Finance and Managerial Accounting Essay

Introduction

The Institute of Management Accountants abbreviated as IMA strives to bring harmony in the accounting standards. It outlines the Ethical professional practice that professional accounts should uphold. In this case, the previous department manager was fired having gone against the professional ethical standards. The last accounting department manager had been involved in earning manipulation which is unethical according to the professional standards of the generally accepted accounting principles. The manager had been involved in accounting manipulation. In particular, the department manager had gone ahead to assign some of the direct cost of manufacturing into the non-controllable fixed cost category. Consequently, the financial ratios gave a false depiction of the operations. While the organizations seemed to be operating effectively, the fact was that it was not performing well. When the intentional misclassification was discovered, the accounting department manager was laid off without notice.

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Applicable Section of the IMA's Ethical Statement of Ethical Professional Practice

The IMA statement of Ethical professional practice requires honesty in Earnings Management. Earnings management is significant in any organization as it determines the success of the business. Failure to observe this leads to earning manipulation and eventually escalates to the downfall of a firm. There are two types of earning management manipulation. The categories are accounting and operating manipulations. Accounting manipulation refers to scenarios that violate the GAAP to achieve the required results while earning management manipulation involves the modification of earnings like delaying expenditure on repairs to report lower spending for the current accounting period (Shafer, 2015). In this case, there is accounting manipulation since one of the Generally Accepted Accounting Principles is violated through intentional misclassification of costs. It is against the IMA's ethical practice to do such an act. All professional accountants are required to be honest. Therefore, honesty in earnings management is critical for ethical practice.

The New Hire's Statement about the Firing

The new hire will oppose the firing. First, there is an agreement that dictates the working relationship in an organization (Pennings & Bosse, 2011). Mostly, some provisions are provided in case one engages in acts that are deemed to be misconduct. For example, the event that had happened in this company concerning the intentional misclassification of costs. Again, the Institute of Management Accountants has rules and regulations that guide the professional accountants. Also, the IMA has provisions or the punishment for any accountant that violates its standards. Furthermore, before firing the manager investigation into the matter should have been carried out to establish whether the misclassification was intentional. The reason for this is that the boss stated that the manager seemed to have manipulated the operating results. Therefore, immediate action against the previous accounting manager was irrational.

The Manager's Statement on Firing

All employees must uphold Ethical professional standards. The manager must have reiterated that finance and accounting are not just tools, but there is a mutual connection between them and ethics. One must act truthfully. It means that trust is a requirement in the work environment and it cannot be achieved without ethics. Nobody is allowed to operate in their interest at the expense of the public. Stakeholders and the shareholders are equally important for the success of an organization. Hence, egoistic interests cannot be allowed to prevail (Mele, Rosanas & Fontrodona, 2017). As a result, the previous manager had to be fired immediately due to misclassification of the costs which aimed at obtaining the profits. The purpose of the firm is to maximize profits. However, appropriate methods for ensuring that the firm's goals are achieved must be considered. Therefore, the manager had to be fired immediately on the grounds of professional ethical standards.

Important Information

There should be accountability in corporate reporting. Managers should continuously review the accounting procedures employed in a company. It helps to reduce the possibility of improper accounting procedures or unethical issues. Moreover, integrated reporting is significant in integrating the environmental, social and the corporate governance (Mele, Rosanas & Fontrodona, 2017). Corporate reporting is vital and enhanced through common law. As a result, it leads to corporate social responsibility. Lack of sound ethical tone at the top management influences the ethical standards. It means that if the senior management does not have proper ethical standards, the employees like the accountants follow a similar direction. Therefore, good governance is an essential tool for ethical professionalism. Another way that ethics can be enhanced is through continuous training programs.

Conclusion

In summary, ethical professional practice is critical in an organization. Accountants should adhere to the guidelines of the Generally Accepted Accounting Standards in the Institute of Management Accountants. The standards are fundamental for a company to take the interest of both the stakeholders and the shareholders into consideration. As much as the employees are required to deliver results for the profitability of a company, they should not compromise their integrity. Likewise, the top management should have a proper ethical tone at the top which is then replicated in the whole firm. Therefore, all the stakeholders should operate in such a way that the ethical standards are maintained.

References

Mele, D., Rosanas, J. M., & Fontrodona, J. (2017). Ethics in finance and accounting: Editorial introduction. Journal of Business Ethics, 140(4), 609-613.

Pennings, F., & Bosse, C. (2011). The protection of working relationships: A comparative study. Alphen aan den Rijn: Wolters Kluwer Law & Business.

Shafer, W. E. (2015). Ethical climate, social responsibility, and earnings management. Journal of Business Ethics, 126(1), 43-60.