Managerial Accounting and Business Ethics

Introduction In the business actuality of the present day, where knowledge management together with intangible assets are fundamental sources of competitive advantage, the individual action and behavior of employees ranging from first-line personnel to management can facilitate the success or downfall of an organization’s reputation. This has a substantial effect on share value, the capability to attract and sustain consumers, investors, personnel, or clients, and the risk of violating compliance (Jamshidinavid and Kamari, 2012).

Addressing business ethics and responsibility issues within a business entity begins the compliance of the pertinent legislations and codes of practice. As a provider of business needs with scarce resources, there is the need to have the capability to make a distinction between the appropriate and inappropriate way of taking expense into account when making decisions regarding practices and processes of clients. In the contemporary business setting, the role that is played by accountants is significant.

The data and information that they provide is pivotal in helping managers, investors, together with other stakeholders in making important economic decisions. In view of that, ethical indecencies by accountants can have an adverse impact to the society, giving rise to distrust by the general public and interference of efficacious operations in the capital market. Fitting instances of such failures include scandals in corporations such as World Com, Enron, and also individual such as Martha Stewart (Jamshidinavid and Kamari, 2012).

The main objective of this paper is to examine the business ethics in managerial accounting from the perspective of product liability. Business Ethics in Managerial Accounting: Product Liability Perspective Managers necessitate information from managerial accounting for decision making in a just about incessant and more recurrent manner. Managerial accounting permits for management planning, operation and control of the current and future of the organization for continual progression and achievement (Ghose, 2017).

Corporations are completely reliant on managerial accountants for providing the accurate state of operations such as precise market purchasing trends, anticipated expenses for supplies and production labour, and inventory quantity levels. Imperatively, unethical managerial accounting could give rise to distorted numbers giving rise to stock outs, delivery delays, production slowdowns and wastages, financial deficiencies and detrimental strategic decisions. Ethical standards ought to be espoused and sustained by all managerial accountants with classic ethical leadership from the top-ranking management.

In addition, devoid of driven ethical behavior by management accountants, all of the codes, policies and standards will eventually turn out to be ineffective (Ghose, 2017). Product liability signifies one of the issues at the core of ethical and socially responsible behavior for businesses. Product liability encompasses the area in which business manufacturers or producers, distributors, suppliers, as well as retailers are held liable and culpable for the harm that such products cause.

One of the key aspects that is linked to product liability is negligence in the sense that a management accountant become in breach of the duty that is owed to him or her and there is a resultant quantifiable damages. There is also the aspect of strict liability where the professional is liable for careless standard of conduct or unethical behavior in the course of conducting his or her duties and thereby providing misleading, inaccurate or false information to other parties.

The Institute of Management Accountants (IMA) is the most significant management accountant professional body in the nation and has developed benchmarks of ethical conduct for compliance with four basic principles including: competence, confidentiality, integrity, and credibility (Garrisson, Noreen, and Brewer, 2018). Competence Management accountants have a responsibility to maintain a suitable level of professional specialty by incessantly developing knowledge and skills. Secondly, there is the duty to undertake professional responsibilities in line with pertinent laws, regulations and technical benchmarks.

Third, management accountant are liable to provide decision support information and recommendations that are precise, clear, succinct and timely. Lastly, every management accountant has a responsibility to acknowledge and communicate professional restraints or other limitations that would hinder responsible judgment or efficacious performance of an activity (Garrisson, Noreen, and Brewer, 2018). Confidentiality Managerial accounting necessitates the accountant to ensure that information is kept confidential at all times with the exception of when disclosure is sanctioned or legally necessitated.

Secondly, there is the accountability to notify all pertinent parties concerning suitable use of confidential information and monitor the activities being undertaken by subordinates to ensure compliance. What is more, the management accountant is expected to abstain from making use of confidential information for unethical or illegal advantage (Garrisson, Noreen, and Brewer, 2018). Integrity In regard to integrity, one of the key responsibilities of the management accountant is to alleviate actual conflicts of interest.

This takes into account undertaking regular communication with business affiliates in order to evade apparent conflicts of interest and also advising all parties of any prospective or possible conflicts. Secondly, there is a significance in refraining from participating in any conduct or behavior that would partiality carrying out duties in an ethical manner. In addition, management accountants should refrain from taking part in or supporting any activity that may discredit the accounting profession (Garrisson, Noreen, and Brewer, 2018). It is imperative for management accountants to avoid addressing self-interest actions.

Notably, motivated self-interest impacts all individuals and leads them to act in unethical manners, which benefit them in one way or another. At times, when professionals are not financially detached from participating in particular behaviors and conducts, it can be anticipated that self-interest will hamper their professional actions. However, as professionals, management accountants are obligated to act with integrity at all times (Jamshidinavid and Kamari, 2012). Credibility Credibility is another overarching ethical principle that ought to be taken into consideration by a management accountant.

