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L4M4 Real Exam Question Answers Updated [Aug 28, 2026]
NEW QUESTION # 106
What course of action should be taken when an audit of a supplier identifies evidence of human rights malpractice?
- A. Allow the supplier to complete current orders while pursuing alternatives
- B. Immediately halt all orders and switch to an alternative source of supply
- C. Immediately raise the issue with the supplier and jointly develop a timely action plan before a repeat audit
- D. Remove all business and inform press organisations to escalate to government authorities
Answer: C
Explanation:
CIPS promotes a constructive and corrective approach when suppliers fall short of ethical standards, especially on critical issues like human rights. Immediately cutting ties can harm workers further and disrupt supply without addressing root causes. A responsible sourcing approach requires buyers to engage suppliers, escalate the concern, and establish a corrective action plan with monitoring to ensure compliance. Only if the supplier refuses to act or breaches persist should termination occur. This supports continuous improvement, supplier development, and ethical due diligence, reflecting global standards such as the UN Guiding Principles on Business and Human Rights.
Reference: CIPS L4M4 Study Guide (v2), LO: "Implementation" - audits, corrective action plans, ethical risk management.
NEW QUESTION # 107
The balance sheet (statement of financial position) is one of the financial statements used in assessing a supplier's financial stability. The balance sheet contains information on such items as ...
- A. Liquidity ratios, return on capital employed and gearing
- B. Cash receipts from customers
- C. Operating expenses and net profit
- D. Short-term liabilities (e.g., unpaid taxes and bank overdraft)
Answer: D
Explanation:
A balance sheet sets out assets, liabilities and equity at a point in time. Current (short-term) liabilities such as overdrafts and tax creditors are part of it. Cash receipts (A) sit in cash-flow statements; expenses and profit (B) are in the income statement; ratios (C) are derived metrics, not items on the statement.
Reference: CIPS L4M4 Study Guide (v2): LO "Application" - supplier financial appraisal; interpreting the statement of financial position.
NEW QUESTION # 108
A prequalification questionnaire can allow a buyer to determine whether or not a potential supplier shares the same ethical values at an early stage of a procurement process. Obtaining confirmation that a supplier has not previously been convicted of breaches of modern slavery legislation belongs to which form of evaluation criteria?
- A. Economic
- B. Quality
- C. Social
- D. Environmental
Answer: C
Explanation:
Modern slavery and human rights are social sustainability issues. Under the triple bottom line (environmental, social, economic), the social dimension covers labour rights, working conditions, equality, and compliance with modern slavery laws. Responsible sourcing requires buyers to integrate such social criteria in supplier prequalification to prevent unethical practices from entering supply chains. Environmental criteria cover impacts like carbon and waste; economic focuses on cost and competitiveness; quality addresses technical performance. Including modern slavery checks at the prequalification stage reflects due diligence and ensures alignment with legal and ethical obligations.
Reference: CIPS L4M4 Study Guide (v2), LO: "Concepts" - triple bottom line; ethical sourcing and social responsibility.
NEW QUESTION # 109
In which circumstances would it be relevant to apply the Pareto principle (80/20 rule) to supplier expenditure analysis? (Select TWO)
- A. To identify strategic suppliers requiring closer management
- B. To identify extent of cost variation in a contract
- C. To identify expiry dates of contracts
- D. To identify optimum opportunities to change supplier relationships
- E. To identify performance-related payment frequency
Answer: A,D
Explanation:
The Pareto principle (80/20) shows that around 80% of spend is often concentrated with 20% of suppliers. It is relevant for identifying strategic suppliers (D) that require close management and opportunities to improve or change relationships (E) for greater value. Contract expiry dates (B) and payment frequency (A) are administrative details, not Pareto analysis outputs. Cost variation (C) relates to performance analysis, not spend concentration. Responsible sourcing uses Pareto analysis to allocate resources effectively, focusing attention on the most impactful supplier relationships.
Reference: CIPS L4M4 Study Guide (v2), LO: "Implementation" - spend analysis and supplier relationship management.
