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ACCA SBL study materials
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ACCA SBL practice questions

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Question 1Leadership, governance and strategy

Under the UK Corporate Governance Code, which body is primarily responsible for establishing the company's risk management and internal control framework?

  1. The board of directors as a whole Correct answer.
  2. The external audit firm
  3. The company secretary alone
  4. The remuneration committee

Explanation

The board retains collective responsibility for risk management and internal control, even where it delegates detailed work to a committee. Delegation does not transfer accountability away from the board.

Question 2Leadership, governance and strategy

A company's articles require directors to act in the best interests of the company. A majority shareholder instructs a director to approve a transaction that benefits the shareholder but harms the company. What should the director do?

  1. Approve it if the price is commercially reasonable
  2. Decline, because the duty is owed to the company itself Correct answer.
  3. Follow the instruction because shareholders own the company
  4. Resign immediately and let the shareholder decide

Explanation

Directors owe fiduciary duties to the company as a legal entity, not to any individual shareholder. A direction that harms the company conflicts with that duty and should not be followed.

Question 3Leadership, governance and strategy

Which concept describes the situation where the same individual serves as both chair of the board and chief executive officer?

  1. Role duality Correct answer.
  2. Segregation of duties
  3. Board diversity
  4. Succession planning

Explanation

Combining the chair and CEO roles concentrates power in one person and reduces the board's ability to hold management to account. Governance codes generally recommend separation of these roles.

Question 4Leadership, governance and strategy

A board wants independent scrutiny of executive pay. Which committee structure best achieves this?

  1. A remuneration committee chaired by the CEO
  2. A remuneration committee composed mainly of independent non-executive directors Correct answer.
  3. An advisory panel of senior managers
  4. The full board with the CFO presenting proposals

Explanation

Independent non-executive directors on the remuneration committee reduce conflicts of interest when setting executive pay. Executives should not dominate decisions about their own remuneration.

Question 5Leadership, governance and strategy

A company adopts a policy that the audit committee should meet the external auditor without management present at least annually. What is the main purpose of this practice?

  1. To reduce the audit fee
  2. To speed up the audit timetable
  3. To help management prepare the accounts
  4. To allow auditors to raise concerns candidly Correct answer.

Explanation

Private sessions with the auditor allow issues to be raised without management pressure. This strengthens the audit committee's oversight role and auditor independence.

Question 6Leadership, governance and strategy

A board is dominated by directors who were formerly senior executives of the same company. Which governance weakness is most directly indicated?

  1. Inadequate financial reporting
  2. Poor stakeholder engagement
  3. Excessive board independence
  4. Insufficient board independence Correct answer.

Explanation

Former executives may retain loyalty to management and lack the objectivity expected of independent directors. A board weighted toward such individuals may struggle to challenge executive decisions.

Question 7Leadership, governance and strategy

Agency theory suggests a particular problem arises when ownership and control of a company are separated. Which problem is this?

  1. Economies of scale
  2. Principal-agent conflict Correct answer.
  3. Diseconomies of scope
  4. Network externalities

Explanation

Agency theory addresses the conflict between principals (shareholders) and agents (managers) whose interests may diverge. Governance mechanisms such as independent boards and incentive alignment aim to mitigate this conflict.

Question 8Leadership, governance and strategy

In stakeholder theory, which statement best describes how a company should treat stakeholders?

  1. Stakeholder interests always override shareholder returns
  2. Stakeholders should be managed only when legally required
  3. The firm should consider the legitimate interests of all affected parties Correct answer.
  4. Only shareholders matter because they bear residual risk

Explanation

Stakeholder theory holds that firms should account for the legitimate interests of parties affected by their activities, not only shareholders. It does not require stakeholder interests to always override shareholder returns.

Question 9Leadership, governance and strategy

A firm faces pressure from an activist investor to return cash rather than invest in a long-term research programme. Which governance mechanism most directly allows shareholders to influence board composition?

  1. The external audit opinion
  2. The annual general meeting and director election process Correct answer.
  3. The management incentive plan
  4. The internal audit function

Explanation

Shareholders exercise formal influence over the board through voting at general meetings, including electing and removing directors. This is the primary channel for changing board composition.

