Topic: Accounting Professional Ethics

Meaning of Accounting Cycle

The accounting cycle is a collective process of identifying, analyzing, and recording the accounting
events of a company. It is a standard 8-step process that begins when a transaction occurs and ends
with its inclusion in the financial statements. The key steps in the eight-step accounting cycle include
recording journal entries, posting to the general ledger, calculating trial balances, making adjusting
entries, and creating financial statements.

KEYPOINTS
i. The accounting cycle is a process designed to make financial accounting of business activities
easier for business owners.
ii. The first step in the eight-step accounting cycle is to record transactions using journal entries,
ending with the eighth step of closing the books after preparing financial statements.
iii. The accounting cycle generally comprises a year or other accounting period.
iv. Accounting software today mostly automates the accounting cycle. 

The accounting cycle is a methodical set of rules to ensure the accuracy and conformity of  financial
statements. Computerized accounting systems and the uniform process of the accounting cycle have
helped to reduce mathematical errors. Today, most software fully automates the accounting cycle,
which results in less human effort and errors associated with manual processing.

Steps of the Accounting Cycle

There are eight steps to the accounting cycle .
1. Identify Transactions: An organization begins its accounting cycle with the identification of those
transactions that comprise a bookkeeping event. This could be a sale, refund, payment to a
vendor, and so on.
2. Record Transactions in a Journal: Next come recording of transactions using journal entries. The
entries are based on the receipt of an invoice, recognition of a sale, or completion of other
economic events.
3. Posting: Once a transaction is recorded as a journal entry, it should post to an account in
the general ledger. The general ledger provides a breakdown of all accounting activities by
account.
4. Unadjusted Trial Balance: After the company posts journal entries to individual general ledger
accounts, an unadjusted trial balance is prepared. The trial balance ensures that total debits equal
the total credits in the financial records.
5. Worksheet: Analyzing a worksheet and identifying adjusting entries make up the fifth step in the
cycle. A worksheet is created and used to ensure that debits and credits are equal. If there are
discrepancies then adjustments will need to be made.
6. Adjusting Journal Entries: At the end of the period, adjusting entries are made. These are the
result of corrections made on the worksheet and the results from the passage of time. For
example, an adjusting entry may accrue interest revenue that has been earned based on the
passage of time.
7. Financial Statements: Upon the posting of adjusting entries, a company prepares an adjusted trial
balance followed by the actual formalized financial statements.
8. Closing the Books: An entity finalizes temporary accounts, revenues, and expenses, at the end of
the period using closing entries. These closing entries include transferring net income
into retained earnings. Finally, a company prepares the post-closing trial balance to ensure debits
and credits match and the cycle can begin anew.

Careers in Accounting
Examples of accounting and bookkeeping jobs include the following: bookkeeper, accounting clerk,
staff/senior accountant, accounting manager, cost accountant, staff/senior auditor, audit
manager/senior manager, audit partner/senior partner, tax staff/senior/manager/senior
manager/partner/senior partner, junior/senior internal auditor, internal audit manager, treasurer,
1|Page
controller, vice president of finance, chief financial officer (CFO), government accountant, forensic
accountant, nonprofit director, etc.

Accounting Professional Bodies in Nigeria

1. Institute of Chartered Accountants of Nigeria (ICAN)
The Institute of Chartered Accountants of Nigeria was established in by an Act of Parliament in
September 1965 inclusive of all the existing accounting associations at that time which helped to make
it a large body which was in charge of accounting practices in Nigeria.

Functions of the ICAN are:

1. To determine what standards of knowledge is to be acquired by students or individuals who
want to be part of the accounting profession and also to do a regular check on its standards as time
goes on.
2. To secure, keep and maintain records of registers of its members which are (fellows, associates,
registered accountants).
3. To perform every other function given and assigned to it by the constitutional rights that
brought it into establishment.

As a professional body in Nigeria it is internationally recognized as the leading and regulatory body
for account practices in Nigeria.
It is a member of the International Accounting Standards Committee and the International Financial
Reporting Standards.

2. Association of National Accountants of Nigeria (ANAN):

This is another body which is recognized alongside ICAN in Nigeria. It was founded on 1st January
1979 and became chartered on the 25th of August 1993 by Decree 76 of 1993. Before one can
officially be a member of ANAN, they will register for academic studies and spend one year at the
ANAN college of Accountancy and then still run a two year Training program which will prepare
them to be qualified as a Certified National Accountant.