NEW QUESTION # 110
Tendering is a more formal and regimented process than sending out requests for quotations. Which of the following are services that are often put out to tender? Select THREE.
- A. consultancy
- B. security
- C. cleaning
- D. office supplies
- E. provision of raw materials
Answer: A,C,E
Explanation:
security, consultancy and cleaning are services which are often tendered as they tend to be high value and complex opportunities.
Office supplies and raw materials have less variables so you could use a RFQ for these instead.
A hint for this is also the word services. Security, consultancy and cleaning are services. Raw Materials and Office Supplies are goods.
NEW QUESTION # 111
Tracey Collum is a procurement professional and married to Nick Collum. Tracey has been leading a tender for a new radar system, where four suppliers have submitted their bids. After the bids were received, Nick joined one of the suppliers (Supplier X) as the project director for radar systems. Nick has asked Tracey to award the contract to Supplier X. What should Tracey do?
- A. Award the contract to Supplier X because Tracey can ask for a better price because they are married
- B. Ask to be removed from the tender due to a conflict of interest and complete a conflict of interest form
- C. Remove Supplier X from the tender due to a conflict of interest and continue with the tender
- D. Award the contract to Supplier X because Nick will be promoted if Supplier X wins the contract
Answer: B
Explanation:
To maintain integrity and avoid conflicts of interest, Tracey should declare the conflict and remove herself from the tender process. Ethical sourcing practices emphasize transparency and fairness, which prevent potential biases and maintain trust within procurement processes.
NEW QUESTION # 112
When assessing the financial performance of a potential supplier, it is important to understand how much gross profit they are making. The gross profit margin ratio uses which of the following pieces of information from the profit and loss (statement of financial performance)? Select TWO that apply.
- A. Total current assets
- B. Income from sales
- C. Current liabilities
- D. Cost of goods sold
- E. Value of equity capital
Answer: B,D
Explanation:
The gross profit margin ratio is calculated by subtracting the cost of goods sold (COGS) from income from sales, then dividing by income from sales. This ratio indicates the profitability of a supplier, a critical factor in assessing financial health, which helps buyers ensure reliable supply continuity.
NEW QUESTION # 113
Economic indices track a market's stability and health. One of these indices is the Consumer Price Index (CPI). Which of the following are aspects of the Consumer Price Index? Select TWO that apply.
- A. The CPI shows that prices are influenced by tax thresholds rates rather than inflation rates
- B. The CPI tracks variations in prices in a particular geographical location
- C. The CPI helps in calculating the exchange rates and tariffs used in setting prices for imports
- D. The CPI tracks the performance of selected companies in different stock markets
- E. The CPI tracks the weighted average prices of selected commodities within the country
Answer: B,E
Explanation:
The Consumer Price Index (CPI) measures the average change over time in the prices paid by consumers for a market basket of goods and services. It reflects price variations in specific geographical locations and tracks the weighted average prices of selected commodities, providing insights into inflation and cost of living.
Exact Extract from Study Guide:
"The Consumer Price Index (CPI) tracks variations in prices for a range of consumer goods and services over time, in a particular geographic location."
NEW QUESTION # 114
The balance sheet (Statement of Financial Position) is one of the financial statements used in providing important information required in determining the supplier's financial stability. The balance sheet contains information on such items as...
- A. Liquidity ratios, return on capital employed, and gearing
- B. Cash receipts from customers
- C. Short-term liabilities (unpaid taxes and bank overdraft)
- D. Capital employed, operating expenses, and net profit
Answer: C
Explanation:
The balance sheet provides a snapshot of a company's financial position at a specific point in time, detailing assets, liabilities, and equity. Short-term liabilities, such as unpaid taxes and bank overdrafts, are obligations the company must settle within a year and are critical indicators of the company's liquidity and financial health.
Exact Extract from Study Guide:
"The balance sheet includes details of current liabilities, such as unpaid taxes and bank overdrafts, which are essential for assessing a supplier's short-term financial obligations and overall stability."
NEW QUESTION # 115
Foresttors Plc is negotiating a new contract for the procurement of timber, a crucial component of its production operations. The company has incorporated environmental, social, and governance (ESG) reporting requirements into the contractual terms. Is this a valid approach?
