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35 multiple-choice questions and 27 flashcards on Decision analysis, about 9% of the CPA BAR bank. Every one carries a written rationale.
Decision analysis is one of 5 chapters in CoStudy's CPA — Business Analysis & Reporting (BAR) [Discipline] bank, and it holds 35 of the bank's 405 multiple-choice questions — roughly 9% of the total. That proportion is not arbitrary: chapters follow the certifying body's published exam outline, and the number of questions in each is set by that domain's published weight, so the share of your practice time this chapter takes matches the share of the real exam it accounts for.
Studying by chapter is worth doing once you have a diagnostic score. A single overall percentage tells you whether you are close; it does not tell you which domain is dragging. Working a weak chapter in isolation, and re-testing it in isolation, is the fastest way to move a score that has stalled — and it is why the mock exams in CoStudy report by domain rather than as one number.
10 questions drawn from this chapter, with the full rationale shown — the controlling principle behind the right answer, and why each wrong option tempts and fails.
Risk responses under enterprise risk management include:
Answer: A — Avoid, reduce, transfer, and accept the risk
A) Correct — the four ERM risk responses. B) Wrong — nonstandard mix. C) Wrong — those are ERM steps, not responses. D) Wrong — those are steps too.
A company compares actual risk outcomes against its risk appetite and tolerances on an ongoing basis, adjusting its approach as conditions change. This activity BEST corresponds to which COSO ERM component?
Answer: A — Review and revision
A) Correct — Review and Revision involves ongoing assessment of performance against risk appetite/tolerance with adjustments as needed. B) Wrong — governance and culture set the tone and oversight structure, not ongoing performance comparison. C) Wrong — strategy-setting occurs earlier, when objectives and risk appetite are established. D) Wrong — this component covers communicating risk information, not the comparison/adjustment activity itself.
An acquisition is described as 'accretive' to the acquirer's earnings per share (EPS) when:
Answer: A — The pro forma combined company's EPS is higher than the acquirer's standalone EPS prior to the deal
A) Correct — an accretive deal is one in which the combined company's pro forma EPS exceeds the acquirer's pre-deal standalone EPS. B) Wrong — the form of consideration (cash vs. stock) is a driver of accretion/dilution but does not itself define the term. C) Wrong — relative revenue size does not define accretion or dilution, which is specifically an EPS-based measure. D) Wrong — that describes a dilutive transaction, the opposite condition.
Under the COSO Enterprise Risk Management (ERM) framework, which of the following is one of the five interrelated components?
Answer: C — Governance and culture
A) Wrong — segregation of duties is an internal control activity, not a COSO ERM component. B) Wrong — bank reconciliations are a control procedure, not an ERM component. C) Correct — Governance and Culture is one of the five 2017 COSO ERM components. D) Wrong — a journal-entry checklist is a control procedure, not a framework component.
Sensitivity analysis in financial forecasting is used to:
Answer: D — Isolate impact of one variable on forecast outcomes
A) Wrong — that's scenario analysis. D) Correct — sensitivity changes one variable at a time. C) Wrong — that's scenario analysis. B) Wrong — that's Monte Carlo simulation.
Which of the following is an example of an entity-level control rather than a process-level (transaction) control?
Answer: C — The organization's code of conduct and overall control environment established by the board and senior management
A) Wrong — the three-way match is a control embedded in the procurement transaction cycle, a process-level control. B) Wrong — bank reconciliation is a specific, transaction-level detective control. C) Correct — the code of conduct and overall control environment operate broadly across the entire organization and are classic entity-level controls (COSO's control environment component). D) Wrong — approval limits on individual purchase orders are a process-level preventive control embedded in a specific transaction cycle.
Which of the following is generally EXCLUDED as an adjustment in a typical quality of earnings analysis focused on normalizing EBITDA?
Answer: C — Routine, ongoing depreciation expense reflecting the normal wear of long-lived operating assets
A) Wrong — non-recurring legal settlements are a classic normalization adjustment removed from run-rate EBITDA. B) Wrong — related-party transactions priced off-market are commonly adjusted to reflect arm's-length economics. C) Correct — routine, ongoing depreciation reflects the normal, recurring economics of operating the business and is not a one-time or non-economic item requiring normalization in a QoE analysis (though it is separately added back in EBITDA by definition, not treated as a 'normalization' item). D) Wrong — one-time restructuring charges are a standard normalization adjustment.
All else equal, an all-stock acquisition is MOST likely to be dilutive to the acquirer's EPS when:
Answer: B — The acquirer's price-to-earnings (P/E) ratio is lower than the target's P/E ratio
A) Wrong — when the acquirer's P/E exceeds the target's, an all-stock deal is more likely accretive, since the acquirer is 'buying earnings' at a lower relative multiple than its own. B) Correct — when the acquirer pays with stock trading at a lower P/E than the target's, it must issue proportionally more shares relative to the earnings acquired, which tends to dilute pro forma EPS. C) Wrong — an all-cash deal funded by cash on hand does not involve issuing new shares and follows different accretion/dilution mechanics tied to lost interest income, not P/E-driven stock dilution. D) Wrong — an all-stock deal by definition involves issuing new shares.
A revenue synergy projected in an acquisition analysis, such as cross-selling opportunities between the acquirer's and target's customer bases, is generally considered LESS reliable to value than a cost synergy primarily because:
Answer: D — Revenue synergies depend on customer behavior and market acceptance, which are harder to predict and control than internal cost reductions
D) Correct — revenue synergies rely on external factors like customer adoption and competitive response, which are inherently harder to forecast and control than internal actions such as eliminating duplicate costs. B) Wrong — revenue synergies are projections, not contractually guaranteed amounts. C) Wrong — regulatory approval requirements relate to antitrust and deal structure considerations, not specifically to the synergy type. A) Wrong — realized revenue synergies do affect the income statement through higher sales.
An auditor is planning risk assessment procedures and concludes that a weak entity-level control environment exists. This conclusion will MOST likely affect the audit by:
Answer: D — Increasing the assessed risk of material misstatement, which generally leads to more extensive testing of process-level controls and transactions
A) Wrong — a weak control environment pervasively affects the reliability of other controls and typically changes planned procedures. B) Wrong — a weak control environment calls for less, not more, reliance on unverified management representations. C) Wrong — a weak entity-level environment raises, rather than lowers, the assessed risk of material misstatement. D) Correct — because entity-level controls set the tone for the whole organization, weaknesses there elevate risk assessments and typically prompt more extensive testing of downstream process-level controls and transactions.
4 cards from the 27 in this chapter.
Customer acquisition cost (CAC)?
Total marketing/sales / new customers acquired.
Inflation measures?
CPI, PPI, GDP deflator.
LTV:CAC ratio?
Healthy startups want 3:1 or higher. Sustainable unit economics.
Leading vs lagging economic indicators?
Leading: building permits, stock prices, avg weekly mfg hours. Lagging: avg duration of unemployment, CPI, unit labor cost.
These are a sample. The full Decision analysis chapter runs 62 items with per-chapter progress tracking, on the web and in the iOS app.