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Internal accounting & Ethics: Objectives, importance, characteristics

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The accounting managers wants to hire a management accountant to develop and implement internal controls. The CEO does not understand how this would help the firm. Prepare a memo to tell the CEO the reasons this hire is a good idea. Be sure to explain the following in the memo:
*Objectives and characteristics of an internal accounting system.
*The importance of this information to the company.
*An explanation of ethics in business and the managerial accountant's role in upholding the code of ethics.

Include a comment about the IMA code of ethics.

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Solution Summary

Your discussion is 330 words plus a copy of the IMA code of ethics. The objectives and characteristics of management accounting (internal accounting) is discussed as well as the importance of upholding the ethical codes.

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Explain the objectives and characteristics of an internal accounting system.

The objectives of internal accounting is to improve the business, compared to external reporting which informs external stakeholders. Internal accounting (management accounting) helps with planning (budgeting and forecasting), organizing (reporting individual segments and product/customer level profit analysis), controlling (authorizing, reconciling, variance analysis) and decision-making support (looking at alternatives for both profit and quality impacts). Internal accounting is less structured than external accounting and does not have a "GAAP" based set of rules. The reports are customized to the business and to the decisions that face that firm.

Include an explanation of the importance of this information to the company.

Management accounting information is critical to the decision-maker. For instance, the price of a new product should not be determined without clear understanding of the cost to produce. That "cost to produce" comes from internal accounting. That ensures that the sales price affords a large enough markup to maintain acceptable profit ...

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Carol Sargent, PhD
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  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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