Fundamentals of Cost and Management Accounting - Assignment Example

Fundamentals of Cost and Management Accounting

Introduction

Ethics is that which the society deems as right or wrong. It is the standard of behavior. Principles of ethics exist in order to discourage undesirable behaviors including those which may be legal. Some matters may be legal but are unethical. Every profession expects its practitioners to adopt not only the legal standards but also the ethical standards. The accounting professional is not an exception. Accountants have to behave in the most ethical manner in order to maintain the confidence of their clients and maintain the trust of the society. They must always act in the interest of the public (ACCA Global).There are professional bodies which govern the ethics of the accounting professionals.

Question One

According to the AICPA, as professionals, certified public accountants have an important role in the society.Therefore; the accountants have a responsibility to all their clients. They have continued responsibility to cooperate with each other in order to improve their performance, maintain their confidence with the public and carry out the special responsibilities of the profession for self-governance. The members are all expected to put effort into maintaining and enhancing the profession’s traditions. Accepting the responsibility they have towards the public is very important. The public includes the clients, governments, employers, grantors, businesses, investors, and the financial community and everyone else who relies on the integrity and objectivity of the accountants in order to maintain order in the commerce functions.

Every accounting professional is expected to maintain the highest standards of integrity. They are supposed to be straight forward and maintain honesty in their business and professional relationships. They should deal fairly and faithfully with their clients and in all their tasks. An accountant is not expected to have any association with reports or communications which are believed to contain material statements which are misleading or false, or any information which omits any information whose inclusion is required whereby such omission would mislead the users of the information (IFAC).According to ICAEW, the work of a professional accountant must be free from corruption by interests of an individual and must not be influenced by the other people’s interests. Objectivity is another fundamental principle which every professional accountant must observe. The principle obliges the professionals against compromising their professional judgments due to bias, undue influence of other people, and due to conflicting interest. Professionals may be faced with situations which compromise objectivity. Hence they should avoid any relationship which is characterized by undue influence or bias (IFAC).

The professional accountants must also act in competence and due care or diligence which imposes various obligations on the professionals. The accountants are expected to keep their professionalism, knowledge, and skills at levels that are required so as to ensure that the customers and employees get the professional services which are as competent as possible. They are also expected to perform diligently as per the technical and professional standards which are applicable in the course of offering their professional services. Competent professional service needs the exercise of a judgment which is sound in the application of the professional skills and knowledge while performing the duties. Professional competence comprises of two different phases; the first one being the attainment of the professional competency and seconds its maintenance. The maintenance requires that the professional continually understands and is aware of the significant technical professional and business developments. A continued development in profession helps in the development and maintenance of the capabilities which enable an accountant to act in a competent way within the professional surrounding (AICPA).Diligence involves the responsibility to perform as per the requirements of a particular task, while being careful, thorough, and observing time. A qualified accountant must take various steps to make sure that his subordinates have appropriate professional supervision and training. He should further ensure that the clients, employers and other people who make use of their services are aware of the limitations which are associated with the profession so as to hinder them from confusing assertions of facts and expression of opinions (ICAEW).

Another key principle which defines the competency of a professional accountant is confidentiality. Confidentiality requires accountants to stay away from certain practices. They should not disclose confidential information of their clients without authority or without any legal course or duty of disclosure. They are also forbidden from using any information which they acquire from their professional activities to benefit themselves or third parties. They should maintain high levels of confidentiality in every environment including social environments. They should not be compelled to disclose what is not meant to be disclosure even when with a business associate or family. Confidentiality should be maintained regarding any information given by an employer or a prospective customer. The maintenance of confidentiality of information within an organization which has employed the professional accountant is important too. The accountant should ensure that those acting on his instructions have respect for the duty of responsibility of the professional accountant. Even after an association between the accountant and a client or an employer is ended, the principle still applies. The professional accountant may use prior experience but must not disclose any information which was acquired in the previous business or professional relationship (IFAC).

Professional accountants are also expected to exercise professional behavior .This principle expects the accountants to be compliant with the necessary laws and regulations and keep away from any actions which may be discrediting to the profession. These are any actions with third parties who have all knowledge and information about the profession, who could have a negative conclusion and affect the profession’s good reputation. When marketing themselves and promoting their work, they should avoid lowering the reputation of the profession. They should be truthful and honest regarding their expertise and the services which they can adequately offer without exaggerating on their qualifications and experience (ICAEW).

Question Two

The main aspects of ethical aspects of competency in management accounting which the local firm should have as guidelines include; competence, confidentiality, Integrity and credibility (IMA).

In regards to competence, an appropriate level of professional competency should be maintained through continuous training and developing the skills and knowledge. Duties should also be performed according to the relevant rules and regulations governing the profession. They should also ensure that they create reports which are reliable and have the relevant and appropriate information. The junior accountants should be adequately trained and should be kept under constant supervision to ensure that they are performing their duties as required.

In regard to confidentiality, the management accountants should avoid the disclosure of the company’s confidential information which is acquired in the course of their services unless when accompanied by sufficient authority or due to legal requirements. The junior staff should be aware of the confidentiality required and ensure that they follow it strictly. They should also not use the company’s information for personal benefits, illegal courses, or to benefit a third party.

The accountants are to ensure integrity in their line of duty. They are required to refrain from conflicts of interest. All parties in the company should be advised of the conflicts which may arise. The accountants are also required to ensure that they do not engage in any practice which will affect their ability to act ethically. They should not accept any gifts or favors which could adversely influence their services. They should avoid any practice which could destroy their professional reputation and discredit the profession.

The accountants should ensure that high standards of credibility are maintained. They are meant to objectively and fairly communicate any information affecting the company. They are also expected to disclose all the relevant information which could influence the company’s and its stakeholder understands of the reports, comments and the recommendations given. The accountant must be trustworthy and honest. The company’s stakeholders must be able to trust the accountant based on their previous engagements and services offered to previous clients and companies.

Question Three

An employee in the management accounting department may feel that he or she is accomplished and feel that there is no need to continue training or developing their skills and knowledge. With the guidelines which are consistently changing, such an employee may lack the required competency. This is because they are expected to continually develop their skills and knowledge. Such an employee may also not be aware of any change in the rules and regulations relating to the profession. They will always lag behind in almost every information and therefore drag the company behind or influence the productivity of the company negatively.

In a second scenario, an employee may unknowingly disclose sensitive information regarding the company to a competitor. The competitor uses the information to publicly attack the company or to build up on their strategies in order to beat the company or out do it in its activities. That is why confidentiality is highly encouraged.

A third scenario is whereby an accountant works for two competing companies. Here the conflict of interest arises and the accountant loses his or her integrity. In such a case they may tend to act more diligently for the company which probably pays more or has better terms of work thereby neglecting the other company.

A fourth scenario is whereby an employee in the management accounting department fails to disclose important information to the management. It happens that the management is dependent on this information to make certain decisions.Hence; they end up making the wrong decisions due to the wrong or inadequate information received from the accountant. The accountant in this case is lacking credibility.

Another scenario is whereby an employee has the tendency of discussing important information about the company with family, friends and associates. These people may use the information to either set up businesses of the same kind or even use any weakness that they notice in the information to bring down the company. Such an employee will be lacking confidentiality.Hence; confidentiality is key regardless of the environment and situation.

Conclusion

It is important for every profession to have governing rules and regulations. There should be guidelines which guides different professions on how to go about the delivery of their duties.

The accounting profession is governed by different bodies which set out the principles which guide how the professional accountants conduct themselves and carry out their duties. They are expected to always act in the interest of the public.