The function of ANAN:

To teach and educate students about the science and standards of Accountancy

3. Association of Chartered Certified Accountants (ACCA):

The ACCA is a globally recognized body in charge of accounting, but in Nigeria it is not officially
recognized by the Nigerian accounting system but Employers and firms still request for Accountants
with ACCA qualifications which still makes them relevant to the employment industry in Nigeria.
ACCA is a London based accounting organization which offers certification to accounting
Professionals around the world. Anywhere around the world and I accountant with an ACCA
qualification is accepted and recognized. Nigeria only recognizes ICAN and ANAN but employers
looking for accountants still employ people with ACCA certification.
It is also important to make this note that ICAN is a representative of ACCA which means they are
totally in conjunction with each other.

Professional Ethics
Professional ethics are principles that govern the behaviour of a person or group in a business
environment. Like values, professional ethics provide rules on how a person should act towards other
people and institutions in such an environment.

In June 2005, the International Ethics Standards Board for Accountants IESBA (formerly the Ethics
Committee) issued a revised Code of Ethics for Professional Accountants. The revised Code
establishes a conceptual framework for all professional accountants to ensure compliance with the five
fundamental principles of ethics:
1. Integrity - A professional accountant should be straightforward and honest in all professional and
business relationships
2|Page
2. Objectivity - A professional accountant should not allow bias, conflict of interest or undue
influence of others.
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 services based on current developments in practice, legislation
and techniques. A professional accountant should act diligently and in accordance with applicable
technical and professional standards when providing professional services
4. 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. Confidential information acquired as a result of professional
and business relationships should not be used for the personal advantage of the professional
accountant or third parties.
5. Professional Behaviour - A professional accountant should comply with the relevant laws and
regulations and should avoid any action that discredits the profession.

Accounting Concept and Conventions

Accounting concepts are generally accepted accounting principles, which form the fundamental basis
of consistently preparing the universal form of financial statements. Accounting concepts are the basic
rules, assumptions and conditions that define the parameters and constraints within which accounting
operate.
1. Business Entity Concept: The concept assumes that the business enterprise is independent of its
owners.
2. Money Measurement Concept: As per this concept, only those transactions which can be
expressed in monetary terms are recorded in the books of accounts.
3. Cost concept: This concept holds that all the assets of the enterprise are recorded in the accounts
at their purchase price
4. Going Concern Concept: The concept assumes that the business will have a perpetual
succession, i.e. it will continue its operations for an indefinite period.
5. Dual Aspect Concept: It is the primary rule of accounting, which states that every transaction
effects two accounts.
6. Realization Concept: As per this concept, revenue should be recorded by the firm only when it is
realized.
7. Accrual Concept: The concept states that revenue is to be recognized when they become
receivable, while expenses should be recognized when they become due for payment.
8. Periodicity Concept: The concept says that financial statement should be prepared for every
period, i.e. at the end of the financial year.
9. Matching Concept: The concept holds that, the revenue for the period, should match the
expenses.

Accounting Conventions
Accounting Conventions are the practices adopted by an enterprise over a period of time, that rely on
the general agreement between the accounting bodies and helps in assisting the accountant at the time
of preparation of financial statement of the company, for the purpose of improving quality of financial
information, the accountancy bodies of the world may modify or change any accounting convention.
Given below are the basic accounting conventions:
1. Consistency: Financial statements can be compared only when the accounting policies are
followed consistently by the firm over the period. However, changes can be made only in special
circumstances.
2. Disclosure: This principle state that the financial statement should be prepared in such a way that
it fairly discloses all the material information to the users, so as to help them in taking a rational
decision.
3. Conservatism: This convention states that the firm should not anticipate incomes and gains, but
provide for all expenses and losses.

3|Page
4. Materiality: This concept is an exception to the full disclosure convention which states that only
those items to be disclosed in the financial statement which has a significant economic effect.
Difference between Accounting Concept and Convention
BASIS FOR
ACCOUNTING CONCEPT ACCOUNTING CONVENTION
COMPARISON

Meaning Accounting concepts refers to the Accounting conventions implies the

rules of accounting which are to
be followed, while recording
business transactions and
preparing final accounts.
customs or practices that are widely
accepted by the accounting bodies and
are adopted by the firm to work as a
guide in the preparation of final
accounts.

