operational effectiveness
      5. Segregation of duties
      6. Policies
   3. Security
      1. Technologies and security management features
      2. Policies
   4. Internet—Implications for Business
      1. Electronic commerce
      2. Opportunities for business process reengineering
      3. Roles of internet evolution on business operations and organization cultures
   5. Types of Information System and Technology Risks
   6. Disaster Recovery and Business Continuity
5. Strategic Planning (10%–14%)
   1. Market and Risk Analysis
   2. Strategy Development, Implementation, and Monitoring
   3. Planning Techniques
      1. Budget and analysis
      2. Forecasting and projection
      3. Coordinating information from various sources for integrated planning
6. Operations Management (12%–16%)
   1. Performance Management and Impact of Measures on Behavior
      1. Financial and nonfinancial measures
      2. Impact of marketing practices on performance
      3. Incentive compensation
   2. Cost Measurement Methods and Techniques
   3. Process Management
      1. Approaches, techniques, measures, and benefits to process-management-driven businesses
      2. Roles of shared services, outsourcing, and off-shore operations, and their implications on business risks and controls
      3. Selecting and implementing improvement initiatives
      4. Business process reengineering
      5. Management philosophies and techniques for performance improvement such as Just in Time (JIT), Quality, Lean, Demand Flow, Theory of Constraints, and Six Sigma
   4. Project Management
      1. Project planning, implementation, and monitoring
      2. Roles of project managers, project members, and oversight or steering groups
      3. Project risks, including resource, scope, cost, and deliverables

References—Business Environment and Concepts

• The Committee of Sponsoring Organizations of the Treadway Commission (COSO):
  • Internal Control—Integrated Framework
  • Enterprise Risk Management
• Sarbanes-Oxley Act of 2002:
  • Title III, Corporate Responsibility
  • Title IV, Enhanced Financial Disclosures
  • Title VIII, Corporate and Criminal Fraud Accountability
  • Title IX, White-Collar Crime Penalty Enhancements
  • Title XI, Corporate Fraud Accountability
• Current Business Periodicals
• Current Textbooks on
  • Accounting Information Systems
  • Budgeting and Measurement
  • Corporate Governance
  • Economics
  • Enterprise Risk Management
  • Finance
  • Management
  • Management Information Systems
  • Managerial Accounting
  • Production Operations
  • Project Management
• International Standards for the Professional Practice of Internal Auditing
• COBIT (Control OBjectives for Information and related Technology)

Skill Specification Outlines (SSOs)

The Skill Specification Outlines (SSOs) identify the skills to be tested on the Uniform CPA Examination. There are three categories of skills, and the weightings will be implemented through the use of different question formats in the exam. For each of the question formats, a different set of tools will be available as resources to the candidates, who will need to use those tools to demonstrate proficiency in the applicable skills categories.

Weights

The percentage range assigned to each skill category will be used to determine the quantity of each type of question, as described below. The percentage range assigned to each skill category represents the approximate percentage to which that category of skills will be used in the different sections of the CPA Examination to assess proficiency. The ranges are designed to provide flexibility in building the examination, and the midpoints of the ranges for each section total 100%. No percentages are given for the bulleted descriptions included in these definitions. The presence of several groups within an area or several topics within a group does not imply equal importance or weight will be given to these bullets on an examination.

Knowledge and Understanding. Multiple-choice questions will be used as the proxy for assessing knowledge and understanding, and will be based upon the content topics as outlined in the CSOs. Candidates will not have access to the authoritative literature, spreadsheets, or database tools while answering these questions. A calculator will be accessible for the candidates to use in performing calculations to demonstrate their understanding of the principles or subject matter.

Application of the Body of Knowledge. Task-based simulations will be used as the proxy for assessing application of the body of knowledge and will be based upon the content topics as outlined in the CSOs. Candidates will have access to the authoritative literature, a calculator, spreadsheets, and other resources and tools which they will use to demonstrate proficiency in applying the body of knowledge.

Written Communication will be assessed through the use of responses to essay questions, which will be based upon the content topics as outlined in the CSOs. Candidates will have access to a word processor, which includes a spell-check feature.

Outlines

The outlines below provide additional descriptions of the skills that are represented in each category.

Knowledge and Understanding. Expertise and skills developed through learning processes, recall, and reading comprehension. Knowledge is acquired through experience or education and is the theoretical or practical understanding of a subject; knowledge is also represented through awareness or familiarity with information gained by experience of a fact or situation. Understanding represents a higher level than simple knowledge and is the process of using concepts to deal adequately with given situations, facts, or circumstances. Understanding is the ability to recognize and comprehend the meaning of a particular concept.

