A business can only be trusted if the people who prepare and approve its accounts do the job properly. This topic covers three connected things: what accountants do for a business and for the economy, who is responsible for overseeing the financial reporting of a company, and the ethical standards that stop reports from being bent to suit the people who prepare them.
These are new items in the syllabus that starts with the November 2025 diet, so you will not find many past questions on them. Expect short multiple-choice items and short written parts, for example listing the duties of directors or the threats to ethical behaviour. The marks are easy to win from a clear list with one line of explanation for each point.
Read What is accounting? Business, objectives and users first, because this topic builds on its ideas about users and company reporting.
In 30 seconds
Accountants prepare financial reports, make sure the business complies with the law, help with strategy, planning, control and decisions, handle tax, build accounting systems and often manage treasury. Their work supports the economy by giving investors reliable information. Those charged with governance (the board, the audit committee and sometimes senior executives) oversee reporting. Directors approve the statements and must ensure they give a true and fair view.
The Institute of Chartered Accountants of Nigeria (ICAN) code rests on Integrity, objectivity, professional competence and due care, professional behaviour and confidentiality. There are five Threats: self-interest, self-review, advocacy, familiarity and intimidation. Unethical reporting damages trust, raises the cost of capital and can destroy the business.
Roles of accountants in business
A qualified accountant knows how to read and present the financial data that shows a business’s position and performance. Depending on the job, an accountant may carry out or contribute to any of the following roles.
- Financial reporting. Gathering, analysing and presenting financial information under the accounting rules that apply where the business operates.
- Compliance. Making sure the business meets legal and regulatory requirements, such as preparing statements in the format company law demands.
- Strategy. Giving financial analysis that helps management decide the direction of the business.
- Planning. Providing data and projections for future activities.
- Control. Helping to set financial targets, watching performance and reporting variances.
- Decision making. Supplying the financial information that decisions depend on.
- Taxation. Preparing tax computations or passing information to tax specialists.
- Systems. Setting up and running effective accounting and internal control systems.
- Treasury management. Overseeing cash flow, investment decisions and financial risk.
The accountant in the economy
Successful businesses create jobs, earn profits and pay taxes on wages and profits. That tax revenue funds government services, so the health of business matters to the whole economy. Accountants help businesses succeed, and they also do three jobs that serve outsiders directly.
- They prepare the financial data that investors rely on when they decide whether to put money into a business.
- They work in the audit process. Company law requires audited statements, and the audit is an independent review by a professional firm that gives an opinion on whether the statements are accurate and fair.
- By producing reliable, audited reports they help capital markets work, because investors can make sound choices when the information is trustworthy.
Those charged with governance
Those charged with governance are the people or groups responsible for overseeing the strategic direction of an entity and for making sure it is accountable. That includes overseeing the financial reporting process and approving the financial statements. They usually comprise the board of directors, the audit committee and sometimes members of the executive team. Management runs the business day to day. Directors give strategic oversight.
| Participant | Role in financial reporting |
|---|---|
| Management | Runs daily operations and prepares statements that reflect the entity’s position and performance |
| Audit committee | Reviews and oversees the reporting process to protect the integrity of the statements, and may raise concerns before they are finalised. Section 404 of Companies and Allied Matters Act 2020 (CAMA 2020) requires a public company to have a statutory audit committee of five members, three shareholders and two non-executive directors (section 404(3)). Its members must be financially literate (section 404(5)), and it examines the auditor’s report and makes recommendations (section 404(4)) |
| Directors | Approve the statements and make sure they present the financial situation fairly and comply with law and regulation |
| External auditors | Carry out an independent audit to confirm accuracy, completeness and compliance with standards, which raises confidence in the information |
| Stakeholders | Investors, creditors, regulators and others who rely on the statements for decisions |
Duties of directors under CAMA 2020
A company is not a natural person, so directors act for it and answer to the people who supply its capital: shareholders, investors and creditors. Section 305(1) of the Companies and Allied Matters Act (CAMA) 2020 says that a director “stands in a fiduciary relationship towards the company and shall observe utmost good faith towards the company in any transaction with it or on its behalf”.
Section 305(3) requires a director to act at all times in what he believes to be the best interests of the company as a whole, and “in such manner as a faithful, diligent, careful and ordinarily skilful director would act in the circumstances”.
