An accountant employed by a manufacturing firm is instructed by the Managing Director to d… — JAMB UTME

An accountant employed by a manufacturing firm is instructed by the Managing Director to deliberately overestimate the value of closing inventory in order to present a higher gross profit to secure a bank loan. If the accountant complies with this instruction, which fundamental ethical principle of professional accountants is directly violated?

IntegrityAnswer
B
Prudence
C
Going Concern
D
Consistency

Answer

Integrity

The fundamental principle of integrity mandates that professional accountants must be straightforward and honest in all professional and business relationships. Deliberately misrepresenting inventory values to falsely inflate profit represents fraudulent reporting and directly breaches integrity.

Step-by-Step Solution

Analyze the scenario and the nature of the instruction given to the accountant

The Managing Director requested intentional inflation of closing inventory figures to falsely boost profit.

Determining whether the act involves dishonesty, bias, or lack of competence is key to identifying the ethical breach.

Evaluate the action against fundamental professional ethical principles (ICAN/IFAC)

Falsifying accounting records violates the fundamental requirement of truthfulness, honesty, and moral uprightness.

Professional accountants are bound by five core ethical principles: Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, and Professional Behavior.

Select the specific principle breached by misrepresenting financial facts

The principle of Integrity explicitly forbids associating oneself with reports containing materially false or misleading information.

Direct participation in financial statement window-dressing directly violates Integrity.

Key Concept

Ethical Issues and Professional Ethics in Accounting - Integrity

Question

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

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