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. 389 Professional Ethics CMA Part 1 Individuals in management accounting and financial management have a unique set of circumstances relating to their employment. To address the issue of ethics for its members and to help them assess their situation and make a decision, the Institute of Management Accountants (IMAl has developed a Code of Ethics, called Statement of Ethical Professional Practice. This code is provided in its full text on this and the following pages. This is the version that was adopted in August 2005. We highly recommend that you read the Statement of Ethical Professional Practice carefully, know what it contains and most importantly, be able to apply it to situations. Questions on the exam require thorough knowledge of and the ability to apply these standards to cases presented in the questions. The Part 1 exam consists of both multiple choice and essay questions. If an essay question includes ethical considerations, you should be able to cite the applicable standard or standards as part of your answer. You will need to be able to quote the portion you cite virtually word for word, so memorize it well. Paraphrasing it is not good enough. Ethical Behavior for Practitioners of Management Accounting and Financial Management Practitioners of management accounting and financial management have an obligation to the public, their profession, the organizations they serve, and themselves to maintain the highest standards of ethical conduct. In recognition of this obligation, the Institute of Management Accountants has promulgated the following standards of ethical professional practice. Adherence to these standards, both domestically and international ly, is integral to achieving the Objectives of Management Accounting. Practitioners of management accounting and financial management shall not commit acts contrary to these standards nor shall they condone the commission of such acts by others within their organizations. Stateme nt of Ethical Professio nal Practice Members of IMA shall behave ethically. A commitment to ethical professional practice includes overarching principles that express our values, and standards that guide our conduct. PRINCIPLES IMAs overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. Members shall act in accordance with these principles and shall encourage others within their organizations to adhere to them. Note: IMAs overarching ethical principles are: Honesty, Fairness, Objectivity, and Responsibility. In an essay answer to an ethics question on the exam, if you mention any of them, you will need to be able to also define them. The definitions, which are not part of the Statement, are: Honesty means fairness and straightforwardness of conduct. It is the quality of being upright, having integrity, truthfulness, sincerity, frankness, and freedom from deceit or fraud. Fairness means acting in an impartial manner and being free from bias, dishonesty or injustice. It requires a person to be open-minded, tolerant and accepting. Objectivity means basing a judgment on an established set of criteria. It is the state of being unbiased, free from personal feelings or prejudice and basing analyses and decisions on the facts alone. Responsibility means doing what you say you will do when you say you will do it. It is the state of being answerable or accountable for something that is within ones own power, control or management. Note: The standards of ethical conduct are the four standards that are discussed in the following para graphs: Competence, Confidentiality, Integrity, and Credibility. 390 Section E Professional Ethics STANDARDS A members failure to comply with the following standards may result in disciplinary action. I. COMPETENCE Each member has a responsibility to: 1) Maintain an appropriate level of professional expertise by continually developing knowledge and skills. 2) Perform professional duties in accordance with relevant laws, regulations, and technical standards. 3) Provide decision support information and recommendations that are accurate, clear, concise, and timely. 4) Recognize and communicate professional limitations or other constraints that would preclude respon sible judgment or successful performance of an activity. Note: Fulfilling the competence standard includes keeping up with changes in laws, regulations, accounting standards, and association rules and requirements. Some examples of these are: • New guidance issued by the PCAOB and the SEC relating to requirements in the Sarbanes-Oxley Act. • Generally Accepted Accounting Principles (GAAP), including U.S. standards issued by the Financial Accounting Standards Board (FASB) and International Financial Reporting Standards issued by the International Accounting Standards Board (IASB). • Other national and state legislation specific to your industry. Failure to keep informed about changes in these regulations could cause you to unknowingly commit an ethics violation or violate a legal requirement. II. CONFIDENTIALITY Each member has a responsibility to: 1) Keep information confidential except when disclosure is authorized or legally required. 2) Inform all relevant parties regarding appropriate use of confidential information. Monitor subordi nates activities to ensure compliance. 3) Refrain from using confidential information for unethical or illegal advantage. Note: Here are some examples of ways to keep information confidential : • Do not discuss confidential information in any public setting, either on a cell phone or face to face. • Know who in your organization has access to confidential information and does not. • Do not discuss confidential information with family or friends. • Use passwords to protect documents and set permissions so only certain people are able to access them. • Guard laptop computers against theft. • Do not connect to the Internet using a connection that is not secure • Delete permanently and destroy documents that are no longer needed • If you are asked to disclose information and you are not sure whether you should do so, check company or other guidelines and standards before proceeding. 391 Professional Ethics CMA Part 1 III. INTEGRITY Each member has a responsibility to: 1) Mitigate actual conflicts of interest; regularly communicate with business associates to avoid appar ent conflicts of interest. Advise all parties of any potential conflicts. 2) Refrain from engaging in any conduct that would prejudice carrying out duties ethically. 3) Abstain from engaging in or supporting any activity that might discredit the profession. Note: Here are some suggestions for maintaining your integrity: • Do not accept any gifts, favors or anything else that could cause you to feel an obligation to someone as that could influence what you may do in the future. • If you have any conflict of interest in a situation, you should excuse yourself from any decision-making position. • If you have any professional limitations that could impair the performance of your duties, you should make them known to your superiors. • Do not just tell your superiors what they want to hear. Communicate both the good and the bad news. IV. CREDIBILITY Each member has a responsibility to: 1) Communicate information fairly and objectively. 2) Disclose all relevant information that could reasonably be expected to influence an intended users understanding of the reports, analyses, or recommendations. 3) Disclose delays or deficiencies in information, timeliness, processing, or internal controls in confor mance with organization policy and/or applicable law. Note: Credibility may involve things such as: • Provide regular updates on projects you are working on. • If news is bad, do not delay in giving it. Do not omit information. Omission is as bad as commission. • If you will not be able to perform a task as you had expected to, let everyone concerned know as soon as you become aware of it. • Gather all the necessary facts about a situation and do all the needed analysis. Request reports or recommendations, if appropriate. • Assess risks ahead of time in order to be prepared. 392 Section E Professional Ethics RESOLUTION OF ETHICAL CONFLICT In applying the Standards of Ethical Professional Practice, you may encounter problems identifying unethical behavior or resolving an ethical conflict. When faced with ethical issues, you should follow your organizations established policies on the resolution of such conflict. If these policies do not resolve the ethical conflict, you should consider the following courses of action: 1) Discuss the issue with your immediate supervisor except when it appears that the supervisor is involved. In that case, present the issue to the next level. If you cannot achieve a satisfactory reso lution, submit the issue to the next management level. If your immediate superior is the chief executive officer or equivalent, the acceptable reviewing authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or owners. Contact with le vels above the immediate superior should be initiated only with your superiors knowledge, assuming he or she is not involved. Communication of such problems to authorities or individuals not employed or engaged by the organization is not considered appropriate, unless you believe there is a clear vi olation of the law. 2) Clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethics Counselor or other impartial advisor to obtain a better understanding of possible courses of action. 3) Consult your own attorney as to legal obligations and rights concerning the ethical conflict. Source: Institute of Management Accountants, © 2009 Institute of Management Accountants, used by permission. 393 Professional Ethics CMA Part 1 (ThiS page intentionally left blank) 394
Posted on: Fri, 29 Nov 2013 04:56:59 +0000
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