The answer is to assign a system-assigned managed identity to the Azure VM. This is correct because a system-assigned managed identity provides the VM with an automatically managed identity in Microsoft Entra ID, allowing the custom application to obtain an access token without storing any credentials in code. The VM uses this token to authenticate directly to Azure Key Vault’s REST API, aligning with zero-trust principles by eliminating hardcoded secrets, service principals, or certificates. On the AZ-305 exam, this scenario tests your understanding of identity-based access for PaaS and IaaS resources, often appearing as a trap where candidates mistakenly choose service principals or connection strings. A common memory tip is to remember that “managed” means Microsoft handles the credential lifecycle—so if the resource is Azure-hosted, always prefer a managed identity over manual secrets. Think of it as “VM gets a free Entra ID badge” for Key Vault access.
AZ-305 Practice Question: Design identity, governance, and monitoring solutions
This AZ-305 practice question tests your understanding of design identity, governance, and monitoring solutions. Match the stated requirement to the specific cloud service, access model, or configuration option — many options are valid in isolation but not for this scenario. After answering, compare your reasoning against the explanation and wrong-answer breakdown below. Once you have made your selection, read the full explanation to reinforce the concept and understand why each distractor is designed to mislead on exam day.
Your organization uses Microsoft Entra ID and Azure Key Vault. You need to ensure that a custom application can securely access secrets in Key Vault without storing credentials in code. The application runs on an Azure Virtual Machine. What should you use?
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
Assign a system-assigned managed identity to the VM
Option C is correct because a system-assigned managed identity for Azure Virtual Machines allows the application to authenticate to Azure Key Vault without storing any credentials in code. Azure automatically manages the identity's lifecycle and tokens, enabling the VM to obtain an access token from Azure AD (now Microsoft Entra ID) to call Key Vault's REST API. This aligns with the principle of zero-trust and eliminates the need for service principals or certificates in the application.
Key principle: Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
✗
Store the Key Vault URL and connection string in the application configuration
Why it's wrong here
Connection strings expose secrets in code.
✗
Create a service principal and upload a certificate to the VM
Why it's wrong here
Still requires certificate management and storage on the VM.
✓
Assign a system-assigned managed identity to the VM
Why this is correct
Managed identity provides a secure way to access Key Vault without credentials.
Related concept
Read the scenario before looking for a memorised answer.
✗
Use a shared access signature (SAS) token
Why it's wrong here
SAS is used for storage accounts, not Key Vault.
Common exam traps
Common exam trap: answer the scenario, not the keyword
The trap here is that candidates may confuse SAS tokens (used for Azure Storage) with Key Vault authentication, or mistakenly think that a service principal with a certificate is the most secure option, overlooking the fully managed, credential-less nature of managed identities.
Detailed technical explanation
How to think about this question
Under the hood, a system-assigned managed identity creates a service principal in Microsoft Entra ID automatically tied to the VM's lifecycle. The Azure Instance Metadata Service (IMDS) endpoint at 169.254.169.254 provides OAuth 2.0 tokens for the managed identity, which the application can retrieve without any hardcoded secrets. In real-world scenarios, this approach simplifies compliance with security policies like SOC 2 or PCI DSS, as there are no static credentials to rotate or leak.
KKey Concepts to Remember
Read the scenario before looking for a memorised answer.
Find the constraint that changes the correct option.
Eliminate answers that are true in general but not in this case.
TExam Day Tips
→Watch for words such as best, first, most likely and least administrative effort.
→Review why wrong options are wrong, not only why the correct option is correct.
Key takeaway
Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Real-world example
How this comes up in practice
A company's IT admin needs to give a contractor read-only access to production logs without sharing account credentials. Using role-based access control (RBAC) and temporary scoped permissions — not a permanent shared password — is the correct pattern. Questions like this test whether you can apply least-privilege access across cloud identity services.
Related glossary terms
Concepts from this question explained
These glossary pages explain the core terms tested in this AZ-305 question in full detail.
Design identity, governance, and monitoring solutions — This question tests Design identity, governance, and monitoring solutions — Read the scenario before looking for a memorised answer..
What is the correct answer to this question?
The correct answer is: Assign a system-assigned managed identity to the VM — Option C is correct because a system-assigned managed identity for Azure Virtual Machines allows the application to authenticate to Azure Key Vault without storing any credentials in code. Azure automatically manages the identity's lifecycle and tokens, enabling the VM to obtain an access token from Azure AD (now Microsoft Entra ID) to call Key Vault's REST API. This aligns with the principle of zero-trust and eliminates the need for service principals or certificates in the application.
What should I do if I get this AZ-305 question wrong?
Identify which exam domain this question belongs to, review the core concept, then practise similar questions from the same domain.
What is the key concept behind this question?
Read the scenario before looking for a memorised answer.
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Question Discussion
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