AQA A-Level Accounting: The impact of ethical considerations (7127) – Revision Notes

These notes condense section 3.18, The impact of ethical considerations, of the AQA A-level Accounting (7127) specification (version 1.1, October 2026, for A-level exams from June 2019 onwards). The qualification is not tiered, and the specification lists section 18 for both Paper 1 and Paper 2. For full explanations and a worked scenario, read the study guide, then test yourself with the practice questions. See also the AQA A-level Accounting hub, the 7127 checklist and the free diagnostics. All businesses and figures are invented.

3.18 at a glance

1. The five fundamental principles.
2. How they affect accountants in business and in public practice, boards, auditors, the remuneration committee, corporate governance and CSR.
3. Legal and regulatory frameworks: FRC, government, EU.
4. Professional bodies: CCAB and CIMA.
5. Acting ethically with clients, suppliers, colleagues and stakeholders.
6. What to do when you suspect an unethical or illegal act.

The five principles

Principle	One-line definition	Key word to use
Integrity	Straightforward and honest	Honesty
Objectivity	No bias, conflict of interest or undue influence	Independence of judgement
Professional competence and due care	Up-to-date knowledge applied carefully	Skill and diligence
Confidentiality	No disclosure without authority; no personal use	Trust
Professional behaviour	Obey laws and regulations; do not discredit the profession	Reputation

Threats and safeguards

CIMA’s Code (aligned with the IESBA international code) uses three steps: identify, evaluate, address threats.

Threat	Trigger	Typical safeguard
Self-interest	Bonus, shares, fee dependence, gifts	Remove the person from the decision; independent review
Self-review	Checking your own work	Different person performs the review
Advocacy	Promoting a client’s or employer’s case	Separate the advocacy and reporting roles
Familiarity	Long or close relationship	Rotate staff
Intimidation	Threat of dismissal or loss of the client	Escalate to the audit committee or board

A safeguard reduces a threat to an acceptable level. It may not remove it. If nothing reduces it enough, decline or withdraw.

Who is affected and how

• Accountant in business: one employer; pressure from managers to flatter results.
• Accountant in public practice: serves clients (audit, tax, advice); independence from clients is central.
• Board of directors: executives plus independent NEDs who challenge them; chair and chief executive roles divided.
• Auditors: independent opinion on whether the statements give a true and fair view; shareholders of a public company normally appoint them by ordinary resolution.
• Remuneration committee (printed in the specification as “remittance committee”): independent NEDs set directors’ pay; no director decides their own.
• Corporate governance: how companies are directed and controlled; UK Corporate Governance Code, comply or explain.
• CSR: responsibility to employees, customers, suppliers, community and environment, not only shareholders. Companies Act 2006 s172 lists these factors for directors.

Audit opinions

Opinion	Meaning
Unmodified	True and fair
Qualified	True and fair except for a specific material matter
Adverse	Not true and fair: material and pervasive misstatement
Disclaimer	No opinion: not enough evidence

Regulators and frameworks

Body	Remember
FRC (printed as “Finance Reporting Council”)	UK accounting standards; UK Corporate Governance and Stewardship Codes; regulates auditors, accountants and actuaries; investigates misconduct
Government	Company law (Companies Act 2006); Companies House; Insolvency Service. BIS (named in the specification) became BEIS in July 2016; business functions moved to the Department for Business and Trade in February 2023
EU	IAS Regulation (EC 1606/2002): publicly traded companies use international standards for consolidated accounts. UK left on 31 January 2020; EU-adopted standards were frozen into UK law at the end of 2020, then UK-adopted standards apply
CCAB	Forum and common voice to government for ICAEW, ACCA, CIPFA, ICAS and Chartered Accountants Ireland
CIMA	Management accountants’ body; not a CCAB member (announced its exit in 2011); own Code of Ethics built on the five principles

Consequences of breaking the rules: sanctions from the FRC or a professional body (up to exclusion), legal action under company law, a modified audit opinion, loss of investor and lender confidence, and personal loss of job or reputation.

Acting ethically with each group

Group	Do	Avoid
Clients	Keep their affairs confidential; take on only work you are competent to do	Using inside knowledge for personal gain
Suppliers	Pay on agreed terms; choose on price, quality and reliability	Accepting gifts or hospitality that could sway a contract
Colleagues	Support and supervise; raise concerns through proper channels	Pressuring a junior to change figures
Stakeholders	Publish complete, truthful information on time	Window dressing or hiding bad news

In every case you apply three layers together: the principles, the codes of practice of the CCAB bodies and CIMA, and the regulatory framework (Companies Act, FRC standards and codes).

