Professional Ethics
1 Introduction
Regulation only works if the people applying it behave professionally. Accounting standards tell us how to account for transactions; ethics ensures that we actually apply them honestly, competently and without allowing the figures to be manipulated to mislead the users of the financial statements.
The CIMA Code of Ethics sets out fundamental principles about how members (and students) should behave, identifies the threats that could compromise that behaviour, and requires safeguards to be applied where a threat is significant. Because CIMA members are also Chartered Global Management Accountants, compliance with the CIMA Code also means compliance with the CGMA designation's ethical requirements.
The ethical framework therefore has three parts:
Principles – five fundamental principles that must always be observed
Threats – circumstances that put compliance with the principles at risk
Safeguards – actions taken to eliminate a threat or reduce it to an acceptable level
Ethics runs through the whole CGMA qualification — it is the professionalism the syllabus says the qualification is underpinned by, and ethical dilemmas appear regularly in the case study exams at every level. In the 2027 F1 syllabus it is not a component outcome in its own right: the one named ethics topic is the ethics of taxation (F1C3b), which Chapter 14 applies. Treat this chapter as foundation material — the framework you carry into Chapter 14’s tax ethics, into the governance failures in Chapter 3, and into every case study you sit.
This recording predates the 2027 syllabus. It is sound on the principles and the threats; carry three things with you.
Advocacy: the lecture describes it as being pressured into a role or into preparing misleading accounts. In the Code, advocacy means promoting a client’s or employer’s position so far that your objectivity is compromised (see the threats table); pressure from others is intimidation.
Notes-only: the lecture stops at the five threats. Safeguards, and the identify–evaluate–address approach, are in the notes only.
Signposting: it closes by pointing you to the regulatory bodies next; in these notes they are in Chapter 1.
2 Sources of ethical codes
Ideas about right and wrong behaviour have never been fixed: a respected code of ethics must evolve as beliefs and values in society change. The main sources from which ethical codes have developed are:
Law – the minimum standard of behaviour a society enforces
Religion – historically the earliest source of ethical rules, and still influential in many parts of the world
Social attitudes – what a society regards as acceptable, which varies between countries and over time (a gift regarded as a courtesy in one culture may be seen as improper in another)
Professional bodies – codes tailored to the specific responsibilities of a profession, such as the CIMA Code
Businesses – individual organisations' own codes of conduct and values
3 The CIMA Code of Ethics
CIMA is a member of the International Federation of Accountants (IFAC), the global organisation of professional accountancy bodies. Ethical standards for the profession worldwide are set by the International Ethics Standards Board for Accountants (IESBA), which publishes the International Code of Ethics for Professional Accountants.
The CIMA Code of Ethics is based on the IESBA Code: CIMA (like most professional accountancy bodies) has adopted the IESBA principles and adapted them for its members. The Code is principles-based – rather than attempting to write a rule for every situation, it establishes fundamental principles and requires members to use a conceptual framework approach: identify threats to the principles, evaluate how significant they are, and address them.
The Code is revised regularly to keep pace with the profession – recent revisions have dealt with, for example, how accountants should respond to non-compliance with laws and regulations by a client or employer, and the ethical pressures created by technology. For F1 you need the framework itself: the principles, the threats and the safeguards.
4 The five fundamental principles
Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour
4.1 Integrity
A professional accountant should be straightforward and honest in all professional and business relationships. Integrity also implies fair dealing and truthfulness.
In particular, an accountant should not be associated with reports, returns or other information which they believe:
contains a materially false or misleading statement
contains statements or information provided recklessly, or
omits or obscures information that is required, where the omission or obscurity would be misleading
4.2 Objectivity
A professional accountant should not allow bias, conflicts of interest or the undue influence of others to override professional or business judgements. Relationships that bias or unduly influence professional judgement should be avoided – for example, judging a project favourably because your own bonus depends on it is a failure of objectivity.
