Chapter1

The Manager and Management Accounting

 The Role of Management
Accounting in Business Decisions
Businesses focus on revenues and costs
Managers must understand cost behavior
Accounting information supports:
•R&D
•Planning
•Budgeting
•Pricing

Profit can increase even when sales decline

Managerial and Strategic Interpretation of World’s largest streaming company

Netflix’s Data-Driven Model 270 million paid subscribers worldwide

Monthly churn rate: only 2%

Personalized recommendations using

machine learning

Powered by Big Data and Data Science

 Types of Accounting

Our Vision

Financial Accounting Management Accounting Cost Accounting

- External reporting - Internal decision making - Cost measurement

Democratize access to Use AI-driven credit Empower entrepreneurs
- Historical performance - Planning and control - Resource usage
capital and funding scoring to deliver fair to achieve growth
- GAAP opportunities
standards for - Performance
and transparentanalysis
data- - Cost analysis
through stronger
growing SMEs. based lending. financial inclusion.

Cost accounting supports both

 Major Differences Between Management and Financial Accounting

Management Accounting Financial Accounting

Helps managers make decisions to achieve Provides information to investors, banks, regulators,
Purpose of information
organizational’s goals and other outside parties

Investors, banks, regulators, suppliers, and other

Primary users Managers of the organization
outside parties

Emphasis on planning for the future (budgets Emphasis on reporting past performance (for
Focus and emphasis
for 2026 prepared in 2025) example, reports for 2025 prepared in 2026)

Rules of measurement Internal measures and reports not based on Prepared under GAAP and audited by independent
and reporting GAAP; based on cost-benefit analysis external auditors.

Time span and type of From hourly data to multiyear operational Annual and quarterly financial reports, primarily on
reports and financial reports. the company as a whole

Designed to influence the behavior of Reports economic events and influences behavior via
Behavioral implications
managers and other employees performance-based pay.
 Strategic Decisions and the Management Accountant

Cost leadership strategy

Low price by managing:

-operations
Strategic Decisions -marketing
-customer service
-administrative costs

Product differentiation strategy

offering differentiated or unique

products or services
Who are our most important customers, and what critical capability do we
need to be competitive and deliver value to our customers?

What is the bargaining power of our customers?

What is the bargaining power of our suppliers?

What substitute products exist in the marketplace, and how do they differ
from our product in terms of features, price, cost, and quality?

Will adequate cash be available to fund the strategy, or will additional

funds need to be raised?
Value-Chain
Supply-Chain Analysis
Key Success Factors
 Value-Chain Analysis
Administration
Research and
Production Distribution
development (R&D)
generating and
experimenting with ideas procuring, transporting, and processing orders, shipping
related to new products, storing ,coordinating ,… products, or delivering
services, or processes services to customers

Design of products Marketing Customer service

and processes
planning, engineering, and promoting and selling
testing of products and products or services to providing after-sales
processes. customers or prospective service to customers
customer
Value-Chain Analysis
Now…

EXERCISES
Value-Chain Analysis
Now…
 Value-Chain Analysis
Excercice 1-17

Cost Value chain function

Production
a Utility costs for the plant assembling the Latitude line

Distribution
b Shipping Latitude products to a retail chain

Design of products and processes

c Payment for design of the XPS 2-in-1 laptop

R&D
d Salary of scientist working on next generation of servers

Marketing (including sales)

e Employees’ visit to major customer to demonstrate products

Design of products and processes

f Purchase competitors’ products for testing vs Dell products

Marketing (including sales)

g Payment to business magazine for advertisements

Production
h Cartridges purchased from outside supplier for Dell printers
 Value-Chain Analysis

Cost Value chain function Why

Production Plant/assembly facility operating costs incurred in
a Utility costs for the plant assembling the Latitude line manufacturing.

Distribution Outbound logistics: processing and shipping finished

b Shipping Latitude products to a retail chain goods to retailers.

