Avett Manufacturing Allows Employees To Purchase Mats

Avett Manufacturing Company Allows Employees To Purchase Materials Su

Avett Manufacturing Company allows employees to purchase materials, such as metal and lumber, for personal use at a price equal to the company's cost. To purchase materials, an employee must complete a materials requisition form, which must then be approved by the employee's immediate supervisor. Brian Dadian, an assistant cost accountant, then charges the employee an amount based on Avett's net purchase cost. Brian is in the process of replacing a deck on his home and has requisitioned lumber for personal use, which has been approved in accordance with company policy. In computing the cost of the lumber, Brian reviewed all the purchase invoices for the past year. He then used the lowest price to compute the amount due the company for the lumber. The Institute of Management Accountants (IMA) is the professional organization for managerial accountants. The IMA has established four principles of ethical conduct for its members: honesty, fairness, objectivity, and responsibility. These principles are available at the IMA Web site: . Using the IMA's four principles of ethical conduct, evaluate Brian's behavior. Has he acted in an ethical manner? Why or why not? Share any additional thoughts.

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Introduction

The ethical considerations surrounding the actions of managerial accountants are critical, especially when personal interests intersect with professional responsibilities. In the case of Brian Dadian, an assistant cost accountant at Avett Manufacturing Company, his decision to use the lowest purchase invoice to determine the cost of lumber for personal use raises questions about adherence to ethical standards. The Institute of Management Accountants (IMA) emphasizes principles such as honesty, fairness, objectivity, and responsibility, which serve as guiding lights in making ethical decisions. This paper evaluates Brian’s actions against these principles to determine whether his conduct aligns with professional ethical standards and explores the broader implications of his behavior.

Overview of IMA’s Ethical Principles

The IMA’s framework of ethical conduct is founded upon four key principles that guide managerial accountants in their professional duties.

1. Honesty entails truthfulness and transparency in financial reporting and decision-making.

2. Fairness involves treating all stakeholders equitably and avoiding bias or conflicts of interest.

3. Objectivity requires professionals to maintain impartiality and avoid situations where personal interests could influence their judgment.

4. Responsibility emphasizes accountability and adherence to ethical standards to uphold the profession’s integrity.

These principles together foster trust, uphold professional credibility, and encourage ethical decision-making in managerial accounting.

Evaluation of Brian's Actions in Light of the IMA Principles

Analyzing Brian’s conduct through the lens of the IMA’s principles reveals several ethical concerns:

Honesty: Brian's decision to select the lowest invoice to determine the lumber's cost suggests an intent to minimize the amount owed to the company. While cost minimization might be justified from an economic perspective, choosing the lowest invoice without considering the actual acquisition cost could be perceived as deceptive or manipulative, especially when the intent is personal benefit. Genuine honesty would require that the cost charged reflects the actual purchase price or the average cost, rather than the lowest invoice, which might not be representative.

Fairness: By using the lowest invoice, Brian might be gaining an unfair advantage over the company, potentially resulting in a lower reimbursement for the lumber than what was actually paid or the fair market value. This act could be viewed as unfairly benefiting himself at the expense of the employer, thereby violating the principle of fairness.

Objectivity: The choice of the lowest invoice indicates a biased approach that favors personal interests. An objective judgment would be to base the cost on the actual invoice or an average, rather than selectively choosing the lowest, which could distort the financial accuracy and undermine objectivity.

Responsibility: As an assistant cost accountant, Brian has a responsibility to uphold ethical standards and ensure accurate, fair, and truthful reporting. His decision to manipulate the cost calculation may compromise his credibility and breach his professional responsibilities to the company.

Additional considerations include whether the company's policies explicitly allow or prohibit the use of invoice selection for personal requisitions. If the policies are silent or suggest fairness and accurate reporting, Brian’s actions could be viewed as a breach of responsibility. If policies explicitly prohibit such manipulations, his behavior would constitute ethical misconduct.

Broader Implications of the Behavior

Engaging in manipulative practices for personal gain can have wider repercussions, affecting the integrity of financial reporting, damaging trust within the organization, and potentially leading to legal or regulatory repercussions. Ethical lapses like this can set a precedent for other employees, eroding the ethical culture within the organization. Furthermore, they can undermine stakeholder confidence and jeopardize the organization's reputation.

The case highlights the importance of adhering to ethical principles, especially for managerial accountants who play a crucial role in safeguarding the financial integrity of their organizations. Upholding integrity and objectivity is vital for maintaining trust and ensuring that financial data accurately reflects the company's operations.

Conclusion

Based on the evaluation, Brian's conduct does not fully align with the IMA’s principles of ethical conduct. His decision to use the lowest invoice to determine the price owed for personal lumber purchase appears to violate the principles of honesty, fairness, objectivity, and responsibility. While his actions might have been motivated by a desire to reduce costs, they compromise ethical standards and the integrity expected of a managerial accountant. Organizations must foster a culture of ethics and ensure that policies explicitly address such situations to prevent misconduct. Ultimately, adherence to the IMA principles is essential to maintain professionalism, trust, and the reputation of the accounting profession.

References

• Institute of Management Accountants. (2020). Code of Ethical Professional Practice. IMA. https://www.imanet.org/
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