CIMA BA4 · Chapter 3
Threats to the fundamental principles and safeguards MCQs with Answers
10 multiple-choice questions on Threats to the fundamental principles and safeguards for CIMA BA4 Fundamentals of Ethics, Corporate Governance and Business Law. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Which of the following is NOT one of the categories of threat to compliance with the fundamental principles identified in the CIMA Code of Ethics?
- A) Self-interest threat
- B) Self-confidence threat
- C) Advocacy threat
- D) Familiarity threat
Show answer & explanation
Answer: B) Self-confidence threat
The categories of threat are self-interest, self-review, advocacy, familiarity and intimidation. 'Self-confidence' is not a recognised category. Questions often use plausible-sounding but invented threat names as distractors.
Question 2
A management accountant's annual bonus depends on the profit figure that she herself calculates. Which type of threat does this create?
- A) Self-review threat
- B) Advocacy threat
- C) Intimidation threat
- D) Self-interest threat
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Answer: D) Self-interest threat
A self-interest threat arises where a financial or other interest will inappropriately influence the member's judgement or behaviour. A bonus linked to a figure the member prepares gives her a financial interest in that figure. There is no review of her own earlier work, promotion of a position or pressure from others.
Question 3
A finance director tells a junior accountant that he will be dismissed unless he agrees to a particular accounting treatment. Which threat is present?
- A) Familiarity threat
- B) Self-review threat
- C) Intimidation threat
- D) Advocacy threat
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Answer: C) Intimidation threat
An intimidation threat arises where a member is deterred from acting objectively by actual or perceived pressures, including threats of dismissal. The junior accountant is being pressured to give in. Familiarity involves sympathy arising from a long or close relationship, which is not described.
Question 4
An accountant is asked to evaluate the effectiveness of a costing system that she designed and implemented last year. Which threat arises?
- A) Self-review threat
- B) Self-interest threat
- C) Familiarity threat
- D) Intimidation threat
Show answer & explanation
Answer: A) Self-review threat
A self-review threat arises when a member must re-evaluate a previous judgement or work they performed, because they are unlikely to identify their own errors objectively. Here she is reviewing her own system design. Other threats may also be present, but self-review is the most direct.
Question 5
A management accountant is asked to speak publicly in support of her employer's position in a dispute with a regulator. Which threat is most likely to arise?
- A) Self-review threat
- B) Intimidation threat
- C) Advocacy threat
- D) Familiarity threat
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Answer: C) Advocacy threat
An advocacy threat arises when a member promotes a client's or employer's position to the point that objectivity is compromised. Publicly championing the employer's case in a dispute is advocacy. The member is not reviewing her own work or being directly pressured.
Question 6
A purchasing accountant has dealt with the same supplier's sales director for twelve years and they now holiday together. Which threat is created?
- A) Advocacy threat
- B) Familiarity threat
- C) Self-review threat
- D) Self-interest threat
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Answer: B) Familiarity threat
A familiarity threat arises when, because of a long or close relationship, a member becomes too sympathetic to another's interests or too accepting of their work. A long-standing personal friendship with a supplier is a classic example. Safeguards could include rotating responsibility for that supplier.
Question 7
Under the conceptual framework in the CIMA Code of Ethics, what should a member do first when facing a situation that might compromise a fundamental principle?
- A) Identify threats to compliance with the fundamental principles
- B) Resign immediately from the engagement or employment
- C) Report the matter to the police
- D) Apply a safeguard before considering whether a threat exists
Show answer & explanation
Answer: A) Identify threats to compliance with the fundamental principles
The conceptual framework requires the member to identify threats, evaluate whether they are at an acceptable level, and address them by eliminating them or reducing them to an acceptable level with safeguards. Resignation is a last resort, and safeguards can only be chosen once the threat is identified and evaluated.
Question 8
The CIMA Code of Ethics recognises that conditions, policies and procedures that help a member comply with the fundamental principles may be established either by the profession, legislation or regulation, or by the member's employing organisation. Which of the following is established by the profession, legislation or regulation rather than by the employing organisation?
- A) The employer's own whistleblowing hotline
- B) A company's internal policy on accepting gifts
- C) An employer's internal review of work by a second accountant
- D) Mandatory continuing professional development requirements
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Answer: D) Mandatory continuing professional development requirements
Conditions, policies and procedures established by the profession, legislation or regulation include educational, training and experience requirements, continuing professional development (CPD) requirements, professional standards, professional or regulatory monitoring and disciplinary procedures, and corporate governance regulation. A whistleblowing hotline, a gifts policy and an internal second review are set up by the employer itself. Older editions of the Code grouped these as 'safeguards created by the profession, legislation or regulation' and 'safeguards in the work environment'; the current Code no longer uses those headings, but the distinction between the source of each measure still holds.
Question 9
A member's employer offers him a luxury holiday 'as thanks' just before he finalises a valuation that will determine the employer's loan covenant compliance. After evaluating the threat as significant, which response is most appropriate?
- A) Accept the holiday but disclose it in a note to the valuation
- B) Decline the offer, because the threat to objectivity cannot be reduced to an acceptable level while it is accepted
- C) Accept the holiday, because gifts from an employer cannot create threats
- D) Accept the holiday and ask a colleague to sign the valuation instead, without telling anyone why
Show answer & explanation
Answer: B) Decline the offer, because the threat to objectivity cannot be reduced to an acceptable level while it is accepted
A valuable gift timed to coincide with a key judgement creates a self-interest threat to objectivity, and the Code's guidance on inducements says that an offer made with the intent of improperly influencing behaviour should be declined. Where the threat cannot be eliminated or reduced to an acceptable level, the member should not accept. Disclosure alone does not remove the influence, gifts from an employer can create threats just like gifts from anyone else, and quietly passing the work to a colleague without explanation is not a transparent safeguard.
Question 10
Which statement about safeguards is correct?
- A) Every threat can always be eliminated by an appropriate safeguard
- B) Safeguards are only required for members in public practice, not members in business
- C) Once a safeguard is applied, the member need not reconsider the threat even if circumstances change
- D) Where no safeguard can reduce a threat to an acceptable level, the member should decline or end the specific activity, or in extreme cases resign
Show answer & explanation
Answer: D) Where no safeguard can reduce a threat to an acceptable level, the member should decline or end the specific activity, or in extreme cases resign
The Code recognises that some threats are so significant that no safeguard is adequate; the member must then decline or discontinue the activity, or resign. The conceptual framework applies to both members in practice and members in business. Threats must be re-evaluated if new information or changed circumstances arise.