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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 361
Which of the following is an example of a 'creative accounting' technique?
Select an option first.
Correct answer: B — Using operating lease classification to keep debt off the balance sheet (pre-IFRS 16) or structuring sale-and-leaseback arrangements to manipulate asset values
Explanation: B is correct: pre-IFRS 16, operating leases did not appear on the balance sheet — companies structured arrangements as operating leases to keep debt off-balance-sheet, a classic example of form over substance creative accounting. IFRS 16 largely eliminated this by requiring all significant leases on-balance-sheet. A is wrong — IFRS 15 compliance is not creative accounting. C is wrong — IAS 37 best estimate is correct accounting. D is wrong — IAS 38 amortisation is appropriate.
Question 362
Under IFRS S2, a company must disclose its climate-related targets including:
Select an option first.
Correct answer: B — Scope 1, Scope 2 and (if material) Scope 3 greenhouse gas targets, time horizons for achieving them, baselines, progress against targets, and whether targets are science-based
Explanation: B is correct: IFRS S2 requires quantitative disclosure of GHG targets (Scope 1, 2 and Scope 3 if material), the time horizon (short/medium/long), the baseline year, progress to date, and whether targets are validated by the Science Based Targets initiative or similar. A is wrong — Scope 2 and 3 are also required. C is wrong — quantitative targets are required. D is wrong — IFRS S2 requires multi-decade time horizons for climate targets.
Question 363
In the context of integrated reporting (the IIRC framework), the six capitals are:
Select an option first.
Correct answer: A — Financial, physical, intellectual, human, social and relationship, and natural capital
Explanation: A is correct: the IIRC Integrated Reporting Framework identifies six capitals: financial, manufactured (physical), intellectual, human, social and relationship, and natural capital. Integrated reporting asks entities to explain how they use and affect all six capitals — going beyond financial capital. B is wrong — those are operational categories, not the IIRC capitals. C is wrong — those are balance sheet classifications. D is wrong — those are equity/financing components.
Question 364
When a company reports a very high net profit margin compared to industry peers, an analyst should investigate whether this is due to:
Select an option first.
Correct answer: B — Revenue over-recognition, deferral of expenses, under-provisioning, gains from asset disposals, or genuinely superior operational performance
Explanation: B is correct: a high outlier margin warrants investigation across multiple dimensions — accounting policy differences (recognition timing), one-off gains, under-provisioning for liabilities, or genuinely better cost structures or pricing power. Analysts use segment analysis, cash flow quality checks and accrual ratios to distinguish sustainable from inflated margins. A is wrong — superior management may explain it but should be verified. C is wrong — tax affects net margin but investigation should be broader. D is wrong — higher prices alone may not fully explain the divergence.
Question 365
Climate-related scenario analysis under IFRS S2 requires entities to:
Select an option first.
Correct answer: B — Use at least two scenarios — one consistent with a 1.5°C or 2°C warming pathway and one reflecting current policies — to assess how resilient the business model is to different climate futures
Explanation: B is correct: IFRS S2 requires climate-related scenario analysis across at least two scenarios to provide a range of possible futures — typically a low-temperature scenario (Paris-aligned) and a higher-temperature/current policy scenario. This tests the resilience of strategy and business model. A is wrong — a single scenario is insufficient. C is wrong — detailed models for all scenarios are not required. D is wrong — all entities subject to IFRS S2 must apply it regardless of emission intensity.
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Question 366
Which of the following is a 'lagging indicator' of corporate performance?
Select an option first.
Correct answer: D — Net profit reported for the financial year just ended
Explanation: D is correct: net profit for the year just ended is a lagging indicator — it reflects past activity and decisions. Customer satisfaction, pipeline and training are leading indicators predicting future performance. A, B and C are all leading indicators.
Question 367
Under IFRS S1, the connectivity requirement means sustainability disclosures should be:
Select an option first.