Question 10Leadership, governance and strategy

Which statement best captures the difference between governance and management?

  1. Governance sets direction and oversight; management executes operations Correct answer.
  2. Governance executes operations; management sets direction
  3. Governance applies only to public companies
  4. Both terms describe the same set of activities

Explanation

Governance concerns direction-setting, oversight and accountability, while management is responsible for day-to-day execution. The two are complementary but distinct.

Question 11Leadership, governance and strategy

A company's board delegates authority to a newly formed risk committee. Which statement about accountability is correct?

  1. The board is no longer accountable for risk oversight
  2. The CEO becomes accountable for all risk matters
  3. Accountability remains with the board despite delegation Correct answer.
  4. The risk committee becomes fully accountable to shareholders

Explanation

Delegation transfers tasks but not ultimate accountability, which stays with the board. Committees support the board but do not replace its responsibility.

Question 12Leadership, governance and strategy

Which of the following best describes the purpose of an internal control system?

  1. To guarantee that fraud never occurs
  2. To eliminate the need for external audit
  3. To maximise short-term profit
  4. To provide reasonable assurance that objectives are achieved Correct answer.

Explanation

Internal controls provide reasonable, not absolute, assurance that objectives around operations, reporting and compliance are met. No system can guarantee the complete absence of fraud or error.

Question 13Leadership, governance and strategy

A company operates in a jurisdiction where the governance code follows a 'comply or explain' approach. A company chooses not to follow a provision. What is the expected response?

  1. Ignore the provision without comment
  2. Apply the provision only to subsidiaries
  3. Resign from the stock exchange
  4. Explain the reasons for non-compliance to shareholders Correct answer.

Explanation

'Comply or explain' allows flexibility provided the company explains why it departed from a provision. Transparency allows shareholders to judge whether the departure is justified.

Question 14Leadership, governance and strategy

Which leadership style is most appropriate when a team of experienced professionals faces a complex, ambiguous problem?

  1. Transactional reward-only leadership
  2. Autocratic direction with close supervision
  3. Laissez-faire with no involvement
  4. Coaching and participative leadership Correct answer.

Explanation

Experienced professionals tackling ambiguity benefit from participative, coaching-oriented leadership that draws on their expertise. Close direction or total detachment would underuse their capabilities.

Question 15Leadership, governance and strategy

A leader who sets a compelling long-term vision and inspires followers to transcend self-interest is best described by which concept?

  1. Scientific management
  2. Bureaucratic management
  3. Transformational leadership Correct answer.
  4. Transactional leadership

Explanation

Transformational leadership centres on vision, inspiration and intellectual stimulation that motivate followers beyond transactional exchange. Transactional leadership instead relies on rewards and sanctions.

Question 16Leadership, governance and strategy

A manager uses a reward system where bonuses are tied to meeting specific sales targets. Which leadership approach does this most closely reflect?

  1. Transactional leadership Correct answer.
  2. Charismatic leadership
  3. Servant leadership
  4. Transformational leadership

Explanation

Transactional leadership exchanges rewards for performance against defined targets. It relies on clear expectations and contingent rewards rather than inspiration or vision.

Question 17Leadership, governance and strategy

According to situational leadership thinking, what should a leader do when a team member is highly competent but lacks confidence on a new task?

  1. Provide support and encouragement while sharing decisions Correct answer.
  2. Leave the individual entirely alone
  3. Give very detailed instructions and close supervision
  4. Set only strict deadlines and penalties

Explanation

Situational leadership suggests a supportive style where competence is high but confidence is low. The leader provides encouragement and shared decision-making rather than heavy direction.

Question 18Leadership, governance and strategy

Which concept describes the informal network through which information and influence flow, distinct from the formal organisation chart?

  1. Span of control
  2. The grapevine Correct answer.
  3. Chain of command
  4. Unity of command

Explanation

The grapevine is the informal communication network that operates alongside formal channels. Leaders who understand it can gauge morale and correct misinformation.

Question 19Leadership, governance and strategy

A leader wants to build psychological safety in a team. Which action best supports this goal?

