what is Accountability?

Accountability is connected to the idea of stewardship (though it is a wider concept as it may extend to other stakeholders or society in general). Stewards are obliged to give to owners of businesses an account of how they have managed resources. This may be discharged in part by the provision of financial information, such as an income statement and balance sheet. However, the idea of ‘accountability’ also carries with it the notion of acting responsibly and being able to justify one’s actions and, therefore, prepared to suffer the consequences of irresponsible and unjustifiable actions.

Planning and decision making Business managers need to have financial information to enable them to make plans for future business activities and operations. For example, if a business plans to sell 120,000 units of a good it manufactures in the next year, it will need to know the quantity and price of raw materials required to make 120,000 units, the number of staff required and the hours each staff member can work and their rate of pay, the type and number of machines required, etc. There will, of course, be other costs associated with production. Such information is typically derived from on-going business activities and experience and reported financial information, combined with knowledge of future price increases for raw materials, wages and other known costs. Planning of this kind can be very difficult in practice if a business is aiming to increase or decrease production of an existing good, and becomes even more difficult in the case of producing any good which the business has not produced before. Control- Accounting information can also be used for the purposes of control. Business managers need to monitor activities and operations to see whether they are proceeding according to plan. In the example in Section 2.3 of planning to manufacture and sell 120,000 units of a good, a business may have planned to sell the units evenly over a year, that is, 10,000 units per calendar month. Therefore, the business will need accounting information on a monthly basis to see whether this target is being achieved. If it is not, then the business will need to find out why, and take corrective action if possible. The type of corrective action will depend on the problem that has been identified. Different problems can have the same overall effect. For example, if sales were ‘down’ in any given month, it might be the case that trade was more seasonal than anticipated and there might be compensating higher sales in other months. It might also have been the case that a sales representative for a particular area had been away on sick leave, which would also result in lower sales. Equally, a production problem could have prevented sufficient goods being manufactured for sale – perhaps being caused by machines breaking down or suppliers’ inability to deliver raw materials when needed. It is also possible that sales in a given month might be ‘up’ on what was forecast – which could also cause problems if it continued in the longer term, as the business may have resources that are inadequate to meet an unanticipated higher demand. Regular provision of accounting information (in this example, for sales and production) is essential for control purposes.