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Free ACCA Strategic Business Reporting Practice Questions & Answers
400 exam-style Strategic Business Reporting questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 331
An Alternative Performance Measure (APM) or non-GAAP measure differs from GAAP metrics in that:
Select an option first.
Correct answer: B — It is defined and calculated by management, outside IFRS requirements — useful if reconciled and explained, but potentially manipulated to present a more favourable picture
Explanation: B is correct: APMs (adjusted EBITDA, underlying profit etc.) are management-defined — they can exclude legitimate restructuring costs or include adjusted figures that present performance more favourably. Regulators (ESMA, SEC) require reconciliation to GAAP and explanation of why they are used. A is wrong — APMs may or may not be more reliable. C is wrong — APMs are typically not audited to the same standard. D is wrong — GAAP measures are still required.
Question 332
Under IFRS 8, the reconciliation of segment profit to consolidated profit before tax must address items such as:
Select an option first.
Correct answer: B — Unallocated corporate costs, inter-segment eliminations, and items not included in segments' reported profit — bridging to consolidated PBT
Explanation: B is correct: the reconciliation covers unallocated costs (e.g. head office), inter-segment profit eliminations, and other items not in segment P&L — providing a complete bridge to consolidated profit before tax. A is wrong — accounting policy differences are not the primary reconciling items. C is wrong — NCI is a separate P&L allocation. D is wrong — tax reconciliation is a separate IAS 12 disclosure.
Question 333
An entity uses adjusted EBITDA as an APM excluding share-based payment charges. Regulators require:
Select an option first.
Correct answer: B — Clear labelling as non-GAAP, reconciliation to IFRS profit, explanation of why the measure is useful, and consistent presentation period to period
Explanation: B is correct: ESMA guidance on APMs and IFRS Practice Statement 1 (Management Commentary) require: clear labelling, reconciliation to the nearest GAAP equivalent, explanation of usefulness, consistent application, and comparative period presentation. A is wrong — if used, disclosure requirements apply. C is wrong — auditor confirmation is not required for all APMs. D is wrong — regulatory pre-approval is not required.
Question 334
Which of the following sustainability metrics is most directly connected to climate physical risk for a coastal property company?
Select an option first.
Correct answer: C — Estimated financial exposure to assets at risk from sea level rise and flood frequency
Explanation: C is correct: physical climate risk for a coastal property company is most directly quantified by the financial value of assets exposed to sea level rise and increased flooding — a direct financial consequence of physical climate change. A is wrong — diversity is a social metric. B is wrong — carbon intensity relates to transition risk (operational emissions). D is wrong — supply chain labour is a social/governance metric.
Question 335
Under IFRS S1, an entity must disclose information about sustainability risks and opportunities using which four-pillar structure?
Select an option first.
Correct answer: B — Governance, Strategy, Risk Management, Metrics and Targets
Explanation: B is correct: IFRS S1 (following TCFD) requires disclosure under four pillars: Governance (oversight of sustainability risks), Strategy (risks/opportunities and their impact on business model), Risk Management (processes to identify and manage), and Metrics and Targets (how performance is measured). A is wrong — 'Operations' and 'Finance' are not the four pillars. C is wrong — ESG + Finance is not the IFRS S1 structure. D is wrong — those are not the pillars.
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Question 336
A company has negative free cash flow despite positive EBITDA. This may indicate:
Select an option first.
Correct answer: B — High capital expenditure, significant working capital build-up, or large debt service payments are consuming cash despite operational profitability
Explanation: B is correct: FCF = operating cash flow − capex. Negative FCF with positive EBITDA suggests heavy investment (high capex for growth or replacement), working capital tied up in growth, or high interest payments that consume cash after EBITDA. A is wrong — EBITDA positive means operationally profitable. C is wrong — revenue decline would affect EBITDA. D is wrong — dividends are paid after FCF, not before.
Question 337
The sustainable growth rate (SGR) formula is:
Select an option first.
Correct answer: B — ROE × retention ratio (1 − payout ratio) — the rate a company can grow without needing external equity financing
Explanation: B is correct: SGR = ROE × retention ratio. It represents the maximum growth rate achievable without issuing new equity or changing financial leverage. A is wrong — that states the formula without explaining it. C is wrong — that is two components of ROE (DuPont). D is wrong — ROCE × gearing is not the SGR formula.
Question 338
When assessing whether reported goodwill is impaired, an analyst should examine:
Select an option first.
Correct answer: B — The discount rate assumptions, cash flow projections, and growth rate assumptions used in the value in use calculation — checking for reasonableness and consistency
Explanation: B is correct: goodwill impairment testing (IAS 36) relies on value in use or FVLCOD. An analyst should scrutinise: discount rate (appropriateness and consistency), long-term growth rates (vs economic forecasts), cash flow projections (vs actual performance) for optimism bias. A is wrong — gross margin alone doesn't assess goodwill impairment. C is wrong — the audit opinion is a starting point but not the full analysis. D is wrong — age of goodwill is not the impairment criterion.