  1. Discouraging questions during meetings
  2. Punishing staff who raise concerns
  3. Rewarding those who surface problems early Correct answer.
  4. Keeping all decisions confidential

Explanation

Psychological safety grows when people believe speaking up is safe and valued. Recognising early surfacing of problems reinforces that belief.

Question 20Leadership, governance and strategy

Porter's generic strategies suggest a firm can compete through cost leadership, differentiation or focus. Which risk arises from being 'stuck in the middle'?

  1. Achieving both low cost and clear differentiation simultaneously
  2. Investing too heavily in brand building
  3. Lacking the cost advantage or differentiation to win in any segment Correct answer.
  4. Being too focused on a niche market

Explanation

Firms 'stuck in the middle' pursue neither a clear cost advantage nor distinctive value, leaving them vulnerable to more focused competitors. They may lose customers on both price and quality dimensions.

Question 21Leadership, governance and strategy

In the resource-based view, which characteristic is most associated with a sustained competitive advantage?

  1. A resource that is easily imitated
  2. A resource that is widely available
  3. A resource that is purely financial
  4. A resource that is valuable, rare and hard to imitate Correct answer.

Explanation

The resource-based view holds that valuable, rare, inimitable and non-substitutable resources underpin sustained advantage. Imitable or widely available resources cannot sustain advantage.

Question 22Leadership, governance and strategy

A firm's value chain analysis identifies activities that create value. Which activity is typically classified as a support activity rather than a primary activity?

  1. Operations
  2. Human resource management Correct answer.
  3. Marketing and sales
  4. Outbound logistics

Explanation

In Porter's value chain, support activities such as HR management, procurement and technology development underpin the primary activities. Primary activities directly create and deliver the product.

Question 23Leadership, governance and strategy

Ansoff's matrix classifies growth options. A company launches an existing product into a new market. Which option does this represent?

  1. Market development Correct answer.
  2. Market penetration
  3. Product development
  4. Diversification

Explanation

Market development involves taking existing products into new markets. Market penetration uses existing products in existing markets, while diversification involves both new products and new markets.

Question 24Leadership, governance and strategy

A board is considering a major acquisition. Which governance step best demonstrates proper board oversight before approval?

  1. Announcing the deal before internal review
  2. Approving the deal based solely on the CEO's recommendation
  3. Delegating the decision entirely to the finance team
  4. Requiring independent due diligence and a documented risk assessment Correct answer.

Explanation

Major strategic decisions should be informed by independent analysis and documented risk assessment. This allows the board to challenge assumptions and make an informed judgement.

Question 25Leadership, governance and strategy

Which statement best describes the role of the nomination committee in board governance?

  1. It leads the process for board appointments and succession Correct answer.
  2. It sets the audit fee for the external auditor
  3. It approves the annual financial statements
  4. It determines the dividend policy

Explanation

The nomination committee leads the selection and succession process for directors and senior appointments. This supports board composition and orderly succession.

Question 26Leadership, governance and strategy

Which statement best describes the role of a company's audit committee?

  1. It oversees the financial reporting process and the external audit. Correct answer.
  2. It determines the remuneration of the chief executive officer.
  3. It manages the day-to-day operations of the internal audit function.
  4. It is responsible for setting the company's overall strategic direction.

Explanation

The audit committee's primary role is to monitor the integrity of financial statements, review internal controls and risk management, and oversee the relationship with external auditors. It does not set strategy, manage operations, or set executive pay.

Question 27Leadership, governance and strategy

A board has a majority of independent non-executive directors. Which governance benefit does this structure primarily provide?

  1. It guarantees that the company will be more profitable.
  2. It reduces the risk of management entrenchment and improves oversight. Correct answer.
  3. It speeds up decision-making by reducing debate.
  4. It ensures that the company complies with all legal regulations.

Explanation

Independent directors are better positioned to challenge management objectively and protect shareholder interests, reducing the risk that executives act in their own interests. Independence does not guarantee legal compliance, profitability, or faster decisions.

Question 28Leadership, governance and strategy

According to trait theory of leadership, which characteristic is most likely to be associated with effective leaders?

