Responsibility Accounting: An Important Device for Control and Performance Evaluation

 Q. “Responsibility Accounting is an important device for control.” Discuss. 

Ans. Meaning of Responsibility Accounting: Responsibility accounting is a specific technique of managerial control wherein responsibilities of various individuals or groups are identified in terms of work, revenue or cost so that the concerned person or group may be held responsible for cost variances, if any. Responsibility accounting refers to the various tools used by managerial accountants to measure the performance of people and departments in order to ensure that the achievement of the goals set by the top management. Therefore, responsibility accounting represents a method of measuring the performance of various departments of an organization.

In the words of William, L. Ferrara, “The essence of responsibility accounting is the accumulation of costs and revenue according to areas of responsibility in order that deviations from standard cost and budgets can be identified with the person or group responsible.”

VK. Responsibility Accounting is an important device for control. It means that responsibility accounting is used as a controlling device by top management for controlling the performance of managers. The performance is constantly compared to the standards set and it is very useful in exercising cost control. The statement “Responsibility Accounting is an important device for control.”  is clarified by the following facts:

(1) Decentralisation of Decision Making: It enables the management to consider the organisational structure to result in effective delegation of authority and placement of responsibility. So, it enables the manager to take right decision.

(2) Better System of Control: This system enables the management to delegate authority to responsibility centers while retaining overall control with itself. It is used as a controlling device by top management for controlling the performance of other managers.

(3) Comparison of Performance: In this system, the organisation has divided into various responsibility centres and each centre is responsible for its costs. The actual performance of each responsibility centre is regularly measured and compared with the budgeted figures. It encourages the setting of realistic goal. 

(4) Helpful in Planning and Decision-Making: Responsibility accounting helps not only in control but in planning and decision making also.

(5) Improves Performance: This is a system of accounting in which cost data are reported to managers of various cost centers. In this system, budgets are prepared and actual performance is recorded and reported to the top management. The assigning of tasks to the managers of different centres act as a motivational factors.  It is rightly said that “the aim of responsibility accounting is not to place blame. Instead, it is to evaluate performance and provide feedback so that future operations can be improved.”

(6) Responsibility accounting system makes easy in application of Budgetary Control System.

(7) On the basis of this accounting system, the control system may be introduced more effectively and efficiently. 

(You have to write importance of Responsibility Accounting in this question.)

Q. “The aim of responsibility accounting is not to place blame. Instead, it is to evaluate performance and provide feedback so that future operations can be improved.” Discuss.

Mention this in last. 

Hence, The aim ........... Modify as per question.