Professional Ethics and Management Accountants - Coursework Example

Professional Ethics and Management Accountants Introduction According to Needles et al (2007), professional ethics is consolidation of values that are acceptable and observed by people with a specific expertise. They are moral obligations, values and rules that must be adhered to by persons within specialized knowledge field to achieve a given objective. Professional ethics are important because they promote independence and competence of experts. An accountant has a professional obligation to provide complete and accurate records of all business transactions. This would only be possible when he or she can act competently without external interference. Ethical considerations Every business enterprise should conduct itself in acceptable manner. It should provide products or services in right quantities and qualities. In the same way, professional should do their work diligently and honestly to the best of his or her capabilities. The management accountants must be independent, objective and honest when carrying out their accounting duties. They should be responsible to their colleagues, employers and clients under their jurisdiction. Furthermore, they must comply with standards and procedures that govern accounting (Duska and Duska 2003). According to Romal and Hibschweiler (2004), accounting scandals generate bad publicity for management accountants. Furthermore, their actions spread to other employees in the company who are linked with financial management such as chief financial officers and comptrollers. Neglecting ethical procedures can lead to adverse consequences. Disciplinary actions like penalties, jail sentences or license revocation can be preferred against unethical behavior of company’s officers. Therefore, all management accountants should work hard to ensure that they are ethically correct before and after entering the work force. They should know that it is their moral obligation and responsibility to protect the interest of the companies that they work for. In addition, top managers should encourage its employees to talk freely about ethical issues in the company. Consequently, all companies’ officers would be comfortable and take ethical issues seriously. Ethical conflict and dilemmas need to be handled by an ethics specialist and the top management should been seen to follow and acknowledge the ethical principles in their companies. The good thing about professional ethics is that they can be learned. Therefore, students and practicing management accountants need to be trained to be morally sensitive to be able to make moral judgments and adapt acceptable moral character that would advance agenda of an ethically correct company. In addition, the educators should continuously provide teachings and coaching on professional values, ethics as well as moral values. The need for professional ethics Management accountants are important professionals in the organizations. There are many reasons why companies need professional ethics. First, professional ethics assist companies to perform effectively and efficiency. The skills and expertise of management accountants help organization manage all organizational costs and resources well. Secondly, professional ethics enables professionals to enjoy reputation of integrity and competence in their call of duty. When scandals emerged, the reputation of accountants became flawed and accounting profession continues to suffer from diminishing public confidence. For example, investors and tax collectors lose confidence in financial reporting when financial scandals rocks the company. Thirdly, professional ethics ensures that the company’s operations are sustained for a longer period. The companies that decide to operate ethically do so because they want to enhance their competitiveness in the market in which they operate. Some large companies are being driven out of the market because of the unethical behaviors of their officers that has led to bankruptcy. When professionals do the right things, their activities appeal to the public and the regulatory bodies. Therefore, conflicts are eliminated and companies are allowed to operate freely. Fourthly, professional ethics promote transparency and accountability in the workplace. It is important to understand that ethics play critical role in ensuring that management accountants remain truthful in the financial management in the company. Ethical Challenges facing the profession There are many ethical challenges facing the accounting profession. The first one is the conflict of interest. Some of the management accountants have allowed themselves to become too dependant on dubious financial deals to earn extra income from every loophole that may exist in procurement and sales. Unethical management accountants aim at gaining large sums of money at the expense of company’s shareholder and other stakeholders. As a result, they throw professional ethics out of the window and choose to defraud the company for their own short-term financial gain. Secondly, some top managers such as the managing directors or chief executive officers may be too influential to management accountants. Therefore, they dictate management accountants to manipulate financial figures. The management accountants loose their objectivity and independence in the process thus compromising on their professional ethics. Thirdly, management accountants may erroneously omit important facts in recording and evaluating