Section 305(8) says that no provision in the articles, a resolution or a contract can relieve a director from these duties. Section 305(9) makes them enforceable against a director by the company. The duties are listed below, and the section of CAMA 2020 that supports each is shown in brackets where one has been identified. Directors must:
- act in good faith and in the best interests of the company (CAMA 2020, section 305(1) and (3));
- avoid conflicts of interest (CAMA 2020, section 306, conflicts of duties and interests);
- use independent judgement (section 305(6) of CAMA 2020 also forbids a director to fetter his discretion to vote);
- keep company information confidential;
- refuse benefits from third parties; and
- declare any interest in a proposed transaction or arrangement (CAMA 2020, section 303).
Directors also have specific duties for the financial statements. They must:
- make sure the statements follow the applicable accounting framework, regulations and law;
- confirm that the statements give a true and fair view and that disclosures agree with other financial information;
- set up adequate financial reporting systems;
- approve the annual budget and monitor compliance with it;
- deal with the external auditors and protect the quality and independence of the audit, including approving audit fees and scope;
- set up and review internal control systems so that reporting information is accurate, timely and verifiable;
- review the rest of the annual report for consistency with the financial and management information;
- understand and approve the assumptions and key judgements behind the statements, including a regular review of going concern and a sceptical view of management’s estimates; and
- make sure the statements reach the regulators on time.
The statutory basis for the financial reporting duties is in CAMA 2020. Section 374 requires every company to keep accounting records, section 377(1) requires the directors to prepare financial statements for each financial year. Section 378 requires the statements to give a true and fair view. Section 405 deals with corporate responsibility for financial reports.
Section 305(3) also requires directors to have regard to the impact of the company’s operations on the environment in the community where it operates, and section 305(4) to the interests of employees as well as members.
Good governance also asks directors to consider employees, customers, suppliers, the community and the environment, to protect the company’s reputation and to treat all members fairly.
Professional ethics and the ICAN fundamental principles
Accountants face pressure from employers, clients, executives and politicians. Their duty reaches beyond pleasing the person who pays them. They must act in the public interest, because shareholders, creditors, employees, suppliers, governments and the public all rely on financial reports. The reports must therefore rest on honesty, integrity, transparency and accountability.
Ethics means general principles such as honesty, integrity and sound morals. A code of professional conduct is the specific set of rules a professional body sets for its members. The ICAN code of ethics sets out these fundamental principles.
| Principle | What it requires |
|---|---|
| Integrity | Be honest, straightforward and truthful in dealings, and deal fairly |
| Objectivity | Do not let bias, conflicts of interest or undue influence override professional judgement |
| Professional competence and due care | Keep knowledge and skills up to date, and act diligently within technical and professional standards |
| Professional behaviour | Obey laws and regulations, behave with courtesy and avoid actions that harm the profession |
| Confidentiality | Do not disclose a client’s or employer’s information without consent unless law or professional duty requires it, and never use it for personal or third-party gain |
How financial statements are manipulated and why
Manipulation takes a small number of forms, and each one has a standard example that is easy to remember.
- Liabilities. Leaving liabilities out of the statement of financial position, or calling them equity. Treating preference shares as equity instead of debt is an example. It raises net assets and lowers gearing, and can avoid a breach of loan conditions.
- Revenue. Understating revenue to cut tax, recording fictitious revenue to attract investors, raising invoices before the year end to inflate sales, or recording loan proceeds as revenue.
- Depreciation. Using arbitrary rates or methods, raising the residual value of an asset, or stretching its useful life.
- Assets. Revaluing non-current assets arbitrarily to lower the debt to equity ratio, or selling under-depreciated assets to make a one-off gain.
- Expenses. Capitalising operating costs, failing to recognise impairment losses, or failing to write inventory down to net realisable value.
- Disclosure. Giving too little information to hide matters that affect credibility, or failing to write off doubtful receivables so that a loss is avoided.
The motives fall into five groups: Personal gain (bonuses linked to earnings targets), Market pressure (lifting indicators to attract investors or match competitors), Tax benefits, Concealment of misdeeds (covering up theft or losses) and a Lack of internal control and weak governance that lets it all pass unnoticed.
Threats to ethical behaviour
The International Federation of Accountants (IFAC) identifies five threats to an accountant’s compliance with ethical principles.
| Threat | Meaning | Example |
|---|---|---|
| Self-interest | The accountant’s or a close relative’s financial or personal interest improperly influences decisions | An accountant owns shares in the client and judges the client’s results |
| Self-review | The accountant reviews his or her own work, or a colleague’s in the same firm, and is less critical of it | Preparing a client’s statements and then auditing them |
| Advocacy | The accountant promotes the client’s point of view and loses objectivity | Acting as a witness in a legal dispute or promoting the client in a negotiation |
| Familiarity | A long or close relationship makes the accountant too sympathetic to the client | An auditor who has served the same client for many years |
| Intimidation | Real or perceived pressure from clients, colleagues or superiors compromises independence | A finance director threatens an accountant with dismissal unless a figure is changed |
Resolving ethical conflicts and the cost of getting it wrong
When an accountant meets an ethical conflict with a client or employer, a nine-step process for resolving ethical conflicts applies. Follow them in order.
