X.+Summary+and+Conclusions

X. Module 1000 Summary and Conclusions


 * I. Cost & Managerial Accounting**
 * A. DEFINITIONS:**
 * __Cost Accounting__**: a method of accounting in which all costs incurred in carrying out an activity or accomplishing a purpose are collected, classified, and recorded. This data is then summarized and analyzed to arrive at a selling price, or to determine where savings are possible. In contrast to financial accounting (which considers money as the measure of economic performance) cost accounting considers money as the economic factor of production.

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 * __Managerial (Management) Accounting__**: the process of preparing management reports and accounts that provide accurate and timely financial and statisticual information required by managers to make day-to-day and short-term decisions. Unlike financial accounting, which produces annual reports mainly for external stakeholders, managemente accounting generates monthly or weekly reports for an organization's internal audiences, such as department managers and the CEO. These reports typically show the amount of available case, sales revenue generated, amount of orders in hand, state of accounts payable and accounts receivable, outstanding debts, raw material and inventory, and may also include trend charts, variance analysis, and other statistics.

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 * __Financial Accounting__**: a field of accounting that treats money as a means of measuring economic performance instead of as a factor of production. It encompasses the entire system of monitoring and control of money as it flows in and out of an organization as assets and liabilities, and revenues and expenses. Financial accounting gathers and summarizes financial data to prepare financial reports such as balance sheet and income statement for the organization's management, investors, lenders, suppliers, tax authorities, and other stakeholders.

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 * B. Compare & Contrast Managerial & Financial Accounting:**

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 * **Financial Accounting ** ||  **Managerial Accounting **  ||
 * * Reports to those outside the organization owners, lenders, tax authorities and regulators. || * Reports to those inside the organization for planning, directing and motivating, controlling and __performance __ evaluation. ||
 * * Emphasis is on summaries of financial consequences of past activities. || * Emphasis is on decisions affecting the future. ||
 * * Objectivity and verifiability of data are emphasized. || * Relevance of items relating to decision making is emphasized. ||
 * * Precision of information is required. || * Timeliness of information is required. ||
 * * Only summarized data for the entire organization is prepared. || * Detailed segment reports about departments, products, customers, and employees are prepared. ||
 * * Must follow Generally Accepted Accounting Principles (GAAP) . || * <span style="color: #333333; font-family: 'Verdana','sans-serif'; font-size: 13px; line-height: normal;">Need not follow Generally Accepted Accounting Principles (GAAP) . ||
 * * <span style="color: #333333; font-family: 'Verdana','sans-serif'; font-size: 13px; line-height: normal;">Mandatory for external reports. || * <span style="color: #333333; font-family: 'Verdana','sans-serif'; font-size: 13px; line-height: normal;">Not mandatory. ||


 * II. Ethical Behavior in Business & Accounting**

__**Ethics**__: 1) the discipline dealing with what is good and bad and with moral duty and obligation; 2) (a) a set of moral principles: a theory or system of moral values; (b) the principles of conduct governing an individual or a group; (c) a guiding philosophy; (d) a consciousness of moral importance; 3) a set of moral issues or aspects (as rightness). Reference: []
 * A. DEFINITIONS**

__**Business Ethics**__: moral principles concerning acceptable and unacceptable behavior by business people. Executives are supposed to maintain a high sense of values and conduct honest and fair practices with the public. Reference: []

__**Honesty**__: (a) fairness & straightforwardness of conduct; (b) adherence to the facts. Reference: []

__**Fairnes**____**s**__: (a) marked by impartiality and honesty: free from self-interest, prejudice or favoritism; (b) conforming with the established rules. Reference: []

__**Objectivity**__: 1) ability to view things objectively: the ability to perceive or describe something without being influenced by personal emotions or prejudices; 2) accuracy: the fact or quality of being accurate, unbiased, and independent of individual perceptions. Reference: []

__**Responsibility**__: the quality or state of being responsible: as (a) moral, legal, or mental accountability; (b) reliability, trustworthiness. Reference: []