Correct answer: B — Presented in the same general purpose financial report as the financial statements, with clear cross-referencing so users can understand relationships between sustainability risks and financial figures
Explanation: B is correct: IFRS S1 connectivity requires sustainability disclosures to be in the same package as financial statements (typically the annual report) with clear connections — users should be able to trace from a sustainability risk to its financial impact. A is wrong — separation breaks connectivity. C is wrong — simultaneous publication is expected. D is wrong — external agency verification is not an IFRS S1 requirement.
Question 368
The capital allocation efficiency of a company can be assessed using:
Select an option first.
Correct answer: B — Return on invested capital (ROIC) versus the company's weighted average cost of capital (WACC) — positive spread indicates value creation; negative spread indicates destruction
Explanation: B is correct: ROIC vs WACC is the fundamental test of capital allocation efficiency — if ROIC > WACC, every dollar invested creates value above the required return; if ROIC < WACC, the company is destroying value. This is the basis of EVA and is central to strategic financial analysis. A is wrong — revenue growth alone ignores the cost of capital to achieve it. C is wrong — market share is a competitive metric. D is wrong — employee satisfaction is an HR metric.
Question 369
When IFRS 8 requires the reconciliation of segment results to consolidated financial statements, which of the following would appear as a reconciling item?
Select an option first.
Correct answer: B — Elimination of intragroup revenue, unallocated head office costs, and other group-level adjustments not included in segment results
Explanation: B is correct: reconciling items bridge from total segment profit to consolidated profit before tax — they include: unallocated head office costs, inter-segment eliminations, items excluded from segment reporting (e.g. certain financial instruments), and other group-level adjustments. A is wrong — largest segment revenue is already in segment totals. C is wrong — NCI allocation is below profit for the year. D is wrong — tax expense is typically excluded from segment reporting and appears as a reconciling item.
Question 370
Which of the following most accurately describes 'impression management' in financial reporting?
Select an option first.
Correct answer: B — Presenting financial information in ways that create a more favourable impression than is warranted — through selective emphasis, visual presentation, or strategic use of graphs and highlights — without necessarily falsifying numbers
Explanation: B is correct: impression management is a form of communication bias — using the annual report's narrative and visual elements (graphs with inconsistent scales, highlighting positive results, burying negative information in dense footnotes) to create an unduly positive impression. A is wrong — tax minimisation is a legitimate planning activity. C is wrong — transparent disclosure is the opposite of impression management. D is wrong — consistent APMs are positive practice.
Question 371
An analyst is comparing two companies in the same sector. Company A uses FIFO inventory, Company B uses AVCO. During a period of rising costs, which company will report higher gross profit?
Select an option first.
Correct answer: B — Company A (FIFO) — lower COGS because oldest (cheaper) inventory is expensed first
Explanation: B is correct: FIFO in a rising cost environment matches older, lower-cost inventory against revenue — resulting in lower COGS and higher gross profit compared to AVCO (which uses a blended average cost, including higher recent purchases). A is wrong — AVCO includes higher recent costs in the average. C is wrong — the methods give different results when costs are changing. D is wrong — the direction can be determined.
Question 372
Under IFRS S1, entities are required to use 'connected' information, meaning:
Select an option first.
Correct answer: B — Sustainability disclosures should be consistent with and cross-reference the information in the financial statements — including consistency in key assumptions, time horizons and economic scenarios
Explanation: B is correct: IFRS S1 connectivity goes beyond mere proximity — it requires that key assumptions in sustainability disclosures (e.g. growth rates, asset lifetimes under climate scenarios) are consistent with those used in the financial statements (e.g. impairment calculations, depreciation lives). A is wrong — audit of sustainability is separate and evolving. C is wrong — sustainability metrics are in a separate report but connected. D is wrong — management commentary is a separate document.
Question 373
Which of the following is a signal of potentially poor earnings quality that an analyst using the Beneish M-Score model would identify?
Select an option first.