Design of products and processes Product design/engineering activity (planning and

c Payment for design of the XPS 2-in-1 laptop designing the product).

R&D Developing new product/service ideas and

d Salary of scientist working on next generation of servers technological advances.

Marketing (including sales) Sales activity aimed at winning/retaining customers by

e Employees’ visit to major customer to demonstrate products demonstrating products.

Design of products and processes Testing/benchmarking to inform design choices and

f Purchase competitors’ products for testing vs Dell products product specifications.

Marketing (including sales)

g Payment to business magazine for advertisements Advertising and promotion to generate demand.
Direct input/materials required for the product
Production
h Cartridges purchased from outside supplier for Dell printers offering (part of operations).
Value-Chain Analysis
Excercice 1-18
 Value-Chain Analysis
Excercice 1-18

Cost Function (1–6)

Market research to identify new industries to
a 1. R&D
target

b Office cleaning services 5. General Administration (Support)

c Salaries of consultants providing strategic advice 3. Service Delivery/Operations

d Hosting a training session for clients 4. Customer Service

e Software licenses for internal operations 6. Technology & Infrastructure (Support)

f Freelance consultant for a one-time client project 3. Service Delivery/Operations

g Travel costs for consultants visiting clients 3. Service Delivery/Operations

h Follow-up emails and calls to prospective clients 2. Marketing & Sales

 Value-Chain Analysis
Excercice 1-18

Cost Function (1–6) Why

Market research to identify new industries to Identifies new markets/service opportunities
a 1. R&D
target (development activity).

b Office cleaning services 5. General Administration (Support)

Facility upkeep/office support, not client delivery.

c Salaries of consultants providing strategic advice 3. Service Delivery/Operations

Core consulting work delivered to clients.

d Hosting a training session for clients 4. Customer Service Post-service support/training to help clients use the
service outcomes.

e Software licenses for internal operations 6. Technology & Infrastructure (Support) Internal IT tools that enable operations across the
firm.

f Freelance consultant for a one-time client project 3. Service Delivery/Operations External labour used directly to deliver the client
engagement.

g Travel costs for consultants visiting clients 3. Service Delivery/Operations Necessary cost of performing on-site consulting
service delivery.
Lead generation and conversion activities (sales
h Follow-up emails and calls to prospective clients 2. Marketing & Sales
follow-up).
 Value-Chain Analysis
Administration
Research and These functions are
Production Distribution
development (R&D)
generating and
connected to each other
experimenting with ideas procuring, transporting, and processing orders, shipping
related to new products, storing ,coordinating ,… products, or delivering
services, or processes services to customers

Design of products Marketing Customer service

and processes
planning, engineering, and promoting and selling
testing of products and products or services to providing after-sales
processes. customers or prospective service to customers
customer
Value-Chain Analysis
Excercice 1-19
 Value-Chain Analysis
Excercice 1-19
Item Cost Value-chain function

a Cost of oil for the deep fryer Production

Wages of the counter help who give customers Production

b
the food they order

c Cost of chicken and potatoes Production

Cost of tomato ketchup packets given away with

d Production
customer orders
Cost of posters indicating the special “Kid’s Meal
e Marketing (including sales)
for $6.00”
Costs of corporate sponsorship of the World
f Marketing (including sales)
Series
Salaries of the food specialists in the corporate R&D
g
test kitchen who create new menu items
Cost of “to-go” bags requested by customers
h Production
who could not finish their meals
 Customer Relationship Management
(CRM)
-Use technology to coordinate all customer-facing activities
-Design and production activities necessary to get products and services to customers.

