Study Notes
Professional ethics in accounting are moral principles guiding accountants to ensure trust and responsibility in financial reporting. Accounting concepts are fundamental rules ensuring financial statements are reliable and comparable.
- Integrity — Be honest and straightforward in all professional relationships. Example: Refusing to inflate sales figures to make a business appear more profitable.
- Objectivity — Avoid bias and base decisions on evidence and facts. Example: Recording actual expenses despite pressure to reduce them.
- Professional Competence & Due Care — Maintain up-to-date skills and work accurately. Example: Understanding new depreciation rules before preparing financial statements.
- Confidentiality — Do not disclose confidential information without proper authority. Example: Keeping client financial data private even after employment ends.
- Professional Behaviour — Comply with laws and avoid conduct damaging the profession. Example: Refusing to participate in tax fraud.
- Consistency Concept — Use the same accounting methods from year to year. Example: Using the same depreciation method annually.
- Prudence Concept — Do not overstate profits; recognize losses immediately. Example: Valuing inventory at the lower of cost or net realizable value.
- Accruals Concept — Record income and expenses in the period they relate to. Example: Recording December expenses even if the bill is received in January.
- Materiality Concept — Only significant items need separate disclosure. Example: Grouping small expenses under general expenses.
- Money Measurement Concept — Only record transactions measurable in money. Example: Recording sales revenue but not employee skills.
- Business Entity Concept — The business is separate from its owner. Example: Recording owner's personal withdrawals as drawings, not expenses.
Exam Tips
Key Definitions to Remember
- Integrity
- Objectivity
- Professional Competence & Due Care
- Confidentiality
- Professional Behaviour
- Consistency Concept
- Prudence Concept
- Accruals Concept
- Materiality Concept
- Money Measurement Concept
- Business Entity Concept
Common Confusions
- Confusing integrity with objectivity
- Misunderstanding the accruals concept as cash basis
- Thinking prudence means recording all possible profits
Typical Exam Questions
- Which ethical principle requires an accountant to refuse to falsify records? Integrity
- The accruals concept means: Income is recorded when earned
- Prudence concept requires: Providing for doubtful debts
- Business entity concept means: Business is separate from owner
What Examiners Usually Test
- Understanding of ethical principles and their application
- Ability to explain and apply accounting concepts
- Distinguishing between different accounting principles and concepts