Business Law and Ethics
Core concepts
Know the foundations of contract law: offer, acceptance, consideration, capacity, legality, and mutual assent. Understand when a contract must be in writing (Statute of Frauds), remedies for breach (damages, specific performance), and the difference between express and implied warranties. Review agency law (fiduciary duties of loyalty and care), business organizations (sole proprietorship, partnership, corporation, LLC) and their liability shields, and employment/regulatory basics.
On ethics, understand the professional codes that govern accountants: integrity, objectivity, confidentiality, professional competence, and due care. Recognize threats to independence (self-interest, self-review, advocacy, familiarity, intimidation) and safeguards. Know the fraud triangle (pressure, opportunity, rationalization).
Traps in questions
- Consideration must be bargained-for; a past act is generally not consideration.
- Independence is impaired by financial interests, close family relationships, or performing management functions.
- Confidentiality does not override legal disclosure requirements.
- Distinguishing legal from ethical: something can be legal but unethical.
Rule of thumb
When facing an ethics question, apply a three-part test: Is it legal? Is it consistent with the professional code? Would a reasonable, informed third party see it as appropriate? If any answer is no, don't do it - and escalate through the appropriate channel.