10.2 Evaluate how responsibility accounting is used to help manage a decentralised organisation.
Rina Dhillon
Responsibility Accounting
The key to effective decision making in a decentralised business is responsibility accounting. Responsibility accounting is the process of assigning authority and responsibility to managers of sub-units and then measuring and evaluating their performance against targets set, by identifying any variance between actual and planned performance. Under responsibility accounting, managers are only held responsible for things under their control. To enhance the use of responsibility accounting for decision making, responsibility centres are established within organisations. Responsibility centres are sub-units (be it departments, divisions, segments, etc) in which managers are responsible and accountable for specific types of operating activities. Organisations typically identify the different segments, or levels of responsibility, as cost, revenue, profit, or investment centres and attach different levels of responsibility to each segment. These four common types of responsibility centres are summarised in the diagram below and detailed in Section 10.3:
