1.1. Definitions & Mechanisms

Question 1

Accountability…

Answer 1

One is accountable if one has responsibilities. You will be held accountable for those responsibilities.

An obligation to provide the accounts.

An ability to provide the accounts.

Accountability is between two people, one who makes the accounts and one who receives the accounts.

Question 2

Eight accountability mechanisms…

Answer 2

1. Hierarchical: a situation where one has power and another is ‘below’ them (such as a boss and an employee). The person below is accountable to the person above.
2. Supervisory: refers to the individuals at the top of the organisation. If something goes wrong in the lower levels, these people may be held to account.
3. Market: output: the consumer holds the company to account by not buying their products, financial: shareholders hold the company to account by not trading their stock.
4. Legal: if there is a law dictating that something must happen in a certain way, it must be done.
5. Fiscal: refers to money being given to another party. The other person may have to pay it back or show what they did with it.
6. Participatory: where everyone has the same power (such as in group projects).
7. Electoral: democratic mode of governance where individuals are held account through elections (for example, politicians).
8. Public reputational: a company or individual releases accounts following a big event, usually for ‘post-event-damage-limitation’.

Question 3

Accountability relationships…

Answer 3

Relationships that form between those with power and those below.

For example, the company management (agent) and shareholders (principal).

This creates an agency relationship, which the agent who is the ‘power wielder’ and the principal who is the ‘power holder’.

Question 4

Social contracts…

Answer 4

These can be implicit / informal or explicit / legal.

The ‘accountability holder’ is the ‘power holder’. They delegate responsibility down to the ‘power wielder’.

The ‘power wielder’ is given authority to take action by the ‘power holder’.

The discharge of accountability occurs as it is transferred back from the ‘power wielder’ to the ‘power holder’ as the task is completed.

There may be sanctions is the ‘power wielder’ fails to act properly.

Question 5

An ability…

Answer 5

Power wielders are unable to meet their obligations unless they are capable of doing so.

Technology: newer, faster technologies allows for better communication, data management and more accurate transaction records. This has enhanced a company’s ability to provide accurate, timely and relevant accounts.

Management and governance: using audit committees, board of directors and accounting and finance departments to ensure accounts are meaningful.

Professionalism: those completing the accounts should be professionals with qualifications to do it to a high standard.