A Level Accounting: Regulatory and ethical considerations (Cambridge 9706) – Revision Notes

These notes condense section 3.2 Regulatory and ethical considerations of the Cambridge International AS & A Level Accounting 9706 syllabus for 2026, 2027 and 2028 (A Level content). For explanations and worked examples, read the study guide first. Then attempt the practice questions. Other links: course hub, checklist, diagnostics, and non-current assets for depreciation methods. Amounts are in dollars.

Standards at a glance (3.2.1)

Standard	One-line recall	Key test or formula
IAS 1	Fair presentation, going concern, accrual basis, consistency, materiality	Complete set has five parts: financial position, profit or loss and other comprehensive income, changes in equity, cash flows, notes
IAS 2	Inventories at the lower of cost and NRV	NRV = selling price − costs to complete and sell; FIFO or weighted average; no LIFO
IAS 7	Cash flows grouped as operating, investing, financing	Operating: direct or indirect method; non-cash deals excluded
IAS 8	Policies consistent; estimates; errors	Policy change: retrospective. Estimate: prospective. Prior period error: restate comparatives
IAS 10	Events after the reporting period	Adjusting: change figures. Non-adjusting: disclose if material
IAS 16	Property, plant and equipment	Cost model or revaluation model; depreciate over useful life; review life and residual value
IAS 36	Impairment	Recoverable amount = higher of fair value less costs of disposal and value in use
IAS 37	Provisions and contingencies	Provision: obligation, probable, reliable estimate
IAS 38	Intangible assets	Research expensed; development capitalised if criteria met; no internally generated goodwill

Method boxes

Inventory valuation (IAS 2)

1. Take cost for each item or group of similar items.
2. Work out NRV: expected selling price less costs still to be incurred.
3. Use the lower figure for each.
4. Total them. Charge any write-down as an expense.

Impairment test (IAS 36)

1. Carrying amount at the date of the test.
2. Fair value less costs of disposal.
3. Value in use.
4. Recoverable amount is the higher of steps 2 and 3.
5. If carrying amount is higher, the difference is the impairment loss.

Event after the reporting period (IAS 10)

1. Ask: did the event give new evidence about a condition that existed at the reporting date?
2. Yes: adjusting, so change the figures.
3. No, it arose afterwards: non-adjusting, so disclose if material.
4. Dividends declared after the date are never a liability at the date.

Contingencies (IAS 37)

Probability of outflow or inflow	Liability	Asset
Virtually certain	Provision	Recognise as an asset
Probable	Provision if reliably measurable	Disclose only
Possible	Disclose	No disclosure needed
Remote	Nothing	Nothing

Small worked reminders

• Inventory costing 8,400 with NRV 7,650 is carried at 7,650. Write-down is 750.
• An asset with carrying amount 300,000, fair value 210,000, disposal costs 10,000 and value in use 185,000: fair value less costs of disposal 200,000 is higher, so recoverable amount is 200,000 and the impairment loss is 100,000.
• Machine price 95,000 plus installation 5,000, residual value 10,000, life 6 years: cost 100,000, depreciation (100,000 − 10,000) ÷ 6 = 15,000 a year.
• A 72,000 development asset with a 6-year life, available for use on 1 May, has amortisation of 12,000 × 8/12 = 8,000 in a year ending 31 December.
• Cost 60,000, residual value 5,000, 5-year life, so 11,000 a year. After 2 years, carrying amount is 38,000. A revised remaining life of 2 years gives (38,000 − 5,000) ÷ 2 = 16,500 a year from then, with no restatement.

Cash flow groups and IAS 1 features

Statement of cash flows group	Examples
Operating	Cash received from customers, cash paid to suppliers and employees
Investing	Buying or selling non-current assets, buying shares in another company
Financing	Issuing shares, taking out or repaying loans

Non-cash deals, such as shares issued in exchange for a building, are not cash flows and are left out.

IAS 1 feature	What it means in practice
Fair presentation	Statements reflect what happened, applying the standards
Going concern	Assets and liabilities are valued as if trading continues
Accrual basis	Items are recognised when earned or incurred, not when cash moves
Consistency	Same presentation and classification year to year
Materiality	Separate items that could influence users’ decisions
Comparative information	Prior year figures shown beside the current year

Applying a standard in an answer

1. Name the standard and state the rule in one sentence.
2. Apply it to the figures in the question. Show the comparison, such as cost against NRV.
3. State the accounting entry or the effect on profit, assets or liabilities.
4. Say what the result means for users, such as lower profit or an extra note.

