Business Environment & Concepts Flashcards
6 cards from real Certified Public Accountant practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Business Environment & Concepts flashcards as text
Which risk management strategy involves transferring risk to a third party, such as an insurance company?
Answer: Risk transfer
Risk transfer shifts the financial burden of a potential loss to another party, most commonly through insurance contracts or contractual indemnification clauses.
In capital budgeting, what is the internal rate of return (IRR) used to evaluate?
Answer: The discount rate that makes NPV equal to zero
IRR is the discount rate at which the net present value of all future cash flows equals zero, and it is compared to the required rate of return to decide on project acceptance.
Under the Sarbanes-Oxley Act (SOX), which section requires management to assess and report on the effectiveness of internal controls over financial reporting?
Answer: Section 404
SOX Section 404 requires management to annually assess and report on the effectiveness of internal controls over financial reporting, with external auditor attestation for large accelerated filers.
What type of market structure exists when a single seller controls the entire supply of a product with no close substitutes?
Answer: Monopoly
A monopoly exists when one firm is the sole seller of a product with no close substitutes, giving it significant pricing power over the market.
Which budgeting approach starts each period from zero and requires managers to justify all expenditures rather than using prior-year amounts?
Answer: Zero-based budgeting
Zero-based budgeting requires all expenses to be justified for each new period, eliminating the assumption that prior-year spending levels are automatically approved.
What is the primary goal of enterprise risk management (ERM) as defined by the COSO ERM framework?
Answer: Align risk with strategy to create value
COSO ERM aims to integrate risk management with strategy-setting and performance management so organizations can create, preserve, and realize value.