24/7
 Supply Chain Analysis
01
Suppliers of Cola- 02
Concentrate Ingredients
04
Manufacturer of 05
Concentrate 03 Distribution Company
Retail Company
Bottling Company

06
Final Consumer

Suppliers of Non-
Concentrate
Materials/Services
 Key Success Factors

Cost and
Quality Time Innovation Sustainability
efficiency

-understand the -new-product -Investors care

activities costs to -Total quality -strategies,
development time -attract employees
arise management business models,
-The prices (TQM) -customer-response the services -Society and activist
competitors time nongovernmental
-eliminate some -Bottlenecks organizations
activities
Key Success Factors

Cost and -Cost and efficiency: Companies operating in

efficiency competitive markets face continuous pressure to
reduce the cost of the products they sell.
To calculate and manage the cost of products,
managers must first understand the activities (such
as setting up machines or distributing products) that
cause costs to arise as well as monitor the
marketplace to determine the prices competitors are
charging and what customers are willing to pay for
the products
Key Success Factors
Quality: Customers expect high levels of quality.
Cost and Total quality management (TQM) is an integrative
Quality
efficiency philosophy of management for continuously
improving the quality of products and processes.
TQM believe that every person in the value chain is
responsible for delivering products and services
that exceed customers’ expectations.
Key Success Factors

Cost and
Quality Time
efficiency

Time: Two of the most important dimensions are new-product development time is the time
it takes for companies to create new products and bring them to market.
The increasing pace of technological innovation has led to shorter product life cycles and
more rapid introduction of new products. To make new-product development decisions,
managers need to understand the costs and benefits of bringing products to market faster,
and customer-response time (describes the speed at which an organization responds to
customer requests).
Key Success Factors

Cost and
Quality Time Innovation
efficiency

Innovation: A constant flow of innovative products or services is the basis

for a company’s ongoing success. Many companies innovate in their
strategies, business models, the services they provide, and the way they
market, sell, and distribute their products.
Key Success Factors

Cost and
Quality Time Innovation Sustainability
efficiency

Sustainability: Companies are increasingly applying the key success factors of cost and
efficiency, quality, time, and innovation to promote sustainability—the development and
implementation of strategies to achieve long-term financial, social, and environmental goals.
Key Success Factors
Now…

EXERCISES
Key Success Factors
Excercice 1-20
 Key Success Factors
Excercice 1-20

a) Develop a more advanced cutting tool to stay ahead of competitors. → Innovation

b) Adopt a TQM philosophy to reduce waste and defects to near zero. → Quality

c) Reduce lead times … by 20% in order to increase customer retention. → Time

d) Redesign the robot to use 25% less energy, as part of CSR objectives. → Sustainability

e) Benchmark the company’s gross margin percentages against its major competitors. → Cost and efficiency
 Key Success Factors

Cost and
Quality Time Innovation Sustainability
efficiency

-understand the -new-product -Investors care

activities costs to -Total quality -strategies,
development time -attract employees
arise management business models,
-The prices (TQM) -customer-response the services -Society and activist
competitors time nongovernmental
-eliminate some -Bottlenecks organizations
activities
Key Success Factors
Excercice 1-21
 Key Success Factors
Excercice 1-21

a) Increase spending on employee development to streamline processes. → Cost and efficiency

b) Foster cooperative relationships with truck repair providers to allow for less downtime
Time
from truck breakdowns. →

c) Invest in electric and hybrid vehicles to reduce carbon emissions. → Sustainability

d) Train material-handling employees to reduce errors when loading trucks. → Quality

e) Benchmark the company’s gross margin percentages against its major competitors. → Cost and efficiency
 The Daily News
Friday 08/05/2xxx Edition: 001

“The Five-Step Decision-Making Process”

 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001
The Daily News differentiates itself from its competitors by using :
(1) highly respected journalists who write well-researched news articles;
(2) color to enhance attractiveness to readers and advertisers; and
(3) a website that delivers up-to-the-minute news, interviews, and analyses.
The newspaper has the following resources to deliver on this strategy: an
automated, computer-integrated, state-of-the-art printing facility; a Web-based
information technology infrastructure; and a distribution network that is one of the
best in the newspaper industry.
 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001

To keep up with steadily increasing production costs, Naomi Crawford, manager of

the Daily News, needs to increase the company’s revenues in 2026. As she
ponders what she should do in early 2026, Naomi works through the five-step
decision-making process.
 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001
1. Identify the problem and uncertainties. Naomi has two main choices:
a. increase the selling price of the newspaper or
b. increase the rate per page charged to advertisers.

