IGCS01 — Ethical Considerations in Accounting
Understanding the ethical responsibilities of accountants and the importance of integrity, objectivity, professional competence, confidentiality and professional behaviour.
Learning Objectives
By the end of this supplementary topic, students should be able to:
- explain why an ethical framework is needed in accounting;
- explain the meaning of integrity;
- explain the meaning of objectivity;
- explain professional competence and due care;
- explain confidentiality;
- explain professional behaviour;
- explain why ethical behaviour is important to stakeholders and society;
- apply ethical principles to accounting situations; and
- identify appropriate responses to ethical issues.
Concept Framework
What Is Ethics in Accounting?
Ethics refers to the principles that guide decisions about what is right, responsible and professionally appropriate.
Accounting information is used by owners, managers, investors, lenders, employees, governments and other stakeholders.
Therefore, accountants have a responsibility to ensure that accounting information is prepared and communicated honestly and responsibly.
Why Is an Ethical Framework Needed?
An ethical framework helps accountants make appropriate decisions when they face situations involving:
- pressure to change accounting information;
- conflicts of interest;
- confidential information;
- inaccurate or incomplete information;
- misleading presentation;
- professional responsibilities; or
- pressure from clients, employers or other parties.
An ethical framework provides principles that help accountants decide how to respond to such situations.
The Five Fundamental Principles
The 2027–2029 Cambridge IGCSE Accounting syllabus identifies five fundamental ethical principles.
1. Integrity
Integrity means being honest and straightforward in professional and business relationships.
An accountant should not knowingly:
- provide false information;
- manipulate accounting records;
- conceal important information; or
- mislead users of financial information.
Example
A business owner asks an accountant to record a transaction differently so that the financial statements show a higher profit.
The accountant should not deliberately misrepresent the transaction.
2. Objectivity
Objectivity means making professional decisions without allowing bias, conflicts of interest or inappropriate influence to affect judgement.
An accountant should consider the available evidence and apply professional judgement fairly.
Example
An accountant is asked to value an asset owned by a close relative.
The relationship may create a conflict of interest that could affect objectivity.
3. Professional Competence and Due Care
An accountant should maintain sufficient knowledge and skill to perform their responsibilities properly.
Due care means carrying out work carefully, thoroughly and responsibly.
This includes:
- keeping knowledge up to date;
- applying appropriate accounting principles;
- checking calculations;
- investigating unusual information; and
- completing work to an appropriate professional standard.
Example
An accountant should not prepare financial statements using an accounting treatment they do not understand without obtaining appropriate guidance.
4. Confidentiality
Confidentiality means protecting information obtained through professional or business relationships.
An accountant may have access to information such as:
- financial results;
- salaries;
- business plans;
- customer information;
- supplier information; and
- commercially sensitive information.
- Such information should not be disclosed improperly.
Example
An employee with access to confidential financial information should not share that information with an unauthorised person for personal advantage.
5. Professional Behaviour
Professional behaviour requires accountants to comply with relevant laws, regulations and professional responsibilities and to avoid conduct that could bring the profession into disrepute.
Accountants should behave responsibly and professionally when dealing with:
- clients;
- employers;
- colleagues;
- regulators;
- stakeholders; and
- the public.
Applying the Principles
Ethical questions often require more than identifying a principle.
Students should consider:
What happened?
↓
Which ethical principle is relevant?
↓
Why is the situation a problem?
↓
Who could be affected?
↓
What should the accountant do?
Worked Examples
Worked Example1 —Integrity
An accountant is asked to deliberately omit an expense from the financial statements so that the business appears more profitable.
Analysis
The accountant should not knowingly omit the expense.
The main ethical principle involved is integrity because the financial information would otherwise be misleading.
Possible consequences
Users of the financial statements may make decisions based on incorrect information.
Worked Example 2 — Confidentiality
An accountant learns that a business is planning a major change that has not yet been publicly announced.
A friend asks the accountant about the business’s plans.
Analysis
The accountant should not disclose confidential information to the friend.
The main principle involved is confidentiality
Worked Example 3 — Objectivity
An accountant is responsible for assessing an asset owned by a close family member.
Analysis
The personal relationship may create a conflict of interest.
The accountant should consider whether they can remain objective and should take appropriate action rather than allowing the relationship to influence professional judgement.
Worked Example 4 — Professional Competence and Due Care
An accountant is asked to prepare financial information involving an unfamiliar accounting treatment.
Instead of checking the appropriate treatment, the accountant simply guesses.
Analysis
This may breach professional competence and due care because the accountant has a responsibility to perform work properly and maintain appropriate professional knowledge and skill.
Stakeholders and Society
Why Does Ethical Accounting Matter?
Ethical accounting does not affect only the accountant.
Accounting information may influence decisions made by many stakeholders.
Owners
Owners may use financial information to assess profitability and financial performance.
