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

This guide covers 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. The specification lists section 18 in the content assessed by both Paper 1 and Paper 2, each a 3-hour written exam. It also lists “analyse situations to identify ethical considerations and suggest appropriate actions” as a skill, so expect scenarios rather than bare definitions.

The five principles were introduced in the role of the accountant guide. This guide goes further. Use it with the revision notes and the practice questions. See also the AQA A-level Accounting hub, the 7127 checklist and the free diagnostics. All businesses, people and figures are invented.

What section 3.18 covers

Specification content (3.18)	What you must be able to do
The fundamental principles of ethical behaviour	Define the five principles and spot a breach
How the principles impact accounting professionals and organisations	Apply them to accountants in business and in public practice, boards, auditors, the remuneration committee, corporate governance and CSR
Legal and regulatory frameworks	Explain the role of the FRC, government and the EU, and the consequences of breaking the rules
Professional bodies and codes of conduct	Explain the role of CCAB and CIMA
Acting ethically with clients, suppliers, colleagues and stakeholders	Apply principles, codes and regulation to a situation
Action when an unethical or illegal act is suspected	Safeguards, threats, conflicts of interest, outside help

1. The five fundamental principles

Principle	What it means	A breach looks like
Integrity	Being straightforward and honest in all work	Signing off figures you know are misleading
Objectivity	Not letting bias, conflict of interest or pressure override judgement	Choosing an estimate because it raises your bonus
Professional competence and due care	Keeping knowledge up to date and working carefully	Preparing a tax return using rules you have not checked
Confidentiality	Not disclosing information without authority, and not using it for personal gain	Telling a friend about a client’s takeover plans
Professional behaviour	Complying with laws and regulations and avoiding anything that discredits the profession	Exaggerating your qualifications to win work

Threats and safeguards

CIMA’s Code of Ethics, aligned with the international code set by the International Ethics Standards Board for Accountants (IESBA), asks accountants to identify threats, evaluate them and address them. It names five categories of threat:

• Self-interest – a financial or other interest could sway you (a bonus linked to profit).
• Self-review – you would be checking your own earlier work.
• Advocacy – you promote a client’s or employer’s position so far that objectivity suffers.
• Familiarity – a long or close relationship makes you too trusting.
• Intimidation – you are pressured by threats, real or implied.

A safeguard is an action that reduces a threat to an acceptable level, for example a second-person review, rotating staff, or removing someone from a decision. Some threats are too significant for any safeguard. Then the work must be declined or the person must step away.

2. How the principles shape behaviour

The accountant in business works for one employer. The main risk is pressure from managers who are judged on the figures. The accountant must still record transactions faithfully, even when the result is unwelcome.

The accountant in public practice sells services such as audit, tax and advice to clients. Objectivity and independence matter most: a firm that relies heavily on one client’s fees, or whose staff own shares in a client, faces self-interest threats.

The board of directors runs a company on behalf of its shareholders. Ethical boards include independent non-executive directors (NEDs) who can challenge executives. The UK Corporate Governance Code expects a clear division between running the board (the chair) and running the business (the chief executive).

Auditors give an independent opinion on whether the financial statements give a true and fair view. Under the Companies Act 2006, shareholders of a public company normally appoint the auditor by ordinary resolution. The audit report contains one of four opinions:

Opinion	When it is given
Unmodified (unqualified)	The statements give a true and fair view
Qualified (“except for”)	A specific material problem, but the rest is fair
Adverse	Misstatements are material and pervasive, so the statements are not true and fair
Disclaimer	The auditor cannot obtain enough evidence to form an opinion

The remuneration committee (printed in the specification as the “remittance committee”) decides directors’ pay. It should be made up of independent NEDs, and no director should decide their own pay. This stops executives rewarding themselves for short-term figures they control.

Corporate governance is the system by which companies are directed and controlled. The FRC’s UK Corporate Governance Code applies to listed companies on a “comply or explain” basis: a company either follows each provision or explains why not.

Corporate social responsibility (CSR) means a business considers its effect on employees, customers, suppliers, the community and the environment, not only profit. Section 172 of the Companies Act 2006 requires directors to promote the success of the company for its members while having regard to factors including employees, suppliers and customers, the community and the environment, and high standards of business conduct.

