Management Accounting Control System
Introduction
In the corporate world, the professionalism lies within. All of the other essential aspects come forth such as credentials and personality bearing of an individual is also measured in the aspect of professionalism. More than, the knowledge, skills, and experience of an employee, the trust and ethical attributes are also includes in the package of professionalism. Moreover, the corporate world places a special room for the ethical considerations of all their actions regarding the transactions, towards the client, and even in an employee-to-employee/r basis.
Professional Ethics
Every individual has their own idea about the ethics and values. In every dimension of human practice, humans pay attention and consideration regarding to the ethical actions given to their acts. For example, in the practice of nursing, the health care providers consider the information they gathered and other health-related evidences from the patients before formulating the health care decision. The role of ethics might be invisible but there are certain areas that the health care providers needs to assess, before proceeding to the next step. This is almost the same in the corporate world, most especially in the area of accountancy. The accounting proficiency in dominated with the rules and regulations that avoids the unbiased computation, corporate governance, and strategic decision making. All of the roles of the accountants in an organization should be transparent and clean and this is because of the idea of professionalism and the ethics accompanied with it (IFAC, 2005; Healy-Burress, 2007).
Professional ethics, in a broader view, are codes of conduct that governs the professionals or the individuals deal with each others as well as the third parties. Professional ethics, as a code, plays in an array of functions (ACCA, 2008). The codes that implemented in the organization symbolize the acts of professionalism and being professional within the workplace. It also continually promotes a standard of internal relations between the clients and employers, while at the same time, protecting the interests of the organization (Melancon, 1996). In addition, the professional code of ethics embedded the rights of the members or the employees such as expressing their own thoughts and suggestions. And lastly, the professional ethics is a guideline in ethical dilemma between the two or more undefined and unclear things (Leibowitz and Reinsten, 2009).
Professional codes of ethics are placed under the umbrella of an organization to ensure that all their activities will not cause harm to their client, or unable to influence others to cause harm (Myers, 2003; Vanzante and Ketcham, 2005). For an instance, in the accountancy only one mistake in placing a decimal point might cause a lot of trouble to the client. Therefore, the accountants are expected to bring the pride in their profession and this is only possible through recognition and respect. Accounting profession is more likely categorized under the rules of professional code of ethics to prevent the issues that might destroy their credibility and professional values such as decadence, fraud, dishonesty, inaccuracy and other negative outcomes by an unjust transaction (Calhoun, Oliverio, and Wolitzer, 1999).
The Accountancy in an Ethical Profession
The accounting profession represents that perfect example in the means of ethical dilemma (Leibowitz and Reinsten, 2009). The professional and business sphere, there are five principles in which an accountant is bound to fulfill and satisfy in every transactions. The five fundamental principles are meant to interact with the professionalism and compliance of the law, which is according to the IFAC Code are: integrity, objectivity, professional competence and due care, confidentiality, and professional behavior (FEE, 2009). In the recognition of the principles is part of recognizing the codes of ethics to fully understand the concept of serving various people, particularly in the essence of ensuring that there is credibility in the accountants’ role.
The code of ethics has been part of the professional status of accountancy. However, there is an increasing ethical dilemma that was mostly faced by the accountants such as the objectivity and standards (Tsuji and Garner1995). Many academic literatures proposed that the code of ethics in accounting profession should reflect on the teaching of accountancy for it can affect the competitiveness and diligence of work of an accountant in every kind of environment. This idea is basically suggesting reviving the main philosophy that the accounting profession should serve between the truth and fairness. If the professional ethics started in the early stage of the accountancy profession, there will be an effective tool in maintaining the public trust, and the corporate governance. Ethical issues can be considered as one of the main challenges of the accountants (and auditors) in the globalized corporate profession that continuously affects the treatment in the entire profession (Allen and Bunting, 2008). Through the education and training of the young professionals, the weight of responsibility and expectancy that accountants should perform high ethical standards are ensured (Hull, Wright, and Ennew, 2002).
