Responsibility accounting is an approach towards controlling how the responsibility for a particular venture is assigned. The ultimate goal is to control the costs that will be generated in each sector. Each person is made accountable for controlling the cost in their respective sector. This general idea can be applied in different entrepreneurial and business scenarios where large companies can adopt responsibility accounting to manage the cost and budgeting in their systems. The authority to manage is distributed as a duty, which then determines the performance of the individual. Thus, the focus here shifts from the structure of the system to the actual people who are to be held accountable for their duties.
This effectively yields several benefits that can be instrumental in the growth of the entire organization. In a system integrated with responsibility accounting, the responsibility of a department if given to a particular individual who will be consequently responsible for all the activities within that department. This includes the cost, budgeting and corrective measures required for progress in that domain. The benefits of such a system are wide-ranged. It primarily distributes the duty of decision making to those in the sector that are best suited and knowledgeable enough to make those decisions. The need for responsibility accounting in the current century cannot be emphasized enough.
It should be kept in mind that few things are pre-requisite in order for a responsibility accounting system to function properly. The structure of the organization must be well defined. If there are no distinct departments for the duties to be segregated, the fundamental concept of responsibility accounting cannot be established. For any kind of evaluation or analysis in these departments, clear standards of control and quality must be established before the system is brought into power. Without a standardized goal to acquire, the concept of progress will be relative to each individual. The trick here is only to include those parameters for analysis that actually have some form of benefit in the organizations overall growth. The things that remain out of the control of a department lead cannot be considered as the ideal pivot for analysis. Thus, it is important to remember the first fundamental purpose of responsibility accounting without getting caught up in unnecessary details.
What are responsibility centres?
A responsibility centre can be in various domains depending on the revenue and cost involved in the venture. Different centres play their role as a part of the larger system to be able to control the proceedings in that particular sector. The amalgamation of all these can display an overall control system which is well managed and well distribute throughout the organization. The various centres include the cost centre, profit centre, investment centre and revenue centre. All of these have exclusive duties which do not mingle with the other. This helps to keep the focus on that particular branch and thus carry out control duties in that sector more efficiently. The concept of responsibility accounting thus promotes a shift from the haphazard way of cost control to a more organized and efficient means which not only simplifies the duties but also yields great organizational and monetary benefits in the long run.
To many, it might appear that responsibility accounting is about having that one person to blame if things do not work out or if an area isn’t managed well. This isn’t about blaming anyone. Instead, it plays a vital role in being able to analyze the performance and thus, device methods to be able to improve their techniques in all future attempts. The idea here is to achieve the set goals through the people involved, and thus, it aims at inspiring the people who are an integral part of the system. People should be considered as the integral pillars of the system instead of mere subordinates.
A well-placed responsibility accounting system makes the organization look into the benefits of planned control. It aims at establishing mutual trust so that the control and management are carried out for the optimum benefit of the system.