APPLICATION OF RESPONSIBILITY ACCOUNTING AND ITS EFFECT ON THE IMPROVEMENT OF FINANCIAL PERFORMANCE

Abstract

Application of Responsibility Accounting and its Impact on the improvement of Financial Performance.

The primary objective of this research is to assess the efficiency and effectiveness of the responsibility accounting systems of the selected study companies and to evaluate their impact on the improvement of the financial performance of the respective companies. The basic hypothesis has been set to guide the proceedings of the research; it reads, “ The proper application of the responsibility accounting system and its associated methods and techniques provides sound bases for assessment of the financial performance of the recognized responsibility centers”. The aforesaid hypothesis has been divided into four subordinate ones so as to facilitate it’s testing through out the fieldwork study. The methodology adopted, has been mainly qualitative due to the specific nature of the subject matter of the research, however, in some specific situations some quantitative methods and techniques have been used as well. The fieldwork study has covered a representative sample consisting of seven study companies working in a variety of business activities. These study companies have been brought under close examination by means of detailed questionnaires and evaluation checklists. The key areas tested are the critical success factors, the quality of system’s output, and the impact of the responsibility accounts on the process of planning and decision-making and the net economic benefit from the application of the system. As part of the practical study, a survey has been conducted to evaluate the findings of the research. It had been designed to address both the academicians as well as the professionals in the area of concern; however, their views have confirmed the findings of the fieldwork study. The main findings reached are as follows: - o There are some common critical success factors for the proper implementation of the responsibility accounting system. o The quality of the responsibility accounts of most of the study companies has proved to be inadequate or incomplete. o The impact of the responsibility accounts on management decisions has not risen up to the expectations o The net economic benefit of the systems applicable by most of study companies has been very insignificant due to their inability to exploit all the potentialities of the system. The main recommendations of the study have been as follows: - o Setting up standards for the application of the responsibility accounting systems. o Application of the system as a complete package and avoiding partial application. o Preparation of full set of responsibility accounts and analysis o Encouraging management to use the output of the system as an aid to formal accountability and to improve the quality of their decisions.