Responsibility accounting is a very important segment of every organization and it helps to smooth flow and clear the objective to the employees. There are many benefits and drawbacks of responsibility accounting. In this write-up, we will discuss the complete advantages and disadvantages of responsibility accounting.
Advantages of Responsibility Accounting
The accounting system for accountability can benefit a business company in the following ways:
1) Assigning of Responsibility
As part of accountability accounting, each person of an organization is given responsibilities that they must take on. They are held accountable for any lapses in their tasks if they fail to perform the tasks they are entrusted with.
Since the responsibilities of every person are clearly stated and their performance is evaluated periodically is straightforward and efficient for the supervisor. If there is an error, it can identify by culprit. This helps determine the performers from non-performers. It is one of the main advantages of responsibility accounting.
2) Improves Performance
Every person has a clear understanding of their obligations and the fact the eye of the supervisor monitors them, and supervisors. Also, they are expected for them to do their best. They also know that if they perform poorly or perform lower than what they would like, they are asked to explain. This knowledge is an element to ensure they are performing at their best. It is the major advantages of responsibility accounting.
3) Helpful in Cost Planning
The cost planning process of an organization is made simpler by responsibility accounting, and the relevant data about revenues and costs are available to upper management through the system. Therfore, the information is helpful in
- The plan concerning revenues and costs
- setting standards and
- Budget preparation.
4) Delegation and Control
Accounting for responsibility can help meet some of the primary goals of management accounting, namely—the delegation of authority and exercising control over the entire organization. The foundation of delegating power is determined by the requirements of the job and duties allocated according to the position’s requirements. We can count this in advantages of responsibility accounting. The system includes regular reports on the performance of each individual and each cost center. This guarantees that complete control is left to the top management.
5) Helpful in Decision-Making
The accountability accounting system’s reporting mechanism assures an uninterrupted transmission of pertinent information about various cost centres to upper management. This information is the primary input to making decisions and planning for the future. Decision-making is the key factor of every business and it gives beneficial for responsibility accounting.
Disadvantages of Responsibility Accounting
In a business, the introduction of the responsibility system accounting benefits, with the following flaws:
1) Difficult Process
The line that separates costs/revenues that are controllable and those that are not is not clear enough, and it isn’t easy to differentiate between these two. Since this is a requirement for a reliable responsibility-based management system for accounting, this presents the biggest problem.
2) Requires More Effort
A responsible centre could operate effectively according to its particular way (protecting its interests while doing the work given to it). However, some of its actions may not align with the organization’s overall goals because of conflicts of interest.
To diffuse an issue, management must be on guard and assertive in ensuring effective coordination and synchronization of different divisions.
3) Provides Irrelevant Information
Information from various sources, such as in the form of accountability accounting reports, may contain information that needs to be more pertinent. This is a challenge in sorting relevant information from irrelevant ones. The effort is necessary when preparing accountability accounting reports containing only relevant data.
4) Time Consuming
Feedback reports, presented to the management to take the appropriate and timely actions, sometimes get delayed because the whole process is lengthy. The corrective measures are implemented at the time, and the issues are aggravated. Time consumption is the biggest disadvantages of responsibility accounting.
The weaknesses of accountability accounting, as outlined above. It can be addressed at the level of management to make this system efficient as well as efficient while getting the most benefit from it.
Conclusion
In conclusion, responsibility accounting offers several blessings, including clear duty, overall performance evaluation, goal alignment, and value management. However, it has drawbacks, including the potential for a silo mentality, intention conflicts, an incomplete photo of the organization, and an overemphasis on quick-term results. It is critical for groups to cautiously assess these advantages and downsides and tailor obligation accounting to their specific needs and occasions to ensure effective implementation.