Application of the Body of Knowledge, Including Analysis, Judgment, Synthesis, Evaluation, and Research. Higher-level cognitive skills that require individuals to act or transform knowledge in some fashion. These skills are inextricably intertwined and thus are grouped into this single skill area.

• Assess the Business Environment
  • Business Process Evaluation: Assessing and integrating information regarding a business's operational structure, functions, processes, and procedures to develop a broad operational perspective; identify the need for new systems or changes to existing systems and/or processes.
  • Contextual Evaluation: Assessing and integrating information regarding client's type of business or industry.
  • Strategic Analysis: Understanding the business: Obtaining, assessing and integrating information on the entity's strategic objectives, strategic management process, business environment, the nature of and value to customers, its products and services, extent of competition within its market space, etc.).
  • Business Risk Assessment: Obtaining, assessing and integrating information on conditions and events that could impede the entity's ability to achieve strategic objectives.
  • Visualize Abstract Descriptions: Organizing and processing symbols, pictures, graphs, objects, and other information.
• Research
  • Identify the appropriate research question.
  • Identify key search terms for use in performing electronic searches through large volumes of data.
  • Search through large volumes of electronic data to find required information.
  • Organize information or data from multiple sources.
  • Integrate diverse sources of information to reach conclusions or make decisions.
  • Identify the appropriate authoritative guidance in applicable financial reporting frameworks and auditing standards for the accounting issue being evaluated.
• Application of Technology
  • Using electronic spreadsheets to perform calculations, financial analysis, or other functions to analyze data.
  • Integration of technological applications and resources into work processes.
  • Using a variety of computer software and hardware systems to structure, utilize, and manage data.
• Analysis
  • Review information to determine compliance with specified standards or criteria.
  • Use expectations, empirical data, and analytical methods to determine trends and variances.
  • Perform appropriate calculations on financial and nonfinancial data.
  • Recognize patterns of activity when reviewing large amounts of data or recognize breaks in patterns.
  • Interpretation of financial statement data for a given evaluation purpose.
  • Forecasting future financial statement data from historical financial statement data and other information.
  • Integrating primary financial statements: using data from all primary financial statements to uncover financial transactions, inconsistencies, or other information.
• Complex Problem Solving and Judgment
  • Develop and understand goals, objectives, and strategies for dealing with potential issues, obstacles, or opportunities.
  • Analyze patterns of information and contextual factors to identify potential problems and their implications.
  • Devise and implement a plan of action appropriate for a given problem.
  • Apply professional skepticism, which is an attitude that includes a questioning mind and a critical assessment of information or evidence obtained.
  • Adapt strategies or planned actions in response to changing circumstances.
  • Identify and solve unstructured problems.
  • Develop reasonable hypotheses to answer a question or resolve a problem.
  • Formulate and examine alternative solutions in terms of their relative strengths and weaknesses, level of risk, and appropriateness for a given situation.
  • Develop creative ways of thinking about situations, problems, and opportunities to create insightful and sound solutions.
  • Develop logical conclusions through the use of inductive and deductive reasoning.
  • Apply knowledge of professional standards and laws, as well as legal, ethical, and regulatory issues.
  • Assess the need for consultations with other professionals when gray areas, or areas requiring specialized knowledge, are encountered.
• Decision Making
  • Specify goals and constraints.
  • Generate alternatives.
  • Consider risks.
  • Evaluate and select the best alternative.
• Organization, Efficiency, and Effectiveness
  • Use time effectively and efficiently.
  • Develop detailed work plans, schedule tasks and meetings, and delegate assignments and tasks.
  • Set priorities by determining the relevant urgency or importance of tasks and deciding the order in which they should be performed.
  • File and store information so that it can be found easily and used effectively.

Written Communication. The various skills involved in preparing written communication, including

• Basic writing mechanics, such as grammar, spelling, word usage, punctuation, and sentence structure.
• Effective business writing principles, including organization, clarity, and conciseness.
• Exchange technical information and ideas with coworkers and other professionals to meet goals of job assignment.
• Documentation
  • Prepare documents and presentations that are concise, accurate, and supportive of the subject matter.
  • Document and cross-reference work performed and conclusions reached in a complete and accurate manner.
• Assist client to recognize and understand implications of critical business issues by providing recommendations and informed opinions.
• Persuade others to take recommended courses of action.
• Follow directions.