Controllability

Effective delegation of control through responsibility accounting seeks to assign responsibility for each particular aspect of financial performance to an individual who is best able to influence that performance. All aspects of financial performance can be controlled at some level in the organisation but care must be taken to avoid assigning responsibility for financial performance to an individual who cannot adequately influence that performance. For instance, head office administrative costs should be controlled at the head office level, if allocations are used to share these head office costs between divisions, then they should be distinguished from those costs that are considered controllable in performance reports

to the divisional level. To be effective, delegated control must be extended to an accountable individual who has access to the necessary decision information (in terms of scope and detail) to enable the evaluation of alternative control actions, and is given the authority to take appropriate actions.

Responsibility Centres

There are three broad categories for the assignment of financial responsibility within an organisation: investment centres; profit centres; and cost centres. Managers responsible for investment centres (typically at divisional level) will have broad responsibility for revenues earned, costs incurred, and the level of investment (in working capital and fixed assets) within the division.