AbstractWhat’s ethics got to do with accounting? Everything! Believe me,everything. When the word ethics is mentioned, what readily comes to mind is the questionof deciding between doing what is right and doing what is wrong. But doing what isright versus doing what is wrong within what context? The idealist will say thatdecisions of ethics should not be conditional. But it is not as simple as it sounds, forwhat constitutes “right” to one person, may be “wrong” to another person.
What bridges the gap,guides, and clearly distinguishes the line between right and wrong in political,economic and social systems are traditions, culture, laws and regulations. Even then, whatis unethical may not necessarily be illegal, even though there exists a close relationshipbetween the two. These dynamics apply to almost every legal profession, accounting notexempted. This paper examines the issues of ethics in accounting. It also looks at thedifferences and similarities between financial accounting to managerial accounting.
IntroductionAccording to Marshall et al, (What the numbers mean, 2003)accounting involves “identifying, measuring, and communicating economic information about anorganization for the purpose of making decisions and informed judgments.
” Thisdefinition clearly shows that there are stakeholders in the information generated byaccountants. These include managers, shareholders, oversight and law enforcement agencies,and the general public. Since these entities rely on the reports generated byaccountants for critical decision making, it is important that the information be reliable,objective, and presented in an easy to understand format. Ignoring or circumventing these valuesrenders the information generated unreliable. It can lead to devastatingconsequences as evidenced by events which led to recent legislation such as the Sarbanes-Oxley Actwhich seeks to make top management of organizations accountable for the financialstatement produced by their organizations through the internal controls they develop andenhance, and to oversee auditors who hitherto could have business interests other thanauditing in the organizations they were responsible for auditing.
Financial versus Managerial accountingManagerial accounting refers to the management of company resourceswhile applying management accounting principles in decision making. Oneimportant characteristic of management accounting is that, it is internal to theorganization even though external information such as financial accounting reports willhave some amount of influence.
Financial accounting refers to the identification, recording,computation, and reporting of financial information to users who may have a stake in theinformation reported. An important characteristic of this information is that it is gearedtowards users external to the company.
A financial accountant generates information for externalconsumption. These products include the income statement, the balance sheet, the statementof cash flow, and the statement of owner’s equity. These statements are used to helpstakeholders make critical decisions related to the business. A management accountant onthe other hand, generates reports such as the schedule of cost of goods sold, and mayuse reports generated by the financial accountant. The schedule of cost of goodssold is used to evaluate and record internal costs associated with the productionprocess using various methods. This is important for employees to understand how their actionsimpact the overall production costs. The income statement can be instrumental inhelping employees understand the direction the business is headed in terms ofprofitability. Ethical valuesThe public and oversight organizations have expectations as far asethics are 0concerned. This guarantees a reasonable amount of reliability anddependability of the information they rely on to make critical decisions. These expectationsinclude professional competence, confidentiality of stakeholder informationwhere necessary, objectivity of the information reported, and the integrity of accountingpractitioners.
* CompetenceAll accounting professional should have the requisite skillsto effectively execute. In my capacity as a disbursing clerk in the United States Navy, Iattended the Naval Technical Training Institute in Mississippi, where I was fully trainedin the duties of the disbursing clerk. Updates to this training are also offered while on thejob in the form of workshops and messages in addition to the hands on training receivedwhen a member starts working.
* ConfidentialityStakeholder information should be protected from illegal useor disclosure. If there is an institution which is very conscious about the security ofits information, it is the military. This extends beyond accounting into other realms ofprofessional realms of endeavor. The privacy act also limits us from disclosing any informationabout a member’s account until they have voluntarily disclosed some personalinformation for identification purposes and have authorized the release of theiraccounting information either in person or over the phone.
* ObjectivityAccounting information should be fairly and objectivelycommunicated to the public. This function in my workplace is supported by the training wehave received and the checks an balances comprising supervisors and auditors. Each has anoversight role to play, thereby resulting in the accuracy and objectivity of theinformation released.
* Integrity Professional should avoid conflict of interest which willjeopardize their ability to perform their duties in accordance with the above listed valuesincluding this one. Honor, courage, commitment is key to the Navy’s core values which areemphasized not only in the accounting and payroll sections but across the military. Trainingand indoctrination enable us uphold these values.
If ethical decision-making is in the interest of all stakeholders,why would accounting professionals engage in unethical behavior? According to Shaud et al(Self interest vs concern for others, 2005), the answer lies in self interest which is anatural human phenomenon. In motivated self interest, which is what causes unethicalbehavior there is a payoff. This payoff which may be personal or organizational in naturedrives professionals to make unethical decisions. They further identifypersonal, organizational and professional values as the basis for analyzing, designing,re-enforcing preventive and corrective behavior with the following specific recommendations forreinforcing ethical values.
Internal to the organization1) Management need to set examples worthy of emulation2) Ethical values need to be articulated and emphasized toemployees3) An understanding of employee values is important4) Reward employees who uphold these values5) Communication to the public about a commitment to the public’sinterests.
External to the organization1) The importance of leadership by organizations such as theInstitute of Management Accountants and the American Institute of CertifiedPublic Accountants.
2) The reinforcement of ethical values at educational institutionsduring undergraduate and graduate study ConclusionThe ethical decisions made by accounting professionals willcontinue to be the basis for the integrity of the financial information generated by accountingprofessionals. Unethical decision making will remain the biggest challenge faced by theaccounting profession, but it behooves all practitioners to understand that foreach unethical decision made, the financial market s threatened and trust is broken. ReferencesSelf Interest vs Concern for others: What’s the impact on management’sethic decisions: Michael K. Shaub, Frank Collins, Oscar Holzmann, andSuzzanne H. Lowensohn. March, 2005. Retrieved on 21st May, 2005 from University ofPhoenix online EBSCO database. Reference www.imanet.org/boston Corporate greed vs. IMA’s Ethics Code: Recent corporate financialscandals. Elizabeth M Haywood, CMA, CPA and Donald E Wygal. November 2004.
Retrieved on May 21st from University of Phoenix online EBSCO database. Accounting: What the numbers mean.Marshall, Wayne W. McManus, and DanielF. Viele. Retrieved on 21st May, 2005 fromhttp://highered.mcgraw-hill.com/sites/0074713507/information_ceneter_view0
Cite this Financial & Managerial Accounting Report
Financial & Managerial Accounting Report. (2019, Mar 07). Retrieved from https://graduateway.com/financial-managerial-accounting-report/