Accountability is accepting the responsibility to be ethically correct and honest towards others. It also includes accepting the right to be judged by others based on performance. In the financial sector, public organizations are mandated to prepare and publish financial reports every quarter detailing their activities, operations, and use of money. More recently, the focus on environmental and community-based accountability has also risen in importance.
Accountability is a word we come across often in normal life. But in accounting terms, what does it mean? What does it entail? Let’s at the term a little in-depth.
What is accountability?
Accountability or being accountable is the act of being responsible for ethical conduct and honesty towards others. It means being transparent in your actions towards others and treating them with respect. From a corporate view, a company is accountable to its shareholders, investors, and employees. Apart from this, it is also accountable to the community in which it is located and operates. Hence, accountability shows that you are willing to be judged based on how you perform.
Accountability in corporate finance
In corporate finance, accountability is a vital factor. In fact, without accountability, an organization will not be able to function efficiently. As a concept, its importance is highlighted in the preparation of financial reports to the shareholders, creditors and management. This gives insight into the accounting practices being followed and how the business operations are being decided within the organization.
In order to earn and maintain the trust of its customers, investors, creditors and the government, a business organization must practice accountability at its very core with the right checks and balances installed at the right points.
Over the years, with environmental awareness also becoming a key aspect of business operations, accountability has also come to include the manner in which a company’s operations impact the community and environment it is located in.
The various types of accountabilities
There are 3 main types of accountabilities that impact citizens the most: Corporate accountability, Political accountability and Governmental accountability.
Corporate accountability
For a corporate entity, accountability mostly involves numbers. If a company is public, it is mandatorily required to its financial report once every quarter as well as annually explaining in detail about its incomes, expenses and cash flows.
Accountants who prepare the financial statements for the company are expected to be prudent and knowledgeable. If any negligence is found on their part, they can be held legally liable for it. An accountant preparing the financial reports is responsible for the accuracy and integrity of the facts and figures contained in them even if there are errors made by others within the company.
The auditor who examines the financial statements so prepared has the onus to get reasonable assurance that they do not contain any material misstatements caused by fraud or error, whether intentional or not.
The main reason why auditing is done by external independent auditors is to maintain accountability, to be free of obligations to the company. The company’s audit committee is comprised of members of the board who oversee and aid the audit work.
Political accountability
It is no secret that large corporate entities often donate money to political candidates and towards political causes. Political accountability focuses on maintaining transparency in the money involved in such activities.
There are regulated annual indexes published every year disclosing the policies of major public companies regarding the donations they make to political candidates and causes. There have been hundreds of scandals involving major corporations and politics. Hence, regulations have been tightened to make sure that companies are accountable and fully transparent with their political donations. There now are plenty of watchdogs and regulators who make sure that company money is being handled in the right way and that every single dollar is accounted for to the investors.
Governmental accountability
Public companies are accountable to the government by law. Financial reports are to be submitted to the government at the required intervals to ensure that these companies are being managed according to the best practices in favor of the public.
Cash generated by corporates is one of the defining factors for governmental accountability. USAID is the federal agency that oversees foreign aid for civilians. According to the agency, there are a few main factors that define governmental accountability:
- The protection of human rights
- A fair and free political system of justice
- Reformation of the security sector
- The confidence of the public in its courts and police
- A vibrant civil society
A few questions about accountability
1. What Is the Definition of Workplace Accountability?
Accountability at the workplace doesn’t involve just numbers or handing out responsibilities or tasks to employees. It also involves encouraging the development of an environment where each employee is directly responsible for the performance of their part in a project. It focuses on taking ownership of one’s own success or failure.
2. Is There a Difference Between Responsibility and Accountability?
Yes, there is. Responsibility is assigned from one person to another. For example, a task is assigned or delegated from a boss to an employee. Accountability goes a step further and requires the person to be willing to be judged based on their performance of that responsibility.
3. Is There a Department of Accountability for the Government?
Yes, there is. It is known as the Government Accountability Office.
4. What Does the Government Accountability Office Do?
The U.S. Government has an audit agency known as the Government Accountability Office. Its main function is to assess the effectiveness of the programs of the government and other proposed projects. One of the latest such reviews is the ongoing evaluation of the federal spending in response to the COVID-19 pandemic to the tune of $4.8 trillion. The agency has also made various recommendations regarding this spending to prevent the money from being misused and reduce errors in payments and dissuade fraud.
