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ACCA SBR: Strategic Business Reporting Practice Questions
45 original practice questions for ACCA Strategic Business Reporting (SBR), written for this site with full explanations. The real SBR exam uses constructed-response case questions; these multiple-choice questions test the underlying concepts. They are original questions in the style of the syllabus - not taken from any official exam. Use them to test coverage, then confirm details against ACCA's official materials.
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When no IFRS standard specifically applies to a transaction, management should primarily:
Correct answer: C. The accounting policy hierarchy requires judgement anchored first in analogous standards and then in the Framework's definitions and concepts, so the outcome is principled rather than arbitrary. Selecting policies to flatter profit is bias, not judgement. Omitting a real transaction would make the statements incomplete and misleading, and another entity's practice carries no authority - a competitor may face different facts or simply be wrong. -
An entity sells inventory to a bank and is obliged to repurchase it later at the original price plus a lender's return. Faithful representation suggests this is reported as:
Correct answer: A. The substance is financing: the entity retains the risks and rewards of the inventory and pays what is effectively interest, so it recognises a liability and keeps the asset. Legal title alone does not drive recognition when the economic position is unchanged, so the pass-of-title argument fails. Recording revenue now and a purchase later would inflate sales with a transaction that generates no genuine customer revenue, and a contingent asset disclosure misdescribes both the asset and the obligation. -
Under the Conceptual Framework, a liability is:
Correct answer: D. The definition has three parts: a present obligation, a transfer of an economic resource, and a past event that created the obligation. Budgeted future spending fails because the entity has no present obligation until an obligating event occurs. Constructive obligations arising from established practice can qualify even without legal enforceability, so the courtroom test is too narrow. Trial balance credits include equity and income items, which are plainly not liabilities. -
Under the Conceptual Framework, an element such as an asset is recognised when:
Correct answer: B. Recognition depends on definitions plus the usefulness of the resulting information: low probability of inflows or severe measurement uncertainty may make recognition unhelpful, which is a judgement, not a mechanical test. Certainty is never required - most assets involve estimation. Auditors opine on statements but do not authorise recognition decisions, and physical form is irrelevant, otherwise intangibles and receivables could never be recognised. -
Which statement about measurement bases under the Conceptual Framework is correct?
Correct answer: A. The Framework is deliberately mixed-measurement: it sets out historical cost and current value families and links the selection to relevance and faithful representation, considering how the asset generates cash flows. No single basis is mandated universally, so options B and C overstate the position - listing status does not trigger blanket fair value. Choosing bases to smooth profit is earnings management, the opposite of choosing for usefulness. -
Which statement best reflects how materiality should be applied in preparing financial statements?
Correct answer: C. Materiality is judged in context: a small amount can be material because of its nature - for example, it turns a covenant breach into compliance or involves directors - while size matters too. Because it depends on the entity's own users and circumstances, no universal percentage exists. The profit-to-loss test is far too narrow, and materiality governs the whole of the financial statements, including recognition, presentation and disclosure decisions. -
How does the Conceptual Framework view prudence?
Correct answer: B. Prudence means being careful under uncertainty so that assets and income are not overstated and liabilities and expenses are not understated - but it does not license the opposite bias, because systematic understatement creates hidden reserves that mislead users just as overstatement does. Recognising every conceivable loss regardless of probability would violate the liability definition and recognition concepts, and prudence remains part of the Framework's description of neutrality, so it is not defunct. -
Why does the distinction between a change in accounting policy and a change in accounting estimate demand professional judgement, and why does it matter?