company’s financial performances. Lack of adequate information causes inappropriate professional judgment in the financial affairs of the company. Fourthly, professional ethics of the management accountants can be compromised when the leadership and culture of the company discourages transparency and accountability of all its officers. If the organizational leadership and culture fail to reinforce ethical tone in the organization, then there is danger of its officers disregarding professional ethics. Fifthly, lack of competency is another cause of misconduct. It is not wise to employ management accountants who have not been certified by the relevant accounting bodies. This is because unqualified management accountants make many errors and misinterpretation of financial facts. Lack of company’s and peer support can also lead to professional misconduct. This is true especially when the management accountant is overburden beyond his or her ability to do a thorough job. Finally, lack of professional accounting body support can make the professional act irrationally. However, when there is a body to regulate the behaviour and actions of the management accountants, there is a tendency for the professionals to behave ethically because they are monitored and disciplined when they behave unethically. Professional accountancy bodies & action taken to address challenges Because of importance accounting profession, most accountancy boards require accounting student to study and pass exams on ethics before they sit for uniform certified public accountant (CPA) examination or before they receive accounting certification. For example, some states in USA require students to study ethics on their own. The ethics study requires students to do fifty (50) multiple-choice questions whose pass mark is 90%. The questions are comprised of factual and practical ethical situations on topics of integrity and independence. Furthermore, the accountants are required to meet character fitness standards set forth by the accountancy board. Some states such as New York require students applying for first license and registration to be free from crimes or unprofessional conducts. In case of gross crimes or unprofessional conduct is identified in a prospective accountant, he or she must provide complete explanation on the issue at hand and may be denied license and registration if past crimes and unprofessional conduct is perceived as recurring. The practicing accountants are expected to complete continuing professional education to maintain their registrations and licenses. Many steps have been taken to ensure that the profession maintains necessary professional ethics. The first step is to employ competent management accountants. Corporations and individual employers should confirm that the accountants have been adequately trained on professional and ethical issues. According to the laws in most states in the USA, the students must be exposed to ethical issues before they are registered and licensed to operate. In addition, during the interview, ethical aspects must be tested and evaluated to ensure that the candidate has regard to professional ethics and responsibilities. After the hiring, the accountant should be trained continually on ethical environment in line with the firm’s operations. The training would ensure that the employees remain steadfast to ethical issues in the company. Secondly, every employer should integrate ethics into the activities of the company. Office procedures and operation must be aligned with ethical and professional issues to help accountants institutionalize them. The organization should also have an ethics specialist who would be available to handle appropriately and instill ethical issues in their organization. He or she should be influential to reinforce ethical tone in the organization from the top. Ethical specialist provides information necessary to the employees on current ethical issues that are helpful to sustain professional and ethical behaviours among the employees. The managing executive should provide total support to the ethical specialist to underscore firm’s commitment to professional ethics and responsibility principles. All the management accountants must make personal commitment to acquire ethical expertise. They should read extensively topics on ethics. Ethical literature can be obtained from public libraries, Professional Ethics Resource Centers and other various publications. In addition, management accountants should be in a position to conduct themselves in accordance to the laid professional and ethical guidelines and procedures. They should always assess the existing ethical environment of both potential and existing clients as well as business partners. Accountants should check complains filed with better business bureau or Public Access to Court Electronic Records. Better business bureau records customer complains on the quality of service or product, pending bankruptcy and criminal matters. Furthermore, employees working for the client such as the financial managers and accounting personnel need to be checked. Finally, the management should ensure complete documentations of all ethical issues. Companies should ensure that they incorporate ethical consideration sign-off forms that must be inspected and reviewed by the ethics specialist. Cases/examples of the ethical issues faced by Management Accountants Management accountants should take appropriate practical steps to save face and bring the profession