Ethics in Accounting Flashcards
What are accountants responsible for providing?
- Accurate financial information
- Ensuring the integrity of financial records
- Complying with relevant laws and standards
How should ethical decisions be made?
With the aim of benefitting the majority without causing harm to others
What are the 5 fundamental principles of ethical accounting?
- Integrity
- Objectivity
- Professional competence and due care
- Confidentiality
- Professional behaviour
What are the characteristics of professional competence and due care?
- Acquire necessary knowledge and skills
- Follow applicable technical and professional standards
- Be able to adapt your skills to current developments in practice, legislation and techniques
- Act in accordance with the work carefully and on a timely basis
What are the characteristics of professional behaviour?
- Complying with relevant laws and regulations
- Avoid actions that will give the job a bad reputation
- Do not make exaggerated claims of your services, qualifications and techniques
- Do not make bad comments about the work of others
What are the characteristics confidentiality?
- Information from clients should not be shared with anyone, unless there is a legal or professional duty to do so
- Confidential information should not be used as an advantage
What are the characteristics of integrity?
- Do not be associated with false, misleading or recklessly provided statements
- Do not omit or obscure information
- Be straightforward and honest in all relationships
- Avoid conflicts of interest
What are the characteristics of objectivity?
- Ensure professional judgement is not compromised because of bias, conflict or undue influence
- Do not carry out certain tasks if you know you cannot be objective
- Communicate information fairly and give up any information that could influence a user’s understanding
What is the accruals concept?
Revenues and expenses should be recorded when they are earned or incurred, rather than when cash is received or paid
What is the consistency concept?
When an accounting method or policy is adopted, it should be applied consistently in future periods unless a change is justified
What is the going concern concept?
Financial statements are prepared under the assumption that the business will continue to operate in the foreseeable future
What is the prudence concept?
Revenues should not be anticipated, but expenses and losses should be recognised as soon as they are probable, so that the chance of overstating financial statements is less
What is the realisation concept?
Revenue should only recognised when it is earned
What is the materiality concept?
Financial statements should include all items that are tangible
What is the historical cost concept?
Assets should be recorded at their original purchase cost
What is the entity concept?
The financial affairs of the business are separate from the owner’s affairs
What is the time period concept?
Financial statements are prepared for specific periods
What is the substance over form concept?
The financial statements should show the economic reality over their legal form
What are ethical threats?
Things that may influence an accountant to not report financial data properly
What is the self interest threat?
When financial gain or self interest affects an accountant’s judgement, causing a conflict of interest
What is the self review threat?
When an accountant is asked to revaluate their previous work, it may stop them from being objective
What is the advocacy threat?
When an accountant promotes a certain opinion or position, which compromises their objectivity in the matter
What is the familiarity threat?
When an accountant becomes sympathetic in the interest of their clients due to their close relationships, and may be more lenient when producing financial data
What is the intimidation threat?
When an accountant is stopped from acting in the correct way due to real life threats
