The Effects of Perceived Legal and Economic Factors on Management Accountants' Compliance with Their Code of Ethics

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ABSTRACT

Management accountants are engaged in a struggle to gain acceptance as professionals within American Society. Management accountants have been largely insulated from liability concerns. One liability concern management accountants do potentially face is in connection with the required federal payroll withholding taxes. This study reviews that source of liability and tests its effect, along with economic factors, on management accountants' intent to follow their code of ethics. A within-subject experiment was conducted on members of local chapters of the Institute of Management Accountants. Each subject answered questions related to four scenarios depicting ethical conflicts. The scenarios differed on the combination of liability or no liability, and a favorable or unfavorable job market. The questions traced the course of action for resolution of an ethical conflict by the IMA Statement of Ethical Professional Practice. The results of this study indicate that the intention to follow the code is affected by both the liability aspect and the favorability of the job market. When liability is introduced, the code is more likely to be followed. When the job market becomes unfavorable the code is more likely to be followed in the early stages of resolution of the conflict, but less likely in the later stages and resignation from the organization becomes less likely. These results do not demonstrate the kind of ethical intentions which will gain the public's confidence. In addition, the results demonstrate the need for the ethics counseling services provided by the IMA to its members.

INTRODUCTION

Management accountants are engaged in a struggle to gain acceptance as professionals within American Society. A significant step taken in that direction was the adoption of Statement No. 1C, Standards of Ethical Conduct, by the National Association of Accountants (NAA, 1983). The NAA has since changed its name to the Institute of Management Accountants and their ethical code is now called the Statement of Ethical Professional Practice. Recognition of a responsibility to the public and the potential for legal liability are facts of professional life. Management accountants in the USA, however, have been largely insulated from liability concerns. Their liability had primarily stemmed from association with their companies' state and federal tax returns until passage of the Sarbanes-Oxley Act of 2002 which requires the Chief Executive Officer and Chief Financial Officer of publicly traded firms to certify in writing that their financial statements fairly represent the results of operations.

Recognition of the ethical principles which govern conduct is a widely accepted distinguishing mark of a profession (Custis, 1933). The public accounting profession in America achieved the status of a profession during the 20th century. This status is largely the result of the formulation, adherence to, and updating of its own code of ethics (AICPA, 2010). The public and business community have noted these actions, and now regard Certified Public Accountants as professionals. Management accountants must continue to follow the same course of action.

A professional code of ethics is a voluntary assumption of self-discipline above and beyond the requirement of law (Carey and Doherty, 1966). In order to gain acceptance as a profession, management accountants must not only adopt a code of ethics, but must also demonstrate a willingness to adhere to a level of practice which calls for actions which are based on ethical principles rather than on potential liability. By behaving in a way consistent with their code of ethics, professionals earn the public's trust.

This study examines: (1) the requirements in the Statement of Ethical Professional Practice for resolution of an ethical conflict, (2) the legal liability of management accountants regarding their companies' federal tax returns, (3) the moral decision process, and (4) ethical bases used for making decisions. …

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