Accountability

AAA

DEFINITION of 'Accountability'

The responsibility of either an individual or department to perform a specific function in accounting. An auditor reviewing a company's financial statement is responsible and legally liable for any misstatements or instances of fraud. Accountability forces an accountant to be careful and knowledgeable in their professional practices, as even negligence can cause them to be legally responsible.

INVESTOPEDIA EXPLAINS 'Accountability'

An accountant is accountable for the integrity and accuracy of the financial statements even if errors were not made by them. Managers of a company may try to manipulate their company's financial statements without the accountant knowing. There are clear incentives for the managers to do this, as their pay is usually tied to company performance. This is why independent outside accountants must review the financial statements, and accountability forces them to be careful and knowledgeable in their review.

RELATED TERMS
  1. Credit Card Accountability, Responsibility ...

    This act was designed to limit the manner in which credit card ...
  2. Accountant Responsibility

    The ethical responsibility that an accountant has to those who ...
  3. Accountant

    A professional person who performs accounting functions such ...
  4. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  5. Liability

    A company's legal debts or obligations that arise during the ...
  6. Limited Liability

    A type of liability that does not exceed the amount invested ...
RELATED FAQS
  1. What are some examples of a deferred tax liability?

    In the United States, laws allow companies to maintain two separate sets of books for financial and tax purposes. Because ... Read Full Answer >>
  2. Why is the use of contra accounts so important for maintaining ledgers?

    Contra accounts have been used in financial accounting to verify the balance of another corresponding account since Renaissance ... Read Full Answer >>
  3. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    After a prolonged period of corporate scandals involving large public companies from 2000 to 2002, the Sarbanes-Oxley Act ... Read Full Answer >>
  4. How is deferred revenue treated under accrual accounting?

    In accrual accounting, deferred revenue, or unearned revenue, represents a liability on the balance sheet recorded on funds ... Read Full Answer >>
  5. What are some of the advantages and disadvantages of absorption costing?

    Companies must choose between using absorption costing or variable costing in their accounting systems. There are advantages ... Read Full Answer >>
  6. What is the difference between the cost of capital and the discount rate?

    The cost of capital refers to the actual cost of financing business activity through either debt or equity capital. The discount ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Tales From Wall Street's Crypt

    Wall Street continues to attract fresh hordes of ghoulish people committing the same old crimes.
  2. Investing Basics

    Playing The Sleuth In A Scandal Stock

    Learn the legwork involved in finding out whether your investment can weather a storm.
  3. Mutual Funds & ETFs

    Team Players Vs. All-Stars For Mutual Fund Management

    Mutual funds vary in terms of their management structures and one size generally does not fit all investors.
  4. Personal Finance

    A Look At Accounting Careers

    More than just crunching numbers, this career blends detective work with trouble shooting.
  5. Professionals

    Financial History: The Evolution Of Accounting

    Follow accounting from its roots in ancient times to the profession we now depend on.
  6. Options & Futures

    Uncovering A Career In Forensic Accounting

    Does a job as a financial sleuth sound interesting to you? Dig in to learn more.
  7. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  8. Economics

    What are Accounting Principles?

    The term accounting principles refers to rules and guidelines companies use to help them record their business and financial transactions.
  9. Economics

    Understanding the Accounting Cycle

    An accounting cycle consists of the traditional procedures performed to record business events and transactions in a company’s accounting records.
  10. Fundamental Analysis

    When & Why Should a Company Use LIFO

    By using LIFO (last in, first out) when prices are rising, companies reduce their taxes and also better match revenues to their latest costs.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center