In the following text I am going to evaluate the changes that Silverado’s management is
considering and discuss the specific steps that Larry Stewart should take to resolve the
situation.
In general, management accountants have a responsibility to serve the interests of many
stakeholders in society and are required to behave ethically because their profession
touches on every aspect of society. Attention to business ethics can even bring significant
benefits to a company. Primarily, companies with a strong code of ethics can create strong
customer and employee loyalty. In addition, observing ethical practices now can avoid later
litigation costs.
As a consequence, the Institute of Management Accountants (IMA) has established ethical
standards for management accountants. The code has five major divisions: competence,
confidentiality, integrity, credibility, and resolution of ethical conflict. Integrity contains
amongst others the prescription to advise all parties of any potential conflicts as well as to
abstain from engaging in or supporting any activity that might discredit the profession.
Moreover, one essential of credibility is to communicate information fairly and objectively.
In the case under consideration, Larry Stewart is told by Silverado’s management group to
implement changes to several accounting policies and practices that, although not in
accordance with generally accepted accounting principles, would make the company a less
attractive acquisition to prevent a takeover. Since understating the company’s profit is to be
considered as illegal and unethical behavior violating the CMA code of ethics, the intended
changes indeed discredit the profession. Furthermore, Silverado’s management does not
ethical conflict.