Ethics in any industry is important, but for Accounting professionals and those in need of their services, it is a particularly stressed element. Information provided by accountants is used to make major decisions, including investing, downsizing, expanding, etc, so accountants are expected to be competent, reliable, and have a high degree of professional integrity. Because of these high expectations, the professional accountancy industry, like many other professions, has adopted professional codes of ethics (Woelfel, 1986). These ethical codes go above and beyond the requirements for state or federal laws and regulations. There are several professional organizations within the accounting industry that have adopted a code of ethics for their specific field of accounting. For example, the National Institute of CPAs has instituted the “Code of Ethical Conduct” that sets forth ethical standards and rules of conduct for its members. Also, the Institute of Internal Auditors (IIA) has a Code of Ethics that applies to its members and to Certified Internal Auditors. However, the focus of this paper will be on the ethical standard for Management Accountants, which has been set forth in the Institute of Management Accountants (IMA) Standards of Ethical Conduct.
The vast majority, approximately 80%, of accountants and financial professionals work inside businesses and organizations – not in public accounting firms. Therefore, ethical standards play a huge role in the financial reporting of organizations around the world. According to the IMA, the roles and responsibilities of management accountants include the following:
• Managing functions that are critical to business performance
• Supporting organizational management and strategic development
• Provide accurate and insightful information for better decisions
• Ensuring the organizations operate with integrity and proper governance
• Planning for long-term and helping to ensure sustainability
• Safeguarding the interests of the organization and its key stakeholders
The IMA Statement of Ethical Professional Practice includes five main areas and notes that those who choose not to comply with these standards could have disciplinary action brought against them. The five main topics are:
• Resolution of ethical conflict
Further detail regarding the items above can be found on the IMA website (www.imanet.org). At the heart of all these efforts for ethical standards is a desire to deter and detect fraudulent activities within the accounting world. It is important to remember that the worst of the financial scandals of the past decade had at their core fraudulent activities that went undetected or undeterred by auditors, by boards of directors, and, sometimes, top management. As a result, all of these groups as well as accounting personnel have been challenged to enhance their behavior and to increase their vigilance.
With less than 17,000 public companies in the United States compared to more than 22 million private companies, the number of accountants supporting the financial reporting of private companies claims the majority. However, the financial reporting requirements for private companies are much less than public companies. A private firm does not have to report annual earning to the U.S. Securities and Exchange Commission. Nor does it have to provide a listing of all its assets and security holdings. This reduction in paperwork and filing requirements allows a private firm to keep a minimal number of financial accountants on the payroll. Also, since private companies do not fall under the 2002 Sarbanes-Oxley Act, private companies do not have the threat of fines or government scrutiny hanging over its chief...