Budgets and Control Reporting

Last section we introduced the idea of an organisational control process based on accounting information, and considered some inherent characteristics of delegation and control information within an organisational hierarchy. This section shall examine in more detail the way in which accounting information is used in the formal control processes of an organisation; particularly the way it is used to assign responsibility for delegated economic resources, and the multiple roles that are served by the routine accounting systems and procedures through which the control process is operationalised.

Responsibility Accounting

Accounting control systems are based on the principle of 'responsibility accounting'. Responsibility accounting seeks to ensure that specific individuals within the organisational hierarchy are assigned responsibility for specific aspects of financial performance which they can influence, and have the authority to control. The responsibility accounting system seeks to maintain control by establishing financial targets to be achieved by each responsible individual and then measuring progress towards these financial targets. Periodically formal financial performance reports are prepared which summarise the deviations or variances between target and actual performance for a the previous period's activities. This report provides feedback information which is intended to guide corrective action to bring actual performance back in line with the target, or modify