The CPA Exam currently has four sections: Auditing and Attestation (AUD), Business Environment and Concepts (BEC), Financial Accounting and Reporting (FAR) and Regulation (REG). Under the CPA Evolution initiative, the exam’s structure is changing. Starting in January 2024, instead of four sections, candidates will need to pass three core sections and one of three discipline sections. BEC is the section that is most impacted by the exam changes since it’s being replaced by the choice of a discipline section. Because of this, we recommend that you take BEC now – before the exam changes in 2024 – so you can receive credit without needing to take a discipline section.
In many ways, the BEC section of the CPA Exam is the hardest section for candidates. While many exam students have education and experience in the areas of financial accounting, audit and tax, BEC covers content that some students may not have much exposure. In this article, I’ll share some of the most challenging topics that are covered on the BEC exam and tips for how to study them effectively. BEC is very different than the other three sections of the exam for a few reasons:
- The content spans a very broad range of topics. I doubt you’ve ever encountered another exam that requires you to understand corporate governance, financial management, cost accounting, ratio analysis, budgeting and variance analysis, economics and information technology…amongst many others! And while these topics seem disconnected, the reality is that a CEO, CFO, and anyone in a leadership position must understand all of these elements of the business world.
- Written communications are a unique component of the BEC exam, with a weighting of 15% of your exam score. This section reduces the weight for the always challenging task-based simulations down to 35%. You will want to take advantage of this section by knowing the strategies that will best prepare you to do well.
- As mentioned before, the BEC exam as we know it is going away in 2024, replaced by one of three discipline sections. If you pass the current BEC section by the end of 2023, you will NOT have to take ANY of the discipline sections.
Challenging topics on the BEC exam
There are content areas in BEC that have traditionally been the most challenging for students. Here are those concepts and some tips for overcoming them.
COSO frameworks for internal controls and enterprise risk management
The COSO frameworks are designed to help organizations provide reasonable assurance that they will achieve their objectives and manage risk while creating, preserving and realizing value. The focus here should be on how companies utilize these frameworks, the five components of each respective framework, the principles associated with each component, and interpreting scenarios presented to determine which component and principle apply.
Exchange rate exposures
Exchange rate exposure is the vulnerability that parties doing business in different currencies are exposed to as exchange rates change. The key with these questions is to put yourself in the shoes of the individual or company in the question and ask yourself, is this exchange rate change good or bad for my wallet.
Hedging with derivatives
Hedging is designed as a means of protection against something adverse happening, and derivatives are often used as instruments for hedging. To perform well on this topic, you should have a high-level understanding of the four main types of derivatives, including options, forwards, futures, and swaps, and know the unique characteristics associated with each type.
Weighted average cost of capital (WACC)
Often used as the required rate of return (hurdle rate) for investment decisions, students must understand the components and how to calculate the rate utilizing different methodologies for determining the cost components.
Working capital
While this is defined as current assets minus current liabilities, in the BEC world working capital is often thought of as “available cash.” The formulas associated with working capital and strategic decisions regarding working capital levels are critical.
Net present value (NPV)
NPV is the net summation of the present values of all future cash outflows and inflows. For this topic, remember the decision rule: if the project’s rate of return exceeds its hurdle rate, the NPV will be positive, and we will accept the project (assuming we have the available cash up front to do so).
Equivalent units
These calculations, using either First-In, First-Out (FIFO) or weighted average (WA) methodologies, are done for materials and conversion costs (labor + overhead). FIFO and WA differ primarily in how they account for beginning work-in-progress (WIP) inventory. Pay close attention to the methodology posed in the question stem and the focus on either materials or conversion costs. FIFO only counts work done and costs incurred in the current period. WA will take credit for all completed units and associated costs, regardless of whether work began in the prior period.
Manufacturing costs versus cost of goods manufactured (COGM) versus cost of goods sold (COGS)
Total manufacturing costs include direct materials used, direct labor and overhead applied. COGM adjusts total manufacturing costs for the change in WIP inventory, while COGS adjusts COGM for the change in finished goods inventory. Where candidates struggle the most in this area is missing the “ask” of the question. Pay very close attention to whether they are asking for manufacturing costs, COGM or COGS. These are slightly different concepts, and your answer will differ for each.
Absorption versus variable costing
Absorption costing treats fixed overhead as a product cost while variable costing treats it as a period cost. Selling, general and administrative (SG&A) costs, whether fixed or variable, are ALWAYS period costs. Questions that ask you to calculate the contribution margin (sales – variable costs) are different from questions that ask you to differentiate product versus period costs.
Budgeting and variance analysis
Budgets represent expectations of what we think will happen in the future. Our actual results will inevitably differ from budget, and we need to understand not only how to calculate our budgets, but how to interpret these differences (variances). There are a lot of formulas to memorize in this area, but even more important is to understand the reasons and causes for differences.
Supply and demand
We all grew up hearing about supply and demand, but we need to understand the impact of a price change on the quantity demanded and supplied versus a change in other factors that cause shifts in the curves.
Elasticity
It is all about sensitivity. The four primary types of elasticity are price elasticity of demand, price elasticity of supply, cross elasticity and income elasticity. Candidates must know how to calculate each type, but more importantly how to interpret them.
Information Technology (IT)
From a content perspective, this is probably the most fluid and expansive area of the exam. The IT world is fast moving and almost limitless. This section requires a lot of terminology memorization and a curious mind. Even if you don’t like IT, embrace it!
I hope that this article gives you helpful context for the topics you can expect to see when preparing for the BEC exam and offers insight on how you can best approach them to pass the section.
Becker’s BEC Deep Dive Workshops are specifically designed to get you through some of the most complex concepts and pass the BEC section, before the dramatic exam changes in January 2024, as part of CPA Evolution. Learn more about the BEC Deep Dive and register now.
Becker BEC Deep Dive Workshop >
Josh Rosenberg is a Becker CPA and CMA instructor, course curriculum editor, academic support SME, and student tutor. He prepared for the CPA exam using Becker, sat for the November 2003 CPA exam (the last “paper and pencil” exam), was successful on each of the four parts on his first attempt and has been a CPA through the State of Illinois since February of 2004. Josh is also a Certified Financial Planner (CFP ®), a Chartered Financial Analyst (CFA), has his BBA in Marketing from Emory University, his MBA in Accounting, Finance, and Economics from the University of Chicago, and is the Executive Director of Grants and Contracts at the Georgia Institute of Technology (Georgia Tech).
This article was edited for clarity by Bria Wright.
