Managerial Accounting Ethical Issues

Categories: Accounting Ethical Issues In The Workplace

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According to my research, the managerial accounting focuses on providing information to internal users and decision-makers in many areas, such as cost-benefit analysis, investing and financing making decisions, performance evaluation, and many others.

One of the most noticeable ethical issues in managerial accounting is performance evaluation. As Kenton B. and Gary M.(Management Accounting Quarterly Spring 2013, Vol.14, No.3 ) noticed, 'The business area is replete with stories about how employees engage in dysfunctional, questionable ethical, and sometimes illegal behaviors in order to make themselves looks better on performance evaluations and obtain bonuses', the compensation of managers are largely depending upon whether certain earning targets are met during a target time, thus culminating ethically contradictory behaviors such as budget gaming and earnings manipulation.

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Then based upon 276 responses of 46 conveys, they found out that decision makers were more neutral in their judgments about employees' unethical actions engage in budget gaming or earnings management when the consequences favored the firm while the supervisors were much less encouraging to their subordinates when it came to ethical budgeting situation.

Another occurring dilemma is the manipulation of debt and expense.

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According to Teresa S., Stacy B., and Thomas T., 'Ethics-related vignettes include an operational expense reclassification to an asset in order to avoid debt covenant noncompliance and expense reclassification from a proposed capital budgeting project to normal operations in order to increase projected internal rates of return (IRR)'(https://business.uaa.alaska.edu/documents/stephenson_wade_tiahrt.pdf). In the research, quantitative methods such as General Linear Modeling (GLM) MANCOVA regression and independent sample tests with correction for unequal variances to investigate the interplay between ethical (unethical) behavioral treatments with favorable (unfavorable) consequence treatments on moral intensity are employed to come to the conclusion that moral intensity, financial indicators, and ethical judgment are interactional factors in managerial-accounting-related ethical issues.

Indeed, there have been plenty of explorations regarding to how to properly combine ethical motivations and material ones to avoid the negative externalities influence from managerial accounting misconduct, Babak J and Foroozan K (Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol 3, No 6, 2012) pointed out 'the role of organizations in their own management accountant’s ethical motivation was critical by the creation of organizational values'.

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Typical ethical problems include the desire to be promoted, the desire to earn money quickly and personal obligations of companions, all subjected to internal auditors review. Consequently, it is absolutely necessary to establish an industrial behavior of codes in which clear articulation of ethical values to employees, the thorough understanding of employee's values well enough in the hiring and promotion process, and materially rewarding employees who uphold ethical values while punishing those who don't are conducted.

Given that ethical issues are blurry on the verge of laws and self-disciplines, industrial standards should be in place that ensures the proper of supervision on them deter managerial misconduct from management hierarchy. As Marian T states(Scientific Bulletin-Economic Sciences, Vol.9(15)-Accounting, Statistics, and Financial Analysis, http://economic.upit.ro/repec/pdf/c4.pdf) pointed out 'professional accounting associations should develop ethical guides with the purpose of supporting management accountants in solving the ethical problems they may encounter, preferably from when they are still in universities'. The idea should be imparted upon practitioners of managerial accounting what they should refrain from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantage either personally or through third parties.

To conclude, managerial accounting ethical issues have been a recurring hot spot in both academic and professional accounting since they reveal the uncertainty of human nature in the rigid numbers carved in the financial statements. The appropriate dealing with managerial accounting ethical issues and divert them to positive internalities for corporations value thorough and constant research endeavors.