CPA CFE Strategy and Governance 2

Question 1

What is the primary purpose of a stakeholder analysis in strategic management?

Accepted Answer

To identify and assess the interests, influence, and expectations of parties affected by or affecting the organization

Answer

Stakeholder analysis identifies all parties with an interest in the organization (shareholders, employees, customers, regulators, communities) and assesses their relative power, influence, and expectations to develop appropriate engagement strategies.

Question 2

According to the COSO Internal Control framework, which component addresses the entity's commitment to integrity and ethical values?

Accepted Answer

Control environment

Answer

The control environment is the foundation of the COSO framework and sets the tone of the organization. It includes the entity's commitment to integrity and ethical values, governance oversight, organizational structure, commitment to competence, and accountability.

Question 3

A company is considering vertical integration. What does backward integration involve?

Accepted Answer

Acquiring or developing capabilities of a supplier to control inputs

Answer

Backward (upstream) integration involves acquiring or developing the operations of suppliers to gain control over raw materials or inputs. Forward integration moves toward the customer. Horizontal integration involves acquiring competitors at the same level.

Question 4

What is the 'agency problem' in corporate governance?

Accepted Answer

The conflict of interest between management (agents) and shareholders (principals) when their interests diverge

Answer

The agency problem arises because managers (agents) may act in their own self-interest rather than in the best interests of shareholders (principals). This information asymmetry and misalignment of incentives can lead to suboptimal decisions for shareholders.

Question 5

In the BCG growth-share matrix, what characterizes a 'cash cow'?

Accepted Answer

Low market growth and high market share

Answer

Cash cows operate in low-growth markets but hold high market share. They generate significant cash flows with minimal investment needs, as the market is mature. The cash generated can be used to fund stars and question marks in the portfolio.

CPA CFE Practice Test

CPA CFE Practice Test

CPA CFE Strategy and Governance 2