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Ethical Responsibilities of Management Accountants: 1. Competence

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Ethical Responsibilities of Management

Accountants
Management accountants should behave ethically. They must follow the
highest standards of ethical responsibility and maintain a good professional
image.

The Institute of Management Accountants (IMA) has developed the following


four standards of ethical conduct for management accountants:

1. Competence
 Maintain an appropriate level of professional competence through
the ongoing development of their knowledge and skills.

 Perform their professional duties following relevant laws,


regulations, and technical standards.

 Prepare complete and clear reports and recommendations after


appropriate analyses of relevant and reliable information.

2. Confidentiality
 Refrain from disclosing confidential information acquired in the
course of their work except when authorized, unless legally
obligated to do so.

 Inform subordinates as appropriate regarding the confidentiality


of information acquired in the course of their work and monitor
their activities to assure the maintenance of that confidentiality.

 Refrain from using or appearing to use confidential information


acquired in the course of their work for unethical or illegal
advantage either personally or through third parties.
3. Integrity
 Avoid actual or apparent conflicts of interest and advise all
appropriate parties of a potential conflict.

 Refrain from engaging in any activity that would prejudice their


ability to carry out their duties ethically.

 Refuse any gift, favor, or hospitality that would influence or would


appear to influence their actions.

 Refrain from either actively or passively subverting the attainment


of the organization s legitimate and ethical objectives.

 Recognize and communicate professional limitations or other


constraints that would preclude responsible judgment or
successful performance of an activity.

 Communicate unfavorable as well as favorable information and


professional judgments or opinions.

 Refrain from engaging in or supporting any activity that would


discredit the profession.

4. Credibility
 Communicate information fairly and objectively.

 Disclose fully all relevant information that could reasonably be


expected to influence an intended user’s understanding of the
reports, comments, and recommendations presented.

Services/Tasks of Management Accountants


Listed below are the primary tasks/services performed by management
accountants. The degree of complexity relative to these activities are
dependent on the experience level and abilities of any one individual.

1. Managerial consultancy

2. Financial report analysis

3. Cost analysis

4. Rate and volume analysis

5. Business metrics development

6. Price modeling

7. Product profitability

8. Geographic vs. industry or client segment reporting

9. Sales management scorecards

10.Cost-benefit analysis

11.Cost-volume-profit analysis

12.Life cycle cost analysis

13.Client profitability analysis

14.IT cost transparency

15.Capital budgeting

16.Buy vs. lease analysis

17.Strategic planning

18.Strategic management advice


19.Internal financial report presentation and communication

20.Sales forecasting

21.Financial forecasting

22.Annual budgeting

23.Cost allocation

24.Managerial decision making

Distinctions between Management Accounting


and Financial Accounting
Financial accounting and management accounting are closely inter-related
since management accounting draws out a major part of the information form
financial accounting and modifies the same for managerial use.

Financial accounting ensures that the assets and liabilities of a business are
properly accounted for and provides shareholder investors, tax authority,
creditors, etc.

On the other hand, management accounting provides information, especially


for the use of managers who are responsible for making proper decisions
within an organization.

Financial accounting is concerned with the recording of day-to-day


transactions of the business.

Though both financial and management accounting relies on the same


financial data, there are some differences between financial and management
accounting.

Distinctions between Management Accounting and Financial Accounting are


the following:
Point of Management Accounting Financial Accounting
difference
Users Management accounting is Financial accounting is both
especially for internal users. for internal and external
users.
Management accounting
reports are exclusively used Financial accounting reports
by internal users viz. arc primarily used by external
managers and employees. users, such as shareholders,
banks, and creditors.

Objective The objective of The objective of financial


management accounting is accounting is to assist both
to assist internal internal and external
management. decision-makers.

Uses of GAAP GAAP is not mandatory to GAAP is mandatory to follow


follow in management in financial accounting.
accounting.

Events It emphasizes decisions on It emphasizes decisions on


future events. past events.

Freedom of No constraints are other than Constrained by generally


choices costs about the benefits of accepted accounting
improved management principles (GAAP).
decisions.

Type of Detailed reports: concern Summary reports concern


Reports about details of parts of the primarily with the entity as a
entity, products, whole.
departments, territories, etc.

Behavioral Concern about how Concern about how to


implications measurements and reports measure and communicate
will influence a manager’s economic phenomena.
daily behavior.
Delineation of The field is less sharply The field is more sharply
Activities defined—heavier use of defined—lighter use of
economic, decision science, related disciplines.
and behavioral sciences.

Timespan Flexible, varying from hours Less flexible; usually 1 month


to years to 1 year.

Methodology In management accounting, Financial accounting records


cost, and revenue are mostly are maintaining in the form
reported by responsibility of revenue, income and
centers or profit centers. expenditure, and property
accounts.

Annual Annual reporting of Annual reporting of financial


Reporting management accounting is accounting is mandatory.
not mandatory.

Characteristics It holds qualitative It holds quantitative


characteristics. characteristics.

Fundamental Emphasizes relevance. Emphasizes objectivity and


quality verifiability.

Enhancing Emphasizes timeliness. Emphasizes precision.


Quality

Rules It has the managers’ own It has no accountants’ own


rules. rules.

External vs. Management accounting A financial accounting


Internal system produces information system produces information
that is used within an that is used by parties
organization, by managers external to the organization,
and employees. such as shareholders, banks,
and creditors.
Segment May pertain to smaller Pertains to the entire
reporting business units or individual organization or materially
departments, in addition to significant business units.
the entire organization.

Focus Management accounting Financial accounting focuses


focuses on the future and on history.
present.

Format No specific format is Financial accounts are


designed for management supposed to be in
accounting systems. (Formal accordance with a specific
and informal recordkeeping) format so that financial
accounts of different
organizations can be easily
compared. (Formal
recordkeeping)

Planning and Management accounting Financial accounting helps in


Control helps management to making investment decisions
record, plan, and control and in credit rating.
activities to aid the decision-
making process.

Information Quantitative and qualitative. Quantitative and monetary.

Monetary and non-


monetary.

Reporting As needed – daily, weekly, Well-defined – annually,


frequency and monthly. semi-annually, quarterly.
duration. (Verifiable)

Optional Preparing financial There are no legal


accounting reports is requirements to prepare
mandatory, especially for reports on management
limited companies. accounting.

Legal / Rules Drafted according to Drafted according to GAAP –


management suitability. Generally Accepted
Accounting Procedure.

Accounting Cost accounts are not Follows a full process of


Process Reserved under recording, classifying, and
Management Accounting. summarizing for analysis and
The data from financial interpretation of the financial
statement and cost ledgers information.
are analyzed.

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