Managerial and Financial Accounting

Managerial and Financial Accounting Report

The regulatory and oversight framework imposed on corporate America was substantial in the 1990s, but disastrous. It took the market collapse of year 2000 and the scandals that followed to reveal the extent to the problems associated with poor governance. From an earnings magic perspective of major corporations, the environment for abuse starts at the top, board of directors. Members of the board and the existing corporate governance structure are significant signals of the potential for earnings manipulation and opportunistic behavior.

Accounting problems at Enron, WorldCom, and other companies have raised important questions about the audits of corporate financial statements. Independent accountants, who were certified public accountants, performed these audits. While auditors are regulated by both governmental agencies and professional organizations, many question whether this oversight has been adequate. (Lyke, 2003) Thanks to beefed-up regulations the current governance structure is more likely to limit further abuses.

As a result, in recent years the CPA Code of Professional Conduct has recently extended these standards to all CPA's, not just those in public accounting. Individuals in managerial and financial accounting have a unique set of circumstances relating to their employment. To help them assess their situation, the Institute of Management Accountants has developed standards of ethical conduct for managerial and financial accountants. Accountants code of ethics require accountants adhere to four fundamental principles, 1) integrity, 2) objectivity, 3) professional competence, and 4) confidentiality. (IMA, 2005)

When considering accounting, ethics and professional conduct is considered to be the part of philosophy that deals with the practical application of those actions we have control. As professionals we are expected to maintain high standards of achievement and conduct. To adhere to standards of ethical behavior integrity must be considered. Avoid conflicts of interest or the appearance of conflicts. Specifically employees should avoid outside financial interest such as gifts or favors that might conflict with the company's interest. In corrections integrity can be examined by trafficking in contraband, which can involve drugs, alcohol, money, weapons, or a variety of other things. There are a variety of motives for why an employee would engage in this kind of behavior, but the usual pattern is for the employee to do it in return for some services in return by the inmate. Sometimes, this involves sexual favors.

Secondly, to remain objective individuals will communicate information that is relevant. Also, be objective and fair to those involved. In the correctional setting favoritism is somewhat questionable, as most correctional employees has their favorite inmates. These employees tend to talk to certain inmates more, hang out on the prison grounds more, give special or favored assignments, as well as try to protect them from harm of other inmates or staff.

Thirdly, professional competence requires individuals to comply with the rules and regulations set by the company. They will also remain knowledgeable by completing adequate training. For example, corruption occurs when staff ignores minor infractions and overlook illegal inmate activity, such as gambling, or running a criminal enterprise from within prison.

Finally, confidentiality is not to disclose information that is acquired through work. Familiarity occurs when inmates know employee's personal business. When an inmate is familiar with an employees' personal habits, behavior or problems it is a breakdown in the professional and ethical boundaries. Inmates will use this information among staff as a way to elicit discussion of personal issues. They will use this information as a personal level of relationship.

Accounting can be defined as an information system, which measures business activities, processes financial data into reports, and communicates the results to the decision makers. There are two broad categories of decision makers: internal and external. Managerial accounting deals with the internal system that provides operational and financial information to managers of for-profit and not-for-profit entities. This information enables the decision-makers to make more informed decisions rather than follow a set of rules. Managerial accounting does not necessarily need to follow a set of rules (GAAP's). The information is generally the result of a system that measures, classifies, records, and summarizes events that are important to the management of the company.

The external system is Financial Accounting. Financial Accounting reports what has happened in the past with the preparation of financial statements for external decision-makers. The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agent's performance. Financial accounting is very precise information that follows rules of GAAP, and is mandatory for businesses. A financial accountant must equal assets with liabilities and owner's