ICAEW SE · Chapter 5
The role of the professional accountant in sustainability MCQs with Answers
13 multiple-choice questions on The role of the professional accountant in sustainability for ICAEW SE Sustainability and Ethics. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
The International Sustainability Standards Board (ISSB) has issued IFRS S1 and IFRS S2. What is the main difference between them?
- A) IFRS S1 sets general requirements for disclosing sustainability-related financial information, whereas IFRS S2 sets specific requirements for climate-related disclosures
- B) IFRS S1 covers climate, whereas IFRS S2 covers human rights
- C) IFRS S1 applies to listed companies, whereas IFRS S2 applies to charities
- D) IFRS S1 sets assurance requirements, whereas IFRS S2 sets audit fees
Show answer & explanation
Answer: A) IFRS S1 sets general requirements for disclosing sustainability-related financial information, whereas IFRS S2 sets specific requirements for climate-related disclosures
IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information is the overarching standard. IFRS S2 Climate-related Disclosures deals specifically with climate-related risks and opportunities. Neither standard sets assurance requirements, which are a matter for assurance standard-setters and regulators.
Question 2
Who are the primary users of sustainability disclosures prepared under the ISSB standards?
- A) Local communities affected by the entity's operations
- B) Employees deciding whether to join a trade union
- C) Investors, lenders and other creditors making decisions about providing resources to the entity
- D) Government tax authorities assessing corporation tax
Show answer & explanation
Answer: C) Investors, lenders and other creditors making decisions about providing resources to the entity
The ISSB standards focus on information that could reasonably be expected to affect the entity's prospects, and their primary users are investors, lenders and other creditors. This is a financial materiality perspective. Frameworks such as GRI, by contrast, address a wider range of stakeholders and focus on an entity's impacts.
Question 3
IFRS S2, building on the TCFD recommendations, organises climate-related disclosures around four core content areas. Which of the following lists them correctly?
- A) Environment, social, governance and economics
- B) Governance, strategy, risk management, and metrics and targets
- C) Planning, doing, checking and acting
- D) Scope 1, Scope 2, Scope 3 and Scope 4
Show answer & explanation
Answer: B) Governance, strategy, risk management, and metrics and targets
The four core content areas are governance, strategy, risk management, and metrics and targets. They are designed to show how an entity oversees, plans for, manages and measures climate-related risks and opportunities. ESG is a broader classification, and the GHG Protocol has only three scopes.
Question 4
Under the Greenhouse Gas Protocol, how are emissions from the generation of electricity that a company buys from the national grid classified in the company's own inventory?
- A) Scope 2
- B) Scope 1
- C) Scope 3
- D) They are excluded because the company does not generate the electricity
Show answer & explanation
Answer: A) Scope 2
Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company. Scope 1 covers direct emissions from sources the company owns or controls, and Scope 3 covers all other indirect emissions in the value chain.
Question 5
A manufacturer identifies the following emission sources: (1) Gas burned in its own factory boilers (2) Flights taken by staff on business trips with commercial airlines (3) Emissions from customers using its products How should these be classified under the GHG Protocol?
- A) (1) Scope 1; (2) Scope 2; (3) Scope 3
- B) (1) Scope 2; (2) Scope 3; (3) Scope 1
- C) (1) Scope 1; (2) Scope 1; (3) Scope 3
- D) (1) Scope 1; (2) Scope 3; (3) Scope 3
Show answer & explanation
Answer: D) (1) Scope 1; (2) Scope 3; (3) Scope 3
Burning gas in the company's own boilers is a direct emission from an owned source, so it is Scope 1. Business travel on commercial airlines and the use of sold products are both indirect value chain emissions, so they are Scope 3. Scope 2 is limited to purchased energy such as electricity.
Question 6
A company reports the following greenhouse gas emissions for the year, in tonnes CO2e: Scope 1: 4,200 Scope 2: 2,600 Scope 3: 31,200 What are its combined Scope 1 and 2 emissions, and what percentage of its total emissions comes from Scope 3?
- A) 6,800 tonnes CO2e; 17.9%
- B) 38,000 tonnes CO2e; 82.1%
- C) 6,800 tonnes CO2e; 82.1%
- D) 35,800 tonnes CO2e; 87.2%
Show answer & explanation
Answer: C) 6,800 tonnes CO2e; 82.1%
Scope 1 and 2 combined = 4,200 + 2,600 = 6,800 tonnes CO2e. Total emissions = 6,800 + 31,200 = 38,000 tonnes CO2e. Scope 3 share = 31,200 / 38,000 x 100 = 82.1% (rounded to one decimal place). The figure of 17.9% is the Scope 1 and 2 share, which shows why value chain emissions often dominate a company's footprint.
Question 7
A transport company used 120,000 litres of diesel in its own lorries during the year. For the purpose of this question, assume an emission factor of 2.5 kg CO2e per litre of diesel. What are the resulting emissions in tonnes CO2e, and in which scope are they reported?
