## **Learning Outcomes**

This article covers the core ethical responsibilities of accountants in financial reporting. You will learn to apply the ACCA Code of Ethics and Conduct, identify threats to compliance with ethical principles, and resolve conflicts in corporate reporting settings. By the end, you should be able to analyse reporting scenarios for ethical issues, safeguard objectivity and integrity, and recognise the effect of unethical conduct on stakeholders and professional reputation.

## **ACCA Strategic Business Reporting (SBR) Syllabus**

For ACCA Strategic Business Reporting (SBR), you are required to understand not just technical standards, but also the ethical and professional responsibilities that apply within corporate reporting. Focus your revision on:

- The fundamental principles in the ACCA Code of Ethics and Conduct
- Assessing real and potential threats to compliance with ethical principles in reporting scenarios
- Evaluating and resolving ethical conflicts in financial reporting
- Discussing the consequences of unethical behaviour for individuals, clients, the profession, and wider stakeholders

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Name the five fundamental ethical principles in the ACCA Code of Ethics and Conduct.
2. Which threat is created when an accountant is offered a performance-related bonus based on published profit?
3. Identify two potential consequences for an accountant who deliberately misstates financial information.
4. True or False? Accepting a client’s instruction to omit required disclosures is only an ethical issue if it changes the audit opinion.
5. Briefly outline how a professional accountant should respond to a conflict between professional ethics and management instructions in preparing financial statements.

## **Introduction**

Ethical and professional behaviour underpins reliable financial reporting. As an accountant, you are expected to uphold the public's trust by following a clear code of conduct and exercising independent, objective judgement—even under pressure. Exam questions in SBR often test your ability to spot and address ethical conflicts in practical reporting scenarios, so a strong command of the ACCA Code of Ethics and Conduct is essential.

## Fundamental Principles of Ethical Behaviour

ACCA members are bound by the Code of Ethics and Conduct, which is based on five fundamental principles:

- Integrity
- Objectivity
- Professional competence and due care
- Confidentiality
- Professional behaviour

Adhering to these principles helps ensure that financial reports present a faithful representation of an entity’s position and performance.

> **Key Term: Integrity**
> The obligation to be straightforward and honest in all professional and business relationships.
>
> **Key Term: Objectivity**
> The requirement not to compromise professional or business judgement because of bias, conflict of interest, or undue influence of others.
>
> **Key Term: Professional competence and due care**
> The duty to maintain up-to-date knowledge and skill and to act diligently in accordance with technical and professional standards.
>
> **Key Term: Confidentiality**
> The requirement to refrain from disclosing information acquired through professional relationships to third parties without authority, except when legally required.
>
> **Key Term: Professional behaviour**
> The obligation to comply with laws and regulations and to avoid actions that discredit the profession.

## Threats to Ethical Principles

Accountancy professionals often face situations that threaten compliance with one or more ethical principles. The ACCA identifies the following common threats:

- Self-interest threat (e.g., bonus schemes tied to profit)
- Self-review threat (e.g., preparing and then auditing the same statements)
- Advocacy threat (e.g., promoting a client’s position too strongly)
- Familiarity threat (e.g., having a close relationship with a senior client staff member)
- Intimidation threat (e.g., pressure from management to alter figures)

> **Key Term: Self-interest threat**
> The risk that financial or other personal interests may improperly influence a professional accountant's judgement.
>
> **Key Term: Self-review threat**
> The risk of not appropriately evaluating results of a previous judgement or decision made by the accountant.
>
> **Key Term: Familiarity threat**
> The risk that a close relationship with a client or colleague results in excessive sympathy or acceptance of their work.
>
> **Key Term: Intimidation threat**
> The risk that actual or perceived pressure overrides professional judgement.

## Dealing with Ethical Conflicts

When faced with an ethical dilemma, you are expected to:

1. Identify the facts and the relevant ethical issues.
2. Evaluate the threats to compliance with the fundamental principles.
3. Consider appropriate safeguards (such as consultation, disclosure, rotation, or declining the assignment).
4. Take action to eliminate or reduce the threats to an acceptable level.
5. Document your decision-making process and, if necessary, seek support from ACCA resources or refuse to act unethically.