__**Ethics in Accounting**__ is a concept that encompasses all of the above, but does not have a formal defnition. The Encyclopedia of Business and Finance provides the following description of Ethics in Accounting: Ethics in accounting is of utmost importance to accounting professionals and those who rely on their services. Certified Public Accountants (CPAs) and other accounting professionals know that people who use their services, especially decision makers using financial statements, expect them to be highly competent, reliable, and objective. Those who work in the field of accounting must not only be well qualified but must also possess a high degree of professional integrity. A professional's good reputation is one of his or her most important possessions. The general ethical standards of society apply to people in professions such as medicine and accounting just as much as to anyone else. However, society places even higher expectations on professionals. People need to have confidence in the quality of the complex services provided by professionals. Because of these high expectations, professions have adopted codes of ethics, also known as codes of professional conduct. These ethical codes call for their members to maintain a level of self-discipline that goes beyond the requirements of laws and regulations. __Codes of Ethics__ By joining their professional organizations, people who work in the field of accounting agree to uphold the high ethical standards of their profession. Each of the major professional associations for accountants has a code of ethics. The Code of Professional Conduct of the American Institute of CPAs (AICPA), the national professional association for CPAs, sets forth ethical principles and rules of conduct for its members. The principles are positively stated and provide general guidelines that CPAs (or any professionals, for that matter) should strive to follow. The rules of conduct are much more explicit as to specific actions that should or should not be taken. The Institute of Management Accountants (IMA) Standards of Ethical Conduct applies to practitioners of management accounting and financial management, and the Institute of Internal Auditors (IIA) Code of Ethics applies to its members and to Certified Internal Auditors (CIAs). __Ethical Responsibilities__ A distinguishing mark of professions such as medicine and accounting is acceptance of their responsibilities to the public. The AICPA Code of Professional Conduct describes the accounting profession's public as consisting of "clients, credit grantors, governments, employers, investors, the business and financial community, and others who rely on the objectivity and integrity of CPAs to maintain the orderly functioning of commerce." Many, but not all, CPAs work in firms that provide accounting, auditing, and other services to the general public; these CPAs are said to be //in public practice//. Regardless of where CPAs work, the AICPA Code applies to their professional conduct, although there are some special provisions for those in public practice. Internal auditors, management accountants, and financial managers most commonly are employees of the organizations to which they provide these services; but, as professionals, they, too, must also be mindful of their obligations to the public. The responsibilities placed on accounting professionals by the three ethics codes and the related professional standards have many similarities. All three require professional competence, confidentiality, integrity, and objectivity. Accounting professionals should only undertake tasks that they can complete with professional competence, and they must carry out their responsibilities with sufficient care and diligence, usually referred to as //due professional care// or //due care//. The codes of ethics of the AICPA, IMA, and IIA all require that confidential information known to accounting professionals not be disclosed to outsiders. The most significant exception to the confidentiality rules is that accounting professionals' work papers are subject to subpoena by a court; nothing analogous to attorney-client privilege exists. __Independence__ Maintaining integrity and objectivity calls for avoiding both actual and apparent conflicts of interest. This notion is termed //independence//. Being independent in fact and in appearance means that one not only is unbiased, impartial, and objective but also is //perceived// to be that way by others. While applicable to all accounting professionals, independence is especially important for CPAs in public practice. The AICPA's rules pertaining to independence for CPAs who perform audits are detailed and technical. For instance, a CPA lacks independence and thus may not audit a company if he or she (or the spouse or dependents) owns stock in that company and/or has certain other financial or employment relationships with the client. __Ethics Enforcement__ To a large extent, the accounting profession is self-regulated through various professional associations rather than being regulated by the government. The AICPA, the IMA, and the IIA have internal means to enforce the codes of ethics. Furthermore, the professional organizations for CPAs in each state, known as //state societies of CPAs//, have mechanisms for enforcing their codes of ethics, which are usually very similar to the AICPA Code. Violations of ethical standards can lead to a person's being publicly expelled from the professional organization. Because of the extreme importance of a professional accountant's reputation, expulsion is a strong disciplinary measure. However, ethical violations can lead to even more adverse consequences for CPAs because of state and federal laws. The state government issues a CPA's license to practice, usually through an organization known as the //state board of accountancy//. Since state laws governing the practice of accountancy typically include important parts of the AICPA Code, the Code thus gains legal enforceability. Consequently, ethical violations can result in the state's revoking a CPA's license to practice on a temporary or even permanent basis. Because a licensed CPA is also likely to belong to the AICPA and the state society of CPAs, investigations of ethics violations may be carried out jointly by the AICPA, the state society, and the state board of accountancy. CPAs in public practice who audit the financial statements of public corporations are subject to federal securities laws and regulations, including the Securities Exchange Act of 1934. The Securities and Exchange Commission (SEC), which administers these laws, has broad powers to regulate corporations that sell their stock to the public. One important SEC requirement is that these corporations' financial statements be audited by an independent CPA. The SEC has the authority to establish and enforce auditing standards and procedures, including what constitutes independence for a CPA. The SEC has largely delegated standard setting to the private sector but retains oversight and enforcement responsibilities. In 1998 the SEC and the AICPA jointly announced the creation of the Independence Standards Board (ISB), a private-sector body whose mission is to improve auditor independence standards. In announcing the formation of the ISB, the SEC reaffirmed the crucial importance of the CPA's independence: "[M]aintaining the independence of auditors of financial statements … is crucial to the credibility of financial reporting and, in turn, to the capital formation process" (SEC Release FRR-50,1998).