Method in steps: answering a scenario

Each point in a scenario answer works best with four parts:

Principle   name it (e.g. objectivity)
Evidence    quote the fact from the scenario
Effect      who is misled and how (profit, assets, ratios)
Action      what the accountant should do next

For an “evaluate” question, weigh the options, such as raising it internally versus reporting externally, and finish with a judgement that depends on the facts given (the size of the amount, who is involved, whether the act is illegal).

Method in steps: suspected wrongdoing

1  Establish the facts and keep records
2  Name the principle(s) threatened and the threat type
3  Evaluate significance: amount, who is harmed, legal or not
4  Apply safeguards
5  Resolve conflicts of interest (disclose, step back)
6  Escalate internally: manager -> audit committee / board
7  Seek external or professional help (professional body, lawyer;
   PIDA 1998 protects qualifying disclosures)
8  Refuse to take part; last resort: resign or withdraw

Small worked reminder

A sales director wants £30,000 of goods sent to a customer on 2 January included in December’s revenue. Gross margin is 40%.

Overstated revenue      = 30,000
Overstated gross profit = 30,000 x 40% = 12,000

Breaches: integrity (false revenue) and professional competence and due care (the realisation concept). The accountant records the sale in January and explains why, escalating if pressed.

Must-know distinctions

• Integrity vs objectivity: honesty vs freedom from bias. A biased estimate can be honestly believed.
• Qualified vs adverse: one material issue vs material and pervasive.
• Adverse vs disclaimer: the auditor disagrees vs the auditor cannot tell.
• Accountant in business vs public practice: employer vs clients.
• Comply or explain vs law: the Code allows explained departures; the Companies Act does not.
• CCAB vs CIMA: an umbrella forum vs a single professional body outside it.
• Safeguard vs elimination: safeguards reduce a threat to an acceptable level.
• Executive vs non-executive director: runs the business day to day vs gives independent challenge and oversight.
• Internal vs external escalation: go through managers, the audit committee and the board first; go outside when internal routes fail or are compromised.

Quick self-test

1. Which principle is breached by an accountant who shares a client’s profit figures with a journalist?
2. An audit manager has worked on the same client for twelve years. Name the threat.
3. What does “except for” signal in an audit report?
4. State who sets directors’ pay under good governance.
5. What does “comply or explain” mean?
6. Name the UK body that sets accounting standards and the UK Corporate Governance Code.
7. Is CIMA a member of CCAB?
8. A finance director’s bonus rises if inventory is valued higher. Name the threat.
9. Revenue of £50,000 is recorded a year early; gross margin is 25%. By how much is gross profit overstated?
10. Give the first step to take on suspecting a colleague of fraud.
11. Which opinion is given when the auditor cannot obtain enough evidence?
12. Name two factors s172 of the Companies Act 2006 requires directors to have regard to.

Answers

1. Confidentiality.
2. Familiarity.
3. A qualified opinion: true and fair apart from a specific material matter.
4. A remuneration committee of independent non-executive directors.
5. A listed company follows each provision of the Code or explains why it has not.
6. The Financial Reporting Council (FRC).
7. No. It announced its withdrawal in 2011.
8. Self-interest.
9. 50,000 × 25% = £12,500.
10. Establish the facts and keep a record before raising it.
11. A disclaimer of opinion.
12. Any two of: long-term consequences, employees, suppliers and customers, the community and the environment, high standards of business conduct, fairness between members.

Where marks are usually lost

• Listing principles with no link to a named person or fact in the scenario.
• Calling every breach “integrity” when objectivity or competence fits better.
• Missing the threat type when the question says “evaluate the threat”.
• Jumping to external reporting without internal escalation or advice.
• Mixing up qualified, adverse and disclaimer opinions.
• Putting executives on the remuneration committee.
• Writing that the government “sets accounting standards”; that is the FRC.
• Ignoring the effect on profit or ratios when figures are given.
• Ending an evaluation with no judgement.

Official syllabus

AQA A-level Accounting (7127) specification, version 1.1, October 2026, for A-level exams June 2019 onwards, published by AQA – section 3.18, The impact of ethical considerations.