What is it? A theoretical notion A method or procedure

Set by Accounting bodies Common accounting practices

Concerned with Maintenance of accounts Preparation of financial statement

Biasness Not possible Possible

4|Page
REVIEW QUESTIONS
Section A: Multiple Choice Questions (MCQ)
1. Double entry bookkeeping means that?
A. Entry in two sets of accounting books
B. Entry at two dates
C. Entry for two aspects of transaction
D. All of above
2. Which one the following document is prepared for documentary evidence by business?
A. Invoice
B. Voucher
C. Receipt
D. All of above
3. The basic sequence in the accounting process can best be described as?
A. Transaction, journal entry, source document, ledger account, trial balance
B. Source document, transaction, ledger account, journal entry, trial balance
C. Transaction, source document, journal entry, ledger account, trial balance
D. Transaction, source document, journal entry, trial balance, ledger account
4. Revenue is generally recognized being earned at the point of time when?
A. Cash is received
B. Billed to customers
C. Production is completed
D. Goods are delivered
5. The accounting system, in which accounting entries are made on the basis of amount
having become due for payment or receipt, is known as?
A. Cash system of accounting
B. Current accounting period
C. Accrual system of accounting
D. None of the given options
6. Bookkeeping is mainly concerned with?
A. Recording the Economic Activities
B. Interpreting the data
C. Designing the systems for recording, classifying and summarizing
D. All of Above
7. Which one of the following system of recording transaction has a dual aspect concept
of accounting?
A. Cash system of accounting
B. Single entry system
C. Accrual system of accounting
D. Double entry system
8. The documents relating to purchase of asset must be authorized by?
A. Senior management
B. Middle management
C. Lower level management
D. None
9. Accrual-basis of accounting?
A. Result in higher income than Cash-basis of accounting ?
B. Is not acceptable under GAAP
C. Leads to the reporting of more complete information than does cash-basis
D. None of Above
10. A manufacturer is considering the point at which a transaction can be recognized
within its profit and loss account. At which of the following stages is this permitted?
A. Products accepted by customer
B. Product manufactured
C. Sample products requested by customer
D. Order placed for the goods
5|Page
11. Recording financial transaction is part of?
A. Accounting
B. Book Keeping
C. Data Entry
D. Journal
12. Identifying an economic transaction is which phase of accounting cycle?
A. First
B. Second
C. Third
D. Last
13. Which of the following describes the practical framework of bookkeeping?
A. Classifying, recording and summarizing
B .Reporting, analyzing and interpreting
C. Classifying, analyzing and interpreting
D. Recording, summarizing and reporting
14. Which of the following principles assumes that a business will continue for a long time?
A. Historical cost
B. Periodicity
C. Objectivity
D. Going concern
15. Accountants use Generally Accepted Accounting Principles (GAAP) to make the financial
information communicated … I. relevant II. reliable III. comparable IV profitable
A. I, II and III
B. I, II and IV
C. I, III and IV
D. II, III and IV
16. Which of the following highlights the correct order of the stages in the accounting cycle?
A. Journalizing, final accounts, posting to the ledger and trial balance
B. Journalizing, posting to the ledger, trial balance and final accounts
C. Posting to the ledger, trial balance, final accounts and journalizing
D. Posting to the ledger, journalizing, final accounts and trial balance
17. Which of the following concepts use the rules ‘every transaction affects two or more ledger
accounts?’
A. Going concern
B. Double entry book-keeping
C. Money measurement
D. Periodicity
18. When corporations seek to hide their true financial situation, the pressure to engage in …
bookkeeping techniques falls on their accountants.
A. transparent
B. unethical
C. illegal
D. both b and c
19. If an accounting firm certifies a company's financial statements, it should have … to make the
firm's financial situation look better than it is.
A. motivation
B. a financial incentive
C. no financial incentive
D. an ethical intention
20. According to critics of the professional accounting rules, conflict of interest is built into the an
accounting system because the accounting firm is working …
A. on behalf of the general public
B. on behalf of the state
C. for the company whose accounts it is auditing
D. independently of the company whose accounts it is auditing
6|Page
Section B: Theory Questions
1. What is an accounting cycle?
2. Highlight the steps involved in the accounting cycle
3. Enumerate aby 5 major careers in accounting
4. Name any 2 professional accounting bodies in Nigeria and state the functions of each of them
5. Explain professional ethics and state two consequences of breaching ethics in accounting practice
6. Differentiate between accounting concepts and conventions wit 2 examples of each of them

7|Page