  1. The ability to avoid conflict within the team.
  2. A strong sense of self-confidence and emotional stability. Correct answer.
  3. A preference for maintaining the status quo.
  4. A high need for personal control over all decisions.

Explanation

Trait theory identifies personal attributes such as self-confidence, emotional stability, and drive as common among effective leaders. A need for control, conflict avoidance, and status quo preference are not typically associated with effective leadership.

Question 29Leadership, governance and strategy

A company's board is reviewing its governance framework. Which action best demonstrates effective board oversight of risk management?

  1. Ensuring that risk management is only discussed at the annual general meeting.
  2. Approving the risk appetite and regularly reviewing the risk register. Correct answer.
  3. Limiting risk discussions to financial risks only.
  4. Delegating all risk oversight to the internal audit function.

Explanation

Effective board oversight involves setting the risk appetite and regularly monitoring key risks through tools like the risk register. Delegating entirely to internal audit, discussing risk only annually, or ignoring non-financial risks would be inadequate.

Question 30Leadership, governance and strategy

A leader is deciding how to allocate decision-making authority. Which approach is most consistent with the principle of subsidiarity in governance?

  1. Centralizing all decisions at the top to ensure consistency.
  2. Making decisions only by unanimous consent.
  3. Outsourcing all decisions to external consultants.
  4. Delegating decisions to the lowest competent level. Correct answer.

Explanation

Subsidiarity holds that decisions should be taken at the most local level capable of handling them effectively, promoting empowerment and responsiveness. Centralization, outsourcing, and unanimous consent are not implied by subsidiarity.

Question 31Leadership, governance and strategy

A company is adopting a stakeholder engagement strategy. Which action best reflects a proactive approach to stakeholder management?

  1. Responding to stakeholder complaints only after they become public.
  2. Limiting engagement to shareholders at the annual general meeting.
  3. Identifying stakeholders and their concerns before making strategic decisions. Correct answer.
  4. Ignoring stakeholders who have no direct economic power.

Explanation

Proactive stakeholder management involves identifying stakeholders and understanding their interests early, so that strategies can be adapted and potential conflicts addressed. Reactive, narrow, or dismissive approaches are less effective.

Question 32Leadership, governance and strategy

A leader uses a coaching style with a team member who is motivated but lacks experience. Which behaviour is most characteristic of this style?

  1. Leaving the team member to work independently without support.
  2. Encouraging the team member to explore solutions and providing guidance. Correct answer.
  3. Providing detailed instructions and closely supervising tasks.
  4. Focusing solely on meeting targets and rewarding outcomes.

Explanation

Coaching involves two-way communication, support, and encouragement to help the individual develop problem-solving skills. It is not directive, delegative, or purely transactional.

Question 33Leadership, governance and strategy

Which statement best explains the concept of 'comply or explain' in corporate governance codes?

  1. Companies must comply with all provisions of the code without exception.
  2. Companies may comply with the code only if it is legally required.
  3. Companies are free to ignore the code entirely without any disclosure.
  4. Companies can choose not to comply but must provide a reasoned explanation. Correct answer.

Explanation

Under 'comply or explain', companies are expected to comply with code provisions, but if they do not, they must explain why in their annual report. This allows flexibility while maintaining transparency.

Question 34Leadership, governance and strategy

A firm's board is evaluating a proposal to enter a new international market. Which strategic analysis tool would best help the board assess the attractiveness of the new market's industry structure?

  1. Ansoff's matrix.
  2. The BCG matrix.
  3. The cultural web.
  4. Porter's Five Forces framework. Correct answer.

Explanation

Porter's Five Forces analyses the competitive intensity and attractiveness of an industry by examining buyers, suppliers, substitutes, new entrants, and rivalry. The BCG matrix and Ansoff's matrix are for portfolio and growth strategy, while the cultural web analyses organisational culture.

Question 35Leadership, governance and strategy

In the context of strategic leadership, which behaviour best demonstrates 'transformational leadership'?

  1. Setting clear tasks and rewarding performance with bonuses.
  2. Making all decisions autocratically to ensure efficiency.
  3. Inspiring followers to commit to a shared vision and challenging them to innovate. Correct answer.
  4. Maintaining stability by avoiding change and focusing on routine.

