Chapter 3: Skills, Knowledge, and Ethics for Accounting

The Skills, Knowledge, and Ethics Required for Accounting

This chapter explores the skills, knowledge, and ethics essential for becoming a professionally qualified accountant, focusing on the roles accountants play, especially for sole traders, and the importance of ethical conduct in the profession.

3.1 The Role of the Accountant in Business

Professionally qualified accountants possess diverse skills and knowledge applicable to various business careers, including:

  • Tax advice
  • Auditing
  • Business advice
  • Management and IT consulting
  • Specialized roles like forensic accounting and insolvency practice

Insolvency is when a business cannot meet its financial obligations. Trading while knowingly insolvent is a criminal offense in many countries, including the UK. Insolvency practitioners are appointed to protect creditors and, if possible, rescue the business. Sole traders who become insolvent are declared bankrupt, while companies are described as insolvent.

Self-employed accountants offer services to sole traders, often acting as ‘business advisors,’ especially for businesses unable to afford in-house accountants. Their roles include:

  • Preparing tax returns: Meeting legal obligations while minimizing and delaying tax liabilities.
  • Establishing the financial position: Essential for tax returns, requiring expertise to derive a balance sheet from incomplete records.
  • Management accounting services: Offering monthly management reports and budgets.

Due to extensive education and continuous professional development, sole traders rely on accountants for business strategy development and legal compliance. Accountants must possess knowledge of commercial law and risk assessment. Trust in their accountant's ethics and integrity is crucial for business owners. Ethical frameworks are essential for qualified accountants.

3.2 Professional Accounting Skills and Knowledge

Unlike professions like doctors and lawyers, the term ‘accountant’ lacks legal protection in the UK. Anyone can practice as an accountant, but only professionally qualified, registered, and inspected accountants can perform audits and insolvency work.

There are many accounting qualifications, but not all are recognized by the government or financial institutions. A significant distinction exists between professionally qualified accountants and others. Qualified accountants in the UK are members of one of six chartered accountancy bodies:

  • The Association of Chartered Certified Accountants (ACCA)
  • The Institute of Chartered Accountants of Scotland (ICAS)
  • The Institute of Chartered Accountants in England and Wales (ICAEW)
  • The Institute of Chartered Accountants in Ireland (ICAI)
  • The Chartered Institute of Management Accountants (CIMA)
  • The Chartered Institute of Public Finance and Accountancy (CIPFA)

The first five cater to both the private and public sectors, while CIPFA specializes in the public sector. Chartered accountants are also recognized in many former British colonies. In the USA, professionally qualified and regulated accountants are known as certified public accountants.

Key skills for accountants include numerical ability and spreadsheet proficiency. Other crucial skills are:

3.2.1 Communication Skills for Accountants

Effective communication skills are vital in accounting, regardless of the specific role. Accountants must convey complex information clearly and concisely. Important communication skills include:

  • Active listening: Paying attention to clients and colleagues, asking appropriate questions.
  • Written comprehension: Understanding written information and ideas.
  • Social awareness: Analyzing the behavior of others to understand their reactions.
3.2.2 General Skills and Abilities of Accountants

Beyond technical skills, accountants need several other abilities:

  • Organization: Keeping track of responsibilities and fulfilling duties.
  • Critical Thinking: Using intuition, logic, and reasoning to identify alternative solutions.
  • Time Management: Managing personal and team time effectively.
  • Adaptability: Adjusting to changes in a dynamic environment.
  • Monitoring: Assessing performance to improve continuously.
  • Openness: Being honest, transparent, and non-manipulative.
  • Problem Awareness: Identifying potential problems.
  • Risk Management: Identifying, assessing, prioritizing, and managing risks.
  • Leadership: Serving as a role model and engaging in strategic thinking.
  • Information Ordering: Arranging information according to rules.
  • Being Proactive: Anticipating problems and events.
3.2.3 The Knowledge Required of Accountants

Accountants need in-depth knowledge of financial and management accounting principles, economic analysis for management decision-making, financial markets, banking, and financial data reporting. A sound grasp of arithmetic, basic algebra, and statistics suffices for mathematical knowledge.

Understanding administration and management, including strategic planning, resource allocation, production methods, and leadership, is also crucial. Furthermore, knowledge of relevant laws, legal codes, court procedures, and government/professional regulations is essential.