- State the facts and gather the relevant information.
- Apply the fundamental principles that relate to the matter.
- Identify the accounting standards and generally accepted accounting principles (GAAP) involved, and explain what follows from an unethical approach.
- Follow internal procedures for settling the issue.
- If those fail, consider other courses of action that fit the principles.
- Consult the governing board or audit committee.
- Document the issue, the discussions and the decisions.
- Take outside advice from the professional body or legal experts without breaching confidentiality.
- If everything fails, consider withdrawing from the assignment or resigning.
Unethical reporting has serious consequences. Investors lose confidence, the stock market is less active and prices fall. Lenders and creditors may sue. People doubt the statements. If the business fails, shareholders lose their investment, the government loses revenue, employees lose jobs and suppliers lose business. Widespread misreporting weakens the economy, and capital becomes more expensive to raise.
Four safeguards work against these results: the International Accounting Standards Board (IASB) Conceptual Framework, principle-based International Financial Reporting Standards (IFRS) that encourage disclosure, professional codes such as the ICAN code, and the codes of ethics that many companies adopt.
The ideas in more depth
Why directors are accountable for the statements
Managers prepare the statements, but directors approve them and sign. A company cannot act except through people, so the law places the duty on directors. This is why the list of directors’ responsibilities is so long: it covers the systems, the controls, the judgements and the audit relationship that all feed into the figures.
Ethics and the law
Law sets the minimum. An action may be legal and still breach the principle of integrity. The ethical test asks whether the action is honest and in the public interest. The code of the professional body applies in addition to the Companies and Allied Matters Act.
Where manipulation meets later topics
Each form of manipulation corresponds to a technical rule you will study. Cut-off and revenue recognition guard against early sales. Depreciation and impairment rules guard against stretched lives and ignored losses. The allowance for doubtful receivables guards against hidden bad debts. Knowing the rule makes the manipulation easy to spot, and the examiner may ask for either side.
Independence and objectivity
The five threats all attack objectivity. The usual safeguards are separating those who prepare accounts from those who review them, rotating senior staff on long-term clients, refusing gifts, and escalating pressure to a higher level or the audit committee.
Sources and references
- Companies and Allied Matters Act 2020: section 303 (disclosure of interest), section 305 (duties of directors), section 306 (conflicts of duties and interests), section 374 (accounting records), sections 377 and 378 (financial statements and the true and fair view), section 404 (auditors’ report and audit committee) and section 405 (corporate responsibility for financial reports).
- The duties to refuse benefits from third parties, to use independent judgement and to keep information confidential are ethical duties of the profession. A matching section of CAMA 2020 has not been identified for each, so none is stated.
Worked example: pressure at Kano Foods
Scenario. Kano Foods Ltd had a draft profit of ₦45,000,000 for the year ended 31 December. On 2 January the company sent goods to a customer on an invoice for ₦8,000,000, and the goods had cost ₦5,000,000. The finance director asks the accountant to date the invoice 30 December so that profit reaches the level at which a bonus is paid. The bonus is 5% of profit above ₦46,000,000.
Required: (a) the effect on profit and bonus; (b) the type of manipulation and the motive; (c) the threats; (d) what the accountant should do.
- Effect on profit. Recording the sale in the old year adds revenue ₦8,000,000 and cost of sales ₦5,000,000, so profit rises by ₦3,000,000 to ₦48,000,000.
Check: ₦45,000,000 + ₦3,000,000 = ₦48,000,000.
The overstatement is ₦3,000,000 ÷ ₦45,000,000 = 6.7% of the correct profit. - Effect on bonus. At the correct profit of ₦45,000,000, nothing is above ₦46,000,000, so the bonus is nil.
At the inflated profit, 5% × (₦48,000,000 − ₦46,000,000) = 5% × ₦2,000,000 = ₦100,000. - Type and motive. This is Revenue manipulation: invoices are raised before the year end to inflate sales. The motive is Personal gain, because the bonus depends on the profit target.
- Threats. Pressure from a senior person is an Intimidation threat. The accountant’s own job and any bonus linked to the result add a Self-interest threat.
- Action. The accountant refuses the request, keeping to integrity and objectivity, and states the facts: goods left after the year end, so the sale belongs to the new year. The accountant follows the resolution steps: raise it through internal procedures, consult the audit committee, document everything and, if it is still not resolved, take advice and consider resigning.