Question 339
Which of the following disclosures best helps investors assess the quality of management's judgments in financial reporting?
Select an option first.
Correct answer: B — Disclosure of key sources of estimation uncertainty (IAS 1) — explaining assumptions used for carrying amounts most sensitive to change, with sensitivity analysis
Explanation: B is correct: IAS 1 requires disclosure of key estimation uncertainty sources — assumptions about the future that have significant risk of causing material adjustment. This transparency helps investors assess whether estimates are conservative or aggressive. A is wrong — general compliance statements provide little analytical value. C is wrong — a list of standards applied is boilerplate. D is wrong — the management letter is not public.
Question 340
An entity reports a significantly higher ROCE than its peers. An analyst should investigate whether this is due to:
Select an option first.
Correct answer: B — Understated asset base (e.g. fully depreciated PPE, no revaluations, exclusion of leases), different revenue recognition policies, or genuinely superior operational performance
Explanation: B is correct: artificially high ROCE can result from: old, fully depreciated assets (low denominator), avoiding revaluations (understated PP&E), aggressive revenue recognition (inflated numerator), or exclusion of operating leases pre-IFRS 16. Genuine outperformance is also possible but must be distinguished. A is wrong — superior management may explain it but should be verified. C is wrong — higher revenue alone is insufficient explanation. D is wrong — ROCE is pre-tax so tax rate is irrelevant.
Question 341
Under IFRS S1, the concept of 'sustainability-related risks' covers:
Select an option first.
Correct answer: B — Risks that could reasonably be expected to affect the entity's prospects — encompassing environmental, social and governance (ESG) factors with financial consequences
Explanation: B is correct: IFRS S1 defines sustainability-related risks broadly — any risk arising from sustainability matters (environmental, social, governance) that could affect future cash flows, cost of capital or access to finance. A is wrong — all ESG risks are included, not just environmental. C is wrong — both materialised and potential future risks are relevant. D is wrong — the sustainability disclosure is broader than the traditional risk register.
Question 342
When analysing earnings quality, 'accrual ratio' is calculated as:
Select an option first.
Correct answer: B — Change in net operating assets divided by average net operating assets — high values suggest earnings are driven by accruals rather than cash
Explanation: B is correct: the accrual ratio = (change in NOA) / average NOA. A high accrual ratio means earnings growth is driven by accruals (book entries) rather than cash — flagging potential earnings manipulation or aggressive accounting. A is wrong — that is profit margin. C is wrong — OCF/net income is the cash conversion ratio. D is wrong — that is asset turnover.
Question 343
The Beneish M-Score is a financial analysis tool used to:
Select an option first.
Correct answer: B — Detect the probability that a company is engaging in earnings manipulation based on financial ratios derived from its accounts
Explanation: B is correct: the Beneish M-Score uses eight financial ratios (days sales in receivables, gross margin index, asset quality index, etc.) to estimate the probability that a company has manipulated its earnings. A high score (less negative than −2.22) suggests manipulation risk. A is wrong — relative profitability is ratio analysis. C is wrong — capital structure is a separate analysis. D is wrong — going concern assessment uses different tools.
Question 344
Under IFRS S2, transition climate risks include all EXCEPT:
Select an option first.
Correct answer: C — Sea level rise affecting coastal assets
Explanation: C is correct — sea level rise is a physical risk, not a transition risk. Transition risks arise from the process of transitioning to a lower-carbon economy: policy changes (A), technology shifts, legal risks, market changes (D), and reputational risks. A is wrong — carbon pricing is a transition risk. B is wrong — policy changes are transition risks. D is wrong — reputational risks from high-carbon operations are transition risks.
Question 345
When evaluating a company's ROCE over time, an analyst should be aware that using the net book value of assets in capital employed:
Select an option first.
Correct answer: B — Causes ROCE to appear to improve artificially as assets age and depreciate — comparing with a company with newer assets can be misleading
Explanation: B is correct: as PPE ages and net book value falls through depreciation (without revaluation), capital employed decreases. With constant or growing profits, ROCE appears to improve — but this is a mechanical accounting effect, not genuine performance improvement. Companies with newer assets (higher NBV) will have lower ROCE by comparison. A is wrong — NBV rarely reflects current economic value. C is wrong — ROCE typically increases as assets depreciate. D is wrong — it significantly affects ROCE trends.
Question 346
In analysing profitability, EBITDA is sometimes preferred to operating profit because:
Select an option first.
