Track 1 · The profession and the cycle
Ethics in accounting
Integrity, objectivity, competence, confidentiality and professional behaviour applied to pressures accountants actually face.
You will be able to
- Name the fundamental ethical principles for accountants.
- Recognise the threats that put those principles at risk.
- Work out what a misstatement would do to the figures.
- Choose an appropriate response to pressure.
Related standards
IESBA Code (fundamental principles)
Accounting information is only useful if people can trust it. Lenders, investors, tax authorities and the business's own managers all act on the figures, so a "small" deliberate misstatement can lead real people into real decisions — a loan that shouldn't have been made, a bonus that wasn't earned, a supplier that extends credit it will never get back.
Professional codes of ethics, such as the IESBA International Code of Ethics for Professional Accountants, set out five fundamental principles:
- Integrity — be straightforward and honest in all professional and business relationships.
- Objectivity — don't let bias, conflicts of interest or undue influence override your judgment.
- Professional competence and due care — keep your knowledge and skill current, and work diligently and carefully.
- Confidentiality — don't disclose or use information obtained at work without proper authority.
- Professional behaviour — comply with laws and regulations and avoid conduct that discredits the profession.
Threats to the principles
The Code describes five kinds of threat — situations that make it harder to follow the principles:
- Self-interest — your own financial or personal interest is affected (a bonus tied to profit).
- Self-review — you're asked to check your own work.
- Advocacy — you're promoting your employer's position so strongly that objectivity suffers.
- Familiarity — a long or close relationship makes you too trusting.
- Intimidation — actual or implied pressure: "do it, or else".
The Code's approach is to identify the threat, evaluate whether it's at an acceptable level, and address it — remove the cause, apply a safeguard (such as an independent review), or decline the work.
What it looks like in practice
Most ethical problems in accounting arrive quietly: a request to "just push this invoice into next month", "leave the accrual out, we'll fix it later", or "book the sale now, the customer will definitely sign". The professional response is usually to explain the correct treatment, document it, and escalate through the proper channel if pressure continues. Recording transactions in the right period is an ethical matter, not just a technical one.
| Threat | What it might sound like at Fernway Bikes |
|---|---|
| Self-interest | “Our bonuses all depend on hitting this year's profit.” |
| Self-review | “You did the bank reconciliation — can you sign it off as reviewed too?” |
| Advocacy | “Tell the bank the new contract is certain; it'll help the loan.” |
| Familiarity | “Don't bother checking Sam's stock counts, he's been here twenty years.” |
| Intimidation | “Remove that accrual, or I'll find someone who will.” |
Practice
Practising as a guest — attempts aren't saved.
Exercise 1 · Classify
Which fundamental principle is most directly at risk in each situation?
Exercise 2 · Concept check
It's 31 March. Your manager asks you to hold a 12,000 supplier invoice for March repairs until April “so we hit the quarter's profit target.” What's the right response?
Exercise 3 · Classify
Which kind of threat does each situation create?
Exercise 4 · Concept check
A friend asks whether the company you work for is about to report a loss, because they're thinking of buying its shares. What do you do?
Exercise 5 · Concept check
You're asked to account for a complex lease agreement, a topic you've never studied. What does the principle of professional competence and due care require?
Exercise 6 · Sequence
You've been asked to record something you believe is wrong. Put a sensible response in order.
Exercise 7 · Calculate
On 29 December, Fernway Bikes' managing director asks you to record 18,000 of bikes as December sales. The customer has ordered them, but they won't be built or delivered until February. The bikes will cost Fernway 11,000. If you did as asked, by how much would this year's profit be overstated?
Exercise 8 · Concept check
Challenge: following on, the managing director explains that Fernway's bank loan requires a minimum profit this year, and recording the February sale now would keep the company inside the limit. “Everyone does it — and the bikes will be delivered anyway.” What should you do?
Key points
- Five principles: integrity, objectivity, competence and due care, confidentiality, professional behaviour.
- Five threats: self-interest, self-review, advocacy, familiarity, intimidation — identify, evaluate, address.
- Recording transactions in the right period is an ethical matter, not just a technical one.
- Explain, document and escalate when pressured.
References
- IESBA — International Code of Ethics for Professional Accountants (overview) (accessed 2026-10-21)
Content review: answers and figures are checked by automated tests against the accounting engine, and the text has had an internal review against the standards; independent review by a qualified accountant is pending.