BUT…
These decisions would take effect in March 2026.
The key uncertainty is the effect any increase in prices or advertising rates
will have on demand. A decrease in demand could offset the price or rate
increases and lead to lower rather than higher revenues.
AND…
A decrease in demand could offset the price or rate increases and lead to lower
rather than higher revenues.
 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001

2. Obtain information.
Gathering information before making a decision helps managers gain a better
understanding of uncertainties.
Naomi asks her marketing manager to talk to some representative readers to gauge
their reaction to an increase in the newspaper’s selling price. She asks her
advertising sales manager to talk to current and potential advertisers to assess
demand for advertising.
She also reviews the effect that past increases in the price of the newspaper had on
readership. Ramon Sandoval, management accountant at the Daily News, presents
information about the effect of past increases or decreases in advertising rates on
advertising revenues. He also collects and analyzes information on advertising rates
competing newspapers and other media outlets charge.
 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001

3. Make predictions about the future.

Based on this information, Naomi makes predictions about the future. She
concludes that increasing prices would upset readers and decrease readership.

WHILE…

She has a different view about advertising rates.

She expects a market wide increase in advertising rates and believes that increasing
rates will have little effect on the number of advertising pages sold.
 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001

3. Making predictions requires judgment.

Naomi looks for biases in her thinking.
How sure is she that
Has she correctly judged competitors will increase
reader sentiment or is the their advertising rates?
negative publicity of a
price increase overly How confident is she that
influencing her decision her sales representatives
making? can convince advertisers to
pay higher rates?
Have circumstances
changed?
 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001

She retests her assumptions and reviews her thinking.

She feels comfortable with her predictions and judgments.

 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001

4. Make decisions by choosing among alternatives.

A company’s strategy serves as a vital guidepost for individuals making decisions in
different parts of the organization.
 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001

Coherent strategies provide a common purpose for these

disparate decisions.
Only if these decisions are aligned with its strategy will an
organization achieve its goals.

Without this alignment, the company’s decisions will be

uncoordinated, pull the organization in different directions, and
produce inconsistent results.
 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001

Consistent with a product differentiation strategy, Naomi decides to

increase advertising rates by 4% to $5,200 per page in March 2026
but not increase the selling price of the newspaper.
She is confident that the Daily News’s distinctive style and Web
presence will attract readership, creating value for advertisers.
She communicates the new advertising rate schedule to the sales
department. Ramon estimates advertising revenues of $4,160,000
($5,200 per page × 800 pages predicted to be sold in March 2026).
 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001

The most important planning tool when implementing strategy is a

budget.
A budget is the quantitative expression of a proposed plan of action
by management and is an aid to coordinating what needs to be done
to execute that plan. For March 2026, the budgeted advertising
revenue of the Daily News equals $4,160,000.
 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001

5. Implement the decision, evaluate performance, and learn. Managers at the

Daily News take action to implement and achieve the March 2026 budget.

The information on actual results is different from the predecision planning

information Naomi and her staff collected in Step 2 to better understand
uncertainties, to make predictions, and to make a decision.
Comparing actual performance to budgeted performance is the control or
postdecision role of information.
Control comprises taking actions that implement the planning decisions, evaluating
past performance, and providing feedback and learning to help future decision
making.
 The Daily News
“The Five-Step Decision-Making Process”
Difference as a percentage
Actual result Budgeted amount Difference
of Budgeted amount

Advertising pages sold 760 pages 800 pages 40 pages Unfavorable 5.0% Unfavorable

Average rate per page $5,080 $5,200 $120 Unfavorable 2.3% Unfavorable
Advertising revenues $3,860,800 $4,160,000 $299,200 Unfavorable 7.2% Unfavorable

The performance report spurs investigation and learning, which involves examining
past performance (the control function) and systematically exploring alternative ways
to make better-informed decisions and plans in the future.