Correct answer: B — It removes depreciation, amortisation and other non-cash charges — making it more comparable across companies with different capital structures and depreciation policies
Explanation: B is correct: EBITDA removes the effect of capital structure (interest), tax regimes, and accounting policy differences in depreciation/amortisation — making cross-company comparison more meaningful for operational profitability. A is wrong — EBITDA is not an IFRS measure. C is wrong — EBITDA is always higher than operating profit as it adds back D&A. D is wrong — EBITDA does not automatically exclude one-off items.
Question 347
Free cash flow to equity (FCFE) is calculated as:
Select an option first.
Correct answer: B — Net income minus net capex adjusted for changes in working capital plus net borrowings
Explanation: B is correct: FCFE = Net income + Depreciation − Change in working capital − Capex + Net new borrowings (debt issuance less repayments). It represents cash available to equity holders after all expenses, investments and debt service. A is wrong — that is free cash flow to the firm (FCFF) variant. C is wrong — EBITDA minus taxes is not FCFE. D is wrong — operating profit minus interest is close to earnings but not FCFE.
Question 348
Under IFRS 8, an 'all other segments' category is used when:
Select an option first.
Correct answer: B — Operating segments that do not meet the 10% thresholds are combined and reported as a reconciling item — not as a named segment
Explanation: B is correct: IFRS 8 requires segments that do not individually meet reporting thresholds to be combined into an 'all other segments' category for reconciliation purposes — not presented as a separate reportable segment. A is wrong — IFRS 8 does not limit the number of reportable segments. C is wrong — 'all other' aggregates immaterial segments. D is wrong — the purpose is aggregation of immaterial items, not disclosure reduction.
Question 349
A Piotroski F-Score is a financial analysis tool that:
Select an option first.
Correct answer: B — Uses nine financial signals to assign a score from 0 to 9 — identifying financially strong companies (high F-score) and weak ones (low F-score) across profitability, leverage/liquidity and operating efficiency
Explanation: B is correct: the Piotroski F-Score uses nine binary criteria: profitability signals (ROA, OCF, change in ROA, accruals), leverage/liquidity signals (change in leverage, change in current ratio, no dilutive equity issuance), and operating efficiency signals (change in gross margin, change in asset turnover). High scores (7-9) indicate strength. A is wrong — ESG is measured separately. C is wrong — dividends are not the focus. D is wrong — it covers multiple dimensions.
Question 350
Under IAS 33, the weighted average shares for basic EPS uses the 'time-weighting' principle. For a company with a December year end that buys back 500,000 shares on 1 October, the adjustment to the weighted average is:
Select an option first.
Correct answer: B — Deduct 500,000 × 3/12 = 125,000 from the weighted average
Explanation: B is correct: the buyback occurred on 1 October — shares were outstanding for 9 months (Jan–Sep) and not outstanding for 3 months (Oct–Dec). The weighted average deduction = 500,000 × 3/12 = 125,000 (the reduction in shares for the 3 months they were no longer outstanding). A is wrong — full deduction ignores time-weighting. D is wrong — 375,000 = 500,000 × 9/12 would apply if they were bought back on 1 April.
Question 351
Which of the following best describes 'earnings persistence' as a concept in financial analysis?
Select an option first.
Correct answer: B — The degree to which current earnings are a reliable indicator of future earnings — high persistence means stable, repeatable earnings from core operations
Explanation: B is correct: earnings persistence measures whether today's earnings can predict tomorrow's. Persistent earnings are driven by core, sustainable operations; transitory earnings include one-offs, gains from asset sales and write-downs that are unlikely to recur. Analysts typically adjust for transitory items. A is wrong — persistence is about predictability, not always being high. C is wrong — beating forecasts is a separate concept. D is wrong — low volatility may be a result but not the definition.
Question 352
When analysing a retail company's financial statements, same-store sales growth is a key performance indicator because:
Select an option first.
Correct answer: B — It isolates the revenue growth attributable to existing stores — removing the effect of new store openings — giving a purer measure of organic performance
Explanation: B is correct: same-store (like-for-like) sales growth strips out the contribution from newly opened stores, allowing analysts to assess whether existing operations are growing — a key indicator of underlying trading performance in retail and hospitality. A is wrong — not an IFRS requirement. C is wrong — it is a subset of total sales. D is wrong — it has the same audit scrutiny.
Question 353
Under IFRS S1, information about sustainability-related risks and opportunities must be disclosed on a 'forward-looking' basis. This means:
Select an option first.
Correct answer: B — Including information about potential future developments — the entity must explain how risks and opportunities are expected to affect strategy, business model and financial projections
Explanation: B is correct: IFRS S1 explicitly requires forward-looking information — qualitative and quantitative disclosure about how sustainability risks and opportunities could affect the entity's strategy, business model and financial position in the short, medium and long term. A is wrong — backward-looking only is insufficient. C is wrong — specific 10-year projections are not mandated. D is wrong — audit plans are not sustainability disclosures.