to the pedestal of honor and trust. Therefore, they have to work hard to repair the reputations devastated by high-level scandals that have been evident in WorldCom, Parmalat and Enron. The lead partner at Arther Andernsen, Mr. Arthur Duncan was taken to court and charged with obstructing justice. He was found guilty of shredding documents to destroy all the evidence that would have revealed the true status of the company. When the case was concluded, the regulating accountancy board Texas State Board of Public accountancy revoked the license of Duncan as from February 6, 2003. Enforcement of codes of ethics The management accountants are governed by professional ethics whose breach leads to disciplinary measures. The government and states take proactive steps to prevent or eliminate current and future corporation frauds. Accounting bodies and teaching institutions have included the course on ethics in their syllabus. The Sarbanes-Oxley Act of 2002 created the Public Company Accounting Oversight Board (PCAOB) in April 2003. Creation of PCAOB terminated the role of Auditing Standards Board because it assumed the responsibility of establishing auditing standards. In addition, it provided the accounting rules to govern the ethics of accountants, AIPCPA’s independence and it controlled the quality of registered firms. AICPA membership formed and passed measures to better the timeliness and transparency of the disciplinary process in 2003. AICPA was mandated by new developments to discipline members sanctioned by other regulating bodies without conducting further investigations. The results of cases of management accountants can be referred to other regulatory bodies for further action. Furthermore, educators should add more weight on code of professional ethics and responsibility in their curriculum. They should make sure that students attain highest marks on ethical matters. Monitoring behavior The management accountants have ethical and professional responsibility to represent true and complete accounts about organizational financial performance. Therefore, all management accountants should be monitored and evaluated continuously. Overall accountancy board should create database that serves as a reference point for complete and accurate information on licensing problems, unprofessional conduct, disciplinary measures as well as licensure status for all management accountants. The database help reinforce the ethical issues because it exposes unethical management accountants to the public, potential and regulators. Furthermore, there are statues that have been enacted to govern the practice of management accountants and other related professionals. The scandals that occurred led to establishment of corresponding statutes to prevent current and future ethical challenges that may arise. Sarbanes-Oxley Act was created in USA in 2002, Corporate law Economic Reform Program was created in Australia in 2004 and Higgs Review and Smith report was created in UK in 2003 (Mitchem 2009). Affect of ethics on companies Financial scandals in organizations are devastating and can bring large corporations to their knees. It is important to know that scandals are created when various professionals collude in a bid to destroy evidence that may reveal their bad actions. This happens when various professionals handling related areas of their expertise collude to defraud the company. The perpetrators of accounting frauds face the law and have their licenses revoked. However, when the companies and their officers respect and implement the professional ethics, there is prosperity. Companies that have encouraged all its employees to be ethically correct are reaping financial benefits. This is because professional ethics leads to production of quality goods and services that appeals to most people thus enable the company maintain its market share and even acquire new customers. Furthermore, when management accountants become truthful, it is possible to prevent loss of money that could have disappeared through dubious ways. As a result, the company would have sufficient cash to run its affairs. Good reputation that is brought about by positive professional ethics help companies increase their market share because customers like to associated with companies that does its activities in an acceptable manner. Furthermore, they support socioeconomic viabilities of the communities within which the company operates. Ethically correct companies do not pay fines and legal expenses because they do not break the law and professional ethics (Besley & Brigham 2008). According to Lee (2004), companies that are ethically managed enjoy higher rates of foreign direct investments as well as operating profits. References Besley, S & Brigham, E 2008Essentials of Managerial Finance, 14th edn, Cengage Learning, New York Campbell, T & Houghton, K (eds) 2005, Ethics and auditing. ANU E Press, USA. Duska, R & Duska, B 2003, Accounting ethics, Wiley-Blackwell, London. Lee, N 2004, Ethics Management and National Development, Korea Independent Commission Against Corruption, Korea. Mitchem, C International Business & Economics, Research Journal, Vol. 8, no. 1 41 Virginia State University, USA Needles, B, Powers, M & Susan C 2007, Financial and Managerial Accounting, 8th edn, Cengage Learning, New York. Romal, J & Hibschweiler, A 2004, Improving Professional Ethics: Steps for Implementing Change (online). Viewed 26 May 2010, http://www.nysscpa.org/cpajournal/2004/604/essentials/p58.htm Read More