” This [Business Environment and Concepts] section covers knowledge of general business environment and business concepts that candidates need to know in order to understand the underlying business reasons for and accounting implications of business transactions, and the skills needed to apply that knowledge in performing financial statement audit and attestation engagements and other functions normally performed by CPAs that affect the public interest.” – The Uniform CPA Exam Website
The CPA BEC Exam: An Overview
Many CPA candidates believe CPA BEC is the easiest (or rather, least difficult) exam. It is certainly the shortest and comprises only 3 testlets of 24 multiple choice questions, i.e. 72 MCQs all-together, as well as 3 “written communications”. There is no simulation question in this part of the exam.
Given my background in Economics I also find BEC to be a more relaxing part of the exam. Having said that, for those who are fresh out of college or are unfamiliar to how businesses are run in real life, it could come as a nasty surprise… as shown below.
Historical CPA BEC Exam Pass Rate
The pass rate for BEC has seen some encouraging improvement recently and is the only part with pass rate above 50% in 2012.
What Does The BEC Exam Cover?
In a nutshell, it is a test of all the business concepts applicable to an accountant:
- Corporate Governance (16%-20%): role of Board of Directors, audit committee and other stake holders in corporate governance
- Economic Concepts and Analysis (16%-20%): inflation, deflation, interest rates, exchange rates, foreign currencies and their impact to businesses
- Financial Management (17%-23%): financial modeling e.g. EVA, DCF, NPV, IRR, and financing options such as various cost of capital (debt vs equity) and derivatives, plus related concepts such as loan rates (fixed vs variable) and loan covenants
- Information Systems and Communications (15%-19%): role of business information system in terms of management reporting and transaction processing; roles within the IT functions, IT basics (e.g. operating system, security, file organization), disaster recovery and business continuity
- Strategic Planning (10%-14%): planning, projection, budgeting, performance measures, cost measures
- Operations Management (12%-16%): cost accounting
Tackle The Different Topics One By One
BEC is a basket of miscellaneous business, economics and financial concepts. They don’t relate to each other, which makes the materials difficult to retain for some candidates. It is best to tackle each topic one by one.
This is an important topic and it ties with other parts of the CPA exam, particularly AUD. Special attention should be paid on the role of Board of Directors and the Audit Committee. It is not a difficult topic once you go through the study materials, but the questions could be tricky.
If you’ve had course work in Economics, chances are that the first two topics shouldn’t be a problem for you (even if you’ve never seen it, the concepts shouldn’t be too difficult — it’s mostly common sense).
So, the strategy is to go through the textbook / DVD fairly quickly and focus the time in practice tests. You will be surprised to see how many wrong answers you may get — yes, that’s how tricky the CPA exam can be, and how they manage to have such a low passing rate. Don’t be despair — once you get used to the format of the questions you will do much better.
3. Financial management
As I work in the strategic planning department this is easy for me, but I understand it could look very complex for many of you who haven’t done any financial modeling.
The trick is to really understand how the calculation works, and you shouldn’t memorize anything more than the basic formula. If you can’t figure it out, ask the instructor in your class, or call/email Cindy Simpson if you are taking Yaeger CPA review. She has never disappointed my readers when answering their questions.
4. Information Technology
IT is a huge topic, and no CPA review course can ever cover all the content. IT is important in real life though: accounting nowadays does involve a lot of IT — all the journal entries are posted to the “System” that generates everything from monthly statements to management reports. And as a result of its importance, an accountant must learn how to maintain the integrity and security of this System.
Having said that, studying all these for the CPA exam is extremely boring… I know, I have been there, and the reading took forever…
The good news is that this IT section involves mostly facts and terminology, and therefore questions are rarely too tricky. Most candidates are fine after reading over the materials once and spend the rest of the time working on practice questions.
5. Strategic Planning and Operational Management (Cost Accounting)
Many of you may have learned it in college, but for those who haven’t, cost accounting could be a difficult section for you. This could be an area where you need extra help, e.g. call up the instructor to really understand the concepts behind it.
I think I still don’t really “get” cost accounting, but I know it well enough to pass the exam. If you really can’t figure it out, work extra hard on the rest of the BEC section and you should be okay.
My Recommendation and Tips
1. Do NOT underestimate BEC. Some candidates pass the other 3 parts on first try but stuck with BEC forever. It is easier for most candidates but not all candidates.
2. Work on your weakest area(s), be it cost accounting or financial modeling, work on plenty of practice questions.
3. Don’t give up. Don’t panic if you think BEC is difficult while everybody seems to have a breeze with it. Did you know that BEC had the lowest passing rate back in 2009? It’s not supposed to be easy.
4. Get Prepared For The Written Communications tabs. You are going to face 3 questions, each asking you to write a business writing (a memo, a letter to the client for example). There is no need to write in flowery words and instead be relevant, concise and organized.
- For my 7 tips on how to ace your written communications in the CPA exam, please click on this link.
Your Next Step
If your current CPA review course is not helpful enough, please check out Yaeger CPA Review and CPAexcel. These two courses are on my recommended list with an impressive 88% and 87% pass rate respectively.