Test: Sample questions and case studies from previous papers

Q1 | F1 sample question

Which TWO of the following are MOST likely to help reduce tax avoidance and evasion?

Correct answer: a), e)

a) Deduct tax at source

Deducting tax at source wherever possible reduces possibilities of avoiding or evading tax. A good example is the PAYE (pay as you earn) scheme in the UK, under which the employer removes taxes and national insurance each month - these go straight to the government.

e) Social attitudes

A clear and user friendly tax system also safeguards against tax evasion and avoidance. People will be more inclined to pay their taxes if it is made easy for them to do so.

But ultimately, laws, regulation and good systems all benefit from the right social attitudes towards tax avoidance and evasion. There has to be a change in social attitudes and behaviours. Behaviours to be promoted and supported are found in the CIMA Code of Ethics, with fundamental principles including integrity, objectivity and professional behaviour, as well as the acceptance of the responsibility to act in the public interest.

Q2 | E1 sample question

Which of the following technology trends is unlikely to raise ethical issues?

Correct answer: c)

Having fraud detection systems in place is more likely to raise areas for further investigation in regard to alerting an organisation to potential ethical issues and being a resource.

Computing power and the considerable increase in use of data storage (due to lowering costs and developments in technology) can create a number of risks that may have an ethical element. These include security of information, cybercrime and data protection issues such as payment card industry compliance.

See CGMA magazine articles on cyber security issues:

Q3 | P2 sample question

S is evaluating two possible locations for its new factory. Location A is close to a large city which has a great deal of unemployment and so labour can be recruited easily. It is close to transport links and land is more expensive. Location B is in a more remote site where land is cheaper. The factory will have a high ecological footprint, with emissions that are barely within the maximum permitted by law.

Question: Which TWO of the following statements are TRUE?

Correct answer: b), c)

b) Location A: public interest

A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. Therefore, a professional accountant’s responsibility is not exclusively to satisfy the needs of an individual client or employer. In this scenario, not only would location A be likely to be in the public interest (supporting the community by job creation), choosing location A could also be seen as a form of enlightened self-interest. By giving employment and thus boosting the local economy, company S set themselves up to ‘do well by doing good’.

c) Emissions: law vs ethics

Good ethical behaviour may be above that required by law. The law does not always constitute best practice, sometimes it is a minimal requirement. Hence, that emissions are within legal limits does not mean that there cannot be any ethical concerns, or that company S should not strive to lower them further.

Best practice could include, for example, setting a target to reduce emissions to sustainable levels – or even aim to become ‘net-positive’ - and assessing how this can be achieved, as well as being open about current emissions and any progress on reaching target levels. They could also offset against emissions to minimise their footprint.

Q4 | F2 sample question

KL has announced that it wishes to sell one of its subsidiaries, F, because of its poor liquidity position. On 31 December 20X3 (the last day of F’s financial year end), the directors of KL purchased inventory from F at a price of $2 million and paid in full. This inventory has originally cost F $1.2 million. The directors of KL intend to reverse this sale in January 20X4.

Which of the following statements in respect of this transaction is true?

Correct answer: a)

Acting with integrity is one of the fundamental principles of the code of ethics – being straightforward, honest and truthful. It is important not to be associated with any information you believe contains a materially false or misleading statement. Professional behaviour, complying with relevant laws and regulations, is also crucial. The code also covers specifics in regards to preparing and reporting information in Section 340. Reviewing threats and safeguards in relation to such situations can help management accountants understand how to respond.

Many recent ethics scandals have been related to short term actions that were based on false or misleading information. The long term consequences can have high costs – not only from a regulatory but also a reputational stand point.

See the CIMA report on understanding reputational risk:

Q5 | P3  sample question

H has started to offer a new service in response to pressure from environmental campaigners. Up to five years ago, many of the components sold by H contained toxic materials.

Recent legislation in Europe requires components to be recycled in specific ways to minimise any environmental damage. H has told customers that when they purchase new components they can give the old components to H and then the company will recycle them in accordance with the new legislation.

This service has provided some publicity for H and has featured in its recent social and environmental report. However, a review of H’s recycling procedures by its internal audit department identified that many components, including some that contain toxic materials, are simply thrown away by H’s staff rather than being recycled.

Which of the following statements are correct?

Correct answers: a), b), e)

H has understood the influence of wider stakeholders on the business and has benefitted from PR around recycling of its old products. However, by neither fully following the legislation nor reflecting its external statements around recycling, H is now associated with misleading information. This can have both regulatory and reputational impacts. “Greenwashing” products can have very negative effects on a company and its standing, as many recent ethical scandals have relayed. Moreover, if a company is found to have covered up an issue, the consequences can be even worse.

H should be advised to address the issue publically as soon as possible and try to fix the issue before it becomes an even bigger problem. Although this may have some short term repercussions, it would strengthen long term trust and learning in embedding good practice.

Review a scenario related to hiding information for short-term gains and importance of embedding culture:

Q6 | Strategic Level sample question

Cast employment practices dilemma

Judith, your manager at Cast, reads an extract from a recent news article to you:

“Recent revelations about Cast's employment practices have tended to undermine the company's reputation. Practices mirror its status as a family-owned company whose shareholders view every penny spent on staff welfare as a personal cost.

Most of Cast's staff are employed at the company's large distribution centres where goods are packed and shipped to customers. The pace of work is relentless, with employees required to pack and label 100 items per hour in order to keep pace with their daily quotas. The work is badly paid, but the centres are located in areas of high unemployment and employees who leave are replaced quickly and easily.

