Both financial accountants and managerial accountants generate reports and information specific to their roles within the company and play a role in making business decisions. Ethical considerations should become a top priority with accountants at all levels, new guidelines have become available in an effort to promote ethical behavior in accounting across the board.
One of those guidelines is provided by the Institute of Management Accountants (IMA) titled the Standards of Ethical Conduct for Management Accountants. Increased ethical regulations will impact financial and managerial accountants and the decisions that are made with the financial reports.
Professor Michael Bromwich illustrates the main differences between managerial and financial accounting, “Financial accounting reports the past results for the enterprise using historical cost accounting. Financial accounting is backward-looking and sacrifices decision relevancy for objectivity.” (Para. 3, 1988)
This is in direct contrast to the view of management accounting as a dynamic, forward-thinking, and meant to provide relevant information to guide company decisions. (Managerial Accounting, 1988) The main financial report provided by managerial accountants is the budget. While this, and other managerial statements, require information for financial statements to complete accurately, still provide movement for decisions to be made and risks to be had.
A budget projects where funds will be allocated for future use. Many of the reports provided by financial accountants, such as the balance sheet and statement of cash flows only provide a snapshot of the company’s past operations. Managerial accounting is at a disadvantage as it must use these reports but expand in a way that promotes growth and movement.
Larry White, chair of the IMA, explains some the role of a management accountant, “Management accountants have an ongoing focus on building value from inside the business-we build value in different ways in different situations, but our fundamental charge is decision support, planning, and control over the value creating operations of an organization.
Fundamentally, management accountants are the interface between business unit managers and the CFO’s financial processes. This creates an infinite variety of communication, interpersonal, and management challenges: cost management, analyzing the pursuit of revenue and customers, evaluating pricing, the impact of performance measurement systems on human behavior, seeking capital and evaluating its uses, and controlling operational and financial reporting, to name a few.
Managerial and financial systems use, management, and selection are ongoing issues.” (Perspectives, 2005)
Financial accounting has provided perspectives that are much more black and white than what management accounting is aiming for. Financial accounting statements such as the balance sheet provide a look at the company and how well they have done with all transactions accounted for. This type of information has always been useful for users who are specifically in need of just the specific financial information. Potential investors and management view reports as a tool to see how well they have done, and assume it reasonable that the company will perform at the same level over time.
Both types of accounting are used in conjunction to provide a wider outlook for the company and provide bases for making decisions and evaluating activities. But these two methods have been at odds since the development of managerial accounting. It is important to note that they both have their place and roles within an organization.
As ethics have become a growing concern in the accounting field, the standards and guidelines have been required to become clearer and more concise. The IMA has provided its own code of ethics. According to the code, “Members of IMA 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 IMA has promulgated the following standards of ethical conduct for its members. Members shall not commit acts contrary to these standards nor shall they condone the commission of such acts by others within their organizations.” (www.imanet.org)
There are four major categories described in the IMA’s code. They include Competence, Confidentiality, Integrity and Objectivity. Competence includes the responsibility of the accountant to remain knowledgeable and current with all accounting developments and procedures. This includes the ability to correctly complete financial reports and provide accurate information. This category requires continual training an environment that supports the full and correct disclosure of all information. Untrained accountants who are not familiar with the current standards and practices may be prone to making mistakes, but are to be held accountable.
Confidentiality is an important component as accountants will be handling important information that could be damaging in the wrong hands. The responsibilities outlined in this category include only disclosing information when authorized or legally obligated to do so. Accountants should even stay away from appearing to disclose any confidential information; this is an important factor, specifically in times when insider trading and unauthorized activities are occurring within organizations.
Disclosing of non-public activities, or using that information for your own investment activates are a big problem and should be avoided at all costs. While Competency can be accounted for and mistakes fixed, breaching confidentiality is legal issue not looked upon well.
Integrity is a key factor. Accountants should avoid any conflicts of interest, refuse gifts, and refrain from activities or people that could jeopardize the fair and accurate completion of their professional activities. Integrity is a matter of holding the legal and ethical considerations above all else and performing your function without outside interests being a factor. Violations of this standard would include providing only the favorable aspects of a transaction in an attempt to influence someone into making a decision without knowing of the negative aspects.
Finally, objectivity provides the clear and efficient communication of information. Objectivity includes the full disclosure of all relevant information and will weigh all sides of the decision without using personal influence to reach a personal goal. These four categories work together and hold correct and balanced information given in an ethical and professional manner in the highest regard.
Bromwich, Michael. “Managerial Accounting Definition and Scope – From a Managerial View” Management Accounting. Sep. 1988, p.26. Institute of Management Accountants website. www.imanet.org. Richardson, Alan J. “Professional dominance: The relationship between financial accounting and managerial accounting, 1926-1986” The Accounting Historians Journal. University: Dec 2002. Vol. 29, Iss. 2; pg. 91. White, Larry. “Perspectives” Strategic Finance. Mar. 2005. Vol. 86, Iss.9. P. 6.