Management Accounting the Ima Statement of Ethical Essay

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Management Accounting

The IMA statement of ethical professional practice begins with the overarching principles of honesty, fairness, objectivity and responsibility. The statement consists of four standards, these being competence, confidentiality, integrity and credibility. Lastly, the statement provides guidance for the resolution of ethical conflict. Three steps are to contact a superior, then an IMA ethics counselor and then finally a lawyer.

There is evidence in the Enron case that Enron's executives violated some of the elements of the IMA ethical statement. Now, it is worth remembering that the fraud was related to the financial accounting statements, and there is less strict legal guidance with respect to managerial accounting, but the IMA statement still pertains to the accounting function. Clearly, Enron did not adhere to the overarching principles of honesty, fairness, objectivity and responsibility. It is felt that they were probably deliberately dishonest and it has been proven that they hid the true financial condition of the company in convoluted statements. There is a strong relation between the lack of transparency and lack of honesty. Fairness is violated because senior management needed to be fair to the other stakeholders, and it was not. Enron executives were not objective either, but were instead childish in their responses to questions about the accounting. Lastly, they consistently failed to accept responsibility for their actions until a judge forced them to.

With respect to competence, the managers are supposed to provide information that was clear, concise and timely, and this was not the case. Many within Enron did not have a clear picture of the company's finances, much less anybody outside of the company. Integrity was also violated. There was clear conflict of interest on the part of managers who were being compensated via bonuses, the valuation of which they were essentially responsible for. This led to overvaluing of contracts and a lack of willingness on the part of managers to disclose bad news. Both of those factors contributed to the deteriorating financial condition of Enron over time.

There was no insider trading as such at Enron.

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It appears that the executives reported their trades with the SEC in accordance with the law. There were insider trading convictions, which likely arose as the result of these executives' failure to communicate the financial condition of the company adequately, putting them in the position of being the only ones who knew about the company's financial condition. Any information not disclosed to the public would be privileged information and the executives would not have been able to trade on that. This is especially true with respect to the partnerships, of which Skilling and other senior managers were aware but were unknown to almost everybody else until the scandal broke.

While there was probably not much wrong -- from a strictly ethical point-of-view anyway -- about the performance appraisals, the compensation scheme clearly created a conflict of interest. A clear link was established between the compensation system and the tendency of managers to overeport the size of contracts and underreport any negative outcomes. A compensation scheme that encourages managers to deliver fraudulent results would definitely violate the AMA statement.

The performance appraisal scheme was ethical. The hypercompetitive nature might have resulted in some dishonesty, but really there is not wrong with creating such an atmosphere per se. The atmosphere might not be sustainable, and it might create situations where people may choose to behave unethically, but on its own the system is simply one that creates tension and conflict, not only that expressly creates crime.

2.

With respect to prison, a lot of Enron executives made their way to the iron hotel. Both of the company's former CEOs Kenneth Lay and Jeffrey Skilling were convicted for their roles at Enron, with convictions coming on many different counts. Lay apparently died prior….....

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