CPA CPA Business Environment & Concepts 2 — Questions and Answers
Question 1: Which IT general control is designed to ensure that only authorized personnel can access financial data systems?
- Change management controls
- Access controls (Correct answer)
- Backup and recovery controls
- Computer operations controls
Correct answer: Access controls
Access controls restrict system entry to authorized users through passwords, biometrics, and role-based permissions to protect data integrity.
Question 2: A company's current ratio is 2.5 and its quick ratio is 1.2. What does this comparison suggest?
- The company has no long-term debt
- The company holds significant inventory (Correct answer)
- The company is insolvent
- The company has high receivables
Correct answer: The company holds significant inventory
A large gap between the current ratio and quick ratio indicates that a significant portion of current assets consists of inventory, which is excluded from the quick ratio.
Question 3: Which supply chain strategy minimizes inventory by receiving goods only as they are needed in production?
- Economic order quantity
- Just-in-time (JIT) (Correct answer)
- Safety stock model
- Batch processing
Correct answer: Just-in-time (JIT)
Just-in-time (JIT) inventory management reduces holding costs by synchronizing material deliveries with production schedules.
Question 4: The balanced scorecard framework evaluates organizational performance across four perspectives. Which is NOT one of them?
- Financial
- Customer
- Employee satisfaction (Correct answer)
- Internal business processes
Correct answer: Employee satisfaction
The four perspectives in Kaplan and Norton's balanced scorecard are Financial, Customer, Internal Business Processes, and Learning & Growth — not Employee Satisfaction.
Question 5: In the context of corporate governance, the board's audit committee is primarily responsible for:
- Setting executive compensation
- Overseeing financial reporting and external auditors (Correct answer)
- Approving major capital expenditures
- Managing day-to-day operations
Correct answer: Overseeing financial reporting and external auditors
The audit committee oversees the integrity of financial statements, coordinates with external auditors, and monitors internal controls.
Question 6: Which business valuation method estimates value based on expected future cash flows discounted to present value?
- Asset-based approach
- Market comparable approach
- Discounted cash flow (DCF) method (Correct answer)
- Liquidation value method
Correct answer: Discounted cash flow (DCF) method
The DCF method values a business by projecting future free cash flows and discounting them at an appropriate rate reflecting risk.
CPA CPA Business Environment & Concepts 2
Which IT general control is designed to ensure that only authorized personnel can access financial data systems?