CIMA E1 Shape and structure of the finance function: practice questions with answers

Question 1

Norland Group has closed the accounts payable teams in its six national subsidiaries and transferred the work to a single centre that it owns and staffs itself. The centre processes invoices for all six subsidiaries under agreed service levels. Which finance structure has Norland adopted?

1. A Business process outsourcing
2. B A shared service centre
3. C A centre of excellence
4. D Finance business partnering

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Answer: B. A shared service centre (SSC) is an internal unit that performs common activities, often transactional ones such as accounts payable, payroll and receivables, for several parts of the organisation. Benefits include economies of scale and standardised processes. Service is governed by service level agreements. If the same work were moved to an external provider it would be outsourcing.

Question 2

Ashby Holdings, based in Canada, has transferred its payroll processing to an independent payroll company that is also based in Canada. Which term best describes this arrangement?

1. A Offshoring to a captive centre
2. B Onshore outsourcing
3. C Insourcing to a shared service centre
4. D Nearshoring to a captive centre

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Answer: B. Outsourcing is about who does the work (an external provider), while offshoring and nearshoring are about where it is done (a distant or nearby country). These can be combined: work can be outsourced onshore, outsourced offshore, or moved offshore to a captive centre owned by the group. Ashby's arrangement is onshore outsourcing.

Question 3

Elstow Foods' month-end close currently takes 11 working days, which delays management information. Which action would most effectively shorten the close without weakening control?

1. A Keep the ledger open each month until every supplier invoice for the period has arrived, so that no accruals are needed
2. B Reconcile accounts and estimate accruals during the month, and automate bank and intercompany matching
3. C Stop reconciling balance sheet accounts each month and reconcile them only at the financial year end
4. D Require the finance director to review and approve every journal individually before the ledger is closed

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Answer: B. The record-to-report process ends with the period-end close. A faster close is achieved by:

- doing work before the period end where possible (continuous reconciliation, standard accrual estimates);
- automating routine matching and posting (bank, intercompany);
- using materiality so that small late items do not hold up the close; and
- standardising the close timetable and checklists.

Removing reconciliations would shorten the close only by weakening control, and waiting for every invoice or reviewing every journal individually would make it longer.

Question 4

Jonas is the finance business partner to the managing director (MD) of the pumps division of Corrie Engineering. Near the end of the first quarter, the MD asks Jonas to leave $85,000 of supplier invoices for work completed in March unrecorded until April, so that the division meets the quarterly profit target on which the MD's bonus depends. What should Jonas do?

1. A Explain that the costs belong in March and decline; if the pressure continues, raise it through his reporting line to the CFO
2. B Agree, because the invoices will be recorded in April and so the division's profit for the full year will be unaffected
3. C Agree, provided that he keeps a signed written note on file showing that the request came from the MD
4. D Resign from the business partner role immediately, without discussing the request with the MD or anyone else

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Answer: A. A business partner must be close to the business but keep the objectivity and integrity expected of a professional accountant. Costs incurred in March must be recognised in March (accruals concept), whatever the effect on the MD's bonus.

Jonas should explain the correct treatment, refuse to misstate the results and, if pressure continues, escalate through his formal reporting line to the CFO, in line with the CIMA Code of Ethics. Agreeing, even with a file note, would make him party to misleading information; resigning without first using internal procedures is premature.

Question 5

Cawthorne Group has automated most of its invoice processing and reconciliations. These were the tasks through which trainee accountants traditionally learned how transactions flow through the accounts. The CFO is concerned that in five years' time there will be too few people with the right experience to fill senior finance roles. Which action would best address this concern?

1. A Create development paths that rotate trainees through process oversight, exceptions, data analysis and business partnering, with mentoring
2. B Stop recruiting trainees and fill all future senior finance roles by hiring experienced accountants from other organisations
3. C Return some invoice processing to manual methods so that trainees can learn the accounts in the same way as earlier generations
4. D Make the automation software vendor responsible for training and developing the group's future finance leaders

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Answer: A. Automation removes many junior roles in which accountants used to learn the basics, sometimes called the missing rung of the career ladder. Strategic leadership of the finance team includes talent management: planning how people will gain the experience and skills that future roles need.

Structured rotations, exposure to exceptions and controls over automated processes, analytical work and business partnering, combined with professional qualifications and mentoring, keep a pipeline of future leaders. Reversing automation or relying entirely on external hiring does not solve the problem.

Question 6

Rothley plc is negotiating a five-year contract to outsource its payroll. Which contract term most directly protects Rothley if the provider's performance becomes unacceptable or if Rothley later decides to bring payroll back in-house?

1. A A clause fixing the provider's price per payslip for the full five years
2. B A clause allowing the provider to subcontract work to other firms without notifying Rothley
3. C An exit clause covering termination rights, return of data and records, and handover support
4. D A clause requiring Rothley to pay all of the provider's invoices within ten days

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Answer: C. Outsourcing contracts should cover scope and service levels, pricing, performance reporting, data protection and security, audit rights, subcontracting restrictions, dispute resolution and an exit strategy. Because outsourcing creates dependency, an exit clause covering termination rights, transfer of data, knowledge and records, and transitional support is essential to manage the risk of being locked in.