Common mistakes in the exam
- Listing the ethical principles without saying what each one requires.
- Mixing up self-interest and intimidation, or self-review and familiarity. Link each threat to its trigger: money, own work, advocacy, long relationship and pressure.
- Confusing management, who prepare the statements, with directors, who approve them.
- Describing the audit committee as the auditors. The committee oversees reporting from inside the company. The auditors are independent outsiders.
- Giving the steps for resolving a conflict in the wrong order, or leaving out documentation.
- Writing that only fraud is unethical. Aggressive but legal choices, such as stretching useful lives, also raise ethical issues.
- Forgetting the public interest as the reason for ethics.
Quick revision
- Accountant roles: reporting, compliance, strategy, planning, control, decisions, tax, systems, treasury.
- Economy: reliable data for investors, audited statements, working capital markets.
- Reporting chain: management prepares, audit committee reviews, directors approve, auditors give an opinion, stakeholders rely.
- CAMA duties: good faith, no conflicts, independent judgement, confidentiality, no third-party benefits, declare interests.
- ICAN principles: integrity, objectivity, competence and due care, professional behaviour, confidentiality.
- Five threats: self-interest, self-review, advocacy, familiarity, intimidation.
- Six manipulation areas: liabilities, revenue, depreciation, assets, expenses, disclosure.
- Resolution: facts, principles, standards, internal procedures, alternatives, board or committee, document, outside advice, resign.
Practice questions
These are original questions written in the style of the ICAN exam. Try each one before you open the answer.
Section A style: multiple choice
Question 1. Which of the following is a role of an accountant in business?
- Recruiting staff
- Designing advertising campaigns
- Preparing tax computations or supplying tax information
- Negotiating selling prices with customers
Show the answer
C. Taxation is one of the roles. The others belong to other functions.
Question 2. Those charged with governance usually include:
- The customers and suppliers
- The external auditors only
- The board of directors and the audit committee
- The tax authorities
Show the answer
C. The board and the audit committee oversee strategy and reporting. Auditors are independent of them.
Question 3. Which body or person approves the financial statements of a company?
- The cashier
- The bank
- The customers
- Directors
Show the answer
D. Management prepares them and directors approve them.
Question 4. Which of the following is a fundamental principle of the ICAN code of ethics?
- Profitability
- Popularity
- Aggressiveness
- Confidentiality
Show the answer
D. The principles are integrity, objectivity, competence and due care, professional behaviour and confidentiality.
Question 5. An accountant prepares a client’s financial statements and is then asked to audit them. This is a:
- Familiarity threat
- Self-review threat
- Advocacy threat
- Intimidation threat
Show the answer
B. The accountant would be reviewing his or her own work.
Question 6. After twenty years with the same client, an auditor finds it hard to challenge the client’s views. This is a:
- Self-interest threat
- Advocacy threat
- Familiarity threat
- Self-review threat
Show the answer
C. A long and close relationship makes the accountant too sympathetic.
Question 7. Raising invoices before the year end to inflate sales is an example of:
- Revenue manipulation
- Disclosure manipulation
- Depreciation manipulation
- Asset manipulation
Show the answer
A. It increases reported revenue improperly.
Question 8. A machine cost ₦1,200,000 with no residual value and is depreciated over 4 years. If its useful life is wrongly extended to 6 years, annual profit would rise by:
- ₦200,000
- ₦100,000
- ₦300,000
- ₦500,000
Show the answer
B. ₦1,200,000 ÷ 4 = ₦300,000 and ₦1,200,000 ÷ 6 = ₦200,000. The charge falls by ₦100,000, so profit rises by ₦100,000.
Question 9. The first step in resolving an ethical conflict is to:
- State the facts and gather relevant information
- Resign from the assignment
- Tell the press
- Consult an outside lawyer
Show the answer
A. Resignation comes last, after internal procedures and outside advice.
Question 10. A likely consequence of widespread unethical financial reporting is:
- Lower cost of raising capital
- Greater investor confidence
- Fewer lawsuits
- Loss of investor confidence
Show the answer
D. Trust falls, share prices fall and capital becomes more costly.
Section B style: written questions
Question 11 (10 marks). (a) State SIX roles that accountants play in a business. (6 marks) (b) Explain how accountants contribute to the success of the economy. (4 marks)
Question 12 (20 marks). Lagos Bottling Ltd bought a filling machine for ₦24,000,000 with no residual value. The accountant first used a useful life of 5 years. The managing director, who is paid a bonus of 10% of profit above ₦8,000,000, asks the accountant to use 8 years. Profit calculated with the 8-year life is ₦9,200,000.
