Code of Ethics in Management Accounting and Financial Management

When faced with major problems and dilemmas in management accounting and financial management, practitioners look to the 'standards of ethical conduct' for practitioners of management accounting and financial management. While looking at ethical standards one has to look at four different areas they are competence, confidentiality, integrity, and objectivity. These four areas are the backbone of what management accounting and financial management are made. When faced with a possible violation within this backbone of the ethical standards one should ask themselves two questions, "Will my actions be fair and just to all parties affected?" and "Would I be pleased to have my closest friends learn of my actions?"practitioners of management accounting and financial management have an obligation to the public, organization, and themselves to adhere by the ethical standards both domestically and internationally.

Competence and Confidentiality

There are four ethical components of the IMA of the United States (Institute of Management Accountants): competence, confidentiality, integrity, and credibility. These components mirror why business ethics are important in managerial accounting. First, if a managerial accountant is not competent at their profession, they will be unaware of important rules and regulations and laws locally, state-wide, and federally. This could jeopardize the organization substantially. Second, if the managerial accountant is not confidential about financial matters and uses their access to information for unethical purposes or gain, it could ultimately result in a company going under and many people losing their livelihoods. Integrity and Credibility Third, it is important that managerial accountants refrain from any activity that could be construed as a conflict of interest. Managerial accountants that participate in activities that are a clear conflict of interest are breeding distrust. Even if they are not showing any favouritism to a production shift supervisor who happens to be a relative, other shift supervisors will assume that they are fudging numbers if that supervisor's production performance is better. Fourth, honouring ethical procedures in managerial accounting cannot be accomplished unless the managerial accountant discloses any and all relevant information available to the person making a decision that will impact the company. To do otherwise is not only unethical; it limits the decision-maker from making an informed decision, thus jeopardizing the businesses success as a whole. Unethical, Untrustworthy Managerial Accountants Businesses rely on word of mouth and past conduct to customers and creditors to remain successful. A company's day-to-day managerial accountants are relied upon to portray accurate market purchasing trends, inventory quantity levels, as well as expected costs for supplies and production labour.

If the managerial accountant is unethical, these numbers could be skewed. And skewed accounting reports can result in not having needed supplies on hand to produce and meet orders, as purchasing agents rely on these reports. It can result in overestimating and the ability to pay creditors, resulting in un-kept financial commitments. And, it can result in faulty premises regarding the financial viability of the company when making decisions to expand to new markets or add additional product lines. Thus, the importance of ethics in managerial accounting boils down to the potential of business success or business failure.