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There are numerous benefits of maintaining a strong ethical culture in a company for moral reasons, but ethics makes good economics. For example, 91% of consumers are more likely to purchase goods or services from businesses that the consumer sees as acting ethcially according to KPMG's //Ethical Business & Sustainable Communities// Report. However, a perception of ethics doesn't just appear and consumers demand proof: 79% felt that in order to trust a company, the company needed to provide evidence that it was ethical accoding to 2008 MORI poll entitled "Sustainability Issues in the Retail Sector." According to managementhelp.org, there are 10 benefits of managing ethics in workplace:
 * B. Benefits of Ethical Behavior**
 * **Attention to business ethics has substantially improved society**. A matter of decades ago, children in our country worked 16-hour days. Workers’ limbs were torn off and disabled workers were condemned to poverty and often to starvation. Trusts controlled some markets to the extent that prices were fixed and small businesses choked out. Price fixing crippled normal market forces. Employees were terminated based on personalities. Influence was applied through intimidation and harassment. Then society reacted and demanded that businesses place high value on fairness and equal rights. Anti-trust laws were instituted. Government agencies were established. Unions were organized. Laws and regulations were established.
 * **Ethics programs help maintain a moral course in turbulent times**. Attention to business ethics is critical during times of fundamental change — times much like those faced now by businesses, both nonprofit or for-profit. During times of change, there is often no clear moral compass to guide leaders through complex conflicts about what is right or wrong. Continuing attention to ethics in the workplace sensitizes leaders and staff to how they want to act — consistently.
 * **Ethics programs cultivate strong teamwork and productivity**. Ethics programs align employee behaviors with those top priority ethical values preferred by leaders of the organization. Usually, an organization finds surprising disparity between its preferred values and the values actually reflected by behaviors in the workplace. Ongoing attention and dialogue regarding values in the workplace builds openness, integrity and community — critical ingredients of strong teams in the workplace. Employees feel strong alignment between their values and those of the organization. They react with strong motivation and performance.
 * **Ethics programs support employee growth and meaning**. Attention to ethics in the workplace helps employees face reality, both good and bad — in the organization and themselves. Employees feel full confidence they can admit and deal with whatever comes their way. Bennett, in his article “Unethical Behavior, Stress Appear Linked” (Wall Street Journal, April 11, 1991, p. B1), explained that a consulting company tested a range of executives and managers. Their most striking finding: the more emotionally healthy executives, as measured on a battery of tests, the more likely they were to score high on ethics tests.
 * **Ethics programs are an insurance policy - they help ensure that policies are legal**. There is an increasing number of lawsuits in regard to personnel matters and to effects of an organization’s services or products on stakeholders. As mentioned earlier in this document, ethical principles are often state-of-the-art legal matters. These principles are often applied to current, major ethical issues to become legislation. Attention to ethics ensures highly ethical policies and procedures in the workplace. It’s far better to incur the cost of mechanisms to ensure ethical practices now than to incur costs of litigation later. A major intent of well-designed personnel policies is to ensure ethical treatment of employees, e.g., in matters of hiring, evaluating, disciplining, firing, etc. Drake and Drake (California Management Review, V16, pp. 107-123) note that “an employer can be subject to suit for breach of contract for failure to comply with any promise it made, so the gap between stated corporate culture and actual practice has significant legal, as well as ethical implications.”
 * **Ethics programs help avoid criminal acts "of omission" and can lower fines**. Ethics programs tend to detect ethical issues and violations early on so they can be reported or addressed. In some cases, when an organization is aware of an actual or potential violation and does not report it to the appropriate authorities, this can be considered a criminal act, e.g., in business dealings with certain government agencies, such as the Defense Department. The recent Federal Sentencing Guidelines specify major penalties for various types of major ethics violations. However, the guidelines potentially lowers fines if an organization has clearly made an effort to operate ethically.
 * **Ethics programs help manage values associated with quality management, strategic planning and diversity management - this benefit needs far more attention.** Ethics programs identify preferred values and ensuring organizational behaviors are aligned with those values. This effort includes recording the values, developing policies and procedures to align behaviors with preferred values, and then training all personnel about the policies and procedures. This overall effort is very useful for several other programs in the workplace that require behaviors to be aligned with values, including quality management, strategic planning and diversity management. Total Quality Management includes high priority on certain operating values, e.g., trust among stakeholders, performance, reliability, measurement, and feedback. Eastman and Polaroid use ethics tools in their quality programs to ensure integrity in their relationships with stakeholders. Ethics management techniques are highly useful for managing strategic values, e.g., expand marketshare, reduce costs, etc. McDonnell Douglas integrates their ethics programs into their strategic planning process. Ethics management programs are also useful in managing diversity. Diversity is much more than the color of people’s skin — it’s acknowledging different values and perspectives. Diversity programs require recognizing and applying diverse values and perspectives — these activities are the basis of a sound ethics management program.
 * **Ethics programs promote a strong public image**. Attention to ethics is also strong public relations — admittedly, managing ethics should not be done primarily for reasons of public relations. But, frankly, the fact that an organization regularly gives attention to its ethics can portray a strong positive to the public. People see those organizations as valuing people more than profit, as striving to operate with the utmost of integrity and honor. Aligning behavior with values is critical to effective marketing and public relations programs. Consider how Johnson and Johnson handled the Tylenol crisis versus how Exxon handled the oil spill in Alaska. Bob Dunn, President and CEO of San Francisco-based Business for Social Responsibility, puts it best: “Ethical values, consistently applied, are the cornerstones in building a commercially successful and socially responsible business.”
 * **Overall benefits of ethics programs**: Donaldson and Davis, in “Business Ethics? Yes, But What Can it Do for the Bottom Line?” (Management Decision, V28, N6, 1990) explain that managing ethical values in the workplace legitimizes managerial actions, strengthens the coherence and balance of the organization’s culture, improves trust in relationships between individuals and groups, supports greater consistency in standards and qualities of products, and cultivates greater sensitivity to the impact of the enterprise’s values and messages.
 * **Formal attention to ethics in the workplace is the right thing to do.**

