Professional Ethics CMA Part 1 Section E - Professional Ethics Intro duction to Ethics In the Part 1 exam, ethics may be tested in conjunction with any other topic area. We recommend that you memorize, but not only memorize, that you understand the items that are listed in the IMAs Statement of Ethical Professional Practice, which is reproduced on the following pages. In todays modern world of business, individuals in management accounting and financial management constantly face ethical dilemmas. For example, if an accountants immediate superior instructs the accountant to record the physical inventory at its original costs when it is obvious that the inventory has a reduced value due to obsolescence, what should the accountant do? Ethics, in its broader sense, deals with human conduct in relation to what is morally good and bad, right and wrong. To determine whether a decision is good or bad, the decision-maker must compare his/her options with some standard. This standard is not a statement of static position but requires the decision-maker to assess the situation and the values of the parties affected by the decision. The decision-maker must then estimate the outcome of the decision and be responsible for its results. Two good questions to ask when faced with an ethical dilemma are, Will my actions be fair and just to all parties affected? and Would I be pleased to have my closest friends learn of my actions? Business Ethics Ethics concerns the morality of activities and practices that are considered right or wrong, including the rules and values that give rise to those activities and practices. Thus, business ethics is a systematic study of morality as it is applied to the business world. Business ethics are considered an integral part of business and are usually officially incorporated into the culture of a company in one manner or another. This may be done very formally through the use of Value or Mission Statements, or informally through peer pressure and the culture that is set by the management team through their behavior. Business ethics form a key part of the culture of a company, and the issue of ethics has become even more central in businesses today as a result of several well-known accounting scandals and business failures over the past few years. By establishing corporate ethical standards, organizations endeavor to influence the behavior of the people who are working for the company. Under the Sarbanes-Oxley Act, enacted into law in 2002 in response to some of these failures, a company is required to disclose whether or not it has adopted a Code of Ethics for its senior financial officers, and if not, why not. Three general principles are to be included in a companys Code of Ethics: (1) honest and ethical conduct; (2) full, fair, accurate, timely and understandable disclosure in SEC filings; and (3) compliance with applicable governmental rules and regulations. Note: Customs and traditions in different parts of the world, and even in neighboring countries, make ethics a more complicated issue. What may be considered unethical in one part of the world may be seen as business as usual in another. Despite these local and regional elements of ethics, there is a shared understanding of what is considered ethical or unethical on a global level. For the CMA Exams, however, the issue of ethics is tested based on the ethics standard that has been established by the Institute of Management Accountants, the Statement of Ethical Professional Practice. 388 Section E Professional Ethics In practical terms, business ethics standards distinguish between desirable and undesirable behavior and actions in relation to the following, as well as among other considerations: • General understanding of what is considered to be right or wrong, • Compliance with laws and regulations, both external and internal, • Resolution of conflicts, • Conflict of interest, • Whistle-blowing, • Bribes and kickbacks, and • Social responsibilities. Despite the existence of various acts, codes and regulations addressing issues of business ethics on national, corporate and individual levels, there are always external and internal factors that may encourage unethical behavior. • On the individual level, the personal judgment of an employee often depends on his or her personal life experience, educational background and social status. All of these are different for everyone and as a result, each individual may react differently to the same situations. • On the organizational level, organization-specific features such as management style, group dynam ics, remuneration/promotion systems and practices, performance evaluation, budgeting and reporting processes as well as overall condition of the business, are all important factors impacting the behavior of individuals in more or less significant ways. When companies are doing well and indi viduals are well compensated, there may be less desire to act in unethical ways because of the risk involved. However, when things in the company are bad, or an individual has little to lose personally, there is a greater inclination toward unethical behaviors. • Outside ofthe organization, external pressures and influences such as those of competitors, inves tors, partners, customers, governments (especially in a different country) and other stakeholders may compel individuals to compromise their ethical standards. A firm working in different countries or cultures may find it particularly difficult to have employees adhere to a single set of rules and reach consensus on what should be considered right or wrong as applied to business practices. These various factors may lead, in certain cases, to behaviors that are in contradiction with individual and corporate ethical standards. However, it must be noted that in some particular situations, opinions are divided as to what is considered ethical action. No one code of ethics can cover all possible cases and scenarios that an individual may face in reality. However, there are several general guidelines to help determine whether a particular action or behavior should be considered right or wrong. The most important criterion of all is whether the particular action creates more benefits than harm to all parties who are directly or indirectly Impacted by it. Many think that all parties should include society as a whole, the environment or, at an extreme, even space. (An issue in respect to space is the pollution of space with satellites and other spacecraft that have been launched and not returned to earth.) The importance of adhering to the highest standards of business ethics is particularly highlighted in the wake of the massive corporate scandals that swept the business world in recent years. Today, no one denies the importance of business ethics in the world of business. This is evidenced by the wide and extensive coverage in the media, numerous conferences, and legislative committees and political debates on this topic. In the U.S., this is most visible in the Sarbanes-Oxley Act. The Act provides that unethical activity in business can result in legal liability, not only of a corporate nature but also of a personal nature.
Posted on: Fri, 01 Nov 2013 11:42:35 +0000