Predictably, Cast's director of human resources responded to the concerns raised by saying that the employees were free to work wherever they wished and that Cast met all relevant rules concerning minimum wage and health and safety.”

Judith continues:

“People think that we pay badly, but the law sets a statutory minimum wage and we pay a good 10% more than that to even our worst-paid staff. The directors are furious that we have been portrayed like this. They want to argue that we are nice people, because we create jobs in an area of high unemployment. I think that we need a bit of a balanced debate inside the company before we start making rash statements to the press. I want you to put together a discussion of the ethical implications of Cast's employment practices.”

Which TWO of the following statements are TRUE?

Correct answer: c), e)

The basic problem arising from an ethical analysis of Cast’s employment practices is that the employees’ interests are in conflict with the shareholders. Resolving the dilemma can be assisted by expressing the dilemma in terms of positive and negative duties.

The directors have a negative duty to the shareholders to avoid spending more than necessary on running the company. Enhancing the employees’ working conditions is a positive duty. It is generally accepted that negative duties are more compelling than positive duties. For example, the directors will definitely be responsible for an ethical breach of their duty to the shareholders if they overpay the employees. It is debatable whether the directors are responsible for the legal and economic conditions that make it possible to pay a low wage for working under quite difficult conditions.

The pace of work is again a matter of balancing the shareholders’ interests against the employees’. Slowing down the pace of work would require the employment of more staff and so the cost of labour would increase. The ethical question that has to be resolved is the extent to which the employees’ complaints about stress and tiredness indicate excessive workload or simply tight deadlines. If the pace of work is abusive and sustained only because the employees have nowhere else to work then the company is being exploitative.

Q7 | Management Case Study May 2015 - Management Case Study Variant 1

Case Study Question – Management Level

This excerpt is based on the Management Level case study related to Flote, one of the world’s largest transport companies. The primary business is in shipping and managing the movement of shipping containers. See the full case on CIMA Connect.

You’ve just received an email from the head of Flote’s Public Relations department, referencing a statement posted the previous day on a popular social media site:

“I see that Flote have bought themselves the world’s largest container ship. That makes it even more difficult for us to tell how profitable the company really is. It is impossible to compare depreciation charges with the other shipping companies as it is. Now we’ll have to trust Flote to estimate the useful life of a brand new class of ships that nobody has ever operated before.

The information in the accounting policies note was never very useful as it was. The company states that ‘depreciation is charged to the statement of profit or loss on a straight-line basis over assets’ useful lives’. We are told that the useful lives of ships are generally 20 to 25 years. Which is it – 20 or 25? What rate will be used for the new ship? One of Flote’s closest competitors makes a similar statement, but claims that its ships have lives of 20 to 30 years. Hasn’t Flote ever heard of maintenance?

I think that we should be concerned here because the directors are clearly more excited about having the largest and latest ships than about providing shareholders with value for money. They can justify anything they like because they produce the accounting numbers. However, have they forgotten that they cannot control the market’s reaction?”

Consider what business issues could arise as well as what are the ethical concerns.

All you know about this shareholder is that he or she is an individual rather than an institutional investor. Several other shareholders already commented on this post, stating that they agree with it.

The Head of PR has asked you to explain the ethical issues that could arise if Float’s Public Relations department posts a strong denial of the points made in this blog.


When you have completed the answer, take a look at the guidance answer to see which aspects you have identified:

View Guidance Answer


Compare your points and thought to the Examiner’s answers. These are indicative of a response from a good candidate and are not to be considered exhaustive. Other relevant responses would receive credit.

The ethical issues could be structured in various ways, but the CIMA Code of Ethics provides us with the fundamental principles of Integrity, Objectivity, Professional Competence and Due Care, Confidentiality and Professional Behaviour.

The basic dilemma that we face in responding to this post is that we cannot really answer the shareholder’s post without either appearing ineffective or being dishonest. If we respond with an agreement that the disclosures are vague and claim that we cannot be more definite then we will confirm the shareholder’s criticism, which could reduce the share price and harm the shareholders. We cannot make a definite statement about the life expectancy of the ships because that is an estimate and so we cannot offer a guarantee of accuracy.

Integrity suggests that we should be straightforward and honest, which suggests that we should not claim to be capable of predicting an asset’s life accurately when we are forced to estimate figures.

Objectivity implies that we should not bias the disclosures in the financial statements. We are uncertain about the life expectancy of the ships and so we presently disclose a range of possible useful life figures to communicate that uncertainty.

Professional behaviour implies that we should not discredit the accountancy profession by provoking a potential accounting scandal. If we claim to be able to predict the ships’ lives with precision and then have to correct that estimate then we will undermine the credibility of financial reporting.

We should be prepared to state the facts as we understand them in responding to the shareholder. The shareholder has misrepresented the facts by claiming that we have been dishonest. In fact, we have stated the asset lives in a realistic and responsible manner.

Other links:


There are many resources to help you further your understanding of the importance of ethics in management, as well as the growing emphasis on ethical corporate culture and related good governance and sustainability issues. These will help bring to life the issues that will arise in exams, as well as add context to your working life and ongoing CPD.   View Resources ›

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This tool is produced to assist students’ understanding of professional ethics in exams and in their working lives. The Student Ethics Support Tool is not a substitute for CIMA study texts, but a support to your studies.