Why this matters for SBR
IFRS 18 puts more discipline around how companies present performance. It introduces clearer categories and required subtotals. It also brings management defined performance measures into sharper focus.
In simple terms, if management wants to show an “adjusted” number, IFRS 18 expects clarity. Users must see what the measure is, why it exists, and how it ties back to IFRS totals. That theme is perfect for ACCA SBR because it tests judgement, communication, and professional marks.
This post shows you how to write these measures cleanly in SBR ACCA answers. It uses plain English, short structures, and exam friendly wording. If you want a wider base plan for ACCA exam success, start with this acca exam success guide.
What a management defined performance measure is
A management defined performance measure is a performance number that management uses publicly, but which is not an IFRS required subtotal.
Common examples include:
- adjusted operating profit
- adjusted EBITDA
- operating profit before exceptional items
- underlying profit
- profit before one off costs
The key point is this. These numbers are not banned. They are allowed. But they must not confuse users. They must not replace IFRS subtotals. They must not hide costs that are part of normal business.
In an SBR question, you will often be asked to advise the board or audit committee. Your job is to explain how to present the measure in a way that is fair, clear, and not misleading.
Why examiners like this topic
This topic is ideal for professional marks because it sits at the point where numbers meet narrative. It also links to how investors read accounts.
In an answer, you can score well by doing three things:
- Show you understand why the measure exists.
- Show you can control the presentation so it does not mislead.
- Show you can connect the measure back to IFRS figures.
That is the heart of ACCA teaching at this level. It is not just a technical test. It is a communication test.
The clean paragraph structure to use in the exam
Use this structure for most parts. It keeps your writing short and focused.
Issue – what management is trying to show and what risk exists for users.
Rule – management defined performance measures must be explained and reconciled to IFRS totals and must not be presented as if they are IFRS subtotals.
Apply – use the facts in the case to decide what adjustments are acceptable and what disclosures are needed.
Conclude – state the best presentation and what the entity should avoid.
This structure works well in SBR online practice and in the exam centre. It also helps if you work with an ACCA tutor online or an ACCA private tutor, because it is easy to mark and improve.
The one checklist you should memorise
Use this as your go to checklist when a question includes an adjusted profit figure. This is the only bullet list in this post.
- Label it clearly as a management defined measure, not an IFRS subtotal
- Explain why management uses it and what decision it helps users make
- Reconcile it to the nearest IFRS subtotal or total
- Keep the reconciliation complete and easy to follow
- Define each adjustment in plain English
- Avoid adjustments that remove normal, recurring costs
- Present the measure with equal or less prominence than IFRS numbers
- Keep the measure consistent year to year, or explain changes
- Link the measure to the notes if unusual items are involved
- Make sure the narrative matches the numbers and cash flow story
If you can apply this checklist, you will write stronger answers and protect marks.
How to write the reconciliation in an SBR answer
Many candidates lose marks by writing vague statements like “provide a reconciliation” without showing what it looks like.
In the exam, you can sketch a simple reconciliation in words. Keep it short. For example:
Start with operating profit. Add back the restructuring charge because management presents it as unusual. Remove the one off gain on disposal because it inflates operating profit but does not reflect trading. The result is adjusted operating profit. Provide clear labels for each line and explain why each adjustment helps users understand performance.
That is enough. You do not need a perfect table. You need clarity.
What counts as a good adjustment
A good adjustment is one that helps users understand sustainable performance. It is usually linked to items that are unusual in nature or size, or which will not recur.
Examples that may be acceptable, depending on the facts:
- a major fire or flood loss
- a large legal settlement that is not part of normal trading
- a one off gain from selling a big part of the business
- a large impairment triggered by a major structural change, not a routine review
But you must apply judgement. Not every “big” item is unusual. Some big costs happen often in some industries. If a retailer restructures stores every year, it is hard to argue it is a one off. If a bank has credit losses every year, you cannot remove them and call the result “underlying”.
This is where your professional marks sit. You must challenge weak adjustments.
What counts as a bad adjustment
A bad adjustment is one that removes normal business costs just to make profit look better.
Examples that often cause problems:
- normal staff costs called “investment in people”
- routine IT costs called “transformation” every year
- recurring stock write downs called “exceptional”
- normal depreciation removed to show a higher profit number without clear explanation
- routine interest costs removed from a profit measure that is presented as if it is a core subtotal
In an SBR answer, you can say the measure risks misleading users because it removes costs that are part of normal operations.
How to handle an “adjusted operating profit” scenario
A common SBR case is this:
Management presents adjusted operating profit. It removes a restructuring cost, an impairment, and a gain on sale of property. The board wants to keep the measure because analysts ask for it.
A clean answer would include:
- A statement that operating profit is defined by IFRS 18 and must be presented correctly.
- A statement that the adjusted measure can be presented as a management defined performance measure, but it must be reconciled to the IFRS operating profit.
- A judgement on each adjustment, based on whether it is unusual and whether it will recur.