Correct answer: D. Classification drives restatement: retrospective application rewrites comparatives, prospective application does not, so the judgement affects trends users rely on. The two are not treated identically, which eliminates option A. Policy changes are permitted when required by a standard or when they give more relevant and reliable information, so there is no prohibition. And changes in measurement techniques or valuation approaches often sit at the blurred edge between policy and estimate, which is exactly why judgement is needed. -
The classification of a debt investment at amortised cost, at fair value through other comprehensive income, or at fair value through profit or loss depends conceptually on:
Correct answer: D. Classification rests on two tests: how the portfolio is managed (collect cash flows, collect and sell, or other) and the nature of the contractual cash flows. Both must be satisfied for amortised cost or fair value through other comprehensive income. Legal form alone does not decide the accounting. The business model is assessed at a portfolio level based on objective evidence, not asset-by-asset intention revisited constantly, and being listed affects fair value measurement inputs, not classification. -
Deferred tax arises conceptually from:
Correct answer: A. Deferred tax is the future tax effect of temporary differences: where an item's carrying amount will be recovered or settled with tax consequences different from its tax base, a deferred balance recognises that future effect. Permanent differences never reverse, so no deferred tax arises on them - that is why option B fails. The gap between the charge and cash paid mostly reflects timing of payments, which is a current tax matter, and prior year errors adjust current tax, not the deferred concept. -
An equity-settled share-based payment to employees is conceptually measured at:
Correct answer: B. Grant-date fair value fixes the measurement for equity-settled awards, and the expense accrues over the vesting period to reflect the services the entity receives in exchange. Continuous remeasurement is the model for cash-settled awards, not equity-settled ones, and intrinsic value is only a fallback in rare cases. Exercise-date measurement would ignore the service period entirely. The award is never free: the entity receives services and the counterparty receives valuable instruments, so an expense must be recognised. -
The essential difference between a defined contribution plan and a defined benefit pension plan is that:
Correct answer: C. The allocation of risk drives the accounting: a defined contribution employer expenses its contributions and has no further exposure, while a defined benefit employer recognises a net obligation or asset measured with actuarial assumptions because it has promised an outcome. Eligibility is not restricted to directors. Defined benefit plans typically demand employer funding precisely because the benefit is guaranteed, and the radically different risk profiles mean the two are anything but identical. -
An instrument is classified as a financial liability rather than equity when:
Correct answer: A. The dividing line is unavoidable contractual obligation: if the issuer must deliver cash or another financial asset - for example, mandatory redemption or compulsory coupons - the instrument is a liability whatever it is called. Labels do not decide substance, so preference shares with mandatory redemption are liabilities despite being called shares. Voting rights are not part of the liability test, and genuinely discretionary payments point towards equity, the opposite of a liability. -
The expected credit loss approach to impairment of financial assets differs from an incurred loss approach because it:
Correct answer: D. The model is anticipatory: an allowance is recognised from day one and updated as credit risk changes, using past events, current conditions and forecasts. Waiting for default is precisely the incurred-loss weakness the model replaced - it recognised losses too late in a downturn. The approach spans performing assets as well as credit-impaired ones, through staged measurement, and far from removing judgement, estimating probability-weighted future losses demands more of it. -
A company revalues a property upwards but has no intention of selling it. Conceptually, deferred tax on the revaluation surplus is:
Correct answer: B. A revaluation raises the carrying amount above the tax base, creating a taxable temporary difference; recognition does not depend on an intention to sell because the carrying amount must be recovered somehow, through use or disposal, with future tax effects. Intention is therefore no defence against recognition. The related deferred tax follows the surplus into other comprehensive income and equity, not retained earnings via profit or loss, and tax assessments concern current tax, not the temporary-difference concept. -
How does the accounting for a cash-settled share-based payment (such as share appreciation rights paid in cash) differ from an equity-settled award?
Correct answer: B. Because the entity must pay cash based on its share value, it carries a liability, and liabilities are remeasured - so fair value is updated each period and at settlement, with movements in profit or loss. Grant-date freezing applies only to equity-settled awards, which is the core difference. The absence of new equity does not avoid an expense; services are still consumed and an obligation accrues over the service period, so waiting until payment would understate liabilities and costs as they build up. -
In defined benefit pension accounting, remeasurement gains and losses (such as actuarial gains and losses on the obligation) are conceptually recognised:
Correct answer: C. Remeasurements reflect changes in long-term assumptions and asset returns that would make profit or loss volatile and hard to interpret, so they go immediately to other comprehensive income and stay there - no recycling. Older smoothing approaches that deferred and spread these amounts were removed precisely because they obscured the plan's true position. Note-only treatment would leave the net obligation misstated, and plan assets are measured at fair value in their own right, not adjusted for obligation remeasurements. -
In a cash flow hedge that meets the qualifying conditions, the effective portion of the gain or loss on the hedging instrument is:
Correct answer: A. Hedge accounting exists to align timing: parking the effective portion in other comprehensive income prevents a mismatch where the derivative's gains hit profit before the hedged cash flow occurs, and ineffectiveness is reported at once because it represents genuine economic exposure. Immediate full recognition in profit or loss describes the default for derivatives without hedge accounting. Derivatives are measured at fair value each period, so non-recognition is impossible, and a hedge gain is not an intangible asset under any definition. -
Recognition of a deferred tax asset for unused tax losses conceptually depends on:
Correct answer: D. A deferred tax asset is only an asset if the tax deduction will actually be usable, which requires probable future taxable profit of the right type and period; a loss-making history raises the evidential bar and forces scrutiny of forecasts. Automatic full recognition would inflate assets of failing businesses - losses have no value without profits to absorb them. A cash refund relates to current tax recovery, not deferred tax, and the trading-versus-investing origin may affect which profits qualify but is not the recognition principle itself. -
In share-based payment accounting, how do market conditions (such as a share price target) differ from non-market vesting conditions (such as remaining in service)?
