An accountant is trusted because the user of the numbers cannot check them. The reader of a set of financial statements, the bank relying on a certificate, the buyer of a business: each relies on the person who prepared the information to have prepared it honestly. That trust is the asset of the profession, and professional codes exist to protect it.
The Institute’s Professional Code of Conduct sets out five fundamental principles and a way of thinking about the pressures that make them hard to follow, because the pressure is usually real: a bonus, a job, a powerful boss, a deal that depends on good figures.
This topic covers the five principles, the five categories of threat and the safeguards, the special position of the accountant in business who prepares and reports information, the conflicts that arise, and a method for deciding what to do, with a worked case in which a finance director is asked to leave inventory overstated. The next topic covers current issues and new accounting standards.
Ethics is examined in the compulsory-style written questions. In November Diet, 2025, Question 7 (15 marks) asked for four fundamental principles with practical examples (8 marks), four categories of threats (4 marks) and the merits of artificial intelligence and robotics (3 marks).
In May Diet, 2026, Question 7 (15 marks) gave a finance director pressed by the managing director not to write down slow-moving inventory before a sale of the company, with five marks for the inventory valuation, four for the ethical considerations and six for the course of action. Read the adoption of the sustainability standards in Nigeria first.
In 30 seconds
The five fundamental principles: integrity (straightforward, honest, fair dealing), objectivity (no bias, conflict of interest or undue influence), professional competence and due care, confidentiality and professional behaviour (comply with laws, avoid discrediting the profession). The five threats: self-interest, self-review, advocacy, familiarity and intimidation. Evaluate each threat; unless it is clearly insignificant apply safeguards (consult the audit committee or superiors or the professional body, document).
If the threat cannot be reduced to an acceptable level, refuse to remain associated with the information, consider informing the appropriate authorities if the misleading information is significant or persistent, take legal advice, or resign.
The five fundamental principles
- Integrity. Be straightforward and honest in all professional and business relationships, with fair dealing and truthfulness. A member should not be associated with reports or information that contain a materially false or misleading statement, statements furnished recklessly, or that omit or obscure required information where that would mislead. Example: refusing to sign a budget that assumes a sale that the sales team knows will not happen.
- Objectivity. Do not allow bias, conflict of interest or the undue influence of others to override professional or business judgement. Example: valuing inventory at net realisable value when the owner would like a higher figure.
- Professional competence and due care. Maintain professional knowledge and skill at the level needed for a competent service, based on current developments in practice, legislation and techniques, and act diligently in accordance with applicable technical and professional standards. Example: keeping up to date with the new presentation and sustainability standards.
- Confidentiality. Respect the confidentiality of information acquired in professional and business relationships, do not disclose it to third parties without authority or unless there is a legal or professional right or duty to disclose, and do not use it for personal advantage. Example: not using knowledge of an unannounced takeover to trade in shares.
- Professional behaviour. Comply with relevant laws and regulations, avoid any action that discredits the profession, and behave with courtesy and consideration. Example: not making misleading claims in advertising a practice.
Threats and safeguards
Compliance with the principles can be threatened by many circumstances, which fall into five categories. A member must identify, evaluate and respond to them.
- Self-interest: the member’s or a close family member’s financial or other interests may make the member reluctant to act against them. Examples: incentive pay linked to reported profit; concern about job security; commercial pressure from outside.
- Self-review: the member has to evaluate the result of an earlier judgement or service that he or she performed or that a colleague did. Example: an accountant who prepared an estimate then has to assess whether it is reasonable.
- Advocacy: the member promotes a position or opinion to the point where objectivity may be compromised. Example: arguing the client’s or employer’s case in a dispute with a regulator.
- Familiarity: a long or close relationship makes the member too sympathetic to another’s interests. Example: accepting a manager’s explanation without checking because of years of friendship.
- Intimidation: the member is deterred from acting objectively by threats, real or perceived. Example: a superior threatens dismissal if figures are not changed.
Unless a threat is clearly insignificant, the member applies safeguards that eliminate it or reduce it to an acceptable level. Safeguards created by the profession and law include education and training, professional standards and monitoring and disciplinary procedures. Safeguards in the work environment include corporate governance (an audit committee), internal control, ethics policies, whistle-blowing channels, and a culture of honest reporting.
The accountant in business
Accountants in business prepare and report information that others, inside and outside the organisation, rely on: forecasts and budgets, financial statements, management commentary and the letter of representation to the auditors. The information must be prepared and presented fairly, honestly and in accordance with professional standards, and financial statements must follow the applicable reporting standards.
The accountant must maintain information so that it describes clearly the true nature of transactions, assets and liabilities, classifies and records it in a timely and proper manner, and represents the facts accurately and completely in all material respects. Information must be technically correct, report the substance of the transaction and be adequately disclosed.
The danger is pressure from senior management to inflate profit or assets or to understate liabilities. The accountant must then decide whether to keep quiet or take the matter further. Keeping quiet means knowingly breaching the code; speaking out may mean bullying or dismissal. The threats are self-interest (job and pay) and intimidation, and the significance depends on the source of the pressure and how misleading the information is.
