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Managerial Accounting And The Code Of Ethics

3338 words - 14 pages

Managerial Accounting and the Code of Ethics
Austin Tyler Deese
Student ID: 25690614
Liberty University
Accounting 521
Dr. Phil Gilmore
October 24, 2014

Table of Contents

I. Introduction……………………………………………………………………........3

II. Managerial Accounting and the Importance of Ethics………………………….…..4

III. Managerial Accounting and the Role of the IMA...…………………………….…..5

IV. Managerial Accounting and the Role of the AICPA..…………………………..….7

V. The Sarbanes-Oxley Act and Ethics………………………………………….….….9

VI. Conclusion………………………………………………………………………….12


I. Introduction
Ethics are critical for accountants to possess in ...view middle of the document...

If members do not comply with the ethical requirements of their member organizations, they will potentially face losing their accounting license as well as their freedom. Managerial accountants have a corporate social responsibility to produce financial information that is accurate, honest and a true reflection of the financial performance of the company (Garrison, Noreen & Brewer, 2012, p.17). Since they have access to all of the financial information, it is easy for them to manipulate financial statements to make their company appear more profitable than they actually are in order to attract new investors (Deese, 2014). However, with the high degree of ethical standards in place today, managerial accountants have no room for misconduct or unethical behavior, as they know what is expected of them and the penalties for failure to comply.
II. Managerial Accounting and the Importance of Ethics
Without ethics in managerial accounting, accounting fraud would occur more often as a result of no moral obligations. Ethics go hand in hand with accounting as they are at the forefront, and accountants must possess the highest degree of integrity and ethical behavior when providing their services (Deese, 2014). Since managerial accountants are in charge of producing financial reports, they must condone ethical behavior regardless of the situation, as their results and financial reports have the potential to affect financial markets and society as a whole. Due to the collapse of WorldCom and Enron, all publicly traded companies now have to be audited by an external accounting firm. Ethics are critical here as well, as managerial accountants have to produce the financial statements for external auditors to review. This has created a separation of duties, whereas before the collapse of WorldCom and Enron, the external accountants would produce the financial reports and audit them as well. In the case of WorldCom and Enron, internal management was colluding with the external accountants to cover up massive losses, and since there was no separation of duties, it was obvious the external accountants would not catch any material misstatements during the audits since they were the ones producing the financial reports to begin with. However, this is no longer possible due to the implementation of the Sarbanes-Oxley Act and other federal regulations. With the separation of duties created by the Sarbanes-Oxley Act of 2002, managerial accountants will now consider the consequences before committing accounting fraud, as external auditors will be able to catch the fraud during an audit.
Ethics in managerial accounting is also critical due to how management accountants receive performance bonuses and other compensation. Usually, management accountants will receive a yearly bonus based on the financial performance of the company. This gives them a greater incentive to falsify financial reports, as the amount of their bonus will be larger if the company reports a...

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