Correct answer: B — Significant increases in days sales in receivables (DSRI), gross margin decline, and large increases in total accruals to total assets — classic manipulation indicators
Explanation: B is correct: the Beneish model's key indicators of manipulation include: DSRI > 1 (receivables growing faster than revenue, suggesting premature revenue recognition), gross margin index > 1 (deteriorating margins), and total accruals/total assets above threshold (accruals growing faster than assets). A is wrong — declining receivables days with revenue growth is a positive quality indicator. C is wrong — stable EBITDA is a quality indicator. D is wrong — strong FCF confirms earnings quality.
Question 374
An entity reports earnings before exceptional items as its primary performance measure. Under ESMA APM guidelines, this measure requires:
Select an option first.
Correct answer: B — Clear definition, consistent calculation, reconciliation to GAAP profit, explanation of why it is useful, and equal or lesser prominence than the equivalent IFRS measure
Explanation: B is correct: ESMA's APM guidelines require: clear labelling as non-GAAP, definition and basis of calculation, reconciliation to IFRS equivalent, explanation of usefulness, and importantly — the APM must not be given more prominence than the GAAP measure. A is wrong — APMs require significant disclosure. C is wrong — shareholder approval is not required. D is wrong — audit certification is not mandated for every use.
Question 375
A company with strong revenue growth but deteriorating operating cash flow should be investigated for:
Select an option first.
Correct answer: B — Aggressive revenue recognition, increasing receivables (uncollected sales), or deferred costs — suggesting earnings are not being converted to cash
Explanation: B is correct: growing revenue without corresponding operating cash flow is a classic earnings quality red flag — it suggests profits may include accruals that are not being collected (rising DSO), costs being deferred, or revenue recognised before cash receipt. A is wrong — successful expansion would show cash flow eventually. C is wrong — high capex affects investing cash flows, not operating cash flow. D is wrong — dividends come after operating cash flow.
Question 376
Under IFRS S2, which of the following is disclosed under the 'metrics and targets' pillar?
Select an option first.
Correct answer: C — Absolute greenhouse gas emissions (Scope 1, 2 and 3), intensity ratios, and progress against climate targets
Explanation: C is correct: the metrics and targets pillar of IFRS S2 (following TCFD) requires quantitative disclosure — GHG emissions in absolute terms (Scope 1, 2 and material Scope 3), intensity ratios, capital deployment for climate risks/opportunities, and progress against specific climate targets. A is wrong — governance is under the governance pillar. B is wrong — transition strategy is under the strategy pillar. D is wrong — peer performance is not required.
Question 377
Working capital ratio analysis: a retailer has inventory days of 60 and payables days of 75. This means the retailer:
Select an option first.
Correct answer: B — Is effectively receiving free credit — suppliers finance the inventory for 15 days beyond the time it takes to sell stock
Explanation: B is correct: payables days (75) > inventory days (60) means the retailer pays suppliers 75 days after purchase but converts inventory to cash in 60 days — it collects cash before paying suppliers, creating a negative working capital cycle (cash positive). This is a favourable position common in supermarkets. A is wrong — the working capital position is actually favourable. C is wrong — long payable days are a sign of purchasing power. D is wrong — no indication of excessive growth.
Question 378
Which statement about the price-to-book (P/B) ratio is correct?
Select an option first.
Correct answer: B — A P/B below 1 suggests the market values the company at less than its net asset value — potentially indicating deep value, financial distress, or assets that are not generating adequate returns
Explanation: B is correct: P/B = market capitalisation / book equity. Below 1 = market believes the assets are worth less than book value — possibly because they are impaired, generating poor returns, or the market expects losses. It may signal value opportunity or distress. A is wrong — P/B below 1 can coexist with losses. C is wrong — high P/B may reflect justified intangible value or brand strength. D is wrong — P/B and P/E are different ratios.
Question 379
Under IFRS S1, the governance pillar of sustainability disclosure requires entities to disclose:
Select an option first.