- A) 300 tonnes CO2e, Scope 2
- B) 300 tonnes CO2e, Scope 1
- C) 300,000 tonnes CO2e, Scope 1
- D) 48 tonnes CO2e, Scope 3
Show answer & explanation
Answer: B) 300 tonnes CO2e, Scope 1
Emissions = 120,000 litres x 2.5 kg CO2e = 300,000 kg CO2e, which is 300,000 / 1,000 = 300 tonnes CO2e. Fuel burned in vehicles the company owns or controls is a direct emission, so it is Scope 1. The 300,000 figure fails to convert kilograms to tonnes, and 48 wrongly divides litres by the factor (120,000 / 2.5 = 48,000 kg). The 2.5 kg factor is a simplified assumption; in practice published conversion factors are used and are updated periodically.
Question 8
A practitioner is engaged to provide assurance on a company's sustainability report. How does a limited assurance conclusion typically differ from a reasonable assurance conclusion?
- A) A limited assurance conclusion gives absolute certainty, whereas reasonable assurance gives none
- B) A limited assurance conclusion requires more evidence than a reasonable assurance conclusion
- C) A limited assurance conclusion is given only by the company's own finance team
- D) A limited assurance conclusion is expressed negatively (nothing has come to our attention to indicate material misstatement), whereas a reasonable assurance conclusion is expressed positively
Show answer & explanation
Answer: D) A limited assurance conclusion is expressed negatively (nothing has come to our attention to indicate material misstatement), whereas a reasonable assurance conclusion is expressed positively
In a limited assurance engagement, the practitioner performs fewer procedures and gives a negatively worded conclusion. Reasonable assurance involves more extensive work and a positive opinion, similar to a financial statement audit. Neither gives absolute certainty, and both are given by an independent practitioner.
Question 9
Why are professional accountants well placed to provide assurance on sustainability information?
- A) They are the only professionals legally allowed to measure greenhouse gas emissions
- B) They do not need to consider ethical requirements on non-financial engagements
- C) They have skills in evaluating evidence, internal controls and data, and are bound by ethical requirements including independence and professional scepticism
- D) They can rely entirely on management's representations without further testing
Show answer & explanation
Answer: C) They have skills in evaluating evidence, internal controls and data, and are bound by ethical requirements including independence and professional scepticism
Assurance skills such as planning, risk assessment, testing controls, gathering evidence and applying professional scepticism transfer well to sustainability information. Ethical requirements, including independence, apply to sustainability assurance engagements just as they do to audits. Accountants may need to work with subject-matter experts, such as engineers or scientists, where specialist knowledge is needed.
Question 10
The Global Reporting Initiative (GRI) Standards are widely used for sustainability reporting. What is their main focus?
- A) Only the effect of climate change on the organisation's cash flows
- B) The calculation of corporation tax liabilities
- C) The organisation's most significant impacts on the economy, the environment and people, for a broad range of stakeholders
- D) The presentation of the statement of financial position
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Answer: C) The organisation's most significant impacts on the economy, the environment and people, for a broad range of stakeholders
The GRI Standards are based on impact materiality, focusing on an organisation's impacts on the economy, environment and people, including human rights. They are aimed at a wide range of stakeholders. This contrasts with the ISSB's investor-focused, financial materiality approach, and the two can be used together.
Question 11
Which of the following is a role played by professional accountancy bodies such as ICAEW in driving sustainability?
- A) Including sustainability in professional qualifications and providing guidance and resources to members
- B) Passing national sustainability legislation
- C) Setting legally binding emission caps for companies
- D) Running national electricity grids
Show answer & explanation
Answer: A) Including sustainability in professional qualifications and providing guidance and resources to members
Accountancy bodies drive sustainability by educating students, supporting members with guidance and CPD, contributing to standard-setting consultations and advocating for change. They do not pass legislation or set legally binding emission limits, which are the role of governments and regulators.
Question 12
Which of the following is an example of a professional accountant adopting a sustainable approach within their own workplace?
- A) Using secure remote access and video calls to review client records where a site visit is not necessary, reducing travel
- B) Printing every working paper in colour so that it is easier to read
- C) Driving to every client meeting regardless of distance
- D) Keeping all office equipment switched on overnight
Show answer & explanation
Answer: A) Using secure remote access and video calls to review client records where a site visit is not necessary, reducing travel
Professional accountants can reduce their own environmental impact through choices such as cutting unnecessary travel, reducing paper use and saving energy. Remote working must still meet professional requirements, such as obtaining sufficient evidence and protecting confidential data.
Question 13
A management accountant is appraising a project expected to generate annual net cash inflows of £500,000 before any carbon cost. The project will emit 2,000 tonnes CO2e per year. The company applies an internal (shadow) carbon price of £80 per tonne in investment appraisal. What annual net cash inflow should be used in the appraisal after applying the internal carbon price?
- A) £340,000
- B) £500,000
- C) £660,000
- D) £499,920
Show answer & explanation
Answer: A) £340,000
The annual carbon cost = 2,000 tonnes x £80 = £160,000. Adjusted annual net cash inflow = £500,000 - £160,000 = £340,000. Using an internal carbon price helps the company anticipate future carbon costs and avoid investing in projects that could become uneconomic. Adding the cost (£660,000) or deducting only £80 (£499,920) are errors.