5.1: Influence on Accounting Decisions
Learning Objectives
- Explain how accounting decisions are influenced by both employee and leadership beliefs and needs
The decisions made in budgeting and planning for all businesses hinge on the beliefs, culture and leadership of the company. Ethical, value-based leadership is based on a variety of factors, including loyalty and respect, a history of fair dealing and trust among others.
When a company’s leadership places value on employees, you may see a different level of importance placed on wages and employee benefits. You may also notice a company that places a high amount of value on the quality of the input for their product, thus having a higher percentage of cost of goods sold or a higher price tag on their product. A focus on an American made product might include a higher price tag for the item, but may be an ethical focus for a company.
The culture of a company begins at the top. If the values and beliefs of leadership focuses on profit at all costs, you will see a very different budgeting and accounting decision making process than a company that values quality and teamwork at all costs.
Values based leadership is an execution in practice of the philosophy of management. Leaders need to encourage employees to embrace the core values of the company, and leadership needs to participate in and model how they want to extend those values. These values will be mirrored in the entire structure of the company. An example here might be the process used to determine commissions for salespeople. If the company culture is such that the main focus is on the happiness and satisfaction of customers, commissions may be budgeted and calculated based on positive customer feedback in addition to sales dollars. If a company focus is on sales at all costs, these commissions may be based solely on the dollars in sales.
The Institute of Management Accountants (IMA) has put together an Ethics in Professional Practice document that outlines the ethical requirements of accountants who work in business. Working with a company who focuses on ethical standards and values based leadership makes the job of budgeting and planning a much easier process.
Practice Questions