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McGraw-Hill /Irwin Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Introduction toManagerial Accounting

Fourth Edition

Brewer/Garrison/Noreen


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The Importance of Ethics in Business

Ethical practices in business build trustand promote productive relationships.

They are necessary for the functioningof a market economy.


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Code of Conduct for Management AccountantsIMAs Statement of Ethical Professional Practice

Part One

Competence

ConfidentialityIntegrity

Credibility

Part Two

Resolution of Ethical Conflict


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Standards of Ethical Conduct

Competence

Maintainprofessional competence.

Follow applicable laws,regulations and

standards.

Prepare accurate, clear,concise, and timely

decision supportinformation.

Recognize andcommunicate

professional limitationsthat preclude responsible

judgment.


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Do not disclose confidentialinformation unless legally

obligated to do so.

Ensure that subordinates donot disclose confidential

information.

Do not useconfidential

information forunethical or

illegaladvantage.

Confidentiality


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Integrity

Mitigate conflicts of interestand advise others of

potential conflicts.

Abstain from activities thatmight discredit the

profession.

Refrain fromconduct that

would prejudicecarrying out duties

ethically.


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Credibility

Communicate informationfairly and objectively.

Disclose all relevantinformation that could

influence a users

understanding of reports

or recommendations.

Disclose delays or

deficiencies ininformationtimeliness,

processing, orinternal controls.



Guidelines for Resolution of anEthical Conflict

Resolution of Ethical Conflict

Follow the established policies of the organization.

For unresolved ethical conflicts: Discuss the conflict with immediate superior.

Initiate discussion with levels above immediate supervisoronly with the supervisors knowledge (assuming the

supervisor is not involved).




Resolution of Ethical Conflict (Continued)

Follow the established policies of the organization.

For unresolved ethical conflicts:

Discuss the conflict with immediate superior.

Initiate discussion with levels above immediate supervisoronly with the supervisors knowledge (assuming thesupervisor is not involved).

Maintain confidentiality.

Clarify relevant ethical issues by confidential discussion with anobjective advisor.

Consult your own attorney.



Company Codes of Conduct

Many companies have adopted formalethics codes of conducts that provide

broad guidelines for proper behavior.



Codes of Conduct on theInternational Level

The International Federation ofAccountants (IFAC) Guidelines on Ethics

for Professional Accountants governs the

activities of all accountants throughoutthe world.



Corporate Governance

Corporate governance is thesystem by which a company is

directed and controlled.

If properly implemented, it shouldprovide incentives for the board

of directors and top managementto pursue objectives that are in

the interests of the companysowners and it should provide for

effective monitoring ofperformance.



The Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 is intended toprotect the interests of those who invest in publiclytraded companies by improving the reliability and

accuracy of corporate financial reports anddisclosures.




1.Requires CEO/CFOcertification.

2.Establishes the PCAOB.3.Places power to hire,

compensate andterminate auditors with theaudit committee.




4.Prohibits a variety ofnon-audit services for

audit clients.5.Requires annual report on

internal control.

6.Establishes severepenalties for criminal acts.



Enterprise Risk Management

A process used by acompany to

proactively identifythe business risksthat it faces and to

develop responses tothose risks that

enable the companyto be reasonably

assured of satisfyingstakeholder

expectations.



Enterprise Risk Management

Companies shouldidentify foreseeable

risks before they occur.

Once a risk has beenidentified, a company

can respond in variousways such as

accepting, avoiding,sharing, or reducing the

risk.

Examples of Controls to Reduce



Examples of Business Risks

Examples of Controls to Reduce

Business Risks

Intellectual assets being stolen from

computer files

Create firewalls that prohibit computer

hackers from computing or stealing

intellectual property

Products harming customers Develop a formal and rigorous new

product-testing program

Losing market share due to the

unforeseen actions of competitors

Formalize an approach for legally

gathering information aboutcompetitors' plans and practices

Poor weather conditions shutting down

operations

Develop contingency plans for

overcoming any disruptions due to

weather

A website malfunctioning Develop a pilot testing program before

going "live" on the Internet

A supplier strike halting the flow of raw

materials

Establish a relationship with two

companies capable of providingneeded raw materials

An incentive compensation system

causing employees to make poor

decisions

Create a balanced set of performance

measures that motivates the desired

behavior

Financial statements unfairly reporting

the value of inventory

Count the physical inventory on hand

to make sure that it agrees with the

accounting inventory

An employee stealing assets Segregate duties so that the sameemployee does not have physical

custody of an asset and the ability to

account for it

An employee accessing unauthorized

information

Create password-protected barriers

that prohibit employees from obtaining

information not needed to do their jobs

Inaccurate budget estimates causing

excessive or insufficient production

Implement a rigorous budget review

processFailing to comply with equal

employment opportunity laws

Create a report that tracks key metrics

related to compliance with the laws

Identifyingand

ControllingBusinessRisks


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The Certified Management Accountant (CMA)

RigorousProfessional

Exam

GreaterResponsibilities

HigherCompensation

Information about becoming a CMA and theCMA program can be accessed on the IMAs

website at www.imanet.org or by calling1-800-638-4427.
http://www.imanet.org/http://www.imanet.org/


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McGraw Hill /Irwin C h 2008 b h G ll C All h d

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