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S13_Acc+Suply_handouts - Ethics in Accounting Ethics and...

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Unformatted text preview: 3/9/2010 Ethics in Accounting Ethics and Accounting-Finance DR. TRUONG THI NAM THANG One of the primary goals of accounting is to provide useful information for decision making. In order for the information to be useful, it must be trusted. Accountants must act in an ethical manner in order for the information they produce to be trusted. Ethical obligations of accountants Ethical Reasoning Influences Behavior in Accounting Maintain a high level of professional competence. Treat sensitive information as confidential. Exercise Exercise personal integrity. Be objective in matters of financial disclosure Auditor’s independence judgments Ability to resist management pressure Ability to detect fraud Hiring and promotion decisions in public accounting firms Underreporting behavior Objectivity of litigation-support decisions Tax compliance decision making 1 3/9/2010 To Whom are Accountants Responsible? Government Employees Communities Accounting Firm Client How Can Stakeholders Be Harmed by Ethical Lapses in Accounting? Employees can lose jobs Suppliers can lose orders Business partners can lose working relationships Investors, creditors, and investment bankers can lose money money Society can lose trust in business as an institution Conflicts of Interest? Creditors & Underwriters Suppliers Investors Importance of Ethics in Accounting IMA Code of Ethics for Management Accountants • Ethical accounting practices build trust and promote loyal, productive relationships with users of accounting information. • Many companies and professional organizations, such as the Institute of Management Accountants (IMA), have written codes of ethics which serve as guides for employees. – Four broad areas of responsibility: Maintain a high level of professional competence treat sensitive matters with confidentiality Maintain personal integrity Be objective in all disclosures Code of Conduct for Management Accountants 2 3/9/2010 IMA Code of Ethics for Management Accountants IMA Code of Ethics for Management Accountants Do not disclose confidential information unless legally obligated to do so. Follow applicable laws, regulations and standards. Maintain professional competence. Competence Do not use confidential fid information for personal advantage. Prepare complete and clear reports after appropriate analysis. IMA Code of Ethics for Management Accountants Ensure that subordinates do not disclose confidential information. IMA Code of Ethics for Management Accountants Avoid activities that could affect your ability to perform duties. Avoid conflicts of interest and advise others of potential conflicts. Do not subvert organization’s legitimate objectives. Integrity Recognize and communicate personal and professional limitations. Confidentiality Refrain from activities that could discredit the profession. Integrity Refuse gifts or favors that might influence behavior. Communicate unfavorable as well as favorable information. 3 3/9/2010 IMA Code of Ethics for Management Accountants Communicate information fairly and objectively. IMA Code of Ethics for Management Accountants Resolution of Ethical Conflict • Follow established policies. • For unresolved ethical conflicts: – Discuss Discuss the conflict with immediate superior. – If immediate superior is the CEO, consider the board of directors or the audit committee. – Objectivity Objectivity Except where legally prescribed, maintain confidentiality. Disclose Disclose all information that might be useful to management. IMA Code of Ethics for Management Accountants Resolution of Ethical Conflict What are the desired characteristics of information? Timeliness Clarify issues in a confidential discussion with an objective advisor. Understandability Consult an attorney as to legal obligations. Truthfulness Reliability Reliability The last resort is to resign. 4 3/9/2010 What is truth? Fair Not misleading Unbiased Not predisposed in a particular direction Representational faithfulness Conveys an accurate impression of the underlying reality Management Accounting Examples Manipulating Earnings Smoothing Playing with bad debt reserves, asset lives, inventory adjustments, timing of write offs Playing with timing of revenues Hiding Debt Leases Special Purpose Entities Forms of Lying Saying something that is not so Overstatement/exaggeration Understatement Withholding relevant information What do these have in common? They all fail to convey a true impression Auditing Examples Allowing clients to “get away with” accounting treatments the purpose of which is to lie / distort / manipulate Holding GAAP as the ultimate standard, instead of truth Failing to follow substance over form Advising clients how to structure transactions so as to “get around the rules” 5 3/9/2010 Ethics and Supply Chain Management SupplySupply-Chain Management Important activities include determining 1. Transportation vendors 2. Credit and cash transfers 3. Suppliers 4. Distributors and banks 5. Accounts payable and receivable 6. Order fulfillment 8. A Supply Chain Warehousing and inventory 7. Sharing customer, forecasting, and production information Global Supply-Chain Issues SupplySupply Supply chains in a global environment must be able to React React to sudden changes in parts availability, distribution, or shipping availabilit channels, import duties, and currency rates Use Use the latest computer and transmission technologies to schedule and manage the shipment of parts in and finished products out Staff Staff with local specialists who handle duties, freight, customs and political issues Figure 11.1 6 3/9/2010 Ethics in the Supply Chain Opportunities Opportunities for unethical behavior are enormous and temptations are high Many Many companies have strict rules and codes of conduct that define acceptable th behavior Institute Institute for Supply Management has developed a detailed set of principles and standards for ethical behavior Principles and Standards for Ethical Supply Management Conduct Principles and Standards for Ethical Supply Management Conduct LOYALTY TO YOUR ORGANIZATION JUSTICE TO THOSE WITH WHOM YOU DEAL FAITH IN YOUR PROFESSION Principles and Standards for Ethical Supply Management Conduct Avoid the intent and appearance of unethical or compromising practice in relationships, actions, and communications 2. Demonstrate loyalty to the employer by diligently following the lawful instructions of the employer, using reasonable care and granted authority 3. Avoid any personal business or professional activity that would create a conflict between personal interests and the interests of the employer Table 11.5 4. Avoid soliciting or accepting money, loans, credits, or preferential discounts, and the acceptance of gifts, entertainment, favors, or services from present or ift potential suppliers that might influence, or appear to influence, supply management decisions 5. Handle confidential or proprietary information with due care and proper consideration of ethical and legal ramifications and government regulations 6. Promote positive supplier relationships through courtesy and impartiality 7. 1. Avoid improper reciprocal agreements Table 11.5 7 3/9/2010 Supplier Ethics Management Principles and Standards for Ethical Supply Management Conduct 8. Know and obey the letter and spirit of laws applicable to supply management 9. Encourage support for small, disadvantaged, and minorityminorityowned businesses The management of suppliers and supply relationships with strategies, programs, and metrics that better align supplier business conduct with purchaser standards, with the goal of reducing the purchaser’s overall risk of corporate integrity failure in the supply chain. 10. Acquire and maintain professional competence 11. Conduct supply management activities in accordance with national and international laws, customs, and practices, your organization’s policies, and these ethical principles and standards of conduct 12. Enhance the stature of the supply management profession Table 11.5 Supplier Code should address these topics Environment, Health & Safety Forced Labor Child Labor Wage & Hour Free Association & Collective Bargaining Discrimination & Abuse Compliance with Laws 8 ...
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