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What are Responsibility and Controllability?

Responsibility accounting is regarded as a fundamental concept of measuring accounting performance. The main idea is that big diversified companies or businesses are tough, even if not impossible, to manage as one entity. Naturally, these have to isolated or decentralized into manageable segments. The segments or parts are called responsibility centers, including:

  • Investment centers
  • Profit centers
  • Cost centers
  • Revenue centers

Controllability is a fundamental concept of Responsibility accounting. Trying to implement this concept yields responsibility reports in which every management layer is held to be accountable for every junior management layer. It can be categorized into two main types, State controllability, and Output controllability. It is not necessary to have any relationship existing between these two types of controllability.

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Topics that need better understanding

According to the Responsibility approach, responsibility should only be assigned to segment managers with the maximum influence over the main elements that need management, such as:

  • Costs for a cost center
  • Revenue for a revenue center
  • An assessment of profitability for a profit center
  • ROI or Return on Investment for an investment center

Controllability is said to be implemented in a system where any prior part of behavior can be associated with any future action in such a way that the association becomes a part of the behavior. It is here that most of the students make a mistake, and hence it becomes problematic for them to get to the core of the concepts. In such a scenario, these manuals are of real help.

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