SECTION 1: ACCOUNTING AS A PROFESSION

Principles of Accounts is a course of study that provides an introduction to the principles and
techniques that accountants employ in measuring, processing, evaluating and communicating
information about the financial performance and position of a business.

Whether or not you pursue a career in accounting, terms and concepts you will learn in POA will set
you ahead and apart in many of your adult interactions. There are many day to day, real world
applications that those in other fields of study may struggle to grasp or learn later in life.
Examples:
- As an employee in any field, you will learn that the aim of the business is to make a profit.
You will therefore understand their operations a little better
- Understanding your own personal finances & budgeting
- Negotiating loans and mortgages
- Entrepreneurship – starting and running your own business
- Understanding our national budget and current affairs
- Business and finance underlie most things in our current world

Accounting provides support and evidence on the financial position of a business. What is the goal of
a business? – to remain a going concern – to be profitable so it can continue with operations. How
will we know if we are profitable unless we implement the principles and methods of accounting?
The information that comes about from bookkeeping and accounting helps businesses plan, budget
and make decisions e.g. Are my goods or services priced properly? Can I afford to give staff a bonus?
Will I have cash next month to cover utility bills? Do I need to find cheaper supplies? Can I afford to
hire a social media manager? Should I close the business? How close am I financially to opening
another branch? Can I afford to upgrade equipment?

Micro business example – corn soup vendor/hair braider

Sales price less cost price = gross profit (profit before expenses)
Less expenses = net profit (profit after expenses)
What is Book-keeping? - process of recording business transactions and managing said records. This
is the first stage of accounting. Records should be kept up to date and be accurate. Recording a sales
as a purchase or recording $100 instead of 10cents can have great effects on your financial reports
and bottom line.

Book-keeping is sometimes still done on paper/in books, but accounting software is becoming much
more accessible and easier to use – Microsoft Excel, Peachtree, QuickBooks, Sage.

Records sales of goods, monies collected for services provided, purchase of goods for resale,
purchase of items for use in the business e.g. office furniture, stationery

What is Accounting? – The information recorded during the book-keeping process is compiled and
presented in the form of financial statements.

The 2 most important financial statements:

1. The trading and profit and loss account/income statement
2. The statement of financial position/balance sheet

Financial statements are presented and used by the owners and managers of the business to
manage the business. The financial statements are analysed and interpreted so managers for
forecasting (predicting) and budgeting.

Who else may be interested in the financial position of a business besides its owners/managers?
 Employees – Do I have a secure job? Will I be paid on time? Can the company provide a good
working environment? (internal user)
 Government/Inland Revenue (BIR) – business and employee taxes – PAYE, Corp Tax, GFL,
VAT
 Investors – in the interest on their return on investment (ROI). Is it a good idea to invest?
 Lenders/Banks – will the company be able to pay back the loan? And on time?
 Suppliers – Will the business be able to pay for goods and services if credit is extended to
them?
 Customers – Does the business have the resources requires to provide quality? Will they be
reliable?
 Competitors – What is the industry standard? Compare financials.

Additional reading: https://accounting-simplified.com/financial/introduction/users-of-accounting-

information/
Careers in Accounting

Additional Reading: https://www.allaccountingcareers.com/accounting-careers

Ethics in the Accounting Profession

It is because accounting professionals are expected to uphold ethical principles those in the field are
highly regarded. A professional accountants’ responsibility is not exclusively to satisfy the needs of
an individual client or employer. In acting in the public interest a professional accountant should
observe and comply with the code of ethics for its profession.
Accounting ethics refers to following specific rules and guidelines set by governing bodies that every
person associated with accounting should follow to prevent misuse of the financial information or
their management position.
5 Fundamental Principles
A professional accountant is required to comply with the following fundamental principles:

(a) Integrity - A professional accountant should be straightforward and honest in all professional
and business relationships. (collusion)

(b) Objectivity - A professional accountant should not allow bias, conflict of interest or undue
influence of others to override professional or business judgments. (embezzlement)

(c) 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. (obsolescence and developments)

(d) Confidentiality - A professional accountant should respect the confidentiality of information

acquired as a result of professional and business relationships and should not disclose any
such information to third parties without proper and specific authority unless there is a legal
or professional right or duty to disclose. (corporate espionage, insider trading)

(e) Professional Behaviour - A professional accountant should comply with relevant laws and
regulations and should avoid any action that discredits the profession. (private and public
life)

(source: https://www.ifac.org/system/files/publications/files/ifac-code-of-ethics-for.pdf)

Unethical accounting occurs when businesses bend accounting rules or falsify their financial
statements to present a more favourable picture than actually exists.

Poor ethics in accounting result not only in increased incidences of criminal activities, but also hurt
the business through harming its reputation and rendering their financial statements untrustworthy
and thus useless.

Poor ethics amongst a business' accountants means that those persons are more willing to break the
rules to benefit either themselves or their business illegally. Breach of ethics can result in criminal
action taken against accountants and business managers. It can result in prison time, financial costs,
loss of licenses and other legal punishments. (e.g. Often times in organized crime, the accountants
are charged and persecuted).

Term to note:
creative accounting: the exploitation of loopholes in financial regulation in order to gain advantage
or present figures in a misleadingly favourable light.

Some examples of unethical accounting

- Overstating or understating accounts or omitting information. E.g. a business may
intentionally list higher assets but hide debt or other liabilities, perhaps to qualify for a loan
or to sell a business.
 - Overbilling - billing a client or government agency for more than the actual price of a good or
service
- Tax evasion i.e. non-payment or underpayment of taxes
- Creating fake invoices (to overstate income)
- Purposeful miscategorising accounting transactions (e.g. list the purchase of an asset as an
expense – creates a different financial standing).
- Accepting brides or paying bribes

Additional Reading: https://smallbusiness.chron.com/ethics-accounting-profession-3738.html

https://core.ac.uk/download/pdf/234629181.pdf

Q&A: Have we met the syllabus’ requirements?

1. Why do we need accounting?

2. Who uses accounting information and financial statements?
3. What is the difference between a bookkeeper and an accountant?
4. List some careers in the field of accounting.
5. Why is it important for accounting professionals to follow ethical principles?
6. Give an example of an unethical accounting practice.
7. What are some of the consequences to unethical accounting?