Table Of Content

6Wiley 1C PA e x c e l® 0 E X A M R E V I E W 2 S T U DY G U I D E J A N UA RY 2 016 6 Wiley C PA e x c e l® 1 EXAM REVIEW 0 ST U DY G U I D E 2 JA N UA RY 2 016 BUSINESS ENVIRONMENT AND CONCEPTS O. Ray Whittington, CPA, PhD Cover Design: Wiley Cover image: © turtleteeth/iStockphoto The following items, copyright © by the American Institute of Certifi ed Public Accountants, Inc., are reprinted (or adapted) with permission. 1. Material from Uniform CPA Examination Questions and Answers, 1978 through 2014. 2. Information for Uniform CPA Examination Candidates, Board of Examiners, 2013. Material from the Certifi ed Internal Auditor Examination, Copyright © 1994 through 1997 by the Institute of Internal Auditors, Inc. are reprinted and/or adapted by permission. Material from the Certifi ed Management Accountant Examination, Copyright © 1993 through 1997 by the Institute of Certifi ed Management Accountants are reprinted and/or adapted by permission. Reproduction and adaption of pronouncements, copyright © Financial Accounting Standards Board, Norwalk, Connecticut 06856-5116, with permission. Copyright © 2016 by John Wiley & Sons, Inc. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per- copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the Web at www.copyright.com. 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ISBN 978-1-119-11998-2 (Paperback); 978-1-119-25666-3 (ebk); 978-1-119-25667-0 (ebk) Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 CONTENTS Preface vii About the Author ix About the Contributor ix INTRODUCTION 1 Chapter 1: Beginning Your CPA Review Program 3 Chapter 2: Examination Grading 15 Chapter 3: The Solutions Approach 17 Chapter 4: Taking the Examination 25 Chapter 5: Exam Content Overview 29 BUSINESS ENVIRONMENT AND CONCEPTS 35 Module 40: Corporate Governance, Internal Control, and Enterprise Risk Management 37 Module 41: Information Technology 69 Module 42: Economics, Strategy, and Globalization 133 Module 43: Financial Risk Management and Capital Budgeting 191 Module 44: Financial Management 241 Module 45: Performance Measures and Management Techniques 297 Module 46: Cost Measurement and Assignment 337 Module 47: Planning, Control, and Analysis 375 APPENDICES 419 Appendix A: Business Environment and Concepts Sample Examination 421 Appendix B: Sample Business Environment and Concepts Testlet Released by AICPA 439 Appendix C: 2015 Released AICPA Questions for Business Environment and Concepts 441 INDEX 455 v PREFACE Passing the CPA exam upon your fi rst attempt is possible! The Wiley CPAexcel® Exam Review 2016 Study Guide January: Business Environment and Concepts preparation materials provide you with the necessary materials (visit our website at www.wiley.com/cpa for more information). It’s up to you to add the hard work and commit- ment. Together we can beat the pass rate on each section of about 50%. All Wiley CPAexcel® products are continuously updated to provide you with the most comprehensive and complete knowledge base. Choose your products from the Wiley preparation materials and you can proceed confi dently. You can select support materials that are exam-based and user-friendly. You can select products that will help you pass! Remaining current is one of the keys to examination success. Here is a list of what’s new in this edition of theWiley CPAexcel® Exam Review 2016 Study Guide January: Business Environment and Concepts text. • The new AICPA Content Specifi cation Outlines on Business Environment and Concepts for the Computerized CPA Examination beginning in 2014 D ’ ON T FORGET TO • New task-based simulations involving communication VISIT OUR WEBSITE • AICPA questions released in 2015 AT The objective of this work is to provide you with the knowl- . / / WILEY COM GO CPAERRATA edge to pass the Business Environment and Concepts portion of FOR SUPPLEMENTS the Uniform Certifi ed Public Accounting (CPA) Exam. The text is . divided up into eight areas of study called modules. Each module AND UPDATES contains written text with discussion, examples, and demonstra- tions of the key exam concepts. Following each text area, actual American Institute of Certifi ed Public Accountants (AICPA) unof- fi cial questions and answers are presented to test your knowledge. We are indebted to the AICPA for permission to reproduce and adapt examination materials from past examinations. Author-constructed questions are provided for new areas or areas that require updating. All author constructed questions are modeled after AICPA ques- tion formats. The multiple-choice questions are grouped into topical areas, giving candidates a chance to assess their areas of strength and weakness. Selection and inclusion of topical content is based upon current AICPA Content Specifi cation Outlines. Only testable topics are presented. If the CPA exam does not test it, this text does not present it. The CPA exam is one of the toughest exams you will ever take. It will not be easy. But if you follow our guidelines and focus on your goal, you will be thrilled with what you can accomplish. Ray Whittington January 2016 vii