Corporate Greed
Corporate Greed
In this paper I will be discussing the differences between Managerial and Financial Accounting. In addition, I will discuss the different types of reports that are generated for financial accounting and managerial accounting and their uses. I will also discuss the four major categories of the Institute of Management Accountants (IMA) Standards of Ethical Conduct for Management Accountants. Finally, I will offer an example of what would constitute a violation of the IMA in the four major categories.
Management accounting is described as, “Management accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information used by management to plan, evaluate, and control within an organization and to assure appropriate use of and accountability for its resources.” (MAP, p. 58) This basically means that managerial accounting, when used correctly should yield in a more efficient company, maximizing the utilization of its employees, equipment, and materials.
Some of the reports that managers use to maximize the output of the company may be for example the Efficiency ratios, which include the Net Income ratio and the Return on Assets ratio. Managers can also use Liquidity ratios, Profitability ratios, and Leverage ratios as well. These different ratios can give management a snap shot view of what is going on at the current moment. In addition, the ratios can be adjusted to look into the future and help see what the possible outcome can be without really having to implement any changes. This is a great tool in assisting companies to forecast what they want to do in effort to move into their desired direction. Again, these are just tools and the implementation of changes must be monitored adequately to insure the desired outcome. In essence these ratios cannot work alone. In order for these ratios to be drawn, the use of the balance sheet and income statement are also needed and ultimately human intervention.
Financial Accounting is the accounting practice in which public companies release their financial documents for the public to view. In the instance the company may be a private company, they would then release the documents directly to whom they wish to be privileged to see those documents. Public companies have an interest in releasing such information to attract investors to invest money in their companies. Private companies may wish to release their document for the same reasons, but typically they are looking for financing from a bank or a group of venture capitalists. In both instances, however the goal is to secure additional funds to assist in normal operations, move into a new market segment, or simply buy equipment.
In Financial Accounting, however the documents used are somewhat different. In Financial Accounting they use the Statement of Incomes, Balance Sheet, Statement of Cash Flows, and the Statement of Shareholder’s Equity. These documents can also be found in a consolidated format, which makes for easier reading. Additionally, the consolidated format will offer an explanation of how those consolidations where calculated. These numbers alone should not be the ultimate tool used in determining if an investor should invest with the company or not. The ratios that management accountants use can also be employed at this level to validate the companies positions and get an in depth view of how that company is performing in comparison to other companies in its respective market.
The IMA Standards of Ethical Conduct for Management Accountants clearly lays out the guidelines in four categories in which accountants should adhere to. Those four categories consist of: competence, confidentiality, integrity, and objectivity. These four categories are the backbone of the standards of conduct. “If societal values are deteriorating, maintaining high ethical standards in accounting and business grows increasingly difficult.” (Smith, L., P. 47) This has been increasingly apparent in the recent years, with cases such as Health South, World Comm, Tyco, and Enron.
Competence is an issue that can affect many companies within the chain of accounting. If an accountant or accounting firm is not up to date on the rules and regulations or simply wishes to ignore Generally Accepted Accounting Principles (GAAP), the accountant or firm can put its client in a situation which can potentially be costly and/or compromise the very existence of the company. Of course the level of competency comes from the top in an accounting firm, but at the lower level we rely on education at the collegiate level and continuing education requirements.
Confidentiality is probably one of the most complicated issues when it comes to violation of the Standards of Ethical Conduct. Accountants must be able to recognize what is confidential information