Question

What keeps us ethical as accountants in both managerial and financial accounting? Name some checks and balances/internal controls in your own work place and their purpose. Why are organizations like the IMA important and what support do they give accountants in regards to ethics?

Answer 1

The sensitivity of knowing the repurcussions of an accountants duty is the biggest driver that keeps accountants , financial and managerial, maintain highest defree of ethical standards.If accountants indulge in fudging the whole business can be at risk.For instance lets take Financial accountants - their duty os to correctly record the transactions in accordance with the laid out accounting standards so that the books show a True and Fair view.If say for some reason this is not complied with then the stakeholders will never be able to know the real position of a business and this would lead to very undesirable state of affairs.Investors might put in money in an Organization which in reality might be making losses , banks might get mislead in providing loans and so on which ultimately may never be recovered.There could be fund syphoning which mighr remain undetected.Hence financial accountants have to maintain utmost care while accounting and this can only be achieved only and only when highest ethical levels are maintained.

On the other hand magerial accountants provide valuable analysis to the Internal stakeholders right from the department head to the CEO.These analytics are relied upon these stakeholders for taking various critical decisions.Say a CEO may wish to decide if a particular investment is wortwhile or not or a departmental head would like to know if costs are moving line with budgets or not and so on.Imagine if the management accountant indulges in non ethical practices all these stakeholders would end up taking wrong decisions and result would be disastrous for the organization,

Check and Balances (illustrative not exhaustive):

• Maker and Checker in accounting - One person prepares the entry and a senior reviews and approves .This ensures correct accounting and chances of manipulations are eliminated
• Seggregation of Duties : The whole accouning for a process is split so that no one person is allowed to control the full accounting chain.
• Limit of Authority : Limits are defined based in financial values which require approval from specific group of approvers before getting recorded in books or Purchase Orders getting released to Vendors.
• Team seperation : The managment accounting and financial accounting team are seperate including the function head.
• Reconciliations : Month end reconciliation between management accounting proft and financial accounting profit is done , showing the items treated differently.
• Balance Confirmations: Regular reconciliations with Customers/Suppliers carried out by a seperate recon team to ensutre that books show genuine balances and also in process throw the items of dispute,
• Provisions review : Random checks by Internal audit team of the provisions created in different periods.
• Annual Stock take : Carried out by independent ageny to match the book stock with physical stocks
• Budget vs Actual review : Monthly carried out to ensure the effectiveness of budgets with indepth anaylysis of the variances.

IMA

Organizations like IMA are important in order to help follow and establish best professional practice.It also help in providing a forum to discuss the challenges and probable solutions.

One of the objectives of IMA is to drive business highest ethical standards so that business performance improves.It has a code of Ethical Stamndards that every member is expected to comply with.The standards are around - Competence , Confidentiality , Integrity and Credibility.It also provides an Ethic helpline which can be used by members to discuss ethical issues in their Oganization with confidentiality intact.