One of the greatest challenges of taking any examination is not knowing what to expect. That is especially true of candidates facing the CMA® exam, because the topic range of the exam is so broad. To eliminate some of the mystery, following is a summary of the content and format of Part 1, as well as some study tips. In future issues, this column will discuss the remaining exam parts and other helpful test-taking strategies.
An Overview of Part 1
Candidates have three hours to complete Part 1 of the CMA exam, which includes 110 questions on Business Analysis. All questions are of the four-option multiple-choice type, each with only one possible correct answer. Questions are phrased in one of the following ways:
- A complete sentence that concludes with a question mark. Options are presented as either complete or incomplete sentences
- An incomplete sentence, with the options representing conclusions to that sentence
- Using the "except" or "not" format, which requires the candidate to select the option that does not fit with the others
- Using the "most/least/best" format, which requires the candidate to select an option that is either better or worse than the others. The correct answer usually represents the collective judgment of a group of experts in the field.
To prepare for Part 1, candidates should have a comprehensive understanding of a broad range of topics related to Business Analysis. Questions on this part of the exam are broken down as follows:
Business Economics (25 percent of questions), including market structures and pricing, fiscal policy, business cycles, issues in macroeconomics, monetary policy, and factors affecting the individual firm, among other topics. In this section, you'll find questions along the lines of:
Which one of the following has an inverse relationship with the demand for money?
a. Aggregate income
b. Price levels
c. Interest rates
d. Flow of funds
(The answer is "C." As the interest rate increases, demand for money decreases. No interest is earned holding cash.)
Global Business (20 percent of questions), including global trade, foreign exchange and other global topics, featuring questions such as:
All of the following are concerns that are unique to foreign investments except:
a. Exchange rate changes
b. Purchasing power parity
c. Changes in interest rates
d. Expropriation
(The answer is "C." Changes in interest rates are not unique to foreign investments.)
Internal Controls (15 percent of questions), including risk assessment and controls, internal auditing, and systems controls and security measures. Look for questions such as:
Risk assessment is a process…
a. designed to identify potential events that may affect the entity.
b. that establishes policies and procedures to accomplish internal control objectives.
c. of identifying and capturing information in a timely fashion.
d. that assesses the quality of internal controls throughout the year.
(The answer is "A." Risk assessment involves identifying all risks and vulnerabilities that an organization is exposed to.)
Quantitative Methods (15 percent of questions), including forecasting analysis, linear programming, network analysis, probability concepts, decision tree analysis, and other quantitative techniques. You'll find questions like:
The decision tree method can be applied in conjunction with which of the following decision-making approaches?
I. Expected value
II. Maximum regret
III. Minimax regret
a. I only
b. I and II only
c. I and III only
d. I, II and III
(The answer is "D." The decision tree method can be applied with or without probabilities. Approaches that do not use probabilities include the minimax regret, maximum regret and maximum payoff approaches. An approach that uses probabilities is the expected value approach.)
Financial Statement Analysis (25 percent of questions), including the development of accounting standards, financial statement assurance, short-term liquidity, return on invested capital, capital structure and solvency, profitability analysis, and other analytical issues. Here, you'll find questions such as:
Anderson Cable wishes to calculate their return on assets. You know that the return on equity is 12% and that the debt ratio is 40%. What is the return on assets?
a. 4.8%
b. 7.2%
c. 12.0%
d. 20.0%
(The answer is "B." Return on assets = return on equity x (1-Debt ratio) = 12% x 0.60 = 7.2%)
Study Tip: Answer in Your Mind First
Knowledge alone, however, will not necessarily guarantee a passing score on the CMA exam. Candidates should also be equipped with test-taking techniques to improve their efficiency and, in turn, their exam score.
One important technique to use during the exam is to try answering a question in your mind before actually looking at the answer options. Once this is done, then review the four possible options to see if this formulated answer appears there. Even if it does, you should still carefully review the other options to be certain that there is not a more appropriate answer than the one you selected.
Similarly, pay close attention to the wording of each question. As described above, words such as "except," "least," and "most" will significantly impact the correct answer choice. Although these words are usually indicated in bold, they sometimes are easy to miss, especially during the pressure of exam day. Also consider jotting down key words that appear during the question, or rephrase the question in your own words if you are having trouble understanding it.
In the next issue: The Various Difficulty Levels of Questions - And Time Management During the Exam