Investors
Investors may use accounting information when deciding whether to invest or continue investing.
Lenders
Banks and other lenders may use financial information when assessing whether to provide finance.
Employees
Employees may be interested in the financial position and performance of their employer.
Government and Regulators
Governments and regulators may use accounting information for taxation, regulation and other purposes.
Society
Reliable accounting information contributes to confidence in businesses and economic activity.
Therefore, applying an ethical framework can help protect stakeholders and support confidence in accounting information. The Cambridge syllabus specifically requires understanding of the significance of applying an ethical framework to stakeholders and society
Ethical Decision-Making Framework
When faced with an ethical situation, consider the following:
Step 1 — Identify the Issue
What action or decision creates the ethical concern?
Step 2 — Identify the Principle
Which fundamental principle is relevant?
Step 3 — Consider the Consequences
Who could be affected by the decision?
Step 4 — Consider the Evidence
What information is available?
Step 5 — Take Appropriate Action
The accountant should act professionally and avoid knowingly providing misleading or inappropriate information.
Structured Practice
Level 1 – Concept Check
Question 1
State the five fundamental ethical principles.
(5 marks)
Question 2
Explain what is meant by integrity in accounting.
(2 marks)
Level 2 – Application Practice
Question 3
A business owner asks an accountant to exclude a significant expense from the financial statements.
Identify the main ethical principle involved and explain why.
(3 marks)
Question 4
An accountant shares confidential information about a client’s financial position with a friend.
Explain why this may be unethical.
(3 marks)
Level 3 – Examination Style Questions
Question 5
A business is preparing financial statements. The accountant discovers that a senior manager has pressured an employee to change accounting information so that the business appears more profitable.
Explain two ethical principles that may be relevant to this situation.
(4 marks)
📌 Additional examination-style questions are available through the Premium resources, Guess Question Papers + YouTube Explanation section.
Proficiency Check
Learn → Unlearn → Relearn
Attempt these questions without referring to your notes.
Learn
State the five fundamental ethical principles.
Explain integrity.
Explain objectivity.
Explain confidentiality.
Unlearn
Is confidentiality the same as keeping every piece of information secret under every circumstance? Explain.
Does following instructions from a manager automatically make an accounting treatment ethical? Explain.
Is an accountant objective simply because they believe they are being fair?
Relearn
A manager asks an accountant to change an accounting figure to improve reported profit.
Identify the ethical principle involved and explain the appropriate professional response.
An accountant has insufficient knowledge to complete a specialised accounting task but proceeds without obtaining appropriate guidance.
Identify the relevant ethical principle and explain the concern.
Detailed Activity Solutions
Level 1
Question 1
The five fundamental principles are:
Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour
Question 2
Integrity means being honest and straightforward in professional and business relationships
Level 2
Question 3
The main principle is integrity.
Excluding a significant expense deliberately could make the financial statements misleading.
Question 4
The principle involved is confidentiality.
The accountant has a responsibility to protect information obtained through the professional relationship and should not disclose it improperly.
Level 3
Question 5
Two relevant principles could include:
Integrity: The accountant should not knowingly allow accounting information to be manipulated or presented misleadingly.
Objectivity: The accountant should not allow pressure from the manager to influence professional judgement.
Proficiency Check
Question 5
Confidentiality does not mean that information can never be disclosed in any circumstances. The accountant must handle information responsibly and comply with applicable professional and legal requirements.
Question 6
No. Instructions should not automatically be followed if they require inappropriate or misleading accounting treatment.
Question 7
Objectivity requires consideration of bias and conflicts of interest. Personal belief alone does not guarantee objectivity.
Question 8
The situation primarily involves integrity and may also involve objectivity.
The accountant should not knowingly manipulate accounting information and should respond professionally to inappropriate pressure.
Question 9
The relevant principle is professional competence and due care.
The accountant should have sufficient knowledge and skill to perform the work properly and should obtain appropriate guidance or assistance where necessary.
How This Topic Appears in the Examination
Ethical considerations may be assessed through:
- definitions of ethical principles;
- identification of relevant ethical principles;
- explanations of why an action is unethical;
- short scenarios involving accountants or businesses;
- stakeholder consequences; and
- application of ethical principles to accounting situations.
Students should avoid simply naming an ethical principle.
A stronger answer should:
Identify → Explain → Apply to the situation → State the consequence where relevant.
Self-Assessment Checklist
- I can explain why an ethical framework is needed in accounting.
- I can identify the five fundamental ethical principles.
- I can explain integrity.
- I can explain objectivity.
- I can explain professional competence and due care.
- I can explain confidentiality.
- I can explain professional behaviour.
- I can apply ethical principles to accounting scenarios.
- I can explain how ethical accounting affects stakeholders and society.
- I can construct an examination-style answer using an ethical principle and supporting explanation.
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