Correct answer: B — Information about the governance body (typically the board) responsible for oversight of sustainability risks, including how it monitors sustainability performance and integrates it into strategy
Explanation: B is correct: the governance pillar of IFRS S1 (following TCFD) requires disclosure of: which governance body oversees sustainability risks and opportunities, how often it reviews sustainability information, how it integrates sustainability into strategy and risk management, and how management responsibilities are defined. A is wrong — full board biographies are not required. C is wrong — CEO credentials are insufficient. D is wrong — environmental reports are a metric, not governance.
Question 380
An analyst is assessing whether a company's goodwill impairment test is reliable. Key scrutiny areas include:
Select an option first.
Correct answer: B — The discount rate used (vs WACC), long-term growth rate assumptions (vs GDP or market forecasts), cash flow projections (vs actual recent performance), and whether CGU boundaries are drawn appropriately
Explanation: B is correct: goodwill impairment tests are highly sensitive to assumptions. Analysts focus on: discount rate (is it artificially low?), growth rates (are they higher than historical performance or economic forecasts?), cash flow projections (are they consistent with recent actuals?), and CGU boundary appropriateness (is goodwill shielded within a large CGU?). A is wrong — age alone is not the test. C is wrong — arm's length acquisition is a recognition issue, not the impairment test. D is wrong — audit firm size is not relevant to impairment quality.
Question 381
Under the integrated reporting framework, a company creating 'shared value' demonstrates:
Select an option first.
Correct answer: B — Business activities that simultaneously create financial returns AND contribute to social or environmental value — improving long-term sustainability of the business model
Explanation: B is correct: shared value (Porter and Kramer's concept, adopted by integrated reporting) holds that businesses can create economic value while also creating value for society — by solving social problems through core business activities, not philanthropy. This builds long-term competitive advantage. A is wrong — shared value goes beyond short-term returns. C is wrong — ESG scores at the expense of profit is not sustainable. D is wrong — capitals are not equally weighted; they reflect the entity's specific situation.
Question 382
When IFRS S2 requires scenario analysis, the entity must assess climate scenarios for their impact on:
Select an option first.
Correct answer: B — The entity's strategy, business model and financial planning assumptions — including potential changes to revenues, costs, asset values and capex requirements under each scenario
Explanation: B is correct: IFRS S2 scenario analysis requires the entity to assess potential impacts on: the business model (which products/services are viable), strategy (investment decisions, geographical positioning), and quantitative financial elements (revenue at risk, stranded asset exposure, required transition investment) — making the analysis financially grounded. A is wrong — scenarios are forward-looking. C is wrong — regulatory costs are one element but the analysis is much broader. D is wrong — dividends are a consequence, not the analysis focus.
Question 383
The concept of 'capital maintenance' in the Conceptual Framework relates to:
Select an option first.
Correct answer: B — Ensuring that profit is only recognised after the entity has at least maintained its capital — either in financial or physical terms depending on the chosen concept
Explanation: B is correct: the Conceptual Framework discusses two capital maintenance concepts: financial capital maintenance (profit = increase in financial capital, i.e. net assets in nominal or real terms) and physical capital maintenance (profit = increase in physical productive capacity). Under physical capital maintenance, price level changes affect what counts as profit. A is wrong — liquidity is separate. C is wrong — original cost maintenance is not the concept. D is wrong — solvency is different from capital maintenance.
Question 384
Under IFRS S2, the 'strategy' pillar of climate disclosure requires entities to disclose:
Select an option first.
Correct answer: B — How climate-related risks and opportunities affect the business model, strategy and financial planning — including scenario analysis to assess resilience
Explanation: B is correct: the IFRS S2 strategy pillar (following TCFD) requires disclosure of climate risks and opportunities, their impact on the business model and strategy, and the results of climate scenario analysis — showing how the entity has tested the resilience of its strategy. A is wrong — historical emissions are in metrics and targets. C is wrong — board oversight is in governance. D is wrong — dividend policy is not a strategy pillar disclosure.
Question 385
An analyst reviewing a company's pension disclosures notices the discount rate assumption has decreased from 4% to 2.5%. The likely effect on the defined benefit obligation is:
Select an option first.