3. Legal and regulatory frameworks

Body named in the specification	Role
Financial Reporting Council (FRC) (printed as “Finance Reporting Council”)	Sets UK accounting standards and the UK Corporate Governance and Stewardship Codes; regulates auditors, accountants and actuaries; investigates misconduct
Government (the specification names BIS)	Makes company law, such as the Companies Act 2006, and oversees Companies House and the Insolvency Service
European Union	Its IAS Regulation (EC 1606/2002) required publicly traded companies to apply international accounting standards to consolidated accounts

Two updates since the specification was written. BIS was replaced by the Department for Business, Energy and Industrial Strategy on 14 July 2016, and on 7 February 2023 business functions passed to the Department for Business and Trade, which now lists Companies House, the Insolvency Service and the FRC among its bodies. The UK left the EU on 31 January 2020; at the end of the transition period (31 December 2020) EU-adopted standards were frozen into UK law, and UK companies now use UK-adopted international accounting standards.

Consequences of failing to work within the rules include: an investigation and sanctions by the FRC or a professional body; criminal or civil action under company law; a modified audit opinion; a falling share price and higher borrowing costs; and loss of clients, job and reputation.

4. Professional bodies and codes of conduct

The Consultative Committee of Accountancy Bodies (CCAB) is a forum for its member bodies and gives the profession a common voice when dealing with the UK government. Its members are ICAEW, ACCA, CIPFA, ICAS and Chartered Accountants Ireland.

CIMA, the Chartered Institute of Management Accountants, trains and regulates management accountants. It announced in 2011 that it was leaving CCAB, so it is no longer a member. CIMA’s Code of Ethics is built on the five fundamental principles.

Professional bodies establish codes by publishing them and making compliance a condition of membership. They enforce them by investigating complaints and disciplining members, which can end in exclusion from membership.

5. Acting ethically with each group

Group	Ethical behaviour
Clients	Keep their information confidential; charge fairly; decline work you are not competent to do
Suppliers	Pay on agreed terms; refuse gifts or hospitality that could influence a decision
Colleagues	Do not pressure juniors to alter figures; give credit; report concerns through proper channels
Stakeholders	Publish information that is truthful and complete, so investors, lenders and employees can rely on it

Acting ethically means applying the principles, the codes of practice of CCAB bodies and CIMA, and the regulatory framework (the Companies Act, FRC standards and codes) together.

6. What to do if you suspect wrongdoing

Work through these steps:

1. Establish the facts. Collect evidence before you accuse anyone.
2. Identify the principles threatened and the type of threat.
3. Evaluate its significance. How large is the amount? Who could be harmed? Is the act illegal or only questionable?
4. Apply safeguards where they can reduce the threat, such as an independent review.
5. Resolve any conflict of interest. Disclose it and step back from the decision.
6. Escalate internally. Go to your line manager, then a higher level (the audit committee or the board) if your manager is involved.
7. Seek external or professional help when necessary. Take advice from your professional body or a lawyer. Under the Public Interest Disclosure Act 1998, a worker who reasonably believes the information shows, for example, a criminal offence or a failure to comply with a legal obligation can be protected from detriment if the disclosure qualifies.
8. Refuse to take part, and as a last resort resign or withdraw from the engagement.

Worked example

Halden Fabrics Ltd has draft revenue of £1,640,000 and a draft profit for the year of £246,000. A customer owing £18,000 has gone into liquidation and will not pay. The directors share a bonus of 20% of profit above £230,000. The finance director tells the assistant accountant, Priya, to leave the debt in trade receivables “until next year”.

Step 1 – effect on the figures.

Draft profit for the year                 246,000
Less irrecoverable debt written off        18,000
Corrected profit for the year             228,000

Bonus on draft profit: (246,000 - 230,000) x 20% = £3,200
Bonus on corrected profit: 228,000 < 230,000      = £0
Profit to revenue: 15.0% draft, 13.9% corrected

Step 2 – principles and threats. Following the instruction breaks integrity (Priya would knowingly overstate profit and trade receivables) and professional competence and due care (prudence requires the write-off). The finance director faces a self-interest threat, because the £3,200 bonus depends on the error. Priya faces an intimidation threat.

Step 3 – significance. The bonus is only paid because of the misstatement. Shareholders and lenders would rely on overstated profit and assets.

Step 4 – action. Priya should explain the treatment to the finance director in writing and refuse to make the incorrect entry. If he insists, she should take the matter to the audit committee or the board, and keep a record. If it is not resolved, she should seek advice from her professional body before considering external disclosure.

Common errors

• Naming a principle without linking it to a fact in the scenario.
• Recommending going straight to the press or a regulator, skipping internal steps.
• Confusing objectivity (freedom from bias) with integrity (honesty).
• Saying a qualified opinion means the accounts are wrong throughout; that is an adverse opinion.
• Writing that the remuneration committee is made up of executive directors.
• Treating “comply or explain” as a legal requirement to comply with every provision.
• Describing CIMA as a CCAB member.
• Leaving out the effect on the figures when the scenario gives numbers.

Next steps

Test your recall with the revision notes, then try the practice questions. Related topics: limited company accounts and the exam preparation guide.

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.