Principles and Standards of Professional Ethics

The IMA (Institute of Management Accountants) provides very specific

guidance on principles and standards of professional ethics. We'll study and
apply the specifics of IMA Statement of Ethical Professional Practice in this
lesson.

Upon completion of this lesson, you should be able to:

• Identify and describe the four overarching ethical principles and the four
standards.
• Evaluate a given business situation for its ethical implications.
• Identify and describe relevant standards that may have been violated in
a given business situation and explain why the specific standards are
applicable

I. Keep It Personal
A. In addition to improving our ethical skills, we need to also stay
energized about our personal commitment to ethics. Many
professionals find that when presented with difficult decisions that
challenge ethics at a very personal level, the personal
commitment needed to make the hard decision can be energized
by asking oneself the following question: Would the person you
most love and admire be proud to watch the decision you're about
to make?
B. Evidence of your commitment to ethics is tied very closely to your
“personal brand.” Organizations spend significant resources to
guard and strengthen their brand in the marketplace. As a
business professional, you have a personal brand. A single
decision, for good or bad, can have an incredible and long-lasting
impact on your personal brand.
C. Remember that “Perception = Reality.” Not only do you need to
make ethically based decisions, but the ethics in your decisions
must to be clear to others around you. Like it or not, the
perception that others have of you as an ethically-based
professional matters very much, despite any argument you might
want to make that your ethics are not being perceived correctly.
Hence, be sure that the ethics in your decisions and actions are
clear for others to see.
II. IMA Statement of Ethical Professional Practice—Principles
A. The IMA (Institute of Management Accountants) has an important
brand, and continually invests significant resources to strengthen
that brand across the world. An important element of the IMA
brand is represented in explicit principles and standards of
professional ethics as described in the IMA Statement of Ethical
Professional Practice.1
B. IMA members are expected to fully comply with the IMA
Statement of Ethical Professional Practice. The IMA Statement
distinguishes between two separate but related views on
professional ethics:
1. Overarching principles that express ethical values, and
2. Specific standards that guide ethical conduct.
C. The IMA Statement lists four overarching ethical principles to
guide member conduct. These principles with specific descriptions
follow below.
1. Honesty. IMA members should be honest and truthful in
their professional communication and in their professional
analysis and work.
2. Fairness. IMA members should be fair and balanced,
without favoritism, in their professional work and decisions
involving other colleagues and stakeholders.
3. Objectivity. IMA members’ analysis and decision making
should be reasoned, thorough, and dispassionate.
4. Responsibility. IMA members are responsible to comply
with and uphold the standards of Competence,
Confidentiality, Integrity, and Credibility.
D. Note that the last IMA guiding principle, Responsibility, is the
bridge to the IMA's standards of ethical conduct.
III. IMA Statement of Ethical Professional Practice—Standards
A. After listing the four overarching principles, the IMA Statement
then describes four specific standards of ethical conduct. These
standards are crucial as failure to comply may result in
disciplinary action by the IMA. Each of these standards is detailed
across several specific aspects of the standard.
B. The first IMA standard of conduct is Competence. IMA members
with ethical competence will demonstrate the following specific
characteristics.
1. Maintain an appropriate level of professional leadership and
expertise by enhancing knowledge and skills.
 2. Perform professional duties in accordance with relevant
laws, regulations, and technical standards.
3. Provide decision support information and recommendations
that are accurate, clear, concise, and timely. Recognize and
help manage risk.
C. The second IMA standard of conduct is Confidentiality. IMA
members who take an ethical approach to confidentiality will
engage in the following processes.
1. Keep information confidential except when disclosure 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.
D. The third IMA standard of conduct is Integrity. IMA members who
have integrity in their conduct are committed to the following
professional practices.
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 activity that
might discredit the profession.
4. Contribute to a positive ethical culture and place integrity of
the profession above personal interests.
E. The fourth and final IMA standard of conduct is Credibility. IMA
members who are credible in their conduct will be observed to do
the following actions.
1. Communicate information fairly and objectively.
2. Provide all relevant information that could reasonably 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 conformance with
organization policy and/or applicable law.
4. Communicate professional limitations or other constraints
that would preclude responsible judgment or successful
performance of an activity.
 F. A careful study of the specifics involved in each IMA standard of
professional ethics, and a candid assessment of one's personal
practice with respect to these standards, will help finance and
accounting professionals better assess specific situations to
directly recognize and successfully respond to ethical conflicts.

