The CPA BAR (Business Analysis & Reporting) section tests your ability to apply financial reporting frameworks, perform analysis, and demonstrate professional judgment in business contexts. This post covers 50 carefully designed practice questions with answers and explanations to help you strengthen your concepts and exam strategy.
By practicing these MCQs, you will:
- Gain confidence in GAAP & IFRS applications.
- Review corporate governance & ethics principles.
- Improve your ability to solve scenario-based questions.
Whether you are a CPA candidate in the United States, Canada, or other regions, these questions are structured to align with real exam-style patterns and provide maximum exam-day readiness.
📘 CPA BAR Practice Questions – Part 1 (Q1–50)
1. Which of the following best describes the purpose of the CPA BAR (Business Analysis & Reporting) exam section?
A) To test knowledge of taxation and business law
B) To evaluate understanding of corporate governance, management accounting, and financial reporting
C) To measure knowledge of IT systems and cybersecurity
D) To assess audit risk and attestation standards
Answer: B
Explanation: The BAR section emphasizes corporate governance, financial reporting, management accounting, and analytical skills, replacing the older BEC section.
2. Under GAAP, which financial statement is primarily focused on assessing liquidity?
A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Statement of retained earnings
Answer: B
Explanation: The balance sheet presents assets and liabilities, which directly measure liquidity.
3. IFRS uses the term “Statement of Financial Position” to describe which U.S. GAAP financial statement?
A) Balance sheet
B) Income statement
C) Cash flow statement
D) Equity statement
Answer: A
Explanation: The IFRS “Statement of Financial Position” corresponds to the GAAP balance sheet.
4. Which of the following is an example of a governance mechanism within a corporation?
A) Board of Directors
B) Payroll Department
C) Audit Working Papers
D) Customer Service Team
Answer: A
Explanation: Governance mechanisms such as boards, committees, and shareholder voting protect stakeholders’ interests.
5. Which financial ratio measures a company’s ability to meet short-term obligations?
A) Debt-to-equity ratio
B) Current ratio
C) Return on assets
D) Earnings per share
Answer: B
Explanation: Current ratio = Current Assets ÷ Current Liabilities, used to assess liquidity.
6. The Sarbanes-Oxley Act of 2002 primarily strengthened which area of corporate governance?
A) Product marketing
B) Internal controls and financial reporting
C) Tax compliance
D) Customer relations
Answer: B
Explanation: SOX emphasized internal control structures and accountability for financial reporting.
7. Which standard-setting body issues International Financial Reporting Standards (IFRS)?
A) FASB
B) IASB
C) PCAOB
D) SEC
Answer: B
Explanation: IFRS standards are issued by the International Accounting Standards Board (IASB).
8. Which of the following is classified as a noncurrent liability under GAAP?
A) Accounts payable
B) Wages payable
C) Bonds payable (10-year maturity)
D) Unearned revenue (within 6 months)
Answer: C
Explanation: Bonds with long-term maturity dates are reported as noncurrent liabilities.
9. Vertical analysis in financial statement review involves:
A) Comparing figures over multiple periods
B) Comparing individual line items as a percentage of a base item
C) Forecasting future earnings
D) Evaluating variance against industry standards
Answer: B
Explanation: Vertical analysis compares line items as a percentage of a key figure (e.g., sales).
10. The audit committee of a board of directors is responsible for:
A) Supervising employee training
B) Overseeing financial reporting and external audit
C) Managing company marketing strategies
D) Approving mergers and acquisitions
Answer: B
Explanation: Audit committees ensure integrity of financial reporting and external auditor independence.
11. Which of the following is an example of an internal control activity?
A) Independent external audit
B) Segregation of duties
C) Government tax audit
D) Shareholder voting
Answer: B
Explanation: Segregation of duties prevents fraud/errors by ensuring no single person controls an entire transaction process.
12. Under GAAP, which inventory method is prohibited under IFRS?
A) FIFO
B) Weighted Average
C) LIFO
D) Specific Identification
Answer: C
Explanation: IFRS prohibits LIFO because it may distort income and inventory valuation.
13. A company has current assets of $500,000 and current liabilities of $250,000. What is the current ratio?
A) 0.5
B) 1.0
C) 2.0
D) 2.5
Answer: C
Explanation: Current ratio = 500,000 ÷ 250,000 = 2.0.
14. Which of the following is a qualitative characteristic of useful financial information under the FASB Conceptual Framework?
A) Reliability
B) Comparability
C) Auditability
D) Timeliness
Answer: B
Explanation: The two fundamental qualities are relevance and faithful representation; comparability, verifiability, timeliness, and understandability enhance usefulness.
15. Corporate governance ensures accountability between:
A) Employees and suppliers
B) Management and shareholders
C) Customers and competitors
D) Banks and regulators
Answer: B
Explanation: Governance aligns management actions with shareholder interests.
