Cost Accounting

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ETHICAL ISSUES IN MANAGERIAL ACCOUNTING

The aim of this paper is to highlight in the light of the empirical researches conducted previously the presence of ethical issues and dilemmas in managerial accounting. The implications of which can be disastrous bringing colossal giants crumbling to their knees. The prime aim is to throw light at the subtle inconsistencies that can cost the companies far more than just money but their entire image. The asset of ‘good will’ has its nemesis in these unethical practices surfacing.

Management accountants work inside a company, handling all internal accounting data. These individual often allocate production costs, create management reports and provide support for managerial decisions. Ethical issues can result from managerial accounting activities. Like all professionals, management accountants must be sure to be ethical when working for a company.

Importance
• Facts
Business owners and managers typically rely on managerial accounting information in making decisions. Managerial accountants who act unethically and report inaccurate or irrelevant information can distort the decision process. They can also lose the trust of business owners and managers. • Features

A large part of managerial accounting is allocating business costs to the goods and services a company produces. Accountants who fail to allocate all costs in an effort to make production processes look better may cause the company to lose money. Revenue is lost because companies price goods and services according to their cost to the business.

Potential
Companies can face legal repercussions from unethical management-accounting practices. Many companies undergo financial audits, which can discover inappropriate accounting methods. Business owners unaware of unethical acts from their managerial accountants may be subject to fines or penalties from government agencies.

In scenarios where the ethical dilemmas present themselves with the survival of the company at one end and the moral values at the other end; it falls onto the shoulders of cost accountants to make the best call. In one moment loyalty to the boss, to peers, to the organization and adhering to the laws and moral standards comes into play. In a scenario as depicted by Simon Longstaff in his web article “An ethical dilemma for Accountants” (Longstaff, 1997); where a cost accountant is required to save face of the organization and the CEO when a loan has to be approved from a bank. His own newly bought house is at stake as the loan rejection may induce cost cuts, as such, layoffs. While deciding which route to take it is prudent to evaluate what holds in the bigger picture. What the society gives, it can take back. The responsibility of the professional faced with such conundrums is to choose for the social good. Another aspect of maintaining a high ethical pedestal by the accounting professional is that they are considered to be gatekeepers of sorts. They prevent a mass of people to be lead into fraudulent information. Reliance on such people ensures a stability which is sought by an investor or owner in a company. (Longstaff, 1997) In making sure that the internal control is transparent and stringent it is essential that the internal audits are conducted. However, ethics of right should not be the only determining factor in their behaviours. Ethics of care where relationships are fostered, built and strengthened are also important (Reiter, 1997). Unfortunately, too often these two aspects of ethics come into conflict resulting in unsolvable dilemmas for managerial accountants. These accountants serve on the payroll of the companies and perform internal audits. They are in awkward positions to pay the price of a decision taken and an option foregone. Professional accounting is under considerable economic pressure – a pressure which has intensified in recent years. The financial reporting process is challenged also by changes in information...
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