What is 'Accountability'

Accountability is when an individual or department is held responsible for the performance of a specific function. Essentially, they are liable for correct execution of a particular task, even if they may not be the one performing the task. Other parties rely on the task to be completed, and the accountable party is the party whose head will roll if the action is not carried out. Accountability is common in the financial arena and in the business world as a whole.

There are several examples of accountability in action. Relating to accounting jobs, 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.

BREAKING DOWN 'Accountability'

Accountability is essential in the financial industry. Without checks, balances and accountability doled out in the form of consequences, the integrity of the capital markets would not be able to be maintained. There are compliance departments, accountants and an entire concert of other professionals working to make sure that companies report their earnings correctly, trades are executed in a timely fashion, and information provided to investors is timely, informative and fair. If any of these things fail to happen, ideally there will be fault assigned and penalties paid. Some things cannot go wrong. If they do, a responsible party pays for it. This is the definition of accountability.

Examples of Accountability

As an example, 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 audit the financial statements, and accountability forces them to be careful and knowledgeable in their review. Public companies are also required to have an audit committee as a part of their board of directors who are outside individuals with accounting knowledge. Their job is to oversee the audit.

RELATED TERMS
  1. Accountant's Liability

    Accountant's liability stems from legal exposure assumed while ...
  2. Accountant Responsibility

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

    An account statement is a periodic summary of account activity ...
  4. Accounting

    The systematic and comprehensive recording of financial transactions ...
  5. Financial Accounting

    The process of recording, summarizing and reporting the myriad ...
  6. Accounting Practice

    An accounting practice is a routine manner in which the day-to-day ...
Related Articles
  1. Personal Finance

    Accountant: Job Description & Average Salary

    Discover what the job description of an accountant entails, along with education and training, salary and skills necessary for success.
  2. Insights

    A Look At Accounting Careers

    More than just crunching numbers, this career blends detective work with trouble shooting.
  3. Personal Finance

    Career advice: Accounting versus auditing

    Understand the distinctions between accounting and auditing, and learn what each offers new graduates in terms of salary, job security and daily life.
  4. Investing

    A Day In The Life Of An Accountant

    An analysis of the accountant profession, who becomes an accountant, what they do, where they work, and salary ranges.
  5. Personal Finance

    Career advice: Accountant versus controller

    Learn about the differences between controllers and accountants, how the two are related and which is the best career choice for aspiring bookkeepers.
  6. Personal Finance

    Financial auditor: Job details and average salary

    Discover what it means to hold a financial auditor position, including job duties, education and training, required skills and expected salary.
  7. Personal Finance

    4 Savings Accounts for Investors

    Curious about the best saving accounts and which ones suit investors?
  8. Investing

    Accounting Basics

    What is accounting? Learn the basics of this essential way of recording and summarizing financial information.
RELATED FAQS
  1. What are the objectives of financial accounting?

    Learn about the principle objectives of financial accounting, including the furnishing of the financial statements for those ... Read Answer >>
  2. What are the main advantages and disadvantages to the cost accounting method?

    Read a brief overview of the main advantages and disadvantages of the cost accounting method as it relates to business analysis ... Read Answer >>
  3. How does financial accounting differ from managerial accounting?

    Learn about the main differences between financial accounting and managerial accounting, including why one is highly uniform ... Read Answer >>
  4. What is the difference between the current account and the capital account?

    Learn how to differentiate between the capital account and the current account, the two components of the balance of payments ... Read Answer >>
  5. Why is reconciliation important in accounting?

    Learn about accounting reconciliation and its importance for individuals and businesses to help prevent fraudulent activity ... Read Answer >>
Hot Definitions
  1. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  2. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  3. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  4. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  5. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  6. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
Trading Center