Concept of Accountability in Financial Management

“Accountability breeds responsibility” – This is a famous quote by Dr. Stephen R. Covey gives the meaning of accountability in rather general terms. The concept of accountability can be defined as the process through which a person is held answerable for his actions and deeds. Under the umbrella of the organization the notion of accountability can be stated as the phenomenon through which whether a person at the higher level of hierarchy or at the lower level is accountable for his works and services that he renders to the organization. Accountability from the organizational perspective bears great importance as it is the measure through which the performance of the organization and a person serving can be judged and analysed.

Accountability has different forms. First, the individualizing form of accountability can be studied in which the accountability contributes in making the realization of the image an individual perceives about it. This perspective helps a person to polish his senses and action thereby improving his image that is noticed by others. Second view of accountability is the socializing form in which a person can improve its performance and efficiency by interacting with some of the experienced people in the organization. Accountability institutionalizes the use of accounting through which it operates in the organizations and firms.

How Accountability Works?

Accountability within the organizations mainly works through three different levels of accounting. They are auditing, management accounting and financial reporting. Financial reporting and management accounting aspect of accounting has been dealt in detail in representation and control part respectively. The third and more applicative form in which accountability holds in the organizations is the auditing in which companies accounts are checked and verified by some agency or authority assigned for it is covered in detail here. When it comes to organizational perspective the application of accountability expands. From the past there has been a practice in business and organizations to maintain the accounts of each and every transaction that takes place in the organization. In modern era this system has become more advanced and transparent. The organizations can be judged or held responsible economically on the grounds of the accounts or financial statements that they produce. This involves the concept of auditing of company accounts. Audit serves as a vital economic process and play an important role in serving the public interest by strengthening the accountability and reinforcing the trust and confidence in financial reporting. Auditing of accounts are generally performed by the people employed by the owner of the company, these persons are called auditors, agents or stewards. They generally work in the interest of the company with focus on the economic performance of the institution. This phenomenon is called as agency theory which suggests that because of the information asymmetries people employ agents or stewards who works for the benefit of the company. Auditing gives a clear idea of accounts and also imparts the correct information to the shareholders.

Interplay between Accounting and Accountability

Accounting can be defined as the process of identifying, measuring and communicating the financial information about the entity to permit informed judgments and decisions by users of information. Initially there were cruder forms of accounting first one was double entry system which was a binary system method used for recording the events in which all the debits and credits were represented in the tabular form and the second was bookkeeping which was the maintenance or the summary of all the financial transactions taken place. Accountability often comes to play where there is some accounting failures or discrepancies and the company or the person producing the account is held responsible.

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