This includes communicating and conveying information in a fair and objective manner. Secondly, the accountant is expected to disclose all pertinent information that could sensibly be anticipated to impact an anticipated user’s understanding of the reports, analyses, or recommendations. What is more, it is imperative to reveal any interruptions or deficiencies in information, aptness, processing, or internal controls in conformance with organization policy and applicable law (Garrisson, Noreen, and Brewer, 2018). Business Ethics Violations Ethical violations have extensive and wide ranging consequences for an entity.

At the very minimum, they hinder managers from making suitable and reasonable business decisions. Greater ethical violations have forced organizations as a whole to shut down and individuals to go to jail owing to their participation. In regard to managerial accounting, business ethics violations are categorized into four different groups including withholding information, misleading information, competence, and conflicts of interest. Withholding Information No individual prefers bearing bad news or information to others. In a number of instances, it might be ideal to retain negative information to oneself.

Nonetheless, financial professionals such as management accountants are obliged to reveal all information, whether it is positive or negative. It is imperative to note that managers are dependent on the advice, guidance and reports they obtain from managerial accountants. In a number of instances, there might be reasons for negative information that the managers are already cognizant about and are anticipating.

For instance, in the case of product liability, if a department makes a major investment into a new product, there is expected to be a great deal of additional expenses during that accounting and financial reporting period. Failing to disclose such information might detrimental. Bearing this in mind, it is imperative for the managerial accountant to research information so as to sustain an efficacious and effective work setting (Davis and Davis, 2011). Misleading Information Misleading information can lead to the violation of managerial accounting ethics.

In the event that a managerial accountant comprehends that it is unethical to withhold or refrain from revealing information, he or she may try to mislead other individuals to make it seem that things are better or worse as compared to what they really are. This action might take the form of conveying the information in a manner that makes it appear dissimilar than what it in fact is. An addition kind of misleading information is when an individual capitalizes on various approaches to compute the data for reports (Heisinger, 2009).

Management accountants have specific rules that impel them from altering the method or approach of calculating data for financial reports owing to the reason that it can have a significant impact on their profitability reports, including the reported net incomes. One fitting instance, with respect to product liability takes into account the computation of a product’s inventory value. With regard to this calculation, there are at least three various approaches that aid in ascertaining the value of the inventory that is held by the organization.

These comprise of the first in first out (FIFO) approach, last in first out (LIFO) approach and the weighted average valuation method.

It is imperative to note that if a management accountant chooses to make an accounting report using the last in first out (LIFO) method but the accountant opts to change the approach to first in first out (FIFO), it can make the net profit appear greater owing to the reason that the value of the inventory rises and the lowest costs were apportioned to goods that have already been retailed. This gives rise to misleading information. Competence Rules and regulations in the accounting field are incessantly changing.

Bearing this in mind, it is imperative for financial professionals to make certain that they are up to date with all the pertinent updates to those legislations as they apply to their companies. In addition, any reports that are created by the management accountants ought to provide a specialized and proficient examination of the information in order for managers to be able to use them in making positive alterations within the organization.

Within the accounting field, competencies vary from basic book keeping and required communication, to problem solving and financial analysis. In regard to product liability, management accountants are expected to acknowledge and deal with intricate issues and at the same time efficaciously communicate their findings to others within the company. Conflicts of Interest A management accountant might be faced with a conflict of interest when undertaking his or her professional service. In delineation, a conflict of interest generates a risk to impartiality and may generate threat to other key ethical principles.

A management accountant is obligated not to allow a conflict of interest circumstance to comprise business or professional discernment and decision making. In regard to a product liability perspective, a management accountant may be in a conflict of interest situation where he or she provides professional services linked to a particular product for two or more clients whose interests are vested with respect to that product are in conflict.

For instance, a management accountant may find himself or herself in a situation where two different clients are seeking advice at the same time, and are in pursuit of acquiring the similar product where the advice may be pertinent to the competitive positions of the parties. Another example of conflict of interest in regard to product liability encompasses providing services to both the vendor and procurer in relation to the similar product (CIMA, 2018). One of the key enticements is being predisposed to clienteles.

Markedly, accountants may form a high level of trust and conviction with either the clientele as a result of working on a particular product for a lengthy period of time. The downside to this is that the increased level of trust by the accountant for the client, the greater the likelihood of lacking professional skepticism in the analysis of financial information and disclosure (Zowie, 2012).

It is important to note that the inclination of a management accountant towards clients can give rise to conflict of interest and failure to identify substantial misstatements or the lack of suitable risk assessment, and disregarding the key issues that are linked to a.