ACCT-346 Week 1 Discussion: Managerial Versus Financial Accounting, Ethics, and Ethical Behavior (GRADED A)

ACCT-346 Week 1 Discussion: Managerial Versus Financial Accounting, Ethics, and Ethical Behavior 1. The Sarbanes-Oxley Act of 2002 (SOX) has emphasized the importance of ethical behavior and co des of conduct. Discuss the costs and benefits of the ethical environment. If a poor ethical environment results in costs to an organization, what are they? Conversely, what are the benefits of a good ethical environment? Ans. After the major collapse of many big organization like WorldCom, Enron and etc., the people of American and people around the world lost their faith in the regulatory bodies of the US and after this, the Sarbanes-Oxley Act or the SOX act was introduced and implemented to keep a check on the workings of the organization and SEC was also made more powerful. Some of the costs of having an ethical environment is that the organization have to incur additional costs in terms of money to maintain the rules and regulation throughout the organization. Also, as there is widespread unethical activities are taking place, it is quite natural that the organization that is having ethical environment throughout will lose some of the opportunities and might face hardship to compete in the short run. But, benefits of ethical environment is that are that it builds strong investor confidence and trust in the workings of the company thus, helping the company to wither to testing times as they have the support of the investors. Also, ethical environment helps the organization to make progress in the long run and create a great image in all the users of the financial statements and the society at large. 2. Flexibility, timeliness, and forward looking is said to be the prominent trait of modern management accounting, whereas standardization and consistency describe financial accounting. Explain why the focus on these two accounting systems differs. Ans: In order to bring about uniformity, consistency and standardization, there was a need to evolve an accounting system that could be understood by all, which is popularly known as financial accounting. Since the focus of financial accounting was mainly on finalization of accounts to ascertain the profitability of the relevant period, it could not serve the decision making purpose of the management. Due to this inherent limitation, it gave birth to its off shoots, such as management accounting and cost accounting etc. Management accounting begins from where financial accounting ends. It is highly dynamic activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operations. To ensure its success, the essential characteristics are as follows: ▪ Simplicity ▪ Flexibility ▪ Timeliness ▪ Forward looking ▪ Foresight ▪ Economy The focus of the two accounting systems differs because of following reasons: i. Financial accounting is for external users and management accounting is for internal users. ii. Management is interested in analysis of financial information for future decision making whereas the external users are mainly interested in overall financial results for investment purpose. iii. Financial accounting has to be standardized and follows GAAP but management accounting is specific to each entity, therefore, there is no need for GAAP or IFRS. iv. Financial accounting reveals profit of business as a whole, but management accounting shows, result of each operation, and process and product line for taking decisions. It is evident from the above comparison that since the purpose of management accounting and financial accounting are different the focus of both the disciplines also differs. Show Less