Correct answer: C. The valuation-versus-quantity split is the key: a share price hurdle is priced into the option's fair value at grant, so the expense stands even if the hurdle is missed, while service and non-market performance conditions flow through the estimate of awards expected to vest and are trued up to actual outcomes. Ignoring conditions altogether would misstate the expense, and the treatments are the mirror image of option B. Liability classification depends on how the award is settled, not on the type of vesting condition. -
An investor controls an investee when it has:
Correct answer: C. Control is defined by the three-element model - power, variable returns, and the link between them - which captures control achieved through voting rights, potential voting rights or contractual arrangements alike. Any shareholding is far too weak a test; small stakes confer no power. No registered contract is required, since control is assessed on facts and circumstances, and influence over one committee does not demonstrate power over the relevant activities that drive returns. -
In a business combination, goodwill conceptually represents:
Correct answer: B. Goodwill is a residual: what was given (consideration, plus non-controlling interest and any previously held stake) minus what is identifiable at fair value. It captures synergies and assets that cannot be separately recognised. The identifiable net assets themselves are the deduction in that calculation, not the goodwill. A share price premium is only loosely related, because the calculation uses fair values of net assets, not market capitalisation, and internally generated goodwill is never recognised - only goodwill purchased in a combination appears. -
An investor holds an equity interest without control, then buys additional shares and obtains control of the investee. Conceptually, the previously held interest is:
Correct answer: D. A step acquisition is treated as if the old stake were sold and the whole business acquired at the control date: the previously held interest is remeasured to fair value and enters the goodwill computation at that value. Leaving it at cost would mix outdated and current values inside one calculation. It is a component added into the goodwill formula, not a deduction from consideration, and it belongs to the acquirer, so it has nothing to do with non-controlling interest. -
When a parent disposes of shares and loses control of a subsidiary but retains a smaller stake, the gain or loss on disposal conceptually includes:
Correct answer: A. Loss of control is another significant economic event: the group derecognises everything relating to the former subsidiary and recognises what it now holds, including the retained interest at fair value, so the gain reflects the full economic result. Proceeds minus original cost is a parent-company view that ignores consolidated carrying amounts and goodwill. A gain or loss plainly can arise, and revenue growth is a performance measure, not a disposal calculation. -
An associate is an entity over which the investor has:
Correct answer: A. Significant influence sits between passive investment and control, and the equity method mirrors that: one-line recognition of the investor's share of net assets and results rather than full consolidation. Control would make the investee a subsidiary and require consolidation. Joint control creates a joint arrangement governed by different requirements, and a purely passive holding is a financial asset measured at fair value, with no share of results picked up. -
Why are intragroup sales and unrealised profit on inventory still held within the group eliminated on consolidation?
Correct answer: C. Consolidation adopts the single-entity perspective: revenue, cost and profit from internal transfers are removed, and profit in unsold intragroup inventory is deferred until it is realised through sale outside the group. Tax is computed on legal entities and is not the purpose of consolidation adjustments. Intragroup trading is entirely lawful - it is simply internal from the group's viewpoint - and the eliminations are consolidation-level entries that never touch the subsidiary's own statements. -
At acquisition, non-controlling interest may be measured either at fair value or at its proportionate share of the identifiable net assets. The conceptual consequence of the choice is that:
Correct answer: B. The option changes how much goodwill sits on the consolidated statement of financial position: full (fair value) method includes the non-controlling share of goodwill, the partial method does not, which then drives how goodwill impairments are shared. Consolidation itself is required whenever control exists, regardless of this choice. Fair value normally exceeds the proportionate share because it includes goodwill, so option C points the wrong way, and consolidation choices never alter the subsidiary's own separate reporting. -
A parent sells part of its holding in a subsidiary but retains control. Conceptually this transaction is:
Correct answer: D. While control continues, the group boundary is unchanged, so shifting ownership between the parent and non-controlling shareholders is a transaction among owners, recorded in equity. Profit or loss recognition is reserved for transactions that change control. No operation has been discontinued - the subsidiary remains fully consolidated - and goodwill is neither remeasured nor partially derecognised, because the parent still controls the same business. -
When a foreign subsidiary's financial statements are translated into the group's presentation currency, exchange differences arising on translation are conceptually recognised:
Correct answer: B. Translation differences reflect currency movements on a net investment rather than trading performance, so they bypass profit or loss and accumulate in equity until the investment is realised on disposal, when they are recycled. Putting them through operating profit would distort performance with movements the entity did not transact. The subsidiary's own records stay in its functional currency - translation is purely a consolidation exercise - and the differences are real enough to require recognition, just not in earnings while the operation is held. -
Which statement about impairment of goodwill in a group is conceptually correct?
