1. How do you describe the differences between managerial and financial accounting?
Explain how the selection of a particular business strategy determines the information that managers need to run an organization effectively.
What are the importance of ethical behavior in managerial accounting?
2. Response to below:
Todd Morgan did act in an ethical manner, initially. According to the IMA statement of ethical professional practice, credibility is one of the principles Todd most uphold with his actions to: “Provide all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, analyses, or recommendations.”
Although Todd’s company is not a public company, they may be one day, and so by not reporting financials accurately management is setting a precedence with their employees that it acceptable to “fudge the numbers”, and that the end justifies the means. To intentionally misstate assets and liabilities is to mislead potential investors by not representing financials accurately.
Todd did voice his objections to the president and senior management, but in the end he complied with the request. The IMA standards of ethical professional practice advise for resolving ethical issues that, “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.” It is not known if Todd’s company has a code of ethics or anonymous reporting system in place. Even if they did, the fact that management at the top is requesting the dishonest act, there may not be anybody above the president to escalate Todd’s concerns to.
The fact remains that Todd did comply with an unethical request and even though he did not have an alternative except to resign, he still would be culpable for engaging in and supporting an activity that would discredit the profession which is described under IMA’s standards for integrity.
3. Imagine you are the accountant for Drive Write, a company that produces computer disk drives, and you are in charge of all accounting functions within the company. The president has informed you that if the company’s profits grow by 20 percent this year, you will receive a $20,000 bonus, and she will receive a $50,000 bonus. No bonuses will be awarded if profit growth is less than 20 percent. Because the company’s profits have grown 20 percent annually for the last 10 years, investors have come to expect significant growth from one year to the next. Near the end of this fiscal year, the president and you have the following conversation:
We are awfully close to hitting our numbers and getting to the 20 percent target. With two weeks remaining, projections show we will come in at 18 percent for the year. What can we do on the accounting side to increase current year profits?
Well, I’m not sure there is anything we can do. Our accounting is squeaky clean, as confirmed by our independent auditors. Perhaps our sales will improve next year.
There has to be something we can do I could sure use the bonus money, and our investors would appreciate an increase in their investment! I know we have a large customer order to be filled the first week of next year. Why not include that sale in this year’s numbers?
I’m not comfortable recording sales in the wrong fiscal year.
We’re only talking about moving sales by a few days! I would like you to consider this carefully. If you can’t do this, I may have to find an accountant who can! Let’s talk about our options later this week.
Question: The situation at Drive Write creates a serious ethical dilemma. (The Drive Write example is based on a real company called MiniScribe Corporation, subsequently purchased by a competitor.) Companies are constantly under pressure to meet sales and profit goals. Employees who succeed in meeting these goals often reap huge monetary rewards; those who fail may be penalized with lower pay or may even lose their jobs.
What would you do if asked to record information in a way that distorts the company’s financial results?
4. Response to below:
Their are significant differences between managerial accounting and financial accounting. Managerial accounting is for in house use for the company and the word I keep hearing which is decision making for managers and higher ups. On the other hand, financial accounting is for outside use such as creditors and investors to monitor how the company is doing financially. Another difference is in how it is done. Their is no standards or rules when it comes to managerial accounting compared to financial accounting which has to follow GAAP under the SEC. Lastly another difference which really caught my eye was managerial accounting is all about the future and present in making the best decision for the company. Financial accounting is a screenshot of the past to see how it did last quarter or year for investors or creditors.
The importance of ethical behavior in managerial accounting is vital for the success of a company. If unethical behavior is allowed it can lead to inaccurate information to the decision makers in the company which means not making the best decisions for the company. Also unethical behavior leads to problems in financial accounting because the information is not accurate or right. Investors and creditors can be fooled and lied too which lead to the destruction of the company and government agencies getting involved. Overall ethical behavior keeps the company clean and trustworthy in the eyes of the costumers and investors.