Accountability: Definition, Types, Benefits, and Example

What Is Accountability?

Accountability is an acceptance of responsibility for honest and ethical conduct towards others. In the corporate world, a company’s accountability extends to its shareholders, employees, and the wider community in which it operates. In a wider sense, accountability implies a willingness to be judged on performance.

Understanding Accountability

Accountability has become an essential concept in corporate finance. It is particularly relevant to the accounting practices that a company adopts when it prepares the financial reports that are submitted to shareholders and the government. Without checks, balances, and consequences for wrongdoing, a company cannot retain the confidence of its customers, regulators, or the markets.

However, in recent years corporate accountability has come to encompass the company’s activities as they affect the community. A company’s environmental impact, its investment decisions, and its treatment of its own employees all have come under public scrutiny.

Types of Accountability

The concept of accountability runs throughout all industries, sectors, companies, and professions. Here is an overview of where accountability is most prevalent in the business sector.

Corporate Accountability

At its most prosaic, accountability is about the numbers. Every public company is required to publish a financial report quarterly and annually detailing its income and expenses. An independent auditor reviewing a company’s financial statements is responsible for obtaining reasonable assurance that the financial statements are free from any material misstatements caused by error or fraud. This auditor is holding the company accountable for its reporting.

Accountability requires corporate accountants to be careful and knowledgeable, as they can be held legally liable for negligence. An accountant is responsible for the integrity and accuracy of the company’s financial statements, even if an error or misstatement was made by others in the organization. This is why independent outside accountants audit the financial statements. Public companies are required to have an audit committee within the board of directors. Their job is to oversee the audit.

Political Accountability

Political accountability can relate to political contributions and how candidates use resources. For example, the non-partisan Center for Political Accountability and the Wharton School at the University of Pennsylvania jointly publish an annual index rating the disclosure and oversight policies of major public corporations regarding their donations to political causes and candidates.

These scandals resulted in tougher regulations, and there are armies of regulators and private watchdogs working to make sure that companies report their earnings correctly, that the exchanges execute trades in a timely fashion, and that information provided to investors is timely and accurate.

The Center shines a spotlight on corporate spending to influence politicians. Recently, the Center reported in-depth on a campaign by the pharmaceutical industry to head off a proposal to allow Medicare to negotiate drug prices with vendors. The report named the names of members of Congress who accepted political donations from drugmakers.

Government Accountability

The role of corporate cash is only one of the global issues regarding government accountability.

USAID, the federal agency that administers civilian foreign aid, defines measures government accountability by these key factors: a free and fair political justice system; protection of human rights; a vibrant civil society; public confidence in the police and courts, and security sector reform.

To aid in protecting citizens, the Government Accountability program protects federal, state, and local whistleblowers who spot problems and report them to appropriate agencies. In this model, governments are held accountable through unofficial, internal audit. Anyone can report anyone else for improper behavior, forcing accountability to be systematic and prevalent throughout organizations.

Media Accountability

The media in the U.S. is uniquely protected by the First Amendment from interference by Congress. This does not mean that it is free from accountability.

The media have long been under the constant scrutiny of a number of watchdogs, internal and external. In the internet era, these have been augmented by independent fact-checking organizations such as FactCheck.org, Snopes, and PolitiFact. These and other organizations monitor the media for bias and errors and publish their findings for all to see.

Now, through the introduction of social media, individuals can now easily contribute to media. There is arguement whether the platforms (i.e. Facebook) it is a publisher or if the users of the platform are the publishers. In either case, social media continues to be under fire for spreading dangerous misinformation, providing a platform for hate speech, and having a generally lacking sense of accountability.

Accountability in the Workplace

For companies to be successful, employees must conduct themselves with accountability. This is done is several ways.

First, there are soft skill aspects of accountability. Accountability includes showing up to work when expected and showing up to work prepared for the tasks for the day. Accountability extends to every department and every employee, as it starts with being present, honest, and engaged in every day tasks outside of one’s job.

There is also a deep rooted sense of accountability in specific positions. Professionals who handle physical or digital money have a standard of accountability to be honest and responsible with funds that do not belong to them personally. Managers have a duty of accountability to properly oversee employees, treat them well, and guide them through growth opportunities.

There’s a few ways a company builds, manages, and sustains accountable practices, such as:

• Making employees verbally commit to completing certain tasks and ensuring them follow through with these tasks.
• Having upper management set expectations on the duties to be completed and the associated deadlines.
• Creating a safe environment where taking risks is rewarded and learning occurs in a natural, non-threatening way.
• Defining ownership of tasks, projects, or other aspects of work. Should there be a problem, the owner of that task or project must be held accountable.

Benefits of Accountability

Accountability will be different at every company. However, there are overarching benefits that accountability can provide should a business be able to appropriately execute accountability practices:

• Accountability promotes operational excellence. When employees understand that their work is being looked at and will be evaluated, they are more likely to put forth stronger effort as it is understood that what they do matters. This is especially true when employees are rewarded for strong accountability with raises, promotions, and public recognition.
• Accountability safeguards company resources. Accountability is not limited to just doing your job; it is the practice of being honest and responsible for your actions in all situations. When employees are accountable, they are held to a standard that company resources are to be respected, and employees are less like to mistreat company assets as they understand there will be consequences for their actions.
• Accountability yields more accurate results. Companies with a standard of accountability will have boundaries of acceptable deviation. For example, a company may allow for a certain dollar threshold of financial misstatement due to immateriality. If a company holds itself accountable to a low threshold of materiality, it will not accept larger errors, unexplainable variances, or delays in reporting.
• Accountability builds external investor trust. An investor’s confidence in a company is only driven so far based off of the prospect of financial success. Investors must believe that a company is well-run, honest, competent, and efficient with its resources. If a company can demonstrate their accountability, they will be seen more favorable, especially compared against an untrustworthy adversary.

Accountability in the Real World

Corporate accountability can be hard to quantify but that doesn’t stop anyone from trying.

The publication Visual Capitalist ranked the best performing U.S. corporations on environmental, social, and corporate governance issues. The top performer on environmental issues was HP, which has decreased its greenhouse gas emissions by 44% since 2015. General Motors got the highest marks for social responsibility as the only U.S. company with a woman as both CEO and CFO. Qualcomm topped the list in corporate governance due to its introduction of STEM programs for women and minorities.

Some high-profile accounting scandals in the past demonstrated that a public company cannot continue to exist if it loses the trust of the financial markets and regulators.

The erstwhile energy giant Enron collapsed in 2001, taking the venerable accounting firm Arthur Andersen with it after its false accounting methods were exposed. The global financial crisis in 2008–2009 revealed gross financial speculation by some of the nation’s biggest banking institutions. The LIBOR scandal revealed currency rate manipulation by several London banks.

But many leaders have called for the creation of a new culture of accountability in finance—one that comes from within.

The Bottom Line

Accountability can be a management buzzword, or it can be a real framework for evaluating the success or failure of an individual or an entity. The concept of corporate accountability has always meant honest and transparent financial reporting. In recent years that concept has expanded to encompass a corporation’s performance and responsiveness to environmental, social, and community issues.