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Cost Accounting and Ethical Dilemmas
Sarah Logan
Acct 521 Advanced Cost Accounting
Liberty University
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Abstract
This essay discussed some of the ethical dilemmas in cost accounting and limitations of
cost accounting. This essay discusses sustainability regarding cost accounting, the ethical
dilemma of fraud in cost accounting, and the limitations of ethics regarding cost accounting. The
essay also examines the biblical perspective of ethics and cost accounting.
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Cost Accounting and Ethical Dilemmas
Ethics govern how individuals lead their lives. It is the basis of how we think and lead to
our actions. “Cost Accounting information is designed for managers (Lanen et al. 2020).”
Information that enables managers to make decision regarding production and costs to be
assigned to services or products before coming to market. The Bible and God are very clear on
withholding the truth with accounting. Leviticus 19:35-46 states, “You shall do no injustice in
judgement, in measurement, length, weight or volume. You shall have honest scales, honest
weights, an honest ephah, and an honest hin (2012).” Proverbs 20:10 even stresses the necessity
of honesty in accounting with, “Diverse weights and diverse measures, they are both alike, an
abomination to the Lord.” Clearly the biblical perspective is that ethical accounting is a must as a
Christian. I would stretch this perspective into Cost Accounting. As a Christian working in cost
accounting, I would have to provide the most hones information for managers. To do anything
else would be an abomination. Three ethical dilemmas in cost accounting will be discussed in
this essay. The cost accounting role in sustainability and ethics surrounding sustainability will be
discussed. Fraud in cost accounting will be discussed. The limitations of cost accounting and the
ethics surrounding it are discussed.
Cost accounting has become a way for accountants to be more sustainable ethically. Per
Iyer,
Full-cost accounting could be considered a promising accounting tool in dealing with
sustainability, as it moves beyond the entity to identify externalities. Furthermore, of the
various accounting techniques that have attempted to better expose social, environmental,
and economic externalities (at the root of an accounting discourse on sustainability), it
has been considered the most promising tool (2020).
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This change in looking at cost accounting opens up new doors for cost accounting. It no longer is
confined to the just the factory. And the ethical dilemmas grow for the cost accountant. No
longer are cost accountants limited to cost of products but the cost and effects of the product on a
community and business. These factors must be taken into effect. For example, the cost of
production is not the only factor in production. The cost of this effect of the production on the
community and environment must be examined and valued. Whether the cost of the pollution be
calculated into the overhead or actual production cost is not meaningful. But the cost must be
accounted for in a cost center; in order to remain ethical regarding sustainability and to remain
ethical altogether. Several companies” do not incorporate sustainability initiatives within their
corporate strategy, whereas they should be critical input for strategic management and corporate
planning (Shad et al. 2018).” This failure can lead to the failure of a company overall.
Avoidance of fraud in accounting is a constant. Avoiding fraud is the reasoning behind
most of the rules and laws of accounting.
Each year, corporate crime costs consumers billions of dollars. It takes various forms
from consumer fraud, securities fraud, mail or wire fraud, and tax evasion to price-fixing,
environmental pollution, and other regulatory violations. Corporate crime presents our
legal system with various problems that we have failed to resolve satisfactorily
(Langvardt et al. 2019).
In cost accounting fraud can be a slippery slope. Managers can easily withhold or ignore
information crucial to the cost of an item to benefit their performance or bonus. Does a manager
or cost accountant withhold information so that they or their division succeeds? The answer in
the world may be yes. But as a Christian, the answer would be no. A Christian answer to a higher
authority. And even if you were not a Christian the repercussions of not following these rules are
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dire. If caught an accountant can face the loss of their business, heavy fines, and jail time. But
cost accounting is internal and can more easily be concealed. So, managers and auditors must
establish tight controls. Decentralization should be discouraged in any organization. Upper
management should understand costs and products to prevent fraud.
The limitations of cost accounting regarding ethics fascinates the author. Cost
accountants are not required to report outside of a company their calculations or findings.
Finding from cost accounting are used internally by management. GAAP does not govern this
type of accounting. So, there is not a standard method of collecting and reporting findings
internally. Not having standard methods can be an ethical dilemma. By not having a standard
measuring stick variances in reporting can occur within a single organization. Management may
not be able to get a clear view of the true lay of the land. The result is an accountant not
providing a fully truthful calculation or finding. This can be perceived as a form of fraud. Also
with there not being a standard; true fraud is easier to conceal or commit.
As a Christian, what do you do as a cost accountant? A Christian cost accountant does
their very best to remain above reproach. The Christian cost accountant provides honest and clear
findings. The Christian cost accountant commits their work to God the Father. I like to pray over
my work to be free of error. I feel that by committing my work to God and praying over it, I am
centered. 2 Corinthians 8:21, “For we are taking pains to do what is right, not only in the eyes of
the Lord but also in the eyes of man (2012).” We as Christians must follow the laws of God. But
we also are commanded to do right by our peers. If we do not do what is ethical, how are we to
be a witness to them for Jesus? Our actions not our words are our most powerful testimony. To
often, I am told what Christians do wrong by people. And I understand that Christians are
sinners; but we are judged more harshly by the world. So, our actions must be above reproach
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especially in business and cost accounting. Doing this will allow the knowledge of Jesus to
spread more through the world. And more individuals can be saved through the love of Jesus.
References
Iyer, J. R. (2020). Corporate citizenship and sustainability: Measuring intangible, fiscal, and
ethical assets. Business Expert Press.
Langvardt, A., Barnes, J., Prenkert, J., McCrory, M. & Perry, J. (2019) Business Law: The
Ethical, Global and E-Commerce Environment. McGraw-Hill Education.
Shad, M. K., Lai, F. W., Fatt, C., Klemes, J. J., & Bokhari, A. (2018). Intergrating sustainability
reporting into enterprise risk management and its relationship with business performance:
A conceptual framework. Journal of Cleaner Production.
Study NIV Bible. (2012). Zondervan.
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