> **Key Term: Safeguard**
> An action or measure designed to reduce ethical threats to an acceptable level.

## Consequences of Unethical Behaviour

Unethical behaviour can have severe personal and professional consequences, including:

- Disciplinary action by ACCA or other regulators
- Civil or criminal penalties, such as fines or imprisonment
- Loss of membership or practising certificate
- Damage to reputation and career prospects
- Harm to clients, investors, and public trust in the profession

Ethical failings in reporting can also mislead users of financial statements, resulting in poor decisions and adverse outcomes for stakeholders.

### **Worked Example 1.1**

**Scenario:** You are the financial accountant for a listed entity. The finance director asks you to delay recording a major expense until after year-end to improve reported profits and increase the directors' bonus. What ethical principles are threatened, and how should you respond?

> **Answer:**
> Integrity and objectivity are threatened, as you are being asked to manipulate the results for personal gain. Professional competence and due care are also at stake if compliance with accounting standards is disregarded. You should explain to the finance director why the request is unethical, document your objection, seek guidance from ACCA if needed, and prepare the financial statements in accordance with professional and legal requirements.

### **Worked Example 1.2**

**Scenario:** An accountant discovers that confidential client information has been leaked to a competitor by a staff member. What principle has been breached, and what actions should be taken?

> **Answer:**
> Confidentiality has been breached. The accountant should investigate the breach, inform appropriate management and possibly affected parties, review internal controls, and consider whether a report to legal or regulatory authorities is required.

### **Exam Warning**

> ACCA exam questions may ask for detailed analysis of specific threats and suitable safeguards in context, not just generic statements. Always relate your answer to the scenario.

## Applying Professional Judgement

Professional judgement is critical in areas of estimation, recognition, and disclosure where accounting standards require interpretation. Exercising sound judgement grounded in ethics protects against bias and ensures that the resulting financial information is both relevant and reliable.

> **Key Term: Professional judgement**
> The application of relevant training, knowledge and experience in making informed decisions, particularly where standards require interpretation.

## Dealing with Management Pressure

Accountants sometimes face pressure from management, directors, or others to compromise ethical standards or manipulate financial figures. You must prioritise ethical duties, challenge inappropriate demands, escalate concerns internally, document your actions, and, if necessary, refuse to act or resign.

### **Worked Example 1.3**

**Scenario:** You are threatened with dismissal if you report an unlawful accounting practice. What are your obligations?

> **Answer:**
> Intimidation threat and integrity are at stake. You must not comply with unlawful instructions. Follow internal escalation procedures, consider ACCA's whistleblowing guidance, and, as a last resort, resign rather than compromise your ethics.

## Consequences for Stakeholders

The effects of unethical behaviour are wide-reaching:

- Investors may lose money due to misstated financial information.
- Employers may face regulatory penalties, reputational harm, or financial losses.
- The profession as a whole suffers loss of public confidence.

### **Revision Tip**

> List the five fundamental ethical principles and the five common threats. Practise matching scenarios to the relevant threat(s) and required response.

## **Summary**

Ethical principles are essential for trustworthy financial reporting. Accountants must follow the ACCA Code of Ethics and Conduct, recognise and address threats to these principles, use professional judgement responsibly, and respond firmly to ethical conflicts. Unethical conduct puts at risk not only the individual’s career but also the organisation and stakeholders who rely on reliable reports.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- List and explain the five fundamental ethical principles for accountants
- Identify self-interest, self-review, familiarity, advocacy, and intimidation threats in reporting contexts
- Apply professional judgement and due care in ambiguous reporting scenarios
- Describe appropriate safeguards to mitigate ethical threats
- Detail steps to resolve ethical conflicts in financial reporting
- Summarise the consequences of unethical behaviour for individuals, employers, and the profession

## **Key Terms and Concepts**

- Integrity
- Objectivity
- Professional competence and due care
- Confidentiality
- Professional behaviour
- Self-interest threat
- Self-review threat
- Familiarity threat
- Intimidation threat
- Safeguard
- Professional judgement

Ethics and professional judgement in reporting - Ethical principles and conflicts in financial reporting