Responsibility accounting pdf

Managers of subsidiary companies will often be treated as investment centers Managers, accountable for profits and capital employed.

Within each subsidiary, the major divisions might be treated as profit centers with each divisional manger having the authority to decide the process and output volumes for the products or services of the division.

Within each division, there will be departmental Managers section Managers and so on, who can all be treated as cost center Managers. All Managers should receive regular, periodic Performance reports for their own areas of responsibility. The amount of capital employed in an investment center should consist only of directly attributable fixed assets and working capital. And so directly attractable working capital would normally consist of stocks and less creditors, but minimal amounts of cash.

In principle the Board of Management has the authority to make decisions within a multinational enterprise MNE.

Decisions by the highest management level within an enterprise about delegation of this authority or decentralization will be influenced by the following four factors: Maximum span of control The management style concerning the control and steering of the MNE Transaction costs The strategy and the business model applied by the MNE. Example: The Management Board of a French MNE gives the sales director of its German sales company the task to double turnover within a period of 3 years. In this case, one can opt to give the sales director a bonus on the basis of a solely the doubling of turnover or b a minimum required level of profitability of the sales company.

The choice between a revenue centre situation a and a profit centre situation b depends on the four factors above. Also, in making this choice it is important to what degree the German sales company is considered to be able to manage and control the functions and risks related to situation b. This information can generally be obtained on the basis of the traditional functional analysis techniques as described in the OECD Transfer Pricing Guidelines. In summary, no cases are the same in practice in respect of the choices of roles and responsibilities.

However, in order to structure the analysis of an existing situation, a number of tools are given below, describing the features of the most common types of responsibility centres. The following descriptions address the following variables: The relationship between inputs and outputs of the responsibility centre determines the label. A responsibility centre can in practice consist of a department, a business unit, a legal entity, a geographical unit etc. A description of the type of activities which are common per responsibility centre A number of examples per responsibility centre The steering and control concept per responsibility centre The most common compensation method, both from a management and a tax perspective The legal framework.

Practical descriptions of responsibility centres The following schedules are illustrations of the classification of certain activities as an expense centre, cost centre, revenue centre, profit centre or investment centre.

In addition to the usual analysis of functions, risks and the use of assets per part of the MNE, the responsibility centre label adds a more process-oriented view on to the MNE, whereby one tries to identify a roles and responsibilities within a MNE and b value-added decisions. Example: In the Italian parent company of a MNE all business decisions are made, whereas the parent company through the compensation method applied has been classified as a cost centre.

The costs of the parent company are charged to the Belgian subsidiary, which formally acts a principal company in other words, it gets the classification profit centre.

However, taking into account that the staffing in Belgium is limited to factory workers, the responsibility centre labels given the allocation of roles between Italy and Belgium appear to be in conflict with the economic reality in terms of value-adding decision. TPA Technical Manual for Responsibility Centres 7 Your bridge to worldwide transfer pricing services - operating profit margin should - as primary way of measuring profitability - provide an adequate return on capital employed for Legal framework - mostly service level agreement with cost centres.

An example is where an investment centre is placed in a holding company that only receives dividends as income. Open navigation menu. Close suggestions Search Search. User Settings. Skip carousel. Carousel Previous. Carousel Next. What is Scribd? Explore Ebooks. Bestsellers Editors' Picks All Ebooks. Explore Audiobooks. Bestsellers Editors' Picks All audiobooks. Explore Magazines. Editors' Picks All magazines. Explore Podcasts All podcasts. Difficulty Beginner Intermediate Advanced.

Explore Documents. Responsibility Accounting. Uploaded by Sruti Pujari. Did you find this document useful? Is this content inappropriate? Report this Document. Flag for inappropriate content. Download now. Related titles. Carousel Previous Carousel Next. Chapter 1 Basic Concepts in Management Accounting. Jump to Page.

