The Crimson Press Curriculum Center

First Page and the Assignment Questions:
The value of the concepts of structure and process that form the basis of responsibility accounting systems is in their applicability to real-world situations and problems. The ultimate goal is to develop a responsibility accounting system that facilitates improved organizational performance. Doing so requires assessing how the responsibility accounting system fits into its broader organizational context.

This note begins with a brief summary of the key characteristics of a good responsibility accounting system. The responsibility accounting system is then positioned as part of seven inter-related organizational activities, a perspective that is consistent with much of the shift that is taking place in many organizations toward cross-functional management. The learning objectives of this note are contained in Exhibit 1.
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Exhibit 1. LEARNING OBJECTIVES

Upon completing this note, you should know about:

•   The characteristics of a good responsibility accounting system.

•   The context in which the responsibility accounting system exists, comprising the activities of strategy formulation, conflict management, motivation, authority and influence, client management, and cultural maintenance.

•   The kinds of questions that senior management needs to address to be certain that the responsibility accounting system fits with the above activities.

•   The issues involved in managing the implementation of a new or revised responsibility accounting system.
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KEY CHARACTERISTICS OF A GOOD RESPONSIBILITY ACCOUNTING SYSTEM

   In general, an organization that is performing in accordance with the concepts and approaches of good responsibility accounting displays several characteristics:

1.    It has a strong governing body. Some members of this body spend considerable time examining program and budget proposals before they are submitted to the full board. Members of the governing body also analyze formal reports on performance, as well as communications from clients and others on how well the organization is performing.

2.   In performing its functions, the governing body is careful not to infringe on the prerogatives of management. The governing body ensures that the chief executive has full authority to execute policies, and that his or her decisions are supported by the board. The board also ensures that the CEO’s compensation is appropriate.

3.   Operating managers have the authority to use their judgment in running their responsibility centers and in accomplishing results. However, they may be required to operate within somewhat closer budgetary and other constraints than is customary in for-profit organizations.

4.   The responsibility accounting system contains two principal account classifications, one structured in terms of programs and the other in terms of organizational responsibility. This frequently results in a matrix-like structure.