Responsibility Accounting : The New Way of Cost Control and Performance Measurement

One of the most important and difficult tasks that every organization has to perform is the effective measurement of the performance of each employee. Responsibility Accounting is a technique which helps in measuring as well as improving the performance of employees, which ultimately helps the organization in controlling and reducing the costs.The systems of costing like standard costing and budgetary control are useful to manage and control the costs. In those systems, the emphasis is on the devices of control and not on those who use such devices. The concept of Responsibility Accounting is closely related to the systems of standard costing and budgetary control. According to Schalke RW and Johnson HG, "the management accounting system that ties budgeting and performance reporting to a decentralized organization is called responsibility accounting." Responsibility Accounting is a system of control where responsibility is assigned for the control of costs. Individuals are made responsible for the control of costs. Proper authority is given to such people so that they are able to keep up their performance. In case the performance is not at par with the predetermined standards, the persons to whom this duty is assigned will be held responsible. In responsibility accounting, the emphasis is on personnel employees rather than systems. For example, if Mr. A, the manager of a department, prepares the cost budget of his department, he will be made responsible for keeping the budgets under control. 'A' will be supplied with full information on costs incurred by his department. If the costs so incurred exceed the budgeted costs, 'A' will probe into the reasons behind such expenditure and take necessary corrective measures. He will be personally responsible for the performance of his department