Ethics (3.2.2)

Principle	Remember it as	Typical breach
Integrity	Honest and straightforward	Reporting figures you know are false
Objectivity	Free from bias and pressure	Auditing a business owned by a relative
Professional competence and due care	Skilled, up to date, careful	Applying a standard you have not studied
Confidentiality	Do not disclose or use information	Passing client data to a friend
Professional behaviour	Obey laws, protect the profession’s name	Helping to hide tax liabilities

• Need for a framework: rules cannot cover every case, users depend on trust, and the profession’s reputation is at stake.
• Stakeholder effects: investors, lenders, employees, tax authority, suppliers, customers and the business itself.
• Social implications: staff and community (closures), environment, honesty about risks, use of local suppliers.

Audit and stewardship (3.2.3)

Point	Detail
Stewardship	Directors manage the company for shareholders: safeguard assets, keep records, prepare statements, report
True and fair view	Statements present position, performance and changes fairly, free of material misstatement
Auditor’s role	Independent opinion on the statements; not preparing them; not a guarantee against fraud
External audit	Appointed by shareholders, independent, reports to them on the statements
Internal audit	Within the business, reports to management, reviews controls and efficiency
Unqualified report	Statements give a true and fair view
Qualified report	True and fair view “except for” a material matter or missing evidence

Evaluation points to have ready

• Strengths of standards: comparability between businesses, consistency over time, more reliable information for investors and lenders.
• Limits of standards: they still need judgement, such as estimating NRV or value in use, so profit can be influenced.
• Value of an unqualified report: it gives shareholders independent assurance, but it is not a guarantee that the figures are exact or that fraud is absent.
• Value of internal audit: it can find weaknesses early, but it is less independent because it reports within the business.
• Ethical pressure: the cost of resisting is lost bonuses or a strained relationship with a director, against the longer-term cost of lost trust and penalties.

Must-know distinctions

• Change in policy (retrospective) versus change in estimate (prospective).
• Adjusting versus non-adjusting events.
• Provision (recognised) versus contingent liability (disclosed) versus contingent asset (disclosed only if probable).
• Research (expense) versus development (asset if criteria met).
• Impairment (fall in recoverable amount) versus depreciation (systematic spread of cost).
• External versus internal audit.

Quick self-test

1. On what basis are financial statements prepared unless the business will cease trading?
2. Inventory has cost 8,400 and NRV 7,650. At what amount is it shown?
3. Name the cost flow method that IAS 2 does not permit.
4. In which group of the statement of cash flows is cash paid for new machinery?
5. How is a change in accounting estimate treated, compared with a change in accounting policy?
6. A dividend is declared after the reporting date. Is it a liability at that date?
7. Carrying amount 300,000; fair value 210,000; disposal costs 10,000; value in use 185,000. Calculate the impairment loss.
8. Price 95,000, installation 5,000, residual value 10,000, life 6 years. Calculate annual depreciation.
9. State the five fundamental ethical principles.
10. What is the difference between a qualified and an unqualified audit report?
11. Who appoints the external auditor, and to whom does the auditor report?

Answers

1. Going concern.
2. 7,650 (write-down 750).
3. LIFO.
4. Investing.
5. Estimate: applied from now with no restatement. Policy: applied retrospectively.
6. No, it is a non-adjusting event.
7. Recoverable amount 200,000, so loss 100,000.
8. 15,000.
9. Integrity, objectivity, professional competence and due care, confidentiality, professional behaviour.
10. Unqualified: true and fair view. Qualified: true and fair view except for a stated matter.
11. The shareholders appoint; the auditor reports to them.

Where marks are usually lost

• Valuing inventory at cost or at selling price instead of the lower of cost and NRV.
• Forgetting costs to complete and sell when working out NRV.
• Restating past years for a change in estimate.
• Calling a post-year-end event adjusting without linking it to a condition at the reporting date.
• Creating a provision for a possible obligation that is not probable.
• Naming an ethical principle without applying it to the scenario.
• Describing the auditor as responsible for preparing the accounts.
• Giving a one-sided answer to an evaluation question without a justified conclusion.

Frequently asked questions

What does stewardship mean for company directors? Stewardship is the duty of directors to look after the company’s resources on behalf of the shareholders: act in their best interests, safeguard assets, keep proper accounting records, prepare financial statements that give a true and fair view and report to shareholders.

Does a change in accounting estimate restate past years? No. Under IAS 8, a change in estimate, such as a revised useful life, is applied from now on; restating past years for a change in estimate is a common mistake.

When must a provision be made under IAS 37? A provision is made when there is a present obligation, an outflow is probable and the amount can be reliably estimated. A possible obligation that is not probable does not get a provision.

Is the auditor responsible for preparing the accounts? No. The directors prepare the financial statements; the auditor examines them independently and gives an opinion on whether they show a true and fair view. An audit report is not a guarantee of accuracy.

Official syllabus

Cambridge International, AS & A Level Accounting 9706 syllabus for 2026, 2027 and 2028, section 3.2.