The Ethics in Education towards Accounting Professionalism
Integrity, objectivity, professional competence and due care, confidentiality, and professional behavior are the five ethical requirements that an accountant must administer. There are many situations that might threaten the status professional ethics that are considered to be self-interest threats, self-review threats, advocacy threats, familiarity threats, and intimidation threats, which are outlined in the IFAC Code of Ethics. Learning the professional ethics in accounting profession can eliminate all the threats and establishes the five principles towards the credibility. In addition, it can also safeguard the profession, legislation, or regulation, and even the work environment. In teaching the ethical values thorough the education, training and experience, the accounting professionalism will continue to develop (Calhoun, Oliverio, and Wolitzer, 1999). On the other hand, the importance of ethical considerations in the accounting profession is arise in helping the accountant in crafting and managing the decisions because it can sort and details all the available options and the number of consequences (IFAC, 2006).
Assessment Methods
The assessment of the ethical considerations in the profession can be accomplished by using the formal assessment, workplace assessment, or the self-assessment. Through the use of the assessment methods, an accountant can ethically judge the presented situation. It can be start in making the choices with the consideration from the principles in the Code of Ethics in Professional Accountants. In addition, with the support gained from the knowledge and sensitivity, the sound decision can be demonstrated with the matter of competence (IFAC, 2006).
Examples of Ethical Issues in Management Accountants
The most effective method that can develop the ethical awareness as well as the analytical skills of an accountant is through the use of the case studies. Within the case studies, the different views that might pose threats in the profession can be assessed. Various students and/or professional accountants can experience the ethical dilemmas and therefore, they must learn how to resolve the ethical situations by applying the fundamental principles. The following case studies were taken from The Consultative Committee of Accountancy Bodies of 2009:
Case Study 1: The formal governance procedure is not being followed
A non-executive director of a public sector body, and a member of the organization’s finance committee.
Currently, the committee is having a discussion regarding the process and procedures for the procurement of needed capital improvements in order to properly facilitate the catering of services. There is a suggestion coming from the finance director wherein, he suggested that the needed capital should be waived in an instance and for such, the project will be awarded on a single tender basis. The suggestion is significant to the current situation being faced by the organization which is recently there is a tendered capital for the construction of a new facility within the main site of the organization. In terms of catering the facility, it is identified that the project is in the close proximity to the existing capital project. And with that, the finance committee established an agreement to award the same amount of benefits to the same contractor. Historically, the contractor created a good relationship with the organization in terms of completing the projects with the quality suited for the organization.
On the process, if the tender process is waived, this will only mean that there will be any improvements in the facilities can start as soon as the project scheduled to end. It might seem favorable because of the idea of cost-savings in completing the project because of the fact that, the contractor’s equipment and other materials as well as the workforce and important people will remain on site. In addition, the contractor will have an advantage since they already know the site and scope of the project. Eventually, the finance director also suggested that there is a great possibility to benchmark the costs that might incur to ensure that there is an agreed contracted price and associated responsibilities. In the continuation of the project, the discussion between the contractor and the organization already took place and therefore, provisionally agreed to undertake the works.
In addition, there are existing standing orders and standing financial instructions which require in a formal tender process where it can be fulfilled for the projects according to its size. As an accountant, you are definitely concentrated on the objective of the organization in terms of satisfying the idea of governance arrangements. And thus, you believe that the finance director is not recommending the proposals in terms of boosting the project.
Key fundamental principles
Integrity: Consider the actions that might takes place in the created decision. In addition, an accountant should gain an idea in demonstrating the truth/honesty and fairness towards all of the concerned parties.
Objectivity: A professional should not allow his or her objectivity to be threatens by all the colleagues and the relationships that built between them. Neither one should be allowed to feel intimidated by any offers coming form the people in the board or other interested parties.
Professional Competence and Due Care: In a matter where sensitivity is the center of the topic, it is essential that any action being placed over it should be careful administered and considered. Competence can be in a matter of professionalism and an individual should be aware about his capability in creating judgments, therefore, one should decide is his or her knowledge and experience are enough or there should be a need for advice.
Confidentiality: Professionalism might be also tested regarding to what extent the essential information should be shared upon.
Professional Behavior: There should an assurance that acts of the organization are in accordance with relevant regulations, and the actions of an accountant is in the matter of the responsibilities and obligations as a non-executive director.
Case Study 2: Confidentiality and conflict of interest in non-executive roles
As a non-executive director of the two unrelated companies, namely Company Alpha and Company Sigma. Recently, Company Alpha bought a business that has a good operation and can match and therefore, competes with Company Sigma. This is made, so that both companies are now bidding for the same contracts.