Correct answer: B — The DBO increases — a lower discount rate means future cash flows are discounted less, increasing the PV of the obligation
Explanation: B is correct: the DBO is the present value of future pension payments. A lower discount rate reduces the denominator in the PV calculation, increasing the PV of future payments — the DBO rises. This is a key sensitivity in pension accounting. A is wrong — DBO increases when discount rate falls. C is wrong — the discount rate directly affects the DBO calculation. D is wrong — the relationship is not linear.
Question 386
An entity reports a high 'accruals ratio'. From an earnings quality perspective, this suggests:
Select an option first.
Correct answer: B — Reported profits are driven more by accruals than cash flows — potentially indicating aggressive accounting or future earnings reversal
Explanation: B is correct: a high accruals ratio (change in net operating assets / average NOA) indicates earnings are not being converted to cash at the same rate — a warning sign of earnings quality risk. Accruals-based earnings are more uncertain and may reverse in future periods. A is wrong — high cash generation would show a low accruals ratio. C is wrong — conservative accounting tends to produce lower accruals. D is wrong — capex affects investing cash flows.
Question 387
When comparing the financial statements of companies in different countries using different accounting standards (e.g. IFRS vs US GAAP), an analyst should:
Select an option first.
Correct answer: B — Identify key differences in standards (e.g. inventory methods, goodwill amortisation, lease accounting) and adjust figures to a common basis before comparing
Explanation: B is correct: IFRS and US GAAP differ in significant areas (LIFO allowed under US GAAP but not IFRS, goodwill amortised under US GAAP private companies but not under IFRS, different revenue recognition details). Analysts must identify and adjust for these differences for meaningful comparison. A is wrong — direct comparison is misleading without adjustment. C is wrong — accounting data provides important fundamental information. D is wrong — cross-standard comparison is often required for global analysis.
Question 388
The Altman Z-Score is a financial model that:
Select an option first.
Correct answer: B — Combines financial ratios to predict the probability of corporate bankruptcy within two years — with zones of distress, grey area and safety
Explanation: B is correct: the Altman Z-Score uses five financial ratios (working capital/total assets, retained earnings/total assets, EBIT/total assets, market value of equity/book value of debt, sales/total assets) weighted to give a composite score. Z < 1.81 indicates distress; Z > 2.99 is safe. A is wrong — it is a financial distress model. C is wrong — capital structure is separate. D is wrong — earnings persistence uses different tools.
Question 389
Under IFRS S1, entities must provide disclosures about sustainability risks 'proportionate to' their situation. This means:
Select an option first.
Correct answer: B — The depth and detail of disclosure is scaled to the materiality and complexity of sustainability risks and opportunities specific to that entity and its industry
Explanation: B is correct: IFRS S1's proportionality concept recognises that different entities face different sustainability risk profiles — a mining company's climate disclosures will be more detailed and quantitative than a small services firm's. The principle is to disclose what is material and appropriate to the entity's circumstances. A is wrong — not all entities have the same risk profile. C is wrong — IFRS S1 applies to all entities preparing general purpose financial statements. D is wrong — even entities with few material risks should confirm this through their assessment process.
Question 390
An analyst observes that a company's capital expenditure has declined significantly for three consecutive years while depreciation remains constant. This may indicate:
Select an option first.
Correct answer: B — Under-investment in productive capacity — assets are being consumed but not replaced, which may boost short-term cash flow but threaten long-term competitiveness
Explanation: B is correct: capex below depreciation means the entity is not replacing assets as they wear out — a classic sign of under-investment. Short-term free cash flow improves, but long-term productive capacity deteriorates. This is a common earnings quality concern — management may be deferring necessary reinvestment to boost near-term cash flow metrics. A is wrong — efficiency improvement would show in margins, not just capex reduction. C is wrong — improved management would still maintain appropriate reinvestment. D is wrong — disposals would reduce both the asset base and depreciation.
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