Explanation

Transformational leadership involves inspiring and motivating followers to achieve extraordinary outcomes, often through a shared vision and intellectual stimulation. Transactional leadership uses rewards, while autocratic and stability-focused approaches are different.

Question 36Leadership, governance and strategy

A company's board is dominated by a single powerful individual who also serves as CEO. Which governance concern does this raise?

  1. Overly rapid decision-making.
  2. Too much delegation to committees.
  3. Excessive board diversity.
  4. A lack of independence and potential for unfettered power. Correct answer.

Explanation

Combining the roles of chair and CEO, or having a dominant individual, can concentrate power and reduce board independence, leading to weaker oversight. This is a common governance concern.

Question 37Leadership, governance and strategy

Which of the following best describes the purpose of an enterprise risk management (ERM) framework?

  1. To transfer all risks to third parties.
  2. To ensure that only financial risks are managed.
  3. To eliminate all risks faced by the organisation.
  4. To integrate risk management into strategic decision-making and operations. Correct answer.

Explanation

ERM is a holistic approach that embeds risk consideration into strategy, performance, and day-to-day operations, helping the organisation manage uncertainty effectively. It does not aim to eliminate all risks, focus only on financial risks, or transfer all risks.

Question 38Leadership, governance and strategy

A board is considering a hostile takeover bid for a competitor. Which action would best demonstrate proper governance oversight before making a final decision?

  1. Approving the bid without due diligence to avoid leaks.
  2. Commissioning an independent valuation and seeking legal and financial advice. Correct answer.
  3. Relying solely on the CEO's recommendation to proceed quickly.
  4. Delegating the decision entirely to the finance director.

Explanation

Proper board oversight requires informed decision-making, including independent valuation and expert advice, to assess the merits and risks of a major acquisition. Relying on one individual, skipping due diligence, or delegating the decision would be inadequate.

Question 39Leadership, governance and strategy

In the context of agency theory, which mechanism is most likely to align the interests of managers and shareholders?

  1. Encouraging managers to hold no shares in the company.
  2. Reducing the number of independent directors.
  3. Increasing manager autonomy without monitoring.
  4. Linking executive remuneration to long-term shareholder value. Correct answer.

Explanation

Agency theory suggests that aligning executive pay with shareholder interests, such as through long-term incentives, can reduce agency costs. Increased autonomy without monitoring, fewer independent directors, or preventing share ownership would likely worsen the agency problem.

Question 40Leadership, governance and strategy

A multinational company is designing its governance structure. Which approach best addresses the challenge of balancing global consistency with local responsiveness?

  1. Establishing a global governance framework with scope for local adaptation where justified. Correct answer.
  2. Allowing each subsidiary to set its own governance rules independently.
  3. Imposing a single global governance code with no local adaptation.
  4. Outsourcing governance to a third-party provider in each country.

Explanation

A global framework ensures minimum standards and consistency, while permitting local adaptation allows subsidiaries to comply with local regulations and cultural expectations. A rigid global code or complete local autonomy can create problems, and outsourcing governance is not a solution.

Question 41Risk, control and ethics

According to the COSO enterprise risk management framework, which component is concerned with identifying and assessing events that could affect an entity's objectives?

  1. Monitoring
  2. Control activities
  3. Information and communication
  4. Event identification Correct answer.

Explanation

Event identification is the component that scans internal and external environments to recognise risks and opportunities that could affect objectives. Control activities, information and communication, and monitoring all operate on events already recognised rather than discovering them.

Question 42Risk, control and ethics

In the risk assessment process, which of the following best describes 'inherent risk'?

  1. The risk that remains after management has applied controls
  2. The risk arising solely from external environmental factors
  3. The level of risk before any controls or responses are applied Correct answer.
  4. The risk that internal audit fails to detect a material error

Explanation

Inherent risk is the exposure that exists before management takes any action to mitigate it. Residual risk is what remains once controls are in place, so inherent and residual risk are compared to judge whether controls are worthwhile.