Question 354
The 'quality of earnings' concept suggests that higher quality earnings are characterised by:
Select an option first.
Correct answer: B — Earnings derived from core, recurring business activities, supported by cash flows, with conservative accounting and transparent disclosure
Explanation: B is correct: high-quality earnings are sustainable (from recurring activities), confirmed by cash flows (operating cash flow close to net income), based on conservative accounting policies, and disclosed transparently. A is wrong — EPS level is not the quality measure. C is wrong — one-off gains inflate profits temporarily without sustainability. D is wrong — beating forecasts is a separate concept.
Question 355
When an entity uses the IFRS S1 framework to disclose sustainability risks, it must consider the time horizons of:
Select an option first.
Correct answer: B — Short term (current year to year-end), medium term (up to the annual reporting cycle) and long term (beyond the annual reporting cycle) — recognising that climate risks may materialise over decades
Explanation: B is correct: IFRS S1 explicitly requires consideration of short, medium and long-term time horizons, acknowledging that sustainability risks (particularly climate) may have very long lead times before materialising in financial statements. A is wrong — only the current year is too narrow. C is wrong — only 5 years may miss important long-term risks. D is wrong — financial statements' one-year horizon is too narrow for sustainability.
Question 356
Net Promoter Score (NPS) is an example of which type of performance measure?
Select an option first.
Correct answer: B — Non-financial customer satisfaction measure — indicating future revenue trends through customer loyalty metrics
Explanation: B is correct: NPS (percentage of promoters minus percentage of detractors) is a non-financial measure of customer loyalty and satisfaction — a leading indicator of future revenue and customer retention. A is wrong — NPS is non-financial. C is wrong — customer satisfaction is in the customer perspective of the BSC. D is wrong — learning and growth covers employee/capability metrics.
Question 357
An analyst observes that a company's days sales outstanding (DSO/receivable days) has increased significantly while revenue has grown modestly. This might suggest:
Select an option first.
Correct answer: B — Channel stuffing or aggressive revenue recognition — sales recorded late in the period that haven't been collected, or credits to customers that inflate revenues
Explanation: B is correct: DSO rising significantly with modest revenue growth is a red flag — it may indicate revenue recognised ahead of actual customer acceptance (channel stuffing), extended credit terms to push sales, or difficulty collecting from customers. All of these reduce earnings quality. A is wrong — improved collection would reduce DSO. C is wrong — better terms would explain it but should also show revenue growth. D is wrong — customer relationship improvement would show in lower DSO.
Question 358
Under IFRS 8, the definition of a segment's reported measure of profit or loss is:
Select an option first.
Correct answer: B — The measure that is regularly reviewed by the CODM to assess segment performance and allocate resources — which may differ from IFRS measures
Explanation: B is correct: IFRS 8's management approach means the profit measure for segments is whatever the CODM uses internally — this may be operating profit, EBIT, EBITDA, or another internal measure. Reconciliation to IFRS profit is required. A is wrong — the CODM may use a different measure than IAS 1 operating profit. C is wrong — EBITDA is one possible measure but not the definition. D is wrong — different segments may have different profit measures if that is how they are managed.
Question 359
Which of the following best describes 'financial statement fraud' in the context of earnings quality analysis?
Select an option first.
Correct answer: B — Intentional misrepresentation of financial results through false or misleading disclosures — typically overstating assets/revenues or understating liabilities/expenses to present an artificially favourable picture
Explanation: B is correct: financial statement fraud involves intentional misrepresentation — the deliberate manipulation of financial figures to mislead investors, lenders or regulators. Common schemes include revenue recognition manipulation, expense deferral and liability concealment. A is wrong — conservative accounting is a legitimate policy choice. C is wrong — estimate revisions are normal (IAS 8). D is wrong — APMs can be legitimate if properly disclosed.
Question 360
Sustainable EBITDA, as used in credit analysis, typically adjusts standard EBITDA to:
Select an option first.
Correct answer: B — Remove one-off, exceptional or non-recurring items and include expected maintenance capex — giving a normalised, recurring earnings measure for debt serviceability analysis
Explanation: B is correct: sustainable or normalised EBITDA strips out one-off items (restructuring charges, litigation settlements, M&A costs) and sometimes incorporates a maintenance capex deduction to arrive at the sustainable cash earnings power — the basis for leverage ratios in credit analysis. A is wrong — including one-offs makes it non-sustainable. C is wrong — depreciation is added back once. D is wrong — only D&A (non-cash) is excluded.
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