There are many professions, accounting, investing, law, and others, that have ad

Question

There are many professions, accounting, investing, law, and others, that have adopted a series of ethical standards to provide guidance for their memberships. The Institute of Management Accountants (IMA) and American Institute of CPAs (AICPA), for example, has published standards that focus on competence, confidentiality, integrity, and credibility. In light of these standards of the IMA, consider the cases below.

Case 1—Scott Corp. has experienced serious financial difficulties in the last few years. Jack Yoste, the CFO, has learned that a major competitor will probably file bankruptcy. In a recent board of directors meeting at Scott Corp., Mr. Yoste did not disclose the information about the bankruptcy. The board was considering several plant closings and focusing on how to improve the financial situation at Scott Corp.

Case 2—ABC Company manufactures cattle feed from various raw materials. One of the raw materials is corn. Jim Smith, the firm's purchasing manager, purposely acquired a lower grade of corn than normal because of its attractive price. The lower-grade corn results in increased usage during the manufacturing process but had no effect on the feed’s overall quality. With the overall savings in purchase price more than offsetting the cost of added consumption, profits have improved as a result.

Required: Evaluate the two cases and determine the ethical issues, if any, and use the IMA's standards if appropriate.

Explanation / Answer

CASE 1:

Ethical Issue:non-disclosure of important information

The IMA has the following four standards to which the organization holds CMAs accountable, and these are highly relevant and worthwhile for all accountants and finance professionals to consider:

CASE 2:

ethical issue: using unethical practices for increasing profitability

The IMA notes the following ethical standards in managerial accounting: competence, confidentiality, integrity and credibility. Competence is an accountant’s ability to use professional expertise and develop his accounting knowledge and skills. Confidentiality requires accountants to disclose information only at their supervisor’s discretion. Integrity prohibits managerial accountants from engaging in unethical conduct. Credibility refers to the accountant’s ability to communicate accounting information fairly and objectively to all business stakeholders.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.