1.4 The Role of Ethics in Management Accounting

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The function of management accounting is to support competitive decision making by collecting, processing, and communicating information that helps managers plan, control, and evaluate business processes and company strategy. The top accountant in most large organizations is usually called the controller. In most organizations, professionals responsible for accounting systems and other critical decision-support data report to the controller. The controller usually reports to a vice president of finance or perhaps the chief finance officer (CFO). This individual, in turn, reports to the organization's president or chief executive officer (CEO).

As the chief accounting officer, the controller is ultimately responsible for what information is created to manage the organization, as well as how that information is used. This individual and others who work with him or her are in a position of significant power. Those who manage the management accounting process have access to the organization's most important and sensitive competitive information. Therefore, it is absolutely critical that these individuals conduct their work professionally and with utmost integrity. Otherwise, the consequences of unethical behavior in the practice of management accounting can ruin (and, on occasion, have ruined) individuals, companies, and communities.

Unfortunately, ethical dilemmas in both large and small organizations are not rare. As whitecollar crime continues to rise, those who work in management accounting are often confronted with ethical issues on the job and need to be prepared to deal with them rationally. If your career path leads you to a position that involves management accounting (and most management positions do), you will find that dealing with these types of ethical indiscretions is not easy. The situation is often complicated by the fact that the violators are frequently people you know and work with. Some of the ethical dilemmas that business professionals may be exposed to are listed in Figure 1-4.

Your role as a member of the management team requires that you work to handle questions of ethics within the organization. However, some occasions may require you to involve outside authorities. The Institute of Management Accountants (IMA) is the leading professional organization in North America devoted exclusively to management accounting. Its goals are to help those working in management accounting develop themselves both personally and professionally, by means of education, certification, and association with other business professionals. As a respected leader within the global financial community, the IMA's Statement of Ethical Professional Practice provide guidance to practitioners for maintaining the highest levels of ethical conduct. Essentially, the IMA notes that its members are ethically required to

• Be competent in their profession

• Not disclose confidential information

• Act with both actual and apparent integrity in all situations

• Maintain objectivity when communicating information to decision makers

If confronted with situations that may involve ethical conflicts, the business professional should consider the following courses of action:

• Discuss the problem with an immediate supervisor (higher management levels should be approached only when the supervisor is involved).

• Confidentially use an objective advisor, if needed, to help clarify the issues.

• Resign from the organization and submit an informative report to an appropriate representative of the organization (after exhausting all levels of internal communication).1

Although the IMA has a formal code of ethics, there really isn't a perfect set of rules you can follow to help you resolve every conflict. Therefore, you need to be developing values and skills right now in order to prepare for future challenges. To help you, we have included at least one ethics case at the end of each topic. Perhaps more than anything else you do, developing a commitment to and an understanding of good ethics will develop you into a great business professional and will help improve our society.

Practice Exercises