In keeping with the importance of their role and the specialized knowledge they must possess, managerial accountants can earn a professional certification similar to the CPA.
Since 1972, the IMA has administered the Certified Management Accountant (CMA) program. Requirements for becoming a CMA include meeting specified educational requirements and passing the rigorous CMA examination. In addition, the American Institute of CPAs has teamed with CIMA to offer an experience- and examination-based certification called the Chartered Global Management Accountant (CGMA).17 In addition to validating their skills, the CMA, CGMA, and other certifications bring mana- gerial accountants a very tangible benefit: a recent study of managerial accountants prac- ticing in the United States showed professionals with a certification earning almost 50 percent more in average total compensation than their noncertified peers.18
Managerial Accounting as a Career
17For information about the CMA program, visit the IMA website at imanet.org. For more about the CGMA certifi- cation, visit cgma.org.
18Shannon Charles, “IMA 2018 Salary Survey,” https://www.imanet.org/career-resources/salary-information.
Learning Objective 1-10 Discuss the professional organizations and certifications in the field of managerial accounting.
“[We] look for a combination of solid accounting skills, the ability to think strategically, and strong business ethics. If someone is a CMA, we can be more comfortable that the person has mastered these aspects of the profession.” (1m)
Microsoft
Managerial Accounting and the Ethical Climate of Business
Companies depend on the trust of society and the confidence of their shareholders, employees, suppliers, and customers. So it is always shocking and puzzling when that trust and confidence are violated by a high-profile ethical lapse. Since it was discovered in 2015 that high-level executives at Volkswagen had knowingly allowed their diesel vehicles to be programmed to deceive emissions testing and skirt regulatory pollution hurdles, the cost to the company has been almost unimaginable. The company’s mar- ket valuation dropped by over a third in the months following the announcement, its dealer showrooms were empty of customers, and executives in the United States and Germany were implicated and arrested, including the CEO of sister company Audi. The costs of restitution and penalties alone totaled in excess of $20 billion, and were probably exceeded by the costs of lost sales, damaged reputation, company distraction (arrests and penalties continued into 2018), and the loss of seasoned managers and executives, such as the head of research and development at affiliated company Porsche.
Why do such scandals happen? Especially when, in hindsight, the decisions that precipitated the scandals often seem so obviously and blatantly wrong and avoidable?
According to most researchers and commentators, there is plenty of blame to go around:
greedy corporate executives, managers who make overreaching business deals, lack of oversight by various companies’ boards of directors (particularly the boards’ audit committees), substandard work by external auditors, pressure to meet market expecta- tions, lack of sufficient probing by Wall Street analysts and the financial press, and some accountants who have been all too willing to push the envelope on aggressive accounting to (or beyond) the edge.
One important lesson from the Volkswagen scandal, and many others like it in the last two decades, is that not only is unethical behavior in business wrong in a moral sense, and damaging to individual organizations, but it also can be disastrous from the stand- point of the economy. In the notorious Enron case in 2001, for example, the courts con- cluded that a massive fraud was perpetrated on the investing public by creating so-called related parties with names like Raptor for the sole purpose of hiding debt and overstating earnings. This led, among other consequences, to the failure of the prestigious auditing firm that audited their records, Arthur Andersen, even though the firm’s criminal con- viction was ultimately overturned by the U.S. Supreme Court. The criticisms leveled at Arthur Andersen in its original conviction led Congress to pass the Sarbanes–Oxley Act of 2002 (for more on this legislation, see Appendix I of the text), which is estimated to have cost every large U.S. company several million dollars per year in compliance costs.
While not the direct cause of the worldwide Great Recession that began in late 2007, through its many effects Enron certainly felt like a contributing factor. Ethical behavior by managers in general, and accountants in particular, is not a luxury or a discretionary
“good thing to do.” It is an absolute necessity for the smooth functioning of the economy.