Learning can lead to changes in goals, strategies, the ways decision alternatives are
identified, and the range of information collected when making predictions and
sometimes can lead to changes in managers.
 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001
The performance report would prompt the manager to ask several questions,
directing attention….
Did the marketing and sales department
make sufficient efforts to convince
Strategy of differentiating
advertisers that, even at the higher rate of
the Daily News from other
newspapers attracting $5,200 per page, advertising in the Daily
more readers? News was a good buy?

Did competitors increase advertising Are revenues falling

rates as Naomi had expected? because editorial and
Are more readers getting production standards have
their news online? declined?
 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001

5. Implement the decision, evaluate performance, and learn.

Managers at the “Daily News” take action to implement and achieve the March 2026
budget.
Answers to these questions could prompt the newspaper’s publisher to take
subsequent actions, including, for example:
WHAT?
• adding sales personnel
• making changes in editorial policy
• expanding its presence online and on mobile devices
• getting readers to pay for online content
• and selling digital advertising.
 The Daily News
“The Five-Step Decision-Making Process”
Edition: 001

Planning and control activities get more challenging for innovation and
sustainability.

Consider the problem of how the “Daily News” must innovate as more of its readers
migrate to the Web to get their news and apply the five-step process.

• Will there be demand for a newspaper?

• Will customers look to the Daily News to get their information or to other
sources?
• How have the uncertainties evolved and what do managers need to do
to respond to these changing circumstances?
 The Daily News
“The Five-Step Decision-Making Process”

Planning and control for sustainability is equally challenging.

• What should the “Daily News” do about energy consumption in its printing
presses, recycling of newsprint, and pollution prevention?

Predicting how sustainability efforts might pay off in the long run is far from certain.
 The daily news
Friday 08/05/2xxx Identify the problem and Edition: 001
01 uncertainties Make decisions by choosing
04
a. increase selling price of the among alternatives
newspaper or -Planning: collectively referred, consists of
b. increase rate per page charged selecting an organization’s goals and
to advertisers strategies, The most important planning
Five-step tool is a budget
02 Obtain information
decision-making
process. Collect information before 05 Implement the decision, evaluate
decision helps gain a better performance, and learn
understanding of uncertainties. -Comparing actual performance to budgeted
performance
Make predictions about
03 the future -Control comprises taking actions that
implement the planning decisions, evaluating
Based on information, predictions past performance, providing feedback,
about the future learning to help future decision.
 Difference as a percentage
Actual result Budgeted amount Difference
of Budgeted amount

Advertising pages sold 760 pages 800 pages 40 pages Unfavorable 5.0% Unfavorable

Average rate per page $5,080 $5,200 $120 Unfavorable 2.3% Unfavorable
Advertising revenues $3,860,800 $4,160,000 $299,200 Unfavorable 7.2% Unfavorable

?! 1- Has differentiation actually increased readership?

2- Did marketing and sales successfully justify the higher ad rate to
advertisers?
3- Why was the actual average ad rate below the budgeted rate?
4-Did competitors raise advertising rates as expected?
5-Did unfavorable economic conditions reduce ad revenues?
6-Are revenues declining due to lower editorial or production standards?
7-Are more readers shifting to online news?
1- Has differentiation actually increased readership? Not assessable. It’s necessary To test it, check
circulation/subscriptions, web traffic, and engagement
versus budget and prior months.
2- Did marketing and sales successfully justify the higher ad rate to Probably not fully: ad pages sold are 760 v
800 (−40), suggesting demand was weaker
advertisers?
than expected at the higher rate.
Actual average rate is $5,080 vs $5,200
3- Why was the actual average ad rate below the budgeted rate? (−$120). Likely drivers:
discounting/negotiation, a different
advertiser mix, or competitive pressure.
4-Did competitors raise advertising rates as expected? We need a market benchmark (competitors’
rate cards and other media pricing).
5-Did unfavorable economic conditions reduce ad revenues? Possible, but not proven here. The fall in pages sold could ref
a weaker ad market—verify with industry trends and local
economic indicators.