Search inside document. While evaluating, performance of an individual manager, two factors have to be considered: Should the managers job be separated and a manager is rewarded or penalized only for those activities over which the manager has control. Should the managers decision be seen in a wider prospective and final judgment be given only after reviewing full impact of such decisions. Kath Santos. Gilbert Tiong. Tom Dominguez. Angela Padua. Wendors Wendors. Kevin James Sedurifa Oledan.

Cj ComAch Bandoy. Jenelyn Ubanan. Donna Mae Hernandez. John Philip Castro. Berry Concepcion. Jc Quismundo. Download Download PDF. Translate PDF. The authority is delegated on responsibility centre and accounting for the responsibility centre. Responsibility accounting is a system under which managers are given decisions making authority and responsibility for each activity occurring within a specific area of the company.

Under this system, managers are made responsible for the activities of segments. These segments may be called departments, branches or divisions etc. While the other control devices are applicable to the organization as a whole, responsibility accounting represents a method of measuring the performance of various divisions of an organization.

Defined in this way, it includes a decision, a department, a branch office, a service centre, a product line, a channel of distribution, for the operating performance it is separately identifiable and measurable is some what of practical significance to management. Robert Anthony defines responsibility accounting as that type of management accounting which collects and reports both planned andactual accounting information in terms of responsibility centers.

According to Charles T. Horongrent, Responsibility Accounting or profitability accounting or activity accounting which means the same thing, is a system that recognizes various decision or responsibility centers throughout the organization and traces costs and revenue, assets and liabilities to the individual managers who are primarily responsibility for making decisions about the costs in question.

Significance of Responsibility Accounting The significance of responsibility accounting for management can be explained in the following way: Easy Identification: It enables the identification of individual managers responsible for satisfactory or unsatisfactory performance.

Motivational Benefits : If a system of responsibility accounting is implemented, consider-able motivational benefits are assured. Data Availability : A mechanism for presenting performance data is provided. A framework of managerial performance appraisal system can be established on that basis, besides motivating managers to act in the best interests of the enterprise. Ready-hand Information: Relevant and up to the minutes information is made available which can be used to estimate future costs and or revenues and to fix up standards for departmental budgets.

Planning and Decision Making: Responsibility accounting helps not only in control but in planning and decision making too. Delegation and Control: The twin objectives of management are delegating responsibility while retaining control are achieved by adoption of responsibility accounting system. Principles of responsibility Accounting The main features of responsibility accounting are that it collects and reports planned and actual accounting information about the inputs and outputs of responsibility accounting.

Inputs and outputs : Responsibility accounting is based on information relating to inputs and outputs. The resources used are called inputs. The resources used by an organization are essentially physical in nature such as quantity of materials consumed, hours of labour, and so on. For managerial control, these heterogeneous physical resources are expressed in monetary terms they are called cost.

Thus, inputs are expressed as cost. In other words, responsibility accounting is based on cost and revenue data or financial information Objectives of Responsibility Accounting : Responsibility accounting is a method of dividing the organizational structure into various responsibility centers to measure their performance. In other words responsibility accounting is a device to measure divisional performance measurement may be stated as under: 1.

To determine the contribution that a division as a sub-unit makes to the total organization. To provide a basis for evaluating the quality of the divisional managers performance. Responsibility accounting is used to measure the performance of managers and it therefore, influence the way the managers behave. To motivate the divisional manager to operate his division in a manner consistent with the basic goals of the organization as a whole. Responsibility Centre : For control purposes, responsibility centers are generally categorized into: 1.

Ljerka Markota, Hrvatska Dr. Urszula Michalik, Poljska Prof. Branko Mayr, Slovenija Dr. Nowadays, the market inevitably requires the implementation of a corporate social responsibility strategy that includes in- tegrated financial reporting. Accountants have an important contribution to the implementation of the corporate social responsibility strategy.

In previous years, traditional accounting has played an important role in financial analysis and determining financial responsibility of management, while in recent times accountants have a very important role in researching and applying economic, social and environmental responsibility as fundamental prerequisites for imple- menting corporate social responsibility strategy through integrated reporting.

From the very beginning, due to the obligation to compile integrated financial statements, the great and important role of social responsibility of accountants is visible.