16. The primary purpose of the MD&A section (Management Discussion & Analysis) in annual reports is to:
A) Provide audited financial statements
B) Explain past performance and future outlook
C) Present notes to the financial statements
D) Describe accounting policies
Answer: B
Explanation: MD&A provides narrative context for financial results and forward-looking risks/opportunities.
17. Which of the following is considered an adjusting journal entry?
A) Recording a cash sale
B) Depreciation expense recognition
C) Owner’s investment
D) Dividend payment
Answer: B
Explanation: Adjusting entries ensure revenues/expenses are recognized in the correct accounting period (e.g., depreciation, accruals).
18. Which financial ratio best measures profitability relative to shareholder investment?
A) Return on equity (ROE)
B) Current ratio
C) Quick ratio
D) Inventory turnover
Answer: A
Explanation: ROE = Net Income ÷ Shareholder’s Equity, key measure of profitability.
19. An effective audit committee should be composed primarily of:
A) Internal management
B) Independent directors
C) Marketing executives
D) Company employees
Answer: B
Explanation: Audit committees must consist of independent directors to avoid conflicts of interest.
20. Which of the following is a difference between GAAP and IFRS?
A) GAAP uses principles-based standards; IFRS uses rules-based standards
B) GAAP is used globally; IFRS is used only in the U.S.
C) GAAP uses rules-based standards; IFRS uses principles-based standards
D) GAAP prohibits LIFO; IFRS requires LIFO
Answer: C
Explanation: GAAP is generally rules-based, IFRS is principles-based.
21. Which section of the Sarbanes-Oxley Act requires management to certify financial statements?
A) Section 302
B) Section 404
C) Section 802
D) Section 906
Answer: A
Explanation: Section 302 mandates that CEOs and CFOs personally certify the accuracy of financial statements.
22. Which of the following is an example of agency problem in corporate governance?
A) Shareholders electing directors
B) Managers prioritizing personal bonuses over firm value
C) External auditors providing independent assurance
D) Board members monitoring executives
Answer: B
Explanation: The agency problem occurs when managers act in their own interests instead of maximizing shareholder wealth.
23. A company’s debt-to-equity ratio is 1.5. What does this indicate?
A) The company has no debt
B) The company has 1.5 times more debt than equity
C) The company’s equity exceeds its debt
D) The company is risk-free
Answer: B
Explanation: Debt-to-equity ratio shows leverage; 1.5 means debt is 1.5 times equity.
24. Which of the following is a limitation of ratio analysis?
A) Provides trend information
B) Assists in comparability
C) Relies on historical cost accounting
D) Useful for decision making
Answer: C
Explanation: Ratios are limited because they use historical accounting data, not future projections.
25. Which body establishes International Financial Reporting Standards (IFRS)?
A) FASB
B) IASB
C) PCAOB
D) SEC
Answer: B
Explanation: The IASB (International Accounting Standards Board) issues IFRS.
26. In corporate governance, the “tone at the top” refers to:
A) Stock market performance
B) Ethical culture set by senior management
C) Dividend policy of the board
D) Interest rates set by regulators
Answer: B
Explanation: Tone at the top means leadership’s example in setting ethical and compliance standards.
27. Which financial statement provides information about a company’s liquidity position?
A) Income statement
B) Balance sheet
C) Statement of retained earnings
D) Statement of cash flows
Answer: B
Explanation: The balance sheet shows assets, liabilities, and equity, highlighting liquidity.
28. What is the main advantage of dual-class share structures?
A) Equal voting rights for all investors
B) Protecting founders’ control
C) Preventing agency problems
D) Improving dividend payouts
Answer: B
Explanation: Dual-class shares allow founders to retain voting control while raising capital.
29. Which of the following is considered earnings management?
A) Changing depreciation method to match reality
B) Shifting revenue recognition to meet profit targets
C) Writing off obsolete inventory
D) Recording bad debt expense
Answer: B
Explanation: Earnings management manipulates timing/method of reporting to influence financial outcomes.
30. Under U.S. GAAP, which of the following is reported as other comprehensive income (OCI)?
A) Revenue from sales
B) Foreign currency translation adjustments
C) Depreciation expense
D) Interest expense
Answer: B
Explanation: OCI includes unrealized gains/losses on investments, pension adjustments, and currency translation adjustments.
31. The primary objective of corporate governance is to:
A) Maximize tax savings
B) Ensure compliance with environmental laws
C) Protect shareholder interests and enhance firm value
D) Increase managerial compensation
Answer: C
Explanation: Governance ensures that management decisions align with shareholder wealth maximization and stakeholder fairness.
32. Which of the following is NOT part of the COSO Internal Control Framework?
A) Risk assessment
B) Control environment
C) Monitoring activities
D) Tax planning
Answer: D
Explanation: Tax planning is not included; COSO has 5 components: control environment, risk assessment, control activities, information & communication, and monitoring.
33. What does the audit committee primarily oversee?
A) Marketing campaigns
B) Financial reporting and internal controls
C) Executive recruitment
D) Company strategy
Answer: B
Explanation: The audit committee ensures transparency and credibility in financial reporting and oversees auditors.
