If you’ve earned a business degree, you’ll be familiar with many of the topics on the business environment and concepts (BEC) test. The test covers corporate governance issues, as well as economic concepts. You’ll also see questions on business strategy and decision-making.
This post provides a BEC CPA Exam breakdown with some of the most frequently tested areas on the BEC exam. Use these tips to plan for your study and succeed on the test.
As you put together a study plan for the BEC test, check out the AICPA website. This site provides a detailed list of each topic that you’ll see on the test. Print off this list and use it to plan your study. If you cover each topic on the list, you’ll be well prepared for the exam.
Nearly 20% of your test questions will cover corporate governance. Make sure that you understand internal controls, which is tested in this section. These controls are in place to protect assets from theft, and to ensure that the financials statements are materially correct.
To nail down these concepts, think about the situation and what might go wrong. Say, for example, that a CPA is reviewing controls over cash. How might an employee steal cash? If the same employee had access to the checkbook and reconciled the bank account, the company would be at risk for theft.
Also, keep in mind that a CPA almost always has to be independent of the client to perform accounting work. There are a few exceptions, but independence is required for most types of work.
Economic concepts and analysis
This section of the test will also provide about 20% of your questions. This section spends a lot of time on risks to businesses. Make sure that you’re clear on the differences between these risks.
Market risk, for example, is the risk that the value of a particular asset declines. Interest rate risk is the risk that rates increase and issuing debt becomes more expensive for borrowers. Some of these risks are similar- make sure that you’re clear on these terms.
This portion of the test covers trends and analysis. One common topic is the relationship between sales and accounts receivable. If receivables are growing faster than sales, the business may end up in a cash shortage. Essentially, the company is extending credit when clients don’t pay quickly. If the firm doesn’t collect cash fast enough, they won’t be able to fund their operations.
The financial management section also covers capitalization. There’s an easy way to think about this concept. When you boil it down, there are only two ways for a business to raise money.
A business can borrow money, which may be a loan from a bank or a bond issue. In either case, the firm must pay interest on the debt and repay the principal amount at maturity. Companies can also raise money by selling ownership. When a firm issues stock, the stockholders buy ownership in the business.
Now, I agree that finance is more complicated than this explanation. But, if you remember these basics, it can help you with questions about capitalization.
Planning and operations management
About 30% of your BEC test questions will address strategic planning and operations management. For this section, you need to understand the difference between liquidity and solvency.
When you think of liquidity, think about your checkbook. Liquidity refers to a firm’s ability to collect current assets and pay current liabilities. Can you generate enough cash to operate each month? Liquidity has a short-term focus.
Solvency, on the other hand, takes a long-term view. Can the company pay down its debt over time? If a business needs to make a large capital investment (maybe an expensive piece of equipment) can they finance that purchase?
When a business plans their operations, have to address both liquidity and solvency.
Use these tips to create a study plan for the BEC test. Make sure that your plan addresses each type of question listed in the AICPA document. If you understand these important concepts, you can succeed on the BEC test.