Accountants should also understand human resource management, customer service, credit management, and supplier relations. Knowledge of information technology (accounting packages, spreadsheets, word processing) is increasingly important.

3.2.4 Understanding and Applying Strategic Management

Qualified accountants should practice effective strategic management, which involves continuous decision-making to achieve long-term objectives. Analyzing the macro-environment using the PESTLE framework is essential.

The PESTLE framework includes:

  • Political: Government influence on the economy (tax policies, regulations).
  • Economic: National economic performance (inflation, interest rates).
  • Social: Cultural and demographic trends.
  • Technological: Innovations affecting business operations.
  • Legal: Laws and regulations (employment, safety, consumer protection).
  • Environmental: Climate, weather, and environmental issues.

Accountants should have an overview of these factors to manage business strategy effectively.

3.3 The Fundamental Ethical Principles of Professional Accounting

According to the International Ethics Standards Board for Accountants (IESBA), supported by the International Federation of Accountants (IFAC), professional accountants must adhere to these principles:

  • Integrity: Being straightforward and honest in all relationships.
  • Objectivity: Avoiding bias, conflicts of interest, and undue influence.
  • Professional Competence and Due Care: Maintaining knowledge, skill, and diligence.
  • Confidentiality: Respecting confidentiality and not disclosing information without proper authorization.
  • Professional Behaviour: Complying with laws and avoiding actions that discredit the profession.

These principles also involve treating people fairly, decently, and without prejudice.

The historical stereotype of accountants as emotionless ‘bean counters’ is outdated. Modern accountants need flexibility, social competence, and the ability to work with diverse individuals. Stereotypes can be offensive and hinder business by preventing the recognition of individual skills and knowledge.

Understanding the skills, knowledge, and ethics of professional accountants can improve collaboration with financial managers and inform career decisions. It is essential for accountants to act professionally and ethically, especially given past accounting scandals like Enron. There is significant pressure on chartered accountants to justify and defend their actions.

Activity 3.1: The Importance of Communication in Accounting

Effective written and verbal communication is key. Conveying complex information simply and clearly is crucial. Active listening, written comprehension, and social awareness are also essential.

Activity 3.2: The General Skills and Abilities of Effective Accountants

  • Organisation: The ability to keep track of responsibilities and to fulfil all duties.
  • Critical thinking: The ability to use intuition, logic and reasoning to identify the alternative approaches to solving problems.
  • Time management: The skill to manage your own time as well as those you work with.
  • Adaptability: The ability to change effectively in response to a dynamic environment.
  • Monitoring: The skill to assess your own performance and others in order to continually improve.
  • Openness: The ability to be honest, transparent and to not manipulate others.
  • Problem awareness: The ability to identify a problem or a potential problem.
  • Risk management: The ability to identify, assess, prioritise and effectively manage risk.
  • Leadership: The ability to be a role model and to do strategic thinking and planning.
  • Information ordering: The ability to arrange things or actions in a correct order according to stipulated rules.
  • Being proactive: The ability to effectively anticipate problems, situations or events.

Activity 3.3: Understanding the Business Environment

A PESTLE analysis of TTE (Today’s Telecommunication Electronics) reveals the following:

  • Political: Stable government support for the telecommunications industry.
  • Economic: Recovery from economic downturn, high employment costs, depreciating currency of a major market.
  • Social: Increasing social networking and environmental awareness.
  • Technological: Innovative telecommunications sector.
  • Legal: Laws related to employment rights, safety, and carbon emissions.
  • Environmental: Pressure to control carbon emissions and increase recycling.

Activity 3.4: Professional Ethics of Accountants

  • Advertising to beat competitors' fees: Violates Professional behaviour.
  • Giving client information to students: Violates Confidentiality.
  • Auditing a company while being a shareholder: Violates Integrity.
  • Lacking current knowledge of accounting standards: Violates Professional competence and due care.
  • Auditing a close family member: Violates Objectivity.

Activity 3.5: Understanding and Dealing with Stereotypes and Prejudices

  1. The quote presents a limited stereotype of a modern accountant, who is now as likely to be a woman as a man, and possessing a much broader skillset including flexibility and social competence. Preparing financial statements is only part of the job, with leadership and advisory roles becoming increasingly important.
  2. The danger of using stereotypes is that you may offend someone and fail to take advantage of their varying skills, knowledge, and experience.