Certified Public Accountant Business Environment & Concepts 3

Question 1

Which risk management strategy involves transferring risk to a third party, such as an insurance company?

Accepted Answer

Risk transfer

Answer

Risk transfer shifts the financial burden of a potential loss to another party, most commonly through insurance contracts or contractual indemnification clauses.

Question 2

In capital budgeting, what is the internal rate of return (IRR) used to evaluate?

Accepted Answer

The discount rate that makes NPV equal to zero

Answer

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.

Question 3

Under the Sarbanes-Oxley Act (SOX), which section requires management to assess and report on the effectiveness of internal controls over financial reporting?

Accepted Answer

Section 404

Answer

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.

Question 4

What type of market structure exists when a single seller controls the entire supply of a product with no close substitutes?

Accepted Answer

Monopoly

Answer

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.

Question 5

Which budgeting approach starts each period from zero and requires managers to justify all expenditures rather than using prior-year amounts?

Accepted Answer

Zero-based budgeting

Answer

Zero-based budgeting requires all expenses to be justified for each new period, eliminating the assumption that prior-year spending levels are automatically approved.

Certified Public Accountant Practice Test

Certified Public Accountant Practice Test

Certified Public Accountant Business Environment & Concepts 3