1.7.2: Typical Ethical Challenges

Typical Ethical Challenges

Ethical issues can confront management accountants in many ways. Here are two examples:

CASE A: A management accountant is concerned about the commercial potential of a software product for which development costs are currently being capitalized as an asset rather than being shown as an expense for internal reporting purposes. The firm’s division manager, whose bonus is based, in part, on the division’s profits, argues that showing development costs as an asset is justified because the new product will generate profits. However, he presents little evidence to support his argument. The last two products from the division have been unsuccessful. The management accountant wants to make the right decision while avoiding a difficult personal confrontation with his boss, the division manager. (This case is similar to the situation at Toshiba where senior managers set aggressive divisional targets and divisional accountants inflated divisional profits to achieve them.)
CASE B: A packaging supplier, bidding for a new contract, offers a management accountant of the purchasing company an all-expenses-paid weekend to the Super Bowl. The supplier does not mention the new contract when extending the invitation. The management accountant is not a personal friend of the supplier. He knows cost issues are critical when it comes to approving the new contract and is concerned that the supplier will ask for details about the bids placed by competing packaging companies.

In each case, the management accountant is faced with an ethical dilemma. Ethical issues are not always clear-cut. Case A involves competence, credibility, and integrity. The management accountant should request that the division manager provide credible evidence that the new product is commercially viable. If the manager does not provide such evidence, expensing development costs in the current period is appropriate.

Case B involves confidentiality and integrity. The supplier in Case B may have no intention of asking questions about competitors’ bids. However, the appearance of a conflict of interest in Case B is sufficient for many companies to prohibit employees from accepting “favors” from suppliers.

Exhibit 1-8 presents the IMA’s guidance on “Resolving Ethical Issues.” For example, if the divisional management accountant in Case A is not satisfied with the response of the division manager regarding the commercial viability of the product, he or she should discuss the issue with the corporate controller. The accountant in Case B should discuss the invitation with his or her immediate supervisor. If the visit is approved, the accountant should inform the supplier that the invitation has been officially approved subject to following corporate policy (which includes not disclosing confidential company information).

Exhibit details the steps applied in resolving issues.

The details of the exhibit are as follows:

In applying the Standards of Ethical Professional Practice, the member may encounter unethical issues or behavior. In these situations, the member should not ignore them, but rather should actively seek resolution of the issue. In determining which steps to follow, the member should consider all risks involved and whether protections exist against retaliation.

When faced with unethical issues, the member should follow the established policies of his or her organization, including use of an anonymous reporting system if available.

If the organization does not have established policies, the member should consider the following courses of action:

The resolution process could include a discussion with the member’s immediate supervisor. If the supervisor appears to be involved, the issue could be presented to the next level of management.
IMA offers an anonymous helpline that the member may call to request how key elements of the IMA Statement of Ethical Professional Practice could be applied to the ethical issue.
The member should consider consulting his or her own attorney to learn of any legal obligations, rights, and risks concerning the issue.

If resolution efforts are not successful, the member may wish to consider disassociating from the organization.

Source: IMA Statement of Ethical Professional Practice, 2017. Montvale, NJ: Institute of Management Accountants. Reprinted with permission from the Institute of Management Accountants, Montvale, NJ, www.imanet.org.

Most professional accounting organizations around the globe issue statements about professional ethics. These statements include many of the same issues discussed by the IMA in Exhibits 1-7 and 1-8. For example, the Chartered Institute of Management Accountants in the United Kingdom advocates five ethical principles similar to those shown in Exhibit 1-7: professional competence and due care, confidentiality, integrity, objectivity, and professional behavior.