(a) Calculate the profit and the managing director’s bonus using (i) the 8-year life and (ii) the 5-year life. (6 marks)
(b) Identify the type of manipulation involved and the motive. (3 marks)
(c) Identify TWO threats to the accountant’s ethical behaviour and explain each. (4 marks)
(d) State the steps the accountant should follow to resolve the conflict. (5 marks)
(e) State TWO consequences for the company if misleading statements were published. (2 marks)
A further written question
Question 13 (10 marks). (a) Identify the participants in the financial reporting chain of a company and state the role of each. (5 marks) (b) State FIVE duties of directors under the Companies and Allied Matters Act 2020. (5 marks)
Model answers
Show the model answer to Question 11
(a) Roles. (1) Financial reporting: gathering, analysing and presenting financial information under the applicable rules. (2) Compliance: making sure the business meets legal and regulatory requirements. (3) Strategy: giving financial analysis for the business’s direction. (4) Planning: providing data and projections for future activities. (5) Control: setting targets, monitoring performance and reporting variances. (6) Decision making: supplying the information decisions need. Taxation, systems and treasury management are also acceptable.
(b) Economy. Successful businesses create jobs and profits, and they pay taxes on wages and profits, which fund government services. Accountants help businesses succeed. They give investors reliable financial data so that capital goes to sound businesses, and their work, together with independent audits, helps capital markets function.
Show the model answer to Question 12
(a) Profit and bonus.
- (i) With the 8-year life, annual depreciation = ₦24,000,000 ÷ 8 = ₦3,000,000.
- Profit = ₦9,200,000.
- Bonus = 10% × (₦9,200,000 − ₦8,000,000) = 10% × ₦1,200,000 = ₦120,000.
(ii) With the 5-year life, annual depreciation = ₦24,000,000 ÷ 5 = ₦4,800,000. The extra charge = ₦4,800,000 − ₦3,000,000 = ₦1,800,000. Profit = ₦9,200,000 − ₦1,800,000 = ₦7,400,000. This is below ₦8,000,000, so the bonus is Nil.
Check: ₦7,400,000 + ₦1,800,000 = ₦9,200,000.
(b) Manipulation and motive. Depreciation manipulation, by stretching the useful life of an asset. The motive is personal gain, because the bonus depends on profit.
(c) Threats. Intimidation: the managing director is a senior person pressing the accountant to change a figure, and the accountant may fear for his or her job. Self-interest: the accountant’s own position or pay may depend on keeping the managing director satisfied, which can influence the judgement.
(d) Steps. State the facts, including the machine’s likely life. Apply the principles of integrity and objectivity. Identify the standard and the consequences of using an unsupported life. Follow internal procedures. Consider alternatives if these fail. Consult the board or audit committee. Document the issue and the discussions. Take outside advice from the professional body or legal experts. Resign from the assignment only if all else fails.
(e) Consequences. Investors would lose confidence if the error came to light, and lenders or creditors might sue. Other acceptable points are doubt about the integrity of the statements, higher cost of capital and a threat to the company as a going concern.
Show the model answer to Question 13
(a) Participants. Management runs the business daily and prepares the statements. The audit committee reviews and oversees the reporting process and may raise concerns before the statements are finalised. Directors approve the statements and make sure they present the position fairly and comply with law. External auditors carry out an independent audit and give an opinion. Stakeholders, such as investors, creditors and regulators, rely on the statements.
(b) Duties under CAMA. Any five of the following. Act in good faith and in the best interests of the company (CAMA 2020, section 305(1) and (3)). Avoid conflicts of interest (section 306). Use independent judgement. Keep company information confidential. Do not accept benefits from third parties. Declare any interest in a proposed transaction or arrangement (section 303). Exercise the care, diligence and skill of a reasonable director (section 305(3)).
Pathfinder on Roles of accountants, corporate governance and ethics
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
From the previous syllabus. Asks for the primary roles of accountants in business and the economy.
Revise first: Roles of accountants in business
From the previous syllabus. Asks which user needs financial statements for stewardship reporting, with the audit committee and the board of directors among the options.
Revise first: Those charged with governance
Ethics, governance and the duties of directors are new syllabus items. No earlier Section B question on them has been set, so expect short multiple-choice items and short written parts such as listing duties or threats. Check Section A of every diet you practise.
Revise first: Professional ethics and the ICAN fundamental principles
Source: ICAN Pathfinder, Financial Accounting. Diets covered: March/July Diet, 2020 and November Diet, 2023 (previous syllabus). Ethics and corporate governance are new syllabus items, and no earlier Section B question on them has been set. Diets before November 2014, and November Diet, 2024 onwards, are not covered here.
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