ACCA - Association of Chartered Certified Accountants — Questions and Answers

Question 1: Under ACCA's Code of Ethics, which principle requires auditors not to disclose client information to third parties without proper authority?

Confidentiality (Correct answer)
Integrity
Objectivity
Professional competence

Correct answer: Confidentiality

The confidentiality principle prohibits auditors from disclosing client information acquired during the engagement to unauthorized parties.

Question 2: A company uses kaizen costing. This means it focuses on:

Continuous, incremental cost reductions during the production phase (Correct answer)
Setting cost targets before product design begins
Eliminating non-value-added activities using process mapping
Allocating overheads using activity drivers

Correct answer: Continuous, incremental cost reductions during the production phase

Kaizen costing involves setting ongoing cost reduction targets throughout the production life of a product, contrasting with target costing at the design stage.

Question 3: Which of the following would cause an adverse labor efficiency variance?

Workers were paid a higher wage rate than standard
More units were produced than budgeted
Workers took longer than the standard time to produce actual output (Correct answer)
Fewer workers were employed than planned

Correct answer: Workers took longer than the standard time to produce actual output

An adverse labor efficiency variance occurs when more hours are worked than the standard hours allowed for the actual output produced.

Question 4: Under IFRS 9 Financial Instruments, a financial asset shall be measured at amortised cost if which two conditions are met?

The asset is held for trading, and the contractual cash flows represent solely payments of principal and interest.
The contractual cash flows represent solely payments of principal and interest, and the asset is an equity instrument.
The entity has designated the asset at fair value through profit or loss, and the business model is to hold and sell.
The entity's business model is to hold the asset to collect contractual cash flows, and the contractual cash flows represent solely payments of principal and interest. (Correct answer)

Correct answer: The entity's business model is to hold the asset to collect contractual cash flows, and the contractual cash flows represent solely payments of principal and interest.

IFRS 9 requires a financial asset to be measured at amortised cost if both of the following conditions are met: (1) the asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and (2) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Question 5: The OECD Principles of Corporate Governance emphasize which of the following as a core pillar?

The equitable treatment of shareholders, including minority shareholders (Correct answer)
Mandatory profit-sharing with all employees
Government ownership of at least 10% of listed companies
Annual re-election of all directors without exception

Correct answer: The equitable treatment of shareholders, including minority shareholders

The OECD Principles stress equitable treatment of all shareholders, including minority and foreign shareholders, protecting them from abusive self-dealing.

Question 6: A consultancy firm is using the McKinsey 7S Framework to analyse a client's organisational effectiveness. Which of the following elements would be classified as one of the 'soft' Ss?

Structure
Skills (Correct answer)
Strategy
Systems

Correct answer: Skills

The McKinsey 7S Framework is composed of 'hard' and 'soft' elements. The 'hard' Ss (Strategy, Structure, Systems) are easier to define and manage. The 'soft' Ss (Shared Values, Skills, Style, Staff) are more difficult to describe, less tangible, and more influenced by corporate culture. 'Skills' refers to the distinctive capabilities of the organisation's personnel.

Question 7: Of the following, which one goes under the category of indirect labor?

Assembly workers on a car production line
Forklift truck drivers in the stores of an engineering company (Correct answer)
Brick layers in a house building company
Machinists in a factory producing clothes

Correct answer: Forklift truck drivers in the stores of an engineering company

Indirect labor costs are those that cannot be directly traced to specific products or services but are necessary for the overall production process. Forklift truck drivers in stores support the production by moving materials but are not directly involved in manufacturing a specific product unit. In contrast, assembly workers, brick layers, and machinists are directly involved in creating the product, making them direct labor.

Question 8: What is the effect of a stock dividend (bonus issue) on a company's statement of financial position?

Total equity remains unchanged but its composition changes (Correct answer)
Non-current liabilities increase
Total equity increases
Total equity decreases

Correct answer: Total equity remains unchanged but its composition changes

A bonus issue transfers an amount from retained earnings (or share premium) to share capital, leaving total equity unchanged.

Question 9: Under the accruals (matching) concept, when should revenue be recognized?

When cash is received from the customer
When the sales invoice is raised, regardless of delivery
When the goods or services are delivered/performed (Correct answer)
When the customer places the order

Correct answer: When the goods or services are delivered/performed

The accruals concept requires revenue to be recognized when earned (goods/services delivered), not when cash changes hands.

Question 10: A director is said to have a 'fiduciary duty' to a company. This duty primarily means the director must:

Follow all instructions given by the CEO
Ensure the company pays minimum taxes legally possible
Act in good faith in the best interests of the company (Correct answer)
Maximize short-term profits for shareholders

Correct answer: Act in good faith in the best interests of the company

A fiduciary duty requires directors to act honestly, in good faith, and in the best interests of the company as a whole.

Question 11: In the McKinsey 7-S Framework, which two elements are considered the 'hard' elements?

Systems and Staff
Strategy and Structure (Correct answer)
Strategy and Skills
Shared Values and Style

Correct answer: Strategy and Structure

Strategy and Structure are hard elements along with Systems; the remaining four (Skills, Staff, Style, Shared Values) are soft elements.