6-Are revenues declining due to lower editorial or production standards?

No direct evidence in this table. It’s a potential explanation (lower quality →
lower readership → less value for advertisers). Check quality metrics,
complaints, production errors, and reader surveys.
7-Are more readers shifting to online news?
Consistent with the broader context, but not measured here.
 five-step process

Step 1, Identify the problemare

the uncertainties andmuch
uncertainties
greater.

Step 2, obtaining information, is more difficult

Obtain information

Step 3, making predictions about the future will

Make predictions about the future
require developing different scenarios and models

Step 4, make decisions that conditions might

Make decisions by choosing among
alternatives
change in unanticipated ways,

Step 5, the learning component is critical.

Implement the decision, evaluate
performance, and learn
 Example of Management Decision Making at Daily News

PLANNING Management Accounting System

Identify the problem and uncertainties
●
Budgets Financial
● Obtain information
Expected advertising pages and representation
● Make predictions about the future
rate per page, and revenue of plans
● Make decisions by choosing among alternatives

Increase advertising rate by 4%

Accounting system
●Source documents
(invoices to advertisers, billing Recording
CONTROL
Learning

to customers transactions and

Implement the decision classifying them in
●Recording in general and
accounting records
Implement a 4% increase in advertising subsidiary ledgers
rates

Evaluate performance and learn Performance reports Reports comparing

Comparing actual advertising actual results to
Advertising revenues 2% lower than budgets
pages sold, average rate per
budgeted
page, and revenues to budgeted
amounts
 Key Management Accounting Guidelines

○use a cost–benefit for resource-allocation decisions

Cost-Benefit ○ spend resources if expected benefits is more than expected
Approach
1 costs.
○ rely on management accounting information to quantify
expected benefits and expected costs

Behavioral and ○ make wise economic decisions by desired information in an

Technical 2 appropriate format
○ Budgets have a behavioral effect by motivating and
Considerations rewarding employees .

Different Costs for

3 ○ A cost concept used for external reporting may not be
Different Purposes appropriate for internal, routine reporting
 Organization Structure and the Management
Accountant

-Managers and management accountants have roles and

reporting responsibilities.

-First on broad management functions and then look at

how the management accounting and finance functions
support managers.
 Line and Staff
Relationships
Line management Staff management

management accountants and information

production, marketing, and distribution
technology and human-resources
management, is directly responsible for
management, provides advice, support,
achieving the goals of the organization.
and assistance to line management.
 The Chief Financial
Officer and the
Examples of Functions
Global Financial Controller
Planning/Budgeting
Operations Administration
Profitability Reporting
Inventory
Chief Executive Officer
(CEO) Board of Directors
Royalties
General Ledger
Accounts Payable and
Receivable
Subsidiary and Liaison Chief Financial Officer
Accounting (CFO)

Corporate Risk Investor Strategic Internal

Controller Tax Treasury
Management Relations Planning Audit
 Management
Accounting Beyond the
Numbers

-Work well in cross-functional teams and as a business partner

-Learn about business issues, understand motivations of different individuals, respect views of their
colleagues, and show empathy and trust.
-Promote fact-based analysis and make tough-minded, critical judgments without being adversarial.
-Raise tough questions for managers to consider, especially at preparing budgets.
-Lead and motivate people to change and be innovative
-Communicate clearly, openly, and candidly
-Communicating information is a large part of a management accountant’s job
-To be successful, they must clearly communicate information that multidisciplinary teams need to
deliver new innovations profitably.
-Have high integrity.
-Never succumb to pressure from managers to manipulate financial information. Their primary
commitment is to the organization and its shareholders.
 a. Employees in must comply d. Without ethical conduct,
with the organization’s and customers lose confidence in
more broadly, society’s the quality of products and
expectations of ethical become reluctant to buy
standards. them, causing markets to fail.

