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.

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