Competence, Judgment, and Ethical Behavior

Preparing and presenting accounting information is not simply a mechanical task that can be performed entirely by a computer or even by well-trained clerical personnel. A characteristic common to all recognized professions, including medicine, law, and accounting, is the requirement for competent individual practitioners to solve problems using their professional judgment and applying strong ethical standards. The problems encountered in the practice of a profession are often complex, and the specific circumstances unique. In many cases, the well-being of others is directly affected by the work of a professional.

To illustrate the importance of competence, professional judgment, and ethical behavior in the preparation of financial statements, consider the following complex issues that must be addressed by the accountant:

  • How should an enterprise account for transactions that continue over a long period of time, such as a long-term contract to construct an interstate highway or construction of an aircraft or cruise ship?
  • What constitutes adequate disclosure of information that would be expected by a reasonably informed user of financial statements?
  • At what point are a company’s financial problems sufficient to question whether it will be able to remain in business for the foreseeable future, and when should that information be communicated to users of its financial statements?
  • When have efforts by management to improve (sometimes referred to as “window dressing”) its financial statements crossed a line that is inappropriate, making the financial statements actually misleading to investors and creditors?

Judgment always involves some risk of error. Some errors in judgment result from carelessness or inexperience on the part of the preparer of financial information or the decision maker who uses that information. Others occur simply because future events are uncertain and do not work out as expected when the information was prepared.

If the public is to have confidence in the judgment of professional accountants, those accountants must demonstrate that they possess the characteristic of competence. Both the accounting profession and state governments have taken steps to assure the public of the technical competence of certified public accountants (CPAs). CPAs are licensed by the states, in much the same manner as states license physicians and attorneys. The licensing requirements vary somewhat from state to state, but in general, an individual must be of good character, have completed 150 semester hours of college work with a major in accounting, pass a rigorous examination, and have qualifying accounting experience. In addition, most states require all CPAs to spend at least 40 hours per year in continuing professional education throughout their careers.

Management accountants are not required to be licensed as CPAs. However, they voluntarily may become a certified management accountant (CMA) or a certified internal auditor (CIA) as evidence of their professional competence. These certifications are issued by the IMA and the IIA, and signify competence in management accounting and internal auditing, respectively. The requirements for becoming a CMA and CIA are similar to those for becoming a CPA.

Integrity in accounting requires honesty and a strong commitment to ethical conduct—doing the right thing. For a professional accountant, ethical behavior is just as important as competence. However, it is far more difficult to test or enforce.

Many professional organizations have codes of ethics or professional conduct that direct the activities of their members. The AICPA, for example, has a code of professional conduct that expresses the accounting profession’s recognition of its responsibilities to the public, to clients, and to colleagues. The principles included in the code guide AICPA members in the performance of their professional responsibilities. This code expresses the basic tenets of ethical and professional behavior and is enforced in conjunction with state professional societies of CPAs, although state regulatory boards take precedence in regulating the CPA license.


  • William J., Bettner M., & Carcello, J. (2021). Financial & Managerial Accounting19th Edition. McGraw-Hill Education. ISBN13: 9781260247930
  • Google Image (2021).
Tommy Andrian, S.E., M.Ak, Cert.DA.