CPA exam
Business Environment and Concepts

In 2002 the AICPA along with the states changed the administration of the Certified Public Accounting Exam from a "paper" examination to a completely automated computer examination. Notwithstanding more importantly, in order to pass the CPA exam a candidate will need to know a new segment called Business Environment and Concepts. This section replaced the less relevant Business Law section. The additional sections of the exam stayed more or less the same as the written test had been. Those parts of the CPA Examination include: Reporting and Regulation, Auditing & Attestation, and Financial Accounting.

The new section tests knowledge of the general business environment and business conceptions that candidates need to know in order to see the underlying business reasons for and the accounting implications of business transactions. Moreover, the new section tests for skills needed to apply that familiarity in performing financial statement audit and attestation work and various other functions commonly performed by certified public accountants that involve the public interest.

There are five specific areas of Business Environment and Concepts that may be tested in detail on the Uniform CPA Examination.
· Business Structures
· Economic concepts essential to understanding the entity's business and industry
· Financial Management
· Information technology and how it affects the business
· Planning and measurement

Below is summary by section that a CPA student will be quizzed on:

Business Structures
The exam will test a candidate's ability to:

Differentiate between the rights, duties, legal obligations, and authority of owners and that of management.
Determine income available for distribution or be able to allocate profit and losses to the owners.
Determine the recommended business form based on given facts and circumstances.
Point out the factors supporting a fiscal vs a calendar year end for financial reporting and federal taxation purposes and List circumstances indicating when a business should be closed.
Point out the general characteristics of various business forms such as Corporations or S-Corps.
List the advantages and disadvantages of various business forms such as S-Corps or S-Corps.

It comes down to the protection of the public because even entry level certified public accountants need to have the right skills in order to perform critical audit functions. As is true for the entire Uniform CPA Examination, these concepts are tested in the context of entry-level public accountant practice.

Business Econimic Concepts
The CPA exam will ask the applicant to:
Understand of exchange rate fluctuations on financial position and operations.
Determine the effect on an entity’s net income and financial position from changes in supply and demand.
Recognize the effect of Federal Reserve Board actions on the national economy.
Recognize circumstances giving rise to changes in exchange rates.
Differentiate between real, nominal, and effective interest rates.
Distinguish the economic circumstances giving rise to inflation, deflation, expansion and recession.
Determine the purpose of transfer pricing.
Understand economic events and the effect on the business cycle on an entity’s financial position and business operations.

Financial Management
For the Certified Public Accounting Exam Candidates should be able to:

Analyze the trade-offs between risk and return. Compute the effective interest rate.
Demonstrate an understanding of inventory management techniques, such as just-in-time and economic order quantity. Recognize the objectives and limitations of capital budgeting tools.
Differentiate between and determine when appropriate to use different forms of financing.
List and define various business risks, such as default risk or credit risk.

Apply capital budgeting tools to make appropriate business decisions.
Utilize capital budgeting tools such as net present value, internal rate of return, payback method, discounted payback and discounted annual cash flows, including performing calculations. Compute current and working capital ratios.
Project periodic cash flows given certain facts and circumstances.
Information Technology
The candidate should be able to:
Point out & evaluate risks, limitations, and advantages of electronic commerce applications.
Apply the traditional concept of segregation of duties to IT functions.

Planning And Measurement
A CPA examination candidate should be able to
Define and determine appropriate circumstances for using performance measures.
Define calculate, and explain budget variances.
Define and calculate joint and by-product costing, variable and absorption costing. Perform cost-profit-volume analysis.
Differentiate between cost-volume-profit analysis, target costing, and transfer pricing.
Identify and calculate the components of a master budget.
Calculate the effect of depreciation in operating and capital budgeting.
Define and differentiate among job costing, process costing, and activity-based.
Point out the appropriate analytical tool in given circumstances.