Question 12: Out of the above, which is the true statement regarding intangible assets? 1. Research expenditure has to be recorded as an intangible asset if certain requirements are satisfied. 2. For every form of intangible asset, the gross carrying amount and the cumulative amortization at the start and end of the period should be disclosed in the financial statements' notes. 3. Intangible assets must be amortized over their useful life.

1 and 2 only
All three statements are correct
2 and 3 only (Correct answer)
1 and 3 only

Correct answer: 2 and 3 only

Statement 1 is false because research expenditure is generally expensed, while development expenditure can be capitalized if specific criteria are met. Statements 2 and 3 are true: IAS 38 requires disclosure of gross carrying amount and cumulative amortization for intangible assets, and intangible assets with a finite useful life must be amortized over that life to reflect the consumption of their economic benefits.

Question 13: Which of the following is an example of an INTERNAL corporate governance mechanism?

Mandatory auditor rotation rules imposed by law
Executive remuneration linked to performance targets set by the remuneration committee (Correct answer)
Stock market listing requirements
Takeover regulations imposed by a financial regulator

Correct answer: Executive remuneration linked to performance targets set by the remuneration committee

Internal governance mechanisms are those controlled by the company itself, such as board structure, audit committees, and performance-linked pay policies.

Question 14: Which category of the Baldrige Performance Excellence Framework focuses on how an organisation engages, manages, and develops its employees to utilise their full potential in alignment with the organisation's overall mission, strategy, and action plans?

Strategic Planning
Customer Focus
Workforce Focus (Correct answer)
Operations Focus

Correct answer: Workforce Focus

The Baldrige Performance Excellence Framework has seven categories. The 'Workforce Focus' category examines how the organisation builds an effective and supportive workforce environment, covering engagement, development, and management systems. 'Operations Focus' deals with work systems. 'Strategic Planning' addresses strategy development. 'Customer Focus' examines customer engagement.

Question 15: According to the CIMA/ACCA ethical framework, which threat arises when an accountant audits financial statements they personally prepared?

Intimidation threat
Self-review threat (Correct answer)
Advocacy threat
Familiarity threat

Correct answer: Self-review threat

A self-review threat occurs when a professional must evaluate their own previous work, impairing objectivity.

Question 16: Under IFRS 11, a joint venture is accounted for using:

The cost method
Proportionate consolidation
The equity method (Correct answer)
Full consolidation

Correct answer: The equity method

IFRS 11 requires joint ventures to be accounted for using the equity method, eliminating the option of proportionate consolidation that existed under IAS 31.

Question 17: IFRS 5 classifies a non-current asset as 'held for sale' when it is available for immediate sale in its present condition and sale is:

Approved by shareholders
Listed on a sales register
Highly probable and expected to complete within 12 months from classification (Correct answer)
Possible within 24 months

Correct answer: Highly probable and expected to complete within 12 months from classification

IFRS 5 requires the sale to be highly probable, with active marketing at a reasonable price and expected completion within one year of classification.

Question 18: Which of the following correctly describes a finance lease under IFRS 16 from the lessee's perspective?

The asset remains off-balance sheet throughout the lease term
The lease payments are expensed on a straight-line basis
Only the interest element of payments is recognised in the income statement
A right-of-use asset and lease liability are recognised at commencement (Correct answer)

Correct answer: A right-of-use asset and lease liability are recognised at commencement

IFRS 16 requires lessees to recognise a right-of-use asset and corresponding lease liability at the commencement date for virtually all leases.

Question 19: According to Heifetz's adaptive leadership theory, what distinguishes adaptive challenges from technical problems?

Adaptive challenges are solved through additional resources alone
Technical problems require innovation whereas adaptive ones do not
Adaptive challenges require changes in values, beliefs, or behavior with no clear solution (Correct answer)
Adaptive challenges have known solutions that experts can apply

Correct answer: Adaptive challenges require changes in values, beliefs, or behavior with no clear solution

Adaptive challenges require people to change mindsets, values, or behaviors and have no ready-made expert solution, unlike technical problems which can be solved with existing expertise.

Question 20: In the context of business risk, 'reputational risk' is best described as:

Strategic risk arising from poor management decisions
The risk that negative publicity will damage an organization's standing with stakeholders (Correct answer)
The risk of loss from inadequate internal processes or systems
The risk of regulatory fines and penalties

Correct answer: The risk that negative publicity will damage an organization's standing with stakeholders

Reputational risk is the potential for negative stakeholder perceptions — from customers, investors, or regulators — to adversely affect business relationships and financial performance.

Question 21: What is 'inherent risk' in the context of the audit risk model?

Risk arising from the auditor's sampling approach
Risk that controls fail to prevent a misstatement
Risk that the auditor's procedures fail to detect a misstatement
Susceptibility of an assertion to misstatement before considering controls (Correct answer)

Correct answer: Susceptibility of an assertion to misstatement before considering controls

Inherent risk is the susceptibility of an assertion to a material misstatement assuming no related internal controls exist.