As a non-executive director of the two unrelated companies, namely Company Alpha and Company Sigma. Recently, Company Alpha bought a business that has a good operation and can match and therefore, competes with Company Sigma. This is made, so that both companies are now bidding for the same contracts.
You are now likely to find out information about Company Alpha that could be useful to your role in Company Sigma and vice versa.
Key fundamental principles
Integrity: Remember that one should act with fairness and honesty. Measure the instances whether there is a breach of trust can be likely arise or perceived by a reasonable and be informed with the third party involved.
Objectivity: It is better to measure any potential conflict of interest that might affect or compromise the professional or business judgment and with due respect of either or both companies.
Professional Competence and Due Care: Learn how to manage the responsibilities and obligations in both companies.
Confidentiality: Maintaining the idea of confidentiality as to requirement to the right of both parties and/or companies. It is advised that avoid using the gathers information to gain advantage with the other.
Professional Behavior: Develop a lifelong commitment with the practice of ethical commitments and professionalism with the help of the past related-experiences.
Case Study 3: Non-executive director being used as a sounding board of an employee
As a non-executive director of a manufacturing company, the company’s success, profitability, and reputation is identified to be in their core product. It so happen, that the core product is indeed needed to be manufactured using the two major components – namely X and Y. The component X can be purchased from either the two leading suppliers, Raptor Limited or Raven Limited. The corporate leaders agreed upon a strategy wherein the tow leading suppliers can create a contract in the organization as well as exercising the organization’s bargaining power over the suppliers.
Coincidentally, you found yourself in the middle of the conversation with the purchasing manager who is unfamiliar with the concept as well as the role and responsibilities of the non-executive director. in order to compensate the essence of the conversation, you elaborately discussed your role, and at the end, the purchasing manager grabbed the opportunity to hear your opinion regarding her concerned matter in her department.
As a purchasing manager, she is the one responsible for placing orders for stock, and orders that will compliment on the component X, which are usually placed on a weekly basis. She detailed that the prices gained from Raptor Limited and Raven Limited are on a regular basis, and is confirmed prior to each order being placed and scheduled. However, in recent months the purchasing director has been taking a more active role over the ordering process. He acted as the directing manager to place almost every order with the Raven Limited, albeit the purchasing manager believes that there is a better price that the organization can gain form Raptor Limited. Also, the director shared to the manager that he has an objective in building an effective relationship together with the sales director of Raven Limited, that in due time might potentially lead towards the reduction of the prices because of the long-term relationship. In accordance, the purchasing director is building the trust and relationship through business lunches and followed by an invitation for the purchasing director and his family to spend a weekend on Raven Limited sales director’s private yacht.
In return, the purchasing manager expresses her opinion that the department’s purchasing director in accepting bribes by ignoring the company’s agreed purchasing strategy that bound to limit the risk that might be exposed in relying to just one supplier. As a non-executive director, you were asked regarding your own perception even if there is no formal meeting after all, or considered the conversation as “off the record”.
What advice should you give to the purchasing manager, and what action should you take in your role as a non-executive director?
Key fundamental principles
Integrity: Consider the idea of honesty and being straightforward with the purchasing manager and member of the board. While at the same time, guarding the other essential ethical principles that ensures the good governance.
Objectivity: Give value to retain the personal or professional interdependence from the executive board members. Keep the resistance on any influence that can be potentially found on the perceptions or assumptions crafted by the purchasing manager.
Professional Competence and Due Care: A professional should bear in mind that he should exercise the power of being diligent and gathering the essential information before creating any conclusions or final acts. Be sure that you should exercise diligence, and obtain all of the relevant facts before reaching any conclusions or final say regarding the matter. There should be an assurance of responsibilities being performed in any situations and seek legal advice to avoid creating the biased judgment and right amount of obligations.
Confidentiality: Consider on to where or whom to discuss or relay the information that acquired from the conversations made. Also, recognize the other parties that might involve or should consult regarding the information.
Professional Behavior: Take responsibility in compliance with the established internal procedures and respect the guideline of the code of conduct procedures with which enables to encourage all the employees to comply.
Conclusion
Case studies can serve various advantages because it can give details regarding the combination of thinking critically and analytically using the reflections, as well as integrating the opinion with the technical skills and consciousness of ethical decision making. The professional accountants or the students can gain essential ideas involved in a real life situations and the adequate solutions. Case studies are like a mirror of the past experience of an accountant most especially when it is in the matter of ethical threats.
References:
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