- A note that the measure must not be more prominent than IFRS numbers.
Then you conclude with a short recommendation. For example:
Present IFRS operating profit first. Present adjusted operating profit as a management defined measure with a reconciliation. Remove only those items that are truly unusual and explain each adjustment. Avoid calling recurring costs “exceptional” because this undermines credibility.
That sort of answer helps you pass ACCA SBR because it is grounded and clear.
How to link MDPMs to other topics without drifting
SBR ACCA rewards focus. Link to other areas only when the case makes it relevant.
Here are a few common links you can make in one or two sentences.
IFRS 11
If the group has a joint venture, the share of profit is equity accounted. If management excludes it from an adjusted measure, explain why. If the joint venture is integral to the group’s performance story, excluding it may mislead users. Mention IFRS 11 briefly and return to presentation.
Derivative accounting and derivative hedge accounting
If the case includes hedging, the profit or loss effects may be volatile. If management creates an adjusted measure to remove hedge movements, you must challenge it. If hedge accounting applies, volatility is already reduced. If hedge accounting does not apply, removing the volatility might hide real risk. A short commodity hedge accounting example can show you understand the point, but keep it brief.
Tax and Pillar Two
If management adjusts profit to show “underlying” results, tax disclosures must still align. If the adjusted measure changes the narrative, ensure the tax story and effective tax rate explanation remain consistent.
These short links make your script look rounded. They also help you pick up professional marks.
How to present the measure without breaching the rules
In the exam, you can score easy marks by showing you understand presentation discipline.
Say something like:
Management may present an adjusted measure, but it must not replace IFRS subtotals. It should have clear labels, a clear reconciliation, and equal or less prominence than IFRS numbers. The entity should keep the measure consistent year to year and explain any changes.
This is simple language, but it shows strong judgement.
The writing style that marks best
This topic rewards short, direct sentences. Use active voice. Avoid long definitions. Avoid buzzwords like “synergies” unless the case uses them and you can explain them.
A good target is one applied point every two lines. That keeps you moving and keeps the marker on your side.
If you have ever felt stuck and asked “how do I stop failing ACCA exams”, this is one of the fixes. Many fails come from long paragraphs that do not answer the requirement.
A model answer you can adapt
Here is a model style paragraph you can adapt to many questions. You can rewrite it to suit the case.
Issue
Management presents adjusted operating profit and removes restructuring costs and impairment losses. There is a risk the measure gives a more favourable picture of performance than IFRS results.
Rule
IFRS 18 permits management defined performance measures, but they must be clearly labelled, explained, and reconciled to the nearest IFRS subtotal. IFRS subtotals such as operating profit must still be presented in line with the standard and must not be replaced by adjusted figures.
Apply
The restructuring cost may be adjusted only if it is unusual in nature or size and not expected to recur. If similar restructuring happens each year, removing it would mislead users. Impairment should be adjusted only if it reflects a one off event rather than a normal annual review. The gain on sale of property should not be included within an adjusted trading measure if it does not relate to core operations. The company should provide a clear reconciliation from IFRS operating profit to the adjusted figure and explain each adjustment in plain English.
Conclude
Present IFRS operating profit prominently. Present adjusted operating profit as a management defined measure with equal or less prominence, a full reconciliation, and a clear explanation. Avoid adjusting for recurring costs because this reduces trust in reporting.
That is the level of detail you want.
How to practise this topic in the final month
You do not need long sessions. Short drills work well.
Pick three past questions or mock scenarios that include an adjusted figure or a large unusual item. For each one:
- write a 10 mark style answer in 10 minutes
- check you used the checklist
- rewrite the weakest paragraph into 8 lines
This method fits well with an ACCA tutor, with ACCA tutoring, or with an online ACCA tuition routine.
If you want structured marking and a clear timetable, review the acca sbr course options and plug these drills into the weekly plan.
A quick note on how this affects other ACCA papers
Even if you are not sitting SBR alone, this topic can help. It builds judgement and clear writing.
If you are planning which ACCA exams to take together, remember that heavy writing papers need a lot of timed practice. Do not overload your sitting if your week is busy. That is a simple way to improve passing ACCA exams across the board.
Why this topic is likely to stay in the exam
Users want comparability. They want to understand what drives performance. They also want companies to be honest about what is normal and what is not. IFRS 18 supports that aim. In SBR, that means you can expect:
- questions where management uses adjusted measures
- questions where the audit committee challenges the adjustments
- questions where the narrative does not match the numbers
If you train your writing now, you will handle these questions with calm confidence.
Closing guidance
Management defined performance measures are not hard when you keep them clean. The rules are about transparency and trust. In the exam, show you can protect users by insisting on clear labels, full reconciliations, and careful judgement on adjustments.
Keep your answers short. Use the issue – rule – apply – conclude structure. Apply the one checklist. Finish the requirement. That is how you turn this topic into marks in ACCA SBR and move closer to ACCA exam success.