Management accounting is mainly concerned with the use of accounting provisions to make conclusive and reliable information that can enhance appropriate decision-making. It essentially includes methods and concepts that can facilitate effective decision-making, control, and plan formulation. Management accounting is somehow different from financial accounting. In this case, management accounting focuses on future predictions and information that enhance better decisions making. Management accounting is mainly used by managers, and unlike financial reports, management reports are not made public. However, the similarity between the two disciplines is that they are both required to conform to a given code of ethics (Selto, Curry & Horngren, p. 46).
For management accounts, all members are regulated by a code of ethics. This code of conduct and ethics seek to ensure that the practicing professionals and the organization uphold a certain level of professionalism. The ethical guidelines or principals include honesty, fairness, objectivity, and fairness. In management accounts, the professionals are required to observe competence, integrity, confidentiality, and credibility. This implies that members of the organization should act in accordance with the stipulations and encourage others to follow suit. Failure to comply with these tenets will automatically call for disciplinary action.
Christen Madsen in the Appliance division of Solequin Corporation is in a dilemma. The dilemma cuts across the ethical guidelines governing professionals in the management accounting field. Lance Jusic, the general manager of the organization, wants a 5 percent cut in the next year’s direct labor cost estimates. The cut is aimed at maintaining a reserve that will eventually boost end year operating income. The issue defies various standards in the management accounting profession. In this case, the tenet of competence, integrity, and credibility are violated by doing so. The manager’s preposition clearly violates the competence standard. The standard requires the information to be accurate and clear. However, the manager wants estimation to be made to facilitate the Christmas bonus thus undermining the competence tenet (Horngren, p. 76).
The standard of integrity requires the management accountants to behave in a manner that does not discredit the professionals. This is only achievable if the professionals carry out their responsibilities ethically. The general manager’s proposal also violates this principle. With regards to credibility, the information should be objective, and the user should be aware of all relevant facts that were included as the information was being compiled. Hence, the general manager’s proposition has led to a violation of all the standard requirements (Shaw, p. 17).
However, if Lance insists that Christen undertakes the duty even after she conveys her dissatisfaction, there is a way she can remedy this situation. Since Lance is the general manager, Christen should seek a resolution with the managing director of Solequin Corporation. However, if Lance is the most senior person, then Christen should air her grievances to an executive committee or even the owner. However, before communicating with external authorities, Christen should ensure that there is a vivid breach of law. Christen should also consider obtaining advice from an ethics counselor on the viable action to take. In instances of breach of law, Christen should seek advice from an attorney.
Christen is fully aware that the requirements of the general manager are unethical. With the provision of the Christmas bonus, Christen will be violating multiple standards. With these facts, Christen should not indulge in unethical practices.
The Christmas bonus will be as follows:
|Estimated direct labor hours||110000|
|Predetermined overhead rate||20|
|Estimated overhead costs for the year||2200000|
|Estimated direct labor hours||105000|
|Predetermined overhead rate||20|
|Estimated overhead costs for the year||2100000|
|Difference in overhead cost (Christmas bonus)|
A code of conduct and ethics seek to ensure that the practicing professionals and organizations uphold a certain level of professionalism. As such, it is prudent for managers to abide by the set stipulations in the IMA code of ethics.
Horngren, Charles T. Introduction to Management Accounting: Chapters 1-17. Boston: Pearson Education, 2011. Print.
Selto, Frank H., D. W. Curry & C. T. Horngren. Study Guide – Introduction to Management Accounting. Upper Saddle River, N.J: Pearson Prentice Hall, 2008. Print.
Shaw, William H. Business Ethics. Boston, MA: Wadsworth/Cengage Learning, 2011. Print.