Question

Read the business scenario below and prepare a 3-5 page paper discussing the ethical issues in detail. Identify and describe which IMA ethical standard is violated the most in each employees’situation.

Rakes, Inc. is the largest manufacturer of yard equipment in the Midwest which includes these four outstanding employees, among many other employees. Ingrid works in internal audit, Fred works in financial reporting, Tina works in the tax department, and Andrews the Assistant Controller. Each of these employees has taken and passed the CMA exam. However, recently they have experienced some difficulties at work. Fred works in financial reporting and has been on a team to prepare reports for budget and forecast sales data in the upcoming year. He was informed about a new product that will bring a significant increase in sales and earnings for the company. During lunch with some friends, they were asking for sound investment information because they wanted to add anything that was a “sure bet” to their portfolio. You unintentionally let this slip out and afterward wondered about the implications that may occur. Andrew is the Assistant Controller and has been working on a special project for year-end and discovered an unusual transaction that was not properly disclosed. A high write-off of spare parts had been postponed to the subsequent year so that this year’s earnings report falls within the expectation of the board of directors. He is not really sure about the disclosure rules so he decided to ignore it because nobody will know if they do not have access to the detailed information. After all, he only discovered it because of this special project. Tina was recently promoted into the tax department because she had shown initiative in her previous position. The hiring committee believed she was the right person for this position and that she could learn as she applies herself. Tina feels that having only one corporate tax class during college probably was not enough, and she is really stressed by the high level of skill needed, as well as deadlines and responsibility. They began piling the work on immediately. She knows they believe in her ability, and this is causing more stress. She does not know how to address this issue. Ingrid has recently noticed some lapses in internal control through her audit process. It seems the policy for reimbursement of expenses as outlined in the company procedure manual has been overlooked and expense reimbursement checks are going to employees without the proper receipts to back up the amounts. Looking further into it, you see several checks made out to the accounts payable clerk and they are unusually large and even sums of money. On Monday morning you decided to have a conversation with the accounts payable clerk, but before you could bring up the policy questions you have, she excitedly shares stories with you about her big winnings this past weekend at the local casino. You need to decide what to do.

Answer 1

Management accountants should behave ethically. They have an obligation to follow the highest standards of ethical responsibility and maintain good professional image.

The Institute of Management Accountants (IMA) has developed four standards of ethical professional conduct.

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 organization's established policies on the resolution of such conflict.

Now let's look at the first case

1.  Fred works in financial reporting and has been on a team to prepare reports for budget and forecast sales data in the upcoming year. He was informed about a new product that will bring a significant increase in sales and earnings for the company. During lunch with some friends, they were asking for sound investment information because they wanted to add anything that was a “sure bet” to their portfolio. You unintentionally let this slip out and afterward wondered about the implications that may occur.

In this the IMA ethical standard which is violated is :-

Confidentiality

• Keep information confidential except when disclosure is authorized or legally required.
• Inform all relevant parties regarding appropriate use of confidential information. Monitor subordinates' activities to ensure compliance.
• Refrain from using confidential information for unethical or illegal advantage.

Now let's look at the second case

Andrew is the Assistant Controller and has been working on a special project for year-end and discovered an unusual transaction that was not properly disclosed. A high write-off of spare parts had been postponed to the subsequent year so that this year’s earnings report falls within the expectation of the board of directors. He is not really sure about the disclosure rules so he decided to ignore it because nobody will know if they do not have access to the detailed information. After all, he only discovered it because of this special project.

In this the IMA ethical standard which is violated is :-

Credibility

• Communicate information fairly and objectively.
• Disclose all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations.
• Disclose delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law.

Now let's look at the third case

Tina feels that having only one corporate tax class during college probably was not enough, and she is really stressed by the high level of skill needed, as well as deadlines and responsibility. They began piling the work on immediately. She knows they believe in her ability, and this is causing more stress. She does not know how to address this issue.

In this the IMA ethical standard which is violated is :-

Competence

• Maintain an appropriate level of professional expertise by continually developing knowledge and skills.
• Perform professional duties in accordance with relevant laws, regulations, and technical standards.
• Provide decision support information and recommendations that are accurate, clear, concise, and timely.
• Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity.

Now let's look at the fourth case

Ingrid has recently noticed some lapses in internal control through her audit process. It seems the policy for reimbursement of expenses as outlined in the company procedure manual has been overlooked and expense reimbursement checks are going to employees without the proper receipts to back up the amounts. Looking further into it, you see several checks made out to the accounts payable clerk and they are unusually large and even sums of money. On Monday morning you decided to have a conversation with the accounts payable clerk, but before you could bring up the policy questions you have, she excitedly shares stories with you about her big winnings this past weekend at the local casino. You need to decide what to do.

In this the IMA ethical standard which is violated is :-

Integrity

• Mitigate actual conflicts of interest; regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts.
• Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
• Abstain from engaging in or supporting any activity that might discredit the profession.