Question

How has the Institute of Management Accountants responded to the need for high standards of ethical conduct in the accounting profession? What are some of the common ethical conflicts that accountants encounter? Explain. Please give examples examples of each.

Answer 1

The Institute of Management Accountants (IMA), the professional organization for management accountants provides research, education a means of knowledge sharing and practice development to its members. The IMA also develops standards and principles to help management accountants deal with ethical challenges.

Trust is an important cornerstone of business interactions, both internal and external. When there is a lack of trust, it changes how decisions are made. Trust develops when there are good ethics: when people know right from wrong.

Four standards of ethical conduct in accountant's professional activities were developed by the IMA. The four standards are:

1. Competence - Accountants must maintain an adequate level of skill to perform duties in an accurate and professional manner  

2. Confidentiality - Should not disclose any confidential information for any reason unless legally obligated to do so.

3. Integrity, and

4. Credibility

Some of the common ethical conflicts that accountants encounter are as follows:

1. Fraudulent Financial Reporting - Most accounting scandals in the past have centered on fraudulent financial reporting. It is the misstatement of the financial statements due to pressure from the management of the organization. Fraudulent financial reporting takes place in the context of earnings management. Usually this is carried out with the intention of misleading investors and maintaining the company's share price.  

Example - A senior accountant deliberately manipulates the company's expenses and liabilities in the financial statements to improve the overall performance of the company and convince investors that the company is debt free and can face any future payout or liabilities within the due timelines.

2. Misappropriation of Assets - On an individual level, the most common ethical issue in accounting is the misappropriation of assets. It means the use of company assets for any purpose other than company interests. Otherwise known as stealing or embezzlement, misappropriation of assets can occur at nearly any level and to nearly any degree in any company.

Example - any employee may consume the office supplies like stationary, xerox machine, Motor vehicle, cellular phone, etc for his or her personal use.

3. Disclosure Violations - The failure to disclose information to the investors that could change their decisions about investing in the company.