Practice Question
You have recently been hired as an accountant for the largest residential
construction company in the state. Your primary responsibility is to track costs
for each home being constructed. Tracking the costs for direct materials and
direct labor is relatively straightforward. Accounting for manufacturing
overhead costs, on the other hand, presents a challenge. The company's current
practice is to allocate overhead costs on the basis of direct labor hours. As a
result, larger houses that require more labor construction time are allocated a
larger share of the overhead. While larger homes do tend to require more
management and engineering design support, this is not always true. Hence,
you've been working on an activity-based costing system to improve the
overhead cost assignment process.
Your company was recently selected by the state to build a number of low-
income housing complexes. The state has agreed to an arrangement whereby it
will pay costs plus a 10% profit margin. Construction of these low-income
housing units will be relatively simple. These smaller buildings are based on a
straightforward design used consistently for each house. Compared to the
average house the company builds for the open market, these government
project houses will require substantially less management and engineering
support.
At a meeting following the granting of the construction contract by the state, the
production supervisor proposes the following idea:

• Since the state has agreed to pay our costs plus 10%, the higher the costs
on the project, the more money we make. What we need to do is funnel as
much overhead cost as we reasonably can to this low-income housing
project. Now I don't want anyone to think I am proposing something
unethical. I am not saying that we should charge the state for fictitious
costs. I'm simply proposing that we allocate overhead cost on a per-house
basis with each house, regardless of size, being allocated the same amount
of overhead.
As the cost accountant for the company, it is clear to you (and you believe it is
clear to everyone else) that allocating overhead costs as a constant amount per
house instead of per direct labor hour will shift a substantial amount of overhead
in the organization from the company's core-product homes that are priced
competitively in the open market to the government-project homes that are
priced based on cost. This approach would be a significant misrepresentation of
how overhead costs are actually created in the organization. If this cost
assignment proposal goes forward, you will be the one expected to design and
deploy the new system. You can see that most in attendance at the meeting are
being persuaded by the production supervisor's idea.
The IMA Statement of Ethical Professional Practice provides very specific aspects
of ethical conduct for each of its four standards of behavior. Carefully consider
those aspects in light of this scenario, and indicate for each aspect if it applies to
the scenario. More specifically, your determination can be one of three levels:
(1) Clearly applies, (2) Maybe applies, and (3) Does Not apply.
Answer:
(Note that this is a subjective analysis. Be sure that you understand your
response in comparison to the suggested solution below.)
A. Competence
Not 1. Maintain an appropriate level of professional leadership and expertise by
enhancing knowledge and skills.
2. Perform professional duties in accordance with relevant laws, regulations, and
Maybe technical standards.
3. Provide decision support information and recommendations that are accurate,
Clearly clear, concise, and timely. Recognize and help manage risk.

B. Confidentiality
Not 1. Keep information confidential except when disclosure is authorized or legally
required.
Not 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.
Maybe
C. Integrity
1. Mitigate actual confilicts of interest. Regularly communicate with business
Maybe 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
Clearly ethically.
3. Abstain from engaging in or supporting any activity that might discredit the
Clearly profession.
4. Contribute to a positive ethical culture and place integrity of the profession
Clearly above personal interests.

D. Credibility
1. Communicate information fairly and objectively.
Clearly
2. Provide all relevant information that could resonably be expected to influence an
Clearly intended user's understanding of the reports, analyses, or recommendations.
3. Report any delays or deficiencies in information, timeliness, processing, or
Maybe internal controls in conformance with organization policy and/or applicable law.
Not 4. Communicate professional limitations or other constraints that would preclude
responsible judgment or successful performance of an activity.

Summary
It is crucial that we teach, learn, and improve our ability to specifically recognize
and successfully address a variety of ethical challenges and conflicts in business.
The IMA Statement of Ethical Professional Practice provides valuable guidance on
principles and standards of ethics that can help IMA members better practice
their ethical values as business professionals. IMA principles describe the
specific values that should describe IMA members who are committed to be
ethical professionals. These four principles are Honesty, Fairness, Objectivity,
and Responsibility. The IMA Statement then goes on to specifically describe four
standards that should guide the ethical conduct of IMA members. These
standards are Competence, Confidentially, Integrity, and Credibility. Each of
these standards has very specific aspects that should be understood and
thoughtfully considered in addressing all business processes, analyses, and
decisions.
ASSESSMENT

I.

II.

III.
IV.

V.

VI.
ANSWER KEY
1. C Refrain from using…….
2. A Report any delays……..
3. B Perform professional duties……
4. D Refrain from engaging…….
5. B Confidentiality
6. A Credibility