Correct answer: A. Goodwill generates no independent cash flows, so testing happens at the level of the cash-generating units that benefit from the combination, annually and when indicators arise; losses hit goodwill first. Reversal is prohibited because a later recovery is likely to reflect internally generated goodwill, which cannot be recognised. Amortisation is not the model applied here - impairment testing replaced it - and impairment losses are charged to profit or loss, not other comprehensive income. -
Alternative performance measures (APMs), such as adjusted operating profit or adjusted EBITDA, are best described as:
Correct answer: D. APMs sit outside the IFRS-defined numbers: management constructs them, typically by stripping items such as restructuring costs or impairments out of statutory results, to tell its version of the performance story. Because IFRS does not define them, option A is wrong by definition. They are legal and widespread when presented fairly, so they are not inherently fraudulent, and they are supplementary disclosures rather than statutory audited profit figures. -
Why do investors pay attention to APMs, and what is the associated risk?
Correct answer: C. The value and the danger share one root: management judgement. Removing genuinely one-off items can reveal the run-rate of the business, yet the same discretion allows persistent exclusion of real costs, so adjusted profit can drift far above statutory profit over time. Investors demonstrably use these measures, so they are not irrelevant, but self-selected adjustments cannot be assumed more reliable than standardised IFRS figures, and APMs are management's numbers - auditors do not prepare them. -
Which of the following is regarded as good practice when an entity presents APMs?
Correct answer: C. Transparency principles - clear definition, reconciliation, consistency and balanced prominence - let users bridge from the adjusted number back to audited figures and compare periods on a like-for-like basis. Making APMs dominate presentation inverts the proper hierarchy and is a hallmark of misleading reporting. Silently redefining the measure each year destroys comparability and invites suspicion of goalpost-moving, and confining APMs to unexplained slides denies users the context needed to interpret them. -
The central idea of integrated reporting is that an entity should explain:
Correct answer: A. Integrated reporting broadens the lens from financial results to the full value-creation story, showing how the entity draws on and transforms multiple capitals and how strategy, governance and performance connect over time. Restating financial capital in more depth misses that breadth entirely. A marketing plan is an internal commercial document, not a stewardship report, and accounting policy detail already belongs in the notes to the financial statements rather than defining integrated reporting. -
Which statement best captures the direction of investor-focused sustainability reporting?
Correct answer: D. The emerging baseline ties sustainability disclosure to investor decision-making: entities explain governance, strategy, risk management and metrics for sustainability matters that could affect cash flows and enterprise value, connecting them to the financial statements. That investor linkage is what moves the topic beyond voluntary marketing. Sustainability reports complement rather than replace financial statements, and exposure to sustainability risk spans all sectors - climate, workforce and supply chain issues are not confined to heavy emitters. -
The purpose of a management commentary (such as a strategic report) accompanying the financial statements is to:
Correct answer: B. Narrative reporting adds what the numbers alone cannot: strategy, resources, relationships, risks and the reasons results moved, helping users assess the quality and sustainability of performance. Re-presenting the same statements in another layout would add no information. The commentary complements rather than substitutes for audited statements, and exhaustive transaction listings would bury users in detail - the point is selective, decision-useful context. -
A company labels restructuring costs as 'exceptional' and excludes them from adjusted profit, yet similar costs have appeared every year for the past several years. The main concern for users is that:
Correct answer: A. If a cost recurs annually, it is part of the run-rate of the business, and repeatedly excluding it makes the adjusted measure a persistently rosier version of reality - a classic APM red flag that users detect by tracking the gap between adjusted and statutory profit over time. Restructuring outflows do not meet asset recognition criteria. Disclosure of costs breaches no tax law, and IFRS does not define adjusted measures at all, so option D misstates the framework. -
A company excludes its share-based payment expense from adjusted earnings, arguing it is a non-cash item. A thoughtful investor's strongest counterargument is that:
Correct answer: C. Non-cash does not mean costless: employees accept equity awards in place of salary, the entity consumes their services, and existing shareholders are diluted, so stripping the expense removes a real, usually recurring cost of doing business. No general tax refund of the expense exists. For many growth companies the amounts are large, so immateriality cannot be assumed, and IFRS requires recognition and disclosure of the expense rather than prohibiting it. -
