ACCA Strategic Business Reporting (SBR) Practice Exam

What financial document usually includes accounting policies adopted by an entity?

1. Statement of comprehensive income

2. Management commentary

3. Statement of financial position

4. Cash flow statement

The correct answer is: Management commentary

The correct option is indeed the management commentary, which typically includes a comprehensive discussion of the accounting policies adopted by an entity. This section is designed to provide users of the financial statements with greater insight into the management’s approach to financial reporting and the significant accounting judgments and estimates that have been made. Management commentary serves as a narrative complement to the financial statements, offering a context within which the figures can be understood. It might outline the entity's business model, performance metrics, risk management strategies, and, importantly, the accounting policies that help ensure consistency and transparency in the reported figures. In contrast, the statement of comprehensive income focuses primarily on the results of operations, detailing revenue, expenses, and profits, without an in-depth discussion on accounting policies. The statement of financial position presents the entity’s assets, liabilities, and equity at a specific point in time, whereas the cash flow statement summarizes cash inflows and outflows over a period. Neither of these documents includes a section dedicated to explaining the accounting policies used by the entity. Therefore, the management commentary is the appropriate document for such information.