Question 22: A manufacturing company is reviewing its overhead allocation. It produces a standard, high-volume product and a customized, low-volume product. The customized product requires frequent machine setups and significant engineering support, which are currently absorbed into a single, volume-based overhead rate. Which management accounting technique would provide a more accurate product cost for the customized product?

Activity-Based Costing (ABC) (Correct answer)
Target Costing
Relevant Costing
Lifecycle Costing

Correct answer: Activity-Based Costing (ABC)

Activity-Based Costing (ABC) is designed to address the shortcomings of traditional costing systems. It allocates overheads based on the specific activities that drive those costs (e.g., machine setups, engineering hours). This provides a more accurate cost for products that consume a disproportionate amount of these activities, such as the customized, low-volume product.

Question 23: On September 30, 20X5, Richard's trial balance has the following balances: Trade receivables $61,427 Receivables allowance $2,079 Regarding Richard's statement of financial situation as of September 30, 20X5, how should these amounts be reported?

A liability of $59,348
An asset of $61,427 and liability of $2,079
An asset of $59,348 (Correct answer)
A liability of $61,427 and an asset of $2,079

Correct answer: An asset of $59,348

Trade receivables represent the total amount owed by customers, which is an asset. The receivables allowance is a contra-asset account that reduces the gross receivables to their estimated realizable value. Therefore, on the statement of financial position, the net amount of trade receivables should be reported as an asset: $61,427 (Trade receivables) - $2,079 (Receivables allowance) = $59,348.

Question 24: For a simple contract to be legally binding under English law, which of the following elements is NOT required?

There must be an intention to create legal relations.
There must be consideration.
There must be offer and acceptance.
The contract must be in writing. (Correct answer)

Correct answer: The contract must be in writing.

The essential elements for a legally binding simple contract are: offer, acceptance, consideration, and an intention to create legal relations. While it is often advisable for contracts to be in writing for clarity and evidence, it is not a general requirement for a simple contract to be valid. Many simple contracts can be formed orally or by conduct. Certain specific types of contracts, like those for the sale of land, do require writing, but this is not a universal rule.

Question 25: How are translation differences on foreign subsidiaries treated under IAS 21?

Charged to goodwill
Recognized in profit or loss immediately
Netted against the investment in subsidiary balance
Deferred in a foreign currency translation reserve within other comprehensive income (Correct answer)

Correct answer: Deferred in a foreign currency translation reserve within other comprehensive income

IAS 21 requires exchange differences arising on translation of foreign subsidiaries to be accumulated in a separate component of equity (OCI) until disposal.

Question 26: Which committee is specifically responsible for overseeing a company's financial reporting and internal controls under best-practice governance?

Nomination committee
Remuneration committee
Audit committee (Correct answer)
Risk committee

Correct answer: Audit committee

The audit committee oversees financial reporting integrity, internal controls, and the relationship with external auditors.

Question 27: A company revalues a property upward by $120,000. The deferred tax rate is 25%. Where is the net revaluation gain reported?

Profit or loss — $90,000
Profit or loss — $120,000
Other comprehensive income — $120,000
Other comprehensive income — $90,000 (Correct answer)

Correct answer: Other comprehensive income — $90,000

Revaluation gains are recognised in other comprehensive income net of the related deferred tax: $120,000 × (1 − 0.25) = $90,000.

Question 28: In a balanced scorecard, which perspective focuses on measures such as employee satisfaction and skills development?

Learning and growth perspective (Correct answer)
Internal business process perspective
Financial perspective
Customer perspective

Correct answer: Learning and growth perspective

The learning and growth perspective of the balanced scorecard addresses employee capabilities, information systems, and organizational culture.

Question 29: According to the Ashridge Mission Model, which four elements define an organization's mission?

Purpose, People, Processes, and Performance
Strategy, Structure, Systems, and Style
Purpose, Strategy, Values, and Standards of behavior (Correct answer)
Vision, Mission, Goals, and Objectives

Correct answer: Purpose, Strategy, Values, and Standards of behavior

The Ashridge model defines mission through Purpose (why the company exists), Strategy (competitive position), Values (beliefs and moral principles), and Standards of behavior (policies guiding employees).

Question 30: An organization experiences a flood that destroys its server room. Which type of risk does this represent?

Strategic risk
Compliance risk
Operational risk (Correct answer)
Financial risk

Correct answer: Operational risk

Operational risk includes losses from failed internal processes, systems, or external events such as natural disasters.

Question 31: Under IAS 37, a provision should be recognised when:

The amount of the liability cannot be estimated reliably
A possible obligation may arise from a past event
A present obligation exists, an outflow is probable, and a reliable estimate can be made (Correct answer)
Management decides to restructure in the future with no current commitment

Correct answer: A present obligation exists, an outflow is probable, and a reliable estimate can be made

IAS 37 requires recognition of a provision only when all three criteria are met: present obligation, probable outflow, and reliable estimate.

ACCA - Association of Chartered Certified Accountants

The ACCA qualification is a globally recognized professional accounting certification covering 13 papers across Applied Knowledge, Applied Skills, and Strategic Professional levels, testing candidates in accounting, finance, taxation, audit, and strategic management.

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35 min

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50%

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