The accountant applies safeguards, such as consulting superiors, the audit committee or body responsible for governance, or the professional body. If this does not help, the accountant refuses to be associated with information that is or may be misleading, and, if the issue of misleading information is significant or persistent, considers informing the appropriate authorities and seeking legal advice or resigning.
Resolving a conflict
Where a member’s duty to the employer conflicts with the principles, the member considers:
- the relevant facts
- the ethical issues involved
- the fundamental principles that are at stake
- the established internal procedures
- the alternative courses of action
The member chooses the course that complies with the principles, consults, and documents the matter and the decision.
Where the matter is unresolved, the member may seek advice from the professional body or a lawyer, without breaching confidentiality more than necessary.
A worked case: slow-moving inventory
You are the finance director of a company that is being sold. The warehouse manager reports slow-moving inventory with a cost of ₦150 million that is over nine months old, and you estimate its net realisable value at ₦96 million.
The managing director, who owns most of the shares, says it need not be written down and hints that the staff will keep their jobs and you will be paid more if the sale succeeds.
- The accounting.
Inventory is measured at the lower of cost and net realisable value, so it must be written down by ₦150m − ₦96m = ₦54m.
If profit before the write-down is ₦200m, it becomes ₦146m, a fall of 27%.
Not writing it down would overstate inventory and profit. - The effect on the buyer. With 100 million shares, earnings per share would be ₦2.00 instead of ₦1.46. At a price-earnings ratio of 10 the buyer would pay ₦20.00 a share instead of ₦14.60, an overpayment of ₦5.40 a share, or ₦540 million in total.
- The ethical considerations. Integrity: the statements would be materially misleading and the buyer would be deceived. Objectivity: undue influence from the managing director and the inducement of a higher pay and job security (a self-interest and intimidation threat). Professional competence and due care: the accounting standard on inventories requires the write-down. Professional behaviour: complying with the law and not discrediting the profession; the directors also have duties under company law.
- The course of action. Explain to the managing director the requirement of the standard and the consequences, including the risk to him. Document the facts and the discussion. Raise the matter with the board, the audit committee or non-executive directors. Seek the advice of the professional body or a lawyer. Insist on the write-down. If the managing director persists and the statements are to be issued misleading, refuse to be associated with them, consider informing the appropriate authorities, or resign.
The ideas in more depth
Why the principles are not a rulebook
The code cannot list every situation. It gives principles and a method, so the accountant works out the answer when the situation is new. Compliance with the rules is not enough if the substance is misleading.
Why escalation comes in steps
Most problems are solved by explaining the requirement or consulting a superior. The more drastic steps, such as refusing to be associated, disclosing or resigning, are for cases where the safeguards fail or the matter is serious, and each should be documented and, if necessary, taken with legal advice.
Sources and references
- The Institute’s Professional Code of Conduct and Guide for Members (fundamental principles, threats and safeguards, and the guidance for accountants in business); International Accounting Standard (IAS) 2 Inventories (net realisable value); Companies and Allied Matters Act 2020 on directors’ duties.
These points are stated as at 5 November 2026.
Worked examples
Example 1: identifying the threat. An accountant’s bonus is 5% of reported profit of ₦200m (₦10m). Writing down inventory by ₦54m reduces the bonus to 5% × ₦146m = ₦7.3m. Required: the threat and principle.
- Threat. Self-interest.
- Principle at risk. Objectivity (and integrity if the figures are changed).
Example 2: the overpayment. Profit overstated by ₦54m, price-earnings ratio 10. Required: the overpayment by the buyer.
- Overpayment.
₦54m × 10 = ₦540m.
Example 3: a choice of safeguard. A junior accountant is told by the chief accountant to defer a cost that should be expensed. Required: the safeguards.
- Steps. Explain the standard to the chief accountant, then consult the audit committee or the next level, document the matter, and seek advice from the professional body.
How to answer in the exam
- Name each principle or threat and explain it in one sentence, then give an example linked to the facts.
- Apply to the scenario: identify the threat, the principles at stake, the accounting requirement and the consequences.
- Give the course of action in order: explain, document, consult, escalate, refuse, report, resign.
- Calculate any figures that show the effect of the misstatement.
Common mistakes in the exam
- Listing the principles without examples.
- Confusing a threat (for example intimidation) with a principle.
- Going straight to resignation or reporting without the earlier steps.
- Ignoring the accounting requirement that makes the instruction wrong.
- Forgetting to document.
- Disclosing confidential information without a legal or professional duty.
Quick revision
- Principles: integrity, objectivity, professional competence and due care, confidentiality, professional behaviour.
- Threats: self-interest, self-review, advocacy, familiarity, intimidation.
- Steps: evaluate, safeguard, consult, document; if unresolved, refuse association, consider reporting, take legal advice or resign.
Practice questions
These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.
