Behavioral Aspects of Responsibility Accounting Chapter 7 Dian

Behavioral Aspects of Responsibility Accounting Chapter 7 Dian Indri, SE. , M. Si

Responsibility Accounting l Is the term used to describe an accounting system that plans, measures and evaluates organizational performance along lines of responsibilities • Revenue and cost l l Is management accounting’s answer to the common sense knowledge that business affairs can be most effectively controlled by controlling the people responsible for carrying out the operations Is an essential component of the overall control system of an enterprise Dian Indri, SE. , M. Si

Responsibility Ø Does not involve any deviations from GAAP Ø Individual responsible Ø Relevance of the accounting information Conventional Ø Planned, classified and accumulated Ø Nature of function Ø Doesn’t allocate joint cost to the segment Dian Indri, SE. , M. Si

Ø Responsibility accounting • Reports both who spent the money and what the money purchased • Human dimension to planning, data accumulation, and reporting • Budgeting • Performance evaluation • Reward allocation Dian Indri, SE. , M. Si

The Responsibility Network Ø To create an efficient responsibility network structure, responsibilities and scopes of authority for every individual, from the top executive down to the lowest level employees, must be logical and clearly defined Ø To create a well functioning responsibility network, there must be a perfect matching of responsibility and authority at all levels Dian Indri, SE. , M. Si

Types of Responsibility Centers • • Cost Centers Revenue Centers Profit Centers Investment Centers Ø Correlation with Organizational Structure • • • Vertical Structure Horizontal Structure Choice of Structure Ø Fixing Responsibility Dian Indri, SE. , M. Si

Planning, Data Accumulation, and Reporting by Responsibility Centers Ø Responsibility Budgets • The budgetary process is most effectively started at the lowest organizational or network level for which budgets are to be prepared and then passed upward through the chain of command in a pyramid fashion Ø Data Accumulation Ø Responsibility Reporting • To enhance efficiency, responsibility reporting systems should be based on the so-called “pyramid reporting” or “telescoping” principle Dian Indri, SE. , M. Si

Behavioral Assumptions of Responsibility Accounting Ø Management by Exception (MBE) • Assumes that to most effectively manage and control organizational activities, managers should concentrate their attention on areas where the actual results deviate substantially from budgeted or standard goals Ø Management by Objective (MBO) • This is a management approach designed to overcome the numerous dysfunctional human responses triggered by attempts to control operations by dominance Dian Indri, SE. , M. Si

Ø Coincidence between Responsibility Network and Organizational Structure • Responsibility accounting assumes that organizational control is enhanced by creating a network of responsibility centers that coincide with the formal organizational structure • The responsibility center network is as effective for controlling an organization as the underlying organizational structure is rational Dian Indri, SE. , M. Si

Ø Acceptance of Responsibility • Research has only been able to demonstrate a definite correlation between the willingness of disclosure (or the capability of subjective cognitions and evaluation of oneself) and attitudes toward responsibility acceptance Ø Capacity of Inducing Cooperation • Responsibility accounting improves organizational cooperation by showing managers where their activities fit into the overall picture and that everybody is working toward common goals l l Company loyalty Self esteem Dian Indri, SE. , M. Si