The fundamental ethical principles for professional accountants are:
Correct answer: D. The five fundamental principles are integrity, objectivity, professional competence and due care, confidentiality and professional behaviour, and they apply to accountants in business as much as in practice. Commercial goals like profitability and growth are not ethical principles, and secrecy is not the same as principled confidentiality. Independence and scepticism are auditing concepts built on the principles rather than the principles themselves, and obedience to management is precisely what the principles guard against when management is wrong. -
A financial controller's annual bonus depends on the company reporting profit above a target. When preparing year-end estimates, this arrangement creates:
Correct answer: D. A direct personal payoff tied to a reported number is the textbook self-interest threat, and it is most dangerous in judgemental areas such as provisions and accruals where bias is hard to detect. Bonuses being common does not neutralise the threat; it makes safeguards routine and necessary. Advocacy concerns promoting a client's position, and familiarity concerns closeness to people - neither describes the pull of one's own bonus on one's own estimates. -
The chief executive instructs a professional accountant to lengthen the depreciation lives of plant with the sole aim of hitting a profit forecast, not because usage patterns have changed. The accountant should first:
Correct answer: B. An estimate changed to hit a forecast, with no change in the underlying asset use, is misrepresentation, so the accountant must resist and use the escalation route: discuss, involve governance, seek advice, and only consider resignation as a last resort. Seniority does not override professional obligations - following orders is no defence. Immediate resignation abandons the duty to address the misstatement, and a private note while making the change still leaves misleading accounts in issue. -
In a highly profitable year, a company recognises a deliberately excessive restructuring provision, planning to release it to boost profit in leaner years. This 'big bath' technique is ethically objectionable because:
Correct answer: A. Earnings management corrupts the signal financial statements exist to give: overstating the provision understates current profit and quietly inflates future profit, so users see manufactured smoothness instead of real volatility. Provisions themselves are legitimate when an obligation exists - the abuse lies in deliberate overstatement. The tax effect is incidental and accounting provisions do not automatically change tax outcomes, and ethical wrongness does not depend on detection; a misstatement is objectionable whether or not it is caught. -
A finance director's individual judgements - on provisions, useful lives, impairment assumptions and revenue estimates - each fall within an arguably acceptable range, yet every single one lands at the end of the range that maximises reported profit. The best ethical characterisation is:
Correct answer: C. Neutrality is judged across the statements as a whole: independent judgements made without bias would scatter, not line up uniformly on the profit-maximising edge, so the pattern itself is the evidence. Individual defensibility is exactly what makes this technique insidious, which is why option A fails. Confidentiality is untouched by biased estimation, and individually immaterial slants can aggregate into a material misstatement, so option D understates the danger. -
A professional accountant has raised concerns about a misleading accounting treatment with the finance director, who refuses to change it. The appropriate next steps are best described as:
Correct answer: B. Professional codes prescribe a graduated response: exhaust internal governance channels, keep records that demonstrate the accountant's own conduct, take advice, and treat resignation as the final step, since leaving early simply abandons the problem. Raising a concern once does not discharge the duty when the misstatement persists. Public disclosure breaches confidentiality and bypasses proper channels, and secretly altering figures replaces one integrity failure with another. -
A company deliberately structures a financing arrangement so that, read literally, the rules allow a large liability to stay off the statement of financial position, although the economic exposure is unchanged. From an ethical reporting perspective, this is best described as:
Correct answer: D. Principles-based reporting asks whether the statements faithfully represent economic reality, and a structure designed to hide leverage fails that test regardless of technical arguments - form is being used to defeat substance. Literal compliance is not the ceiling of the preparer's duty, so option A misstates the obligation. Prudence cautions against understating liabilities, the very opposite of keeping them off the books, and the arrangement concerns financial reporting presentation, not tax.
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- Are these real ACCA SBR exam questions?
- No. These are original study questions written to test understanding of the syllabus. They are not real exam questions, exam dumps, or copied from any provider.
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