Recall check: multiple choice
Question 1. The number of fundamental principles is:
- Three
- Four
- Five
- Six
Show the answer
C. Integrity, objectivity, professional competence and due care, confidentiality, professional behaviour.
Question 2. Integrity means being:
- Fast
- Straightforward and honest, with fair dealing and truthfulness
- Profitable
- Silent
Show the answer
B. And not associated with misleading information.
Question 3. Objectivity means not allowing:
- Bias, conflict of interest or undue influence to override judgement
- Any discussion
- Any fee
- Any training
Show the answer
A. Of professional or business judgements.
Question 4. A bonus linked to reported profit creates a:
- Familiarity threat
- Advocacy threat
- Self-review threat
- Self-interest threat
Show the answer
D. Financial interest may bias judgement.
Question 5. A self-review threat arises when a member:
- Is threatened
- Has to evaluate the result of an earlier judgement made by himself or a colleague
- Is a friend of the client
- Has a bonus
Show the answer
B. He may not be objective about it.
Question 6. An advocacy threat arises when a member:
- Promotes a position to the point that objectivity may be compromised
- Reviews his own work
- Is intimidated
- Discloses a secret
Show the answer
A. For example arguing the employer’s case.
Question 7. A familiarity threat arises from:
- A fee
- A dispute
- A long or close relationship that makes the member too sympathetic
- A bonus
Show the answer
C. Such as years of friendship.
Question 8. Intimidation arises when a member is:
- Over-trained
- Paid too much
- Praised
- Deterred from acting objectively by threats, actual or perceived
Show the answer
D. For example a threat of dismissal.
Question 9. If a threat cannot be reduced to an acceptable level, the accountant should:
- Remain silent
- Alter the figures
- Refuse to remain associated with the misleading information
- Ignore it
Show the answer
C. And consider informing the appropriate authorities.
Question 10. Confidential information may be disclosed:
- With authority, or where there is a legal or professional right or duty to disclose
- Whenever convenient
- To friends
- For personal advantage
Show the answer
A. Otherwise confidentiality must be respected.
Section B style: written questions
Question 11 (10 marks). (a) State the five fundamental principles. (5 marks) (b) State the five categories of threat. (5 marks)
Question 12 (15 marks). Name the principle and the threat in each case. (i) An accountant on a bonus scheme linked to profit is asked to capitalise repair costs. (ii) A friend of twenty years, the finance manager of a client, gives an unsupported explanation, and the accountant accepts it. (iii) The managing director threatens dismissal unless a provision is released.
(iv) An accountant uses information from a client about a bid to buy shares. (v) An accountant who prepared an estimate is asked to review its reasonableness. (3 marks each)
A further written question
Question 13 (20 marks). You are the finance director of a company that is being sold. Slow-moving inventory with a cost of ₦80m has a net realisable value of ₦52m. The managing director asks you to leave it at cost. Profit before any write-down is ₦150m.
(a) Calculate the write-down and the profit after it. (4 marks) (b) Identify FOUR ethical considerations. (6 marks) (c) State the course of action you should take, in order. (7 marks) (d) State the effect on the price if the buyer values the company at 8 times profit. (3 marks)
Model answers
Show the model answer to Question 11
(a) Integrity; objectivity; professional competence and due care; confidentiality; professional behaviour (1 each).
(b) Self-interest; self-review; advocacy; familiarity; intimidation (1 each).
Show the model answer to Question 12
(i) Self-interest; objectivity and integrity (3). (ii) Familiarity; objectivity (3). (iii) Intimidation; objectivity and integrity (3). (iv) Not a threat but a breach of confidentiality: confidential information must not be used for personal advantage (3). (v) Self-review; objectivity (3).
Show the model answer to Question 13
(a)
- Write-down ₦80m − ₦52m = ₦28m (2).
- Profit ₦150m − ₦28m = ₦122m (2).
(b) (1.5 marks each) Integrity: the statements would be misleading and the buyer deceived. Objectivity: undue influence from the managing director, with a self-interest and intimidation threat. Professional competence and due care: the standard on inventories requires the lower of cost and net realisable value. Professional behaviour: compliance with the law and not discrediting the profession.
(c) Explain the requirement of the standard and its consequences to the managing director (1.5). Document the facts and the discussion (1). Raise the matter with the board or the audit committee (1.5). Take advice from the professional body or a lawyer (1). Insist on the write-down (1). If the instruction persists, refuse to be associated with the statements (0.5) and consider informing the appropriate authorities or resigning (0.5).
(d) The overstatement of profit of ₦28m at 8 times is ₦28m × 8 = ₦224m overpaid by the buyer (3).
Pathfinder on Ethics in financial reporting and the professional code
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.
Part (a) asks for four fundamental principles of the Institute’s code with practical examples (8 marks) and four categories of threats (4 marks); part (b) on artificial intelligence belongs to the technology topic.
Revise first: The five fundamental principles
Part (b) gives a finance director pressed by the managing director not to write down slow-moving inventory before a sale of the company: four ethical considerations (4 marks) and the course of action (6 marks).
Revise first: A worked case: slow-moving inventory
Source: ICAN Pathfinder, Financial Reporting. Diets covered: Every diet in the Pathfinder, from November Diet, 2021 to May Diet, 2026, was reviewed here. The diets listed above test this topic directly..
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