4.3 Professional competence and due care
A professional accountant has a continuing duty to:
maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service, based on current developments in practice, legislation and techniques (this is why continuing professional development is compulsory after qualification)
act diligently and in accordance with applicable technical and professional standards when providing professional services
4.4 Confidentiality
A professional accountant should respect the confidentiality of information acquired through professional and business relationships. An accountant should not:
disclose such information outside the organisation without proper and specific authority, unless there is a legal or professional right or duty to disclose, or
use such information for their personal advantage or the advantage of third parties (using inside information about a listed company to deal in its shares would be both unethical and illegal)
4.5 Professional behaviour
A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession – conduct which a reasonable and informed third party would conclude adversely affects the good reputation of the profession.
Ethics
Which ONE of the following is NOT a fundamental principle identified in CIMA's Code of Ethics?
A Professional competence
B Professional behaviour
C Integrity
D Independence
Show answerHide answer
5 Threats to the fundamental principles
The Code identifies five categories of threat to compliance with the fundamental principles:
Threat | Description | Example |
Self-interest | A financial or other interest (a conflict of interest) may inappropriately influence your judgement or behaviour | Your bonus depends on reported profit, so you are tempted to overstate it |
Self-review | You are required to evaluate the results of a judgement or service you previously performed yourself | Reviewing a tax computation that you prepared – you are unlikely to spot your own errors |
Advocacy | You promote a client's or employer's position or opinion to the point where your subsequent objectivity is compromised | Championing the case for a new investment so strongly that you can no longer appraise it neutrally |
Familiarity | A long or close relationship makes you too sympathetic to the interests of others, compromising your professional judgement | Repeated gifts and hospitality from a supplier make you reluctant to challenge their invoices |
Intimidation | You are deterred from acting objectively by pressure or influence – actual or merely perceived | A dominant finance director makes it clear that 'bad news' figures are unwelcome |
Common trap
Candidates regularly confuse self-interest and self-review. Self-interest = a conflict of interest (something in it for you). Self-review = reviewing your own earlier work. Read the scenario carefully to see which is being described.
6 Safeguards
The Code's conceptual framework approach requires that when a threat to the fundamental principles is not at an acceptable level, action must be taken: eliminate the circumstances creating the threat, apply safeguards to reduce it to an acceptable level or, if neither is possible, decline or end the activity concerned.
The test of what is 'acceptable' is whether a reasonable and well-informed third party would be likely to conclude that compliance with the fundamental principles is not compromised.
Safeguards fall into two broad categories:
Safeguards created by the profession, legislation or regulation – for example, education and training requirements, continuing professional development, corporate governance regulations, professional standards, and professional or regulatory monitoring and disciplinary procedures
Safeguards in the work environment – for example, the employer's own ethics and conduct programmes, recruitment and training procedures, strong internal controls, appropriate disciplinary processes, and effective whistle-blowing arrangements that allow concerns to be raised in confidence
Wording watch
The two-category split above is how safeguards have traditionally been taught, and it remains a useful way to remember the examples. Be aware, though, that the restructured Code reserves the word safeguards for actions the accountant takes to reduce an identified threat to an acceptable level. The wider background items – education and training requirements, continuing professional development, corporate governance regulations, professional monitoring and disciplinary procedures – are described as the conditions, policies and procedures of the profession and the employing organisation: they shape how likely a threat is and how easily it is spotted, rather than being a response to a particular threat. Either presentation will earn the marks; what matters is that you can identify a threat, judge whether it is at an acceptable level, and say what action would address it.
The CIMA Code of Ethics (based on the IESBA International Code) is principles-based. Its five fundamental principles are integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. Compliance is threatened by self-interest, self-review, advocacy, familiarity and intimidation threats; where a threat is not at an acceptable level, it must be eliminated, reduced by safeguards (professional or work-environment) or the activity declined – judged from the standpoint of a reasonable and well-informed third party.
7 Test your knowledge
Two quick checks before you move on: work through the flashcards to fix this chapter’s terms and definitions, then sit the objective questions for exam-style practice. Both mark themselves and explain the answers as you go.
Professional Ethics
22 questionsAnswer the questions one at a time. Your progress is saved so you can leave and come back.
Open chapter practice