- A. No. ESG is not within the scope of a contractual document and should always be treated informally
- B. Yes, providing the contract does not require a supplier to do anything differently for ESG than they have done previously
- C. Yes. This helps to demonstrate the importance of compliance with ESG
- D. No. Suppliers cannot be legally responsible for ESG compliance; this should be the buying organisation
Answer: C
Explanation:
Embedding ESG/ethical clauses and reporting in contracts is a key mechanism to implement responsible sourcing, set clear expectations, and enable monitoring and remedies. Suppliers can be held to contractual ESG obligations where these are defined and agreed.
Reference: CIPS L4M4 Study Guide (v2): LO "Implementation" - contractual clauses for ethics/ESG, monitoring and enforcement.
NEW QUESTION # 116
Which of the following are considerations when evaluating quality as a criterion for supplier selection? Select TWO that apply.
- A. Certification to the management system ISO 9001
- B. Certification to the management system ISO 14001
- C. The supplier's environmental impact analysis
- D. The existence of Total Quality Management (TQM) and a continuous improvement culture
- E. The existence of policies and initiatives toward more sustainable packaging and materials
Answer: A,D
Explanation:
Total Quality Management (TQM) practices and ISO 9001 certification are indicators of a supplier's commitment to quality. Responsible sourcing evaluates these factors to ensure suppliers meet high-quality standards and continuous improvement expectations.
NEW QUESTION # 117
"Phishing" occurs when an employee receives a false email that appears genuine, exposing the organisation to cybercrime. Which crime category does this fall under?
- A. Fraud
- B. Human rights
- C. Corruption
- D. Bribery
Answer: A
Explanation:
Phishing is a form of fraud, where deception is used to gain financial advantage or access to sensitive data. It is not corruption (misuse of power), bribery (offering inducements), or a human rights issue. Procurement professionals must be alert to fraud risks in supply chains, including cyber-enabled risks such as phishing and invoice fraud. Responsible sourcing extends to protecting organisational data and finances against such attacks, often through robust controls, training, and supplier verification procedures.
Reference: CIPS L4M4 Study Guide (v2), LO: "Concepts" - fraud, corruption, and ethical risks in supply chains.
NEW QUESTION # 118
Which of the following is not a type of fraud that procurement professionals should be vigilant for?
- A. identity theft
- B. coersion
- C. kickback
- D. phishing
Answer: B
Explanation:
Coercion is not a type of fraud. The other three are.
NEW QUESTION # 119
Why is it important, when awarding high-value contracts, for a buyer to conduct a financial assessment of a supplier?
- A. The buyer must ensure continuity of supply because financial problems of a supplier could affect the supply
- B. Financial assessments provide a holistic view of a company's capability, including quality and delivery performance
- C. A supplier who is highly profitable will be charging prices higher than the average market rate
- D. If a supplier has a high credit score, this means it pays its own suppliers late, which could result in stock outs
Answer: A
Explanation:
Financial assessments help ensure a supplier can meet the demands of a high-value contract without disruptions. This aligns with responsible sourcing principles by promoting stable supplier relationships and reducing the risk of supply chain interruptions due to financial instability.
NEW QUESTION # 120
A company has a requirement for an item that has been identified as strategic on the positioning model. The company needs to invite competitive tenders and make sure the selected supplier of this item is in a good financial position. What should the company ask the suppliers to send to show that their current assets cover their current liabilities?
- A. Profit and loss account
- B. Annual turnover
- C. Gearing ratio
- D. Acid test
Answer: D
Explanation:
The acid test, also known as the quick ratio, measures a company's ability to cover its current liabilities with its most liquid assets, excluding inventory. It is a stringent indicator of short-term financial health. By requesting this ratio, the company can assess whether a potential supplier has sufficient liquidity to meet its obligations, which is crucial when procuring strategic items.
Reference:
CIPS Level 4 Diploma in Procurement and Supply, L4M4 Study Guide, Section 2.3: Financial Appraisal of Suppliers
NEW QUESTION # 121
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