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 * C. Standards of Ethical Conduct for Managerial Accountants: Statement of Ethical Professional Practice by the Institute of Management Accountants (IMA)**

IMA STATEMENT OF ETHICAL PROFESSIONAL PRACTICE:

<span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">Members of IMA shall behave ethically. A commitment to ethical professional practice includes overarching principles that express our values, and standards that guide our conduct. **<span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px;">PRINCIPLES ** <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">IMA's overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. Members shall act in accordance with these principles and shall encourage others within their organizations to adhere to them. **<span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px;">STANDARDS ** <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">A member's failure to comply with the following standards may result in disciplinary action. **<span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px;">I. COMPETENCE ** <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">Each member has a responsibility to: <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">1. Maintain an appropriate level of professional expertise by continually developing knowledge and skills. <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">2. Perform professional duties in accordance with relevant laws, regulations, and technical standards. <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">3. Provide decision support information and recommendations that are accurate, clear, concise, and timely. <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">4. Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity. **<span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px;">II. CONFIDENTIALITY ** <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">Each member has a responsibility to: <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">1. Keep information confidential except when disclosure is authorized or legally required. <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">2. Inform all relevant parties regarding appropriate use of confidential information. Monitor subordinates' activities to ensure compliance. <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">3. Refrain from using confidential information for unethical or illegal advantage. **<span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px;">III. INTEGRITY ** <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">Each member has a responsibility to: <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">1. Mitigate actual conflicts of interest, regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts. <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">2. Refrain from engaging in any conduct that would prejudice carrying out duties ethically. <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">3. Abstain from engaging in or supporting any activity that might discredit the profession. **<span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px;">IV. CREDIBILITY ** <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">Each member has a responsibility to: <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">1. Communicate information fairly and objectively. <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">2. Disclose all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations. <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">3. Disclose delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law. **<span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px;">RESOLUTION OF ETHICAL CONFLICT ** <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">In applying the Standards of Ethical Professional Practice, you may encounter problems identifying unethical behavior or resolving an ethical conflict. When faced with ethical issues, you should follow your organization's established policies on the resolution of such conflict. If these policies do not resolve the ethical conflict, you should consider the following courses of action: <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">1. Discuss the issue with your immediate supervisor except when it appears that the supervisor is involved. In that case, present the issue to the next level. If you cannot achieve a satisfactory resolution, submit the issue to the next management level. If your immediate superior is the chief executive officer or equivalent, the acceptable reviewing authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or owners. Contact with levels above the immediate superior should be initiated only with your superior's knowledge, assuming he or she is not involved. Communication of such problems to authorities or individuals not employed or engaged by the organization is not considered appropriate, unless you believe there is a clear violation of the law. <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: normal; margin-bottom: 0pt;">2. Clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethics Counselor or other impartial advisor to obtain a better understanding of possible courses of action. <span style="color: black; font-family: 'Arial','sans-serif'; font-size: 13px; line-height: 115%;">3. Consult your own attorney as to legal obligations and rights concerning the ethical conflict.

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