34. Which U.S. regulatory body enforces securities laws?
A) SEC
B) PCAOB
C) FASB
D) IASB
Answer: A
Explanation: The Securities and Exchange Commission (SEC) enforces securities laws and regulates markets.
35. A company issues stock dividends. How does this impact total equity?
A) Increases equity
B) Decreases equity
C) No change in total equity
D) Eliminates retained earnings
Answer: C
Explanation: Stock dividends reclassify equity from retained earnings to common stock but do not change total equity.
36. Which of the following is an ethical issue in financial reporting?
A) Accurate disclosure of liabilities
B) Understating expenses to inflate net income
C) Complying with IFRS
D) Following PCAOB audit standards
Answer: B
Explanation: Manipulating expenses is unethical and misleads stakeholders.
37. Which financial ratio is best for analyzing short-term liquidity?
A) Current ratio
B) Debt-to-equity ratio
C) Return on equity
D) Earnings per share
Answer: A
Explanation: The current ratio = current assets / current liabilities, showing short-term solvency.
38. Which of the following describes a proxy fight?
A) Bondholders forcing early repayment
B) Shareholders seeking control by soliciting votes against management
C) Banks recalling loans
D) Managers resisting takeover attempts
Answer: B
Explanation: A proxy fight occurs when opposing shareholders solicit votes to gain board control.
39. Under IFRS, research costs are:
A) Capitalized as assets
B) Expensed as incurred
C) Deferred until development stage
D) Added to goodwill
Answer: B
Explanation: Research costs are always expensed under IFRS; only development costs may be capitalized.
40. What is the role of the PCAOB?
A) Issue international standards
B) Audit private companies
C) Oversee auditors of public companies
D) Enforce tax laws
Answer: C
Explanation: The PCAOB regulates and oversees the audits of public companies to protect investors.
41. What is the main purpose of Sarbanes-Oxley Act (SOX)?
A) Reduce corporate taxes
B) Improve corporate governance and restore investor confidence
C) Align U.S. GAAP with IFRS
D) Increase dividends
Answer: B
Explanation: SOX was enacted in 2002 to improve transparency, accountability, and investor confidence after scandals like Enron.
42. Which of the following is a non-financial performance measure?
A) Return on assets
B) Employee turnover rate
C) Current ratio
D) Net income margin
Answer: B
Explanation: Non-financial measures include customer satisfaction, employee turnover, and innovation rates.
43. Which accounting assumption assumes the business will continue to operate indefinitely?
A) Matching principle
B) Going concern assumption
C) Revenue recognition principle
D) Historical cost principle
Answer: B
Explanation: Going concern assumes a business will continue operating and not liquidate in the near future.
44. Which of the following is a preventive control?
A) Bank reconciliations
B) Supervisory approvals before processing
C) Physical inventory counts
D) Independent audits
Answer: B
Explanation: Preventive controls stop errors/fraud before they occur; approvals are preventive.
45. Which body is responsible for issuing GAAS (Generally Accepted Auditing Standards)?
A) FASB
B) SEC
C) AICPA
D) PCAOB
Answer: C
Explanation: The AICPA issues GAAS applicable to private companies; PCAOB oversees public audits.
46. A company’s debt-to-equity ratio is primarily a measure of:
A) Liquidity
B) Profitability
C) Leverage
D) Efficiency
Answer: C
Explanation: Debt-to-equity shows the extent of financial leverage by comparing debt financing to shareholders’ equity.
47. In agency theory, the conflict between shareholders and managers is known as:
A) Principal-agent problem
B) Governance gap
C) Shareholder dispute
D) Control mismatch
Answer: A
Explanation: The principal-agent problem occurs when managers (agents) act in their own interest rather than shareholders (principals).
48. Which of the following is a correct example of segregation of duties?
A) Same employee handles cash receipts and bank reconciliations
B) One person approves, records, and reviews transactions
C) Person authorizing payment is different from person recording payment
D) CFO signs checks and performs reconciliations
Answer: C
Explanation: Segregation of duties reduces fraud risk by dividing authorization, custody, and recording functions.
49. What type of opinion is issued when financial statements are materially misstated?
A) Qualified opinion
B) Adverse opinion
C) Disclaimer of opinion
D) Unqualified opinion
Answer: B
Explanation: An adverse opinion states that financial statements are not fairly presented in conformity with GAAP.
50. Which organization is primarily responsible for auditor independence rules?
A) FASB
B) PCAOB & SEC
C) IASB
D) IRS
Answer: B
Explanation: The SEC and PCAOB establish independence rules for auditors of public companies.
Completing these first 50 CPA BAR practice questions gives you a solid foundation in financial reporting, business analysis, and governance concepts. Consistent practice is the key to passing the CPA BAR exam. Next, continue with Part 2 (Q51–100) for more advanced questions and case-study style problems.
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