Although most of the purely accounting issues in ethics scandals involve financial accounting (external reporting) rather than managerial accounting (internal reporting), remember we said earlier that in a company’s finance and accounting organization many of the same individuals are involved in both types of accounting. So ultimately, what may have been largely financial (external) accounting misstatements almost certainly resulted in mis- stated managerial (internal) accounting reports as well, and an environment, it can reasonably be assumed, in which the ends justified the means. That’s no way to make good decisions.19
Managerial Accounting and the Ethical Climate of Business
19For more information on the issues discussed in this section, see, for example, Jack Ewing and Hiroko Tabuchi,
“Volkswagen Set to Plead Guilty and Pay U.S. $4.3 Billion in Deal,” The New York Times, January 10, 2017; Jonnelle Marte, “Audi CEO Arrested in Germany Over Diesel Emissions Scandal,” The Washington Post, June 18, 2018; Ken Brown and Ianthe Jean Dugan, “Arthur Andersen’s Fall from Grace is a Sad Tale of Greed and Miscues,” The Wall Street Journal, June 7, 2002; Carl Bialik, “How Much IS it Really Costing to Comply with Sarbanes–Oxley?” The Wall Street Journal, June 16, 2005; and Robert Rich, “The Great Recession,” Federal Reserve History, November 22, 2013, at https://www.federalreservehistory.org/essays/great_recession_of_200709, accessed August 2018.
“At the end of the day, as the CFO, everything is about your credibility, about being thoughtful and honest and fiduciarily responsible.” (1n)
Perrigo Co.
Learning Objective 1-11 Describe the ethical responsibilities and ethical standards that apply to managerial accounting.
In business schools, and in the accounting profession, the importance of education on ethical issues is widely embraced.20 To this end, a significant ethical issue in managerial accounting will be addressed at the end of most chapters. The goal of these Focus on Eth- ics pieces is to help you see that although legitimate ethical issues do arise in the daily practice of business and accounting, guidelines for addressing these problems exist and can be applied. Most Focus on Ethics pieces will conclude with links to a video series called Ethics Unwrapped, short, humorous animations that help explain the ethical con- cepts underlying these scenarios. To provide one particularly relevant professional per- spective on ethical practice, our Focus on Ethics for this chapter will be the Institute of Management Accountants’ Statement of Ethical Professional Practice.
As illustrated earlier by the Volkswagen example, all managers, including financial professionals, have an obligation to themselves, their colleagues, and their organizations to adhere to high standards of ethical conduct. In recognition of this obligation, the IMA has developed the following ethical standards for its members. Note especially that it is not only a set of principles, but it also includes a section on resolving ethical conflicts.
20For example, see the Ethics Unwrapped series developed by professors at the University of Texas at Austin.
https://ethicsunwrapped.utexas.edu/.
Focus on Ethics These scenarios discuss ethical issues and underscore the importance of ethical behavior in mangerial accounting. For easy reference in future Focus on Ethics examples, as well as problems and cases that include ethical issues to be resolved, the IMA Statement of Ethical Professional Practice can also be found on the last page of the book.
Focus on Ethics
IMA STATEMENT OF ETHICAL PROFESSIONAL PRACTICE (as revised July 1, 2017)
Members of IMA shall behave ethically. A commitment to ethical professional practice includes overarching prin- ciples that express our values and standards that guide member conduct.
Principles
IMA’s overarching ethical principles include Honesty, Fair- ness, Objectivity, and Responsibility. Members shall act in accordance with these principles and shall encourage oth- ers within their organizations to adhere to them.
Standards
IMA members have a responsibility to comply with and uphold the standards of Competence, Confidentiality, Integrity, and Credibility. Failure to comply may result in dis- ciplinary action.
I. Competence
1. Maintain an appropriate level of professional leadership and expertise by enhancing knowl- edge and skills.
2. Perform professional duties in accordance with rel- evant laws, regulations, and technical standards.
3. Provide decision support information and recom- mendations that are accurate, clear, concise, and timely. Recognize and help manage risk.
II. Confidentiality
1. Keep information confidential except when disclo- sure is authorized or legally required.
2. Inform all relevant parties regarding appropriate use of confidential information. Monitor to ensure compliance.
3. Refrain from using confidential information for unethical or illegal advantage.
III. Integrity
1. Mitigate actual conflicts of interest. Regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts of interest.
2. Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
3. Abstain from engaging in or supporting any activ- ity that might discredit the profession.
4. Contribute to a positive ethical culture and place integrity of the profession above personal interests.
IV. Credibility
1. Communicate information fairly and objectively.
2. Provide all relevant information that could rea- sonably be expected to influence an intended user’s understanding of the reports, analyses, or recommendations.
3. Report any delays or deficiencies in information, timeliness, processing, or internal controls in con- formance with organization policy and/or appli- cable law.
4. Communicate professional limitations or other constraints that would preclude responsible judg- ment or successful performance of an activity.