Professional b. Accountants have ethical

obligations, responsible for
e. Prices of products increase
because of higher prices paid
the integrity of the financial
Ethics
to suppliers and fewer
information provided to products being produced and
internal and external parties. sold.

c. Weak ethics allow to f. Investors are unsure about

suppliers bribe executives to the integrity of financial
win supply contracts rather reports, affecting their ability
to evaluate investment
than invest in improving
decisions, resulting in a
quality or lowering costs
reluctance to invest.
Institutional Support(Professional Ethics)
the Sarbanes–Oxley

1
of
CEOs and CFOs must certify that the financial
statements fairly represent the results of operations.

Hire, compensate, and terminate the public

accounting firm 2
Oversee, review, and investigate the work of the
3 auditors BY the Public Company Accounting
Oversight Board
Certification programs OF management accounting
and financial management technical knowledge and
expertise BY Professional accounting organizations
4
 Statement of Ethical Professional Practice (IMA)
STATEMENT OF ETHICAL PROFESSIONAL PRACTICE
Members of IMA shall behave ethically. A commitment to ethical professional practice includes overarching principles that express our values and standards
that guide member conduct.
PRINCIPLES
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.
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 disciplinary action.
[Link]
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.
II. CONFIDENTIALITY
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.
III. INTEGRITY
[Link] 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.
IV. CREDIBILITY
[Link] 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.
 Institutional Support(Typical Ethical Challenges)
CASE 2

A packaging supplier offers a management accountant a free, all-

CASE 1
expenses-paid weekend trip to the Super Bowl while bidding for
a new contract. Although the supplier does not directly mention
A management accountant is concerned about the commercial
the contract, the accountant is concerned that the offer could
viability of a software product whose development costs are
influence decisions or lead to requests for confidential
being capitalized rather than expensed. The division manager,
information about competitors’ bids.
whose bonus depends partly on reported profits, supports
This situation creates an ethical dilemma because ethical
capitalization but provides little evidence that the product will be
issues are not always clear-cut
profitable. Given the failure of the division’s two most recent
The ethical problem relates to competence, credibility, and
products, the accountant faces an ethical dilemma between
integrity. Accounting standards allow software development
following accounting standards and avoiding conflict with her
costs to be capitalized only when there is reliable evidence that
superior.
the product will be commercially successful. If such evidence is
not available, the costs should be recorded as expenses in the
current period.

Competence, credibility, and

Confidentiality and integrity
integrity
 IMA’s guidance on “Resolving Ethical Issues”
RESOLVING ETHICAL ISSUES

In applying the Standards of Ethical Professional Practice, the member may encounter unethical issues or behavior. In these situations, the
member should not ignore them, but rather should actively seek resolution of the issue. In determining which steps to follow, the member
should consider all risks involved and whether protections exist against retaliation.
When faced with unethical issues, the member should follow the established policies of his or her organization, including use of an
anonymous reporting system if available.
If the organization does not have established policies, the member should consider the following courses of action:
 The resolution process could include a discussion with the member’s immediate supervisor. If the supervisor appears to be involved, the
issue could be presented to the next level of management. IMA offers an anonymous helpline that the member may call to request how key
elements of the IMA Statement of Ethical Professional Practice could be applied to the ethical issue.
 The member should consider consulting his or her own attorney to learn of any legal obligations, rights, and risks concerning the issue.
If resolution efforts are not successful, the member may wish to consider disassociating from the organization.

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Source:IMA Statement of Ethical Professional Practice, 2017. Montvale, NJ: Institute of Management Accountants. Reprinted with permission
from the Institute of Management Accountants, Montvale, NJ.