Ethics in accounting Cambridge IGCSE Accounting revision
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In plain words
People lend money, buy shares and pay tax on the strength of figures prepared by accountants. If those figures cannot be trusted, the whole system fails. So accountants follow an ethical framework, built on five principles.
7 things to know
- An ethical framework is needed so that the people who rely on financial statements can trust them, and so that accountants know how to act when they are put under pressure.
- Integrity: being honest and straightforward in all professional work.
- Objectivity: not letting bias, a conflict of interest or pressure from others affect professional judgement.
- Professional competence and due care: keeping knowledge and skills up to date, and doing the work carefully and thoroughly.
- Confidentiality: not passing on information learned at work without proper authority, and not using it for personal gain.
- Professional behaviour: obeying the law and avoiding anything that would bring the profession into disrepute.
- Following the framework means that stakeholders, such as lenders, investors and the tax authorities, and society as a whole, can rely on accounting information.
Worked example
An accountant is asked by the owner to leave some expenses out of the accounts so that the bank will see a bigger profit. Which principle would this break, and what should the accountant do?
- Showing a profit known to be wrong is dishonest. It breaks the principle of integrity.
- It also breaks professional behaviour, because misleading a lender may be against the law.
- The accountant should refuse, and prepare the accounts correctly.
Tips and tricks
- Five principles: integrity, objectivity, professional competence and due care, confidentiality, professional behaviour. Learn them as a list, with a sentence on each.
- Objectivity is about judgement that is free from bias. Integrity is about honesty. An accountant who prepares accounts for a relative has an objectivity problem, even if perfectly honest.
It lands in your notebook with its questions as flashcards.
Ethics in accounting: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
Which principle means being honest and straightforward?
Honesty in all professional work.
An accountant tells a friend about a client's financial problems. Which principle is broken?
Information from work must not be passed on.
An accountant has not kept up with changes in accounting rules. Which principle is broken?
Knowledge and skills must be kept up to date.
An accountant prepares the accounts of a business owned by her brother. Which principle is most at risk?
A family tie is a conflict of interest that could bias her judgement.
Why does society benefit from accountants following an ethical framework?
Decisions by lenders, investors and governments depend on it.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
2 questions, 4 marks. Write your answers on paper, then check them.
Ethics in accounting
Cambridge IGCSE Accounting 0452 · 4 marks · papermunch.org
Name ______________________________ Date ______________
Explain what is meant by confidentiality as an ethical principle.[2]
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An accountant must not disclose information obtained through work without proper authority, and must not use it for personal advantage.
Explain why an ethical framework is needed in accounting.[2]
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So that the users of financial statements, such as lenders and investors, can trust the information. It also guides accountants on how to act.
Answers: Ethics in accounting
- 1. An accountant must not disclose information obtained through work without proper authority, and must not use it for personal advantage.
- 2. So that the users of financial statements, such as lenders and investors, can trust the information. It also guides accountants on how to act.