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FMAA.E. Professional Ethics

The document discusses ethics topics relevant to accounting exams, including business ethics, ethical decision making, fairness, integrity, due diligence, fiduciary responsibility, and fraud. It also covers IMA's four overarching ethical principles of honesty, fairness, objectivity, and responsibility and the four standards of competence, confidentiality, integrity, and credibility.

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SANG HOANG THANH
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150 views8 pages

FMAA.E. Professional Ethics

The document discusses ethics topics relevant to accounting exams, including business ethics, ethical decision making, fairness, integrity, due diligence, fiduciary responsibility, and fraud. It also covers IMA's four overarching ethical principles of honesty, fairness, objectivity, and responsibility and the four standards of competence, confidentiality, integrity, and credibility.

Uploaded by

SANG HOANG THANH
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Financial and Managerial

Accounting Associate (FMAA)


Exam

Study notes

Subject E. Professional Ethics


Exam weight 10%
Validity For Exams in 2024
Required level A and B

Financial and Managerial Accounting Associate (FMAA) Exam Page 1


E.1. Business ethics
Business ethics

Business ethics is a field of study that analyzes the practices within organizations
to determine whether they are acceptable. Business ethics is also a set of
principles or a code of conduct by which business activities are judged to be
appropriate or questionable.

Ethical decision making

An ethical decision is one for which the accepted rules do not provide an answer,
and the decision maker must weigh values and reach a judgment as to how to
proceed. If a rule exists for handling the situation for example, employees do not
accept gifts from vendors or customers—the course to be followed is clear.

The question of what to do arises when no stated rules exist that cover a specific
situation. In those situations, decision-makers must use their own values along
with accepted practices within the organization.

Fairness, integrity, due diligence, and fiduciary responsibility are some of the
considerations in making ethical decisions.

Fairness

Fairness means acting in a manner that is free from bias, dishonesty, or injustice.
It is the quality of being just, equitable, honest, and impartial. Three fundamental
elements are involved in fairness: equality, reciprocity, and optimization.

Integrity

Financial and Managerial Accounting Associate (FMAA) Exam Page 2


Integrity means being honest and upstanding and adhering firmly to a code of
values. The actions of persons or firms that have integrity are consistent with
their principles. People and firms demonstrate consistency by not compromising
their core values even under strong pressure.

Due diligence

Due diligence literally means “requisite effort.” In a legal context, it means “the
care that a reasonable person takes to avoid harm to other persons or their
property.” When used in a business context, it refers to research done before
engaging in a financial transaction to avoid harm to either party. The research
includes investigation to confirm representations made by the other party and
possibly to locate information not provided in the other party’s representations.
Due diligence involves examining the other party’s financial position, business
record, and anything else deemed material to the transaction.

Fiduciary responsibility

A fiduciary is a person or an entity to whom assets or authorities have been


entrusted so the fiduciary can manage them for the benefit of another entity or
entities. A fiduciary is responsible for acting in the best interests of those other
entities, called the principals or beneficiaries. In business, the term “fiduciary” is
usually used in a financial context, although in other legal contexts it can have
other meanings, such as a legal guardian caring for a minor. In broad terms, when
someone has a “fiduciary responsibility,” that person is responsible for acting to
benefit the principals or beneficiaries. The most common example of a fiduciary
is a trustee that holds assets for a beneficiary or beneficiaries under a trust
arrangement.

Financial and Managerial Accounting Associate (FMAA) Exam Page 3


Four main types of fraud

Fraudulent financial reporting is intentional misstatements, including the


omission of information from financial statements and misapplication of
accounting principles.

Misappropriation of assets (this is stealing company assets) includes theft,


embezzlement, and any action that causes the company to expend cash for goods
and services that do not benefit or provide value to the company. Common assets
that are stolen include cash and inventory.

Corruption includes illegal gratuities, bribes, kickbacks, conflict of interest, or


economic extortion. Relationships with customers and suppliers (vendors) can
provide opportunities for fraud connected to sales and receivables, purchases and
payables.

Espionage such as stealing proprietary information or manipulating IT systems.

The risk of all of these types of fraud can be reduced greatly with strong internal
controls and the proper segregation of duties.

Financial and Managerial Accounting Associate (FMAA) Exam Page 4


E.2. Ethical considerations for accountants in business
Four overarching ethical principles

IMA’s basic ethical principles are Honesty, Fairness, Objectivity, and


Responsibility. An answer to an essay question involving IMA’s ethical principles
must both list them and define them. The definitions, which are not part of the
Statement, are:

Honesty means truthfulness or trustworthiness. Being honest means telling the


truth to the best of your knowledge. It is the quality of being upright, having
sincerity, frankness, and freedom from deceit or fraud.

Fairness means acting in an impartial manner and being free from bias,
dishonesty, or injustice. It requires a person to be just, equitable, and impartial.

Objectivity means basing a judgment on an established set of criteria. It is the


state of being unbiased, free from personal feelings or prejudice and basing
analyses and decisions on the facts alone.

Responsibility means performing an act or a function completely and in a timely


manner. It is the state of being answerable or accountable for something that is
within one’s own power, control, or management.

Four standards

Competence means the quality of having the required skill, knowledge,


qualifications, and capacity to fulfill a particular job effectively. Every level of
responsibility has its own requirements, and competence can and should occur at

Financial and Managerial Accounting Associate (FMAA) Exam Page 5


all stages of a person’s career. Competence in one position does not automatically
mean that the person will be competent in a different position.

Fulfilling the competence standard includes but is not limited to keeping up with
changes in laws, regulations, accounting standards, and association rules and
requirements.

Failure to keep informed about changes in these regulations could cause an


individual to unknowingly violate a legal requirement and/or commit an ethics
violation.

Confidentiality means safeguarding information and not disclosing anything to


those who are not authorized to know it. Confidential information can be
disclosed in ways other than by stating it, by innuendoes or even by just making a
facial expression or gesture. Be careful not to disclose confidential information in
this manner.

Integrity involves adhering firmly to a code of ethics. The actions of persons or


firms that have integrity are consistent with their principles and values. A person
who refuses to make compromises in matters of principle has integrity. A firm
with integrity does not compromise its core values. An organization’s integrity is
based on the organization’s values and on an unwillingness to deviate from
standards set by the firm and the industry.

Credibility is the quality of being believable and trustworthy.

Financial and Managerial Accounting Associate (FMAA) Exam Page 6


Resolving ethical issues

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
dissociating from the organization.

Financial and Managerial Accounting Associate (FMAA) Exam Page 7


Fraud Triangle

It identifies three conditions that must be present for a trusted employee, usually
a long-term employee, to commit a fraudulent act against his or her employer.

Pressure. The employee has a financial problem—such as addiction, bills, or


excessively high company earnings expectations or sales targets—that cannot be
shared and cannot be solved through legitimate means.

Opportunity. The employee sees a way to use a position of trust with an


employer to solve the problem in secret and believes it can be done in such a way
that there will be a low risk of getting caught.

Rationalization. The employee needs to be able to justify the crime as an


acceptable or justifiable act. Such rationalization may require the employee to
engage in convoluted, contradictory, and morally suspect leaps of logic to defend
an illegal or immoral act.

Financial and Managerial Accounting Associate (FMAA) Exam Page 8

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