Question 43Risk, control and ethics

A company's board delegates day-to-day risk oversight to an audit committee. Which statement best reflects the board's responsibility under good governance codes?

  1. The board can fully discharge its risk duties by delegating to the audit committee
  2. Risk oversight should be delegated to the external auditor
  3. The board retains ultimate responsibility for risk oversight and must monitor what is delegated Correct answer.
  4. The audit committee replaces the board for all risk decisions

Explanation

Good governance codes allow delegation of detailed work but the board remains accountable for risk oversight and must monitor delegated activities. Delegation does not transfer ultimate responsibility, and external auditors do not take on management or governance duties.

Question 44Risk, control and ethics

Which of the following is the primary purpose of a whistleblowing policy?

  1. To guarantee confidentiality of the reporter's identity in every case
  2. To allow managers to discipline staff who raise concerns
  3. To replace the external audit function
  4. To protect employees who report suspected wrongdoing from retaliation Correct answer.

Explanation

A whistleblowing policy exists to encourage and protect individuals who report wrongdoing in good faith, including protection from retaliation. Confidentiality is important but cannot always be guaranteed where investigation requires disclosure, and such policies do not substitute for audit or permit victimisation.

Question 45Risk, control and ethics

Which of the following best describes the 'control environment' element of internal control?

  1. The physical security of the organisation's data centres
  2. The routine reconciliations performed by the finance team
  3. The annual external audit opinion
  4. The tone set by the board and management, including integrity and ethical values Correct answer.

Explanation

The control environment is the foundation of internal control and reflects the tone at the top, including integrity, ethics, and commitment to competence. Physical security, reconciliations, and audit opinions are specific controls or assurance outputs rather than the environment itself.

Question 46Risk, control and ethics

A company discovers that a senior manager has accepted a gift from a supplier shortly before awarding a contract. Which ethical threat does this most directly illustrate?

  1. Self-interest threat Correct answer.
  2. Intimidation threat
  3. Self-review threat
  4. Advocacy threat

Explanation

Accepting a gift creates a self-interest threat because the individual's personal benefit may improperly influence their professional judgement. The other threats relate to reviewing one's own work, being pressured, or promoting a position rather than personal gain.

Question 47Risk, control and ethics

Which of the following is an example of a detective control?

  1. A policy requiring dual authorisation of payments
  2. A bank reconciliation performed monthly Correct answer.
  3. Password controls restricting system access
  4. Segregation of duties between purchasing and payments

Explanation

Detective controls identify errors or irregularities after they occur, and a bank reconciliation does exactly that by comparing records with independent evidence. Segregation of duties, access passwords, and dual authorisation are preventive controls that stop problems arising.

Question 48Risk, control and ethics

An organisation decides to transfer the risk of damage to its warehouse by purchasing an insurance policy. Which risk response is this?

  1. Reduction
  2. Sharing Correct answer.
  3. Avoidance
  4. Acceptance

Explanation

Insurance transfers part of the financial consequence to a third party, which is classified as risk sharing (or transfer). Avoidance would mean not operating the warehouse, reduction would mean installing sprinklers, and acceptance would mean bearing the loss.

Question 49Risk, control and ethics

A multinational uses derivative contracts to offset changes in foreign exchange rates on forecast transactions. Which risk management technique is being applied?

  1. Risk retention
  2. Diversification
  3. Netting of payables only
  4. Hedging Correct answer.

Explanation

Hedging uses offsetting financial instruments to neutralise exposure to a specific risk such as exchange rate movements. Diversification spreads risk across assets or activities, netting is a settlement technique, and retention means keeping the risk.

Question 50Risk, control and ethics

A production manager is responsible for ordering raw materials and also for approving the related supplier invoices for payment. Which control weakness is most significant?

  1. Insufficient staff training
  2. Absence of a disaster recovery plan
  3. Lack of segregation of duties Correct answer.
  4. Inadequate backup of accounting records

Explanation

Combining ordering with invoice approval concentrates incompatible duties in one person, creating the opportunity to order goods for personal benefit or approve fictitious invoices. This is a classic segregation of duties failure; the other options concern resilience and competence rather than fraud opportunity.