Abstract
This paper discusses the differences between financial and managerial accounting. Furthermore, it addresses the types of information provided by both financial and managerial accounting. The Institute of Management Accountants (IMA) Standards of Ethical Conduct for Management Accountants are emphasized. These standards include four major principles that define their existence, which will be clarified in this paper along with examples from my own experience.
Managerial and Financial Accounting Report
“The primary objectives of financial accounting are to provide information that is useful in making investment and credit decisions” (Williams, Ch. 1). Financial accounting extends its purpose to fulfilling the information pertaining to cash flows, including the amount, timing, and the unreliability of cash flows. Financial accounting also defines the resources of an enterprise in terms of its economics, the claims on those resources, and the changes to those resources. Financial accounting “is historical in nature, it results from inexact and approximate measures of business activity, and it is based on a general-purpose assumption” (Williams, Ch. 1).
“Management accounting information is useful to the enterprise in achieving its goals, objectives, and mission; assessing past performance and future directions” (Williams, Ch. 1). Importantly, it is also used to judge and offer praise when necessary based on the decision-making that has been initiated. Managerial accounting is often admired, and deservedly so, for its “timeliness, relationship to decision-making authority, its future orientation, its relationship to measuring efficiency and effectiveness, and the fact that it is a means to an end” (Williams, Ch. 1). Managerial accounting correlates with companies making minor or sweeping changes based on the information that managers interpret.
“Accounting is the means by which information about an enterprise is communicated and, thus, is sometimes called the language of business” (Williams, Ch. 1). Accounting is the nuts and bolts of a company; numbers do not lie and are very universal. Investors, managers, unions of different sects, various governments, and others all rely on those same numbers to make decisions affecting the company. “Because the primary role of accounting information is to provide useful information for decision-making purposes, it is sometimes referred to as a means to an end” (Williams, Ch. 1). It is called the means to the end since the final and critical decisions made by multiple professionals are based on the information that fine accounting provides.
“The integrity and clarity of our financial markets depend upon it” (Jameson).
“The IMA Standards of Ethical Conduct are designed to be proactive, helping finance professionals to link ethical perspectives directly to their ongoing workplace responsibilities” (Haywood). The IMA has been quite busy over the past few years since accounting scandals have become more apparent and appalling. There has not been anything huge lately, but a couple of years ago when Enron and WorldCom shook the business world, the government was compelled to make drastic changes. Those changes, including the Sarbanes-Oxley Act, I think, have done more harm than good to publicly traded companies. These types of decisions are often made based on emotion rather than reason, but this is another argument that is off the prescribed subject. The IMA stresses four principles: competence, confidentiality, integrity, and objectivity.
Competence
Competence is described as “perform their professional duties in accordance with relevant laws, regulations, and technical standards” (Haywood). I would place competence between reliability and confidence. I had a co-worker last fall who did not know what a direct studies class was. She had been on the job for three months, and this is what we sold. How can one be competent in their occupation when they do not know fundamental aspects of their job?
Confidentiality
Confidentiality is to “refrain from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantages, either personally or through third parties” (Haywood). When speaking to potential students or students of mine who are from the same division, know each other, or are strangers, I would not divulge any information besides the basics to them regarding the other person. There is no reason for them to know another person’s grades or issues in school.
Integrity
Integrity is to “avoid actual or apparent conflicts of interest, and advise all appropriate parties of any potential conflict” (Haywood). When I was in the navy, I had a shipmate who tested positive for drugs. One cannot possibly be an honest person or a person of merit when they are cheating themselves out of their career, especially if they have a family at home depending on them to make simple but strategic decisions in their life. He was tossed out of the navy with little skill or education to market himself with in the civilian world.
Objectivity
Objectivity is to “communicate information fairly and objectively” (Haywood). When I was in the navy, I was a Quartermaster (QM). My job was to determine our position on the chart and relay this information to the Officer of the Deck (OOD) whenever required. Whether the news was good or bad, we were not to judge; we were there to provide sound and dependable information to the officer. The ship’s movement was based on our advice and plotting skills. The ship being where it was supposed to be and reaching our destination on time were critical. The OOD and QM were to act as a team, and objectivity was the nature of this relationship.
References
- Bettner, M. S., Haka, S. F., & Williams, J. R. (2002). Financial and Managerial Accounting: The Basis for Business Decisions. [Online]. Available: http://highered.mcgraw-hill.com/sites/0072396881/student_view0/chapter1/chapter_summary.html
- Haywood, E. M. & Wygal, D. E. (2004, November). Corporate Greed vs. IMA’s Ethic Code. [Online]. Available: http://proquest.umi.com/pqdweb?index=0&did=735642391&SrchMode=1&sid=4&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1114147996&clientId=2606
- Jameson, J. (2005, April 18). Let’s Get It Right By Fully Accounting for Options. [Online]. Available: http://proquest.umi.com/pqdweb?index=10&did=824260651&SrchMode=1&sid=6&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1114148542&clientId=2606