The Complete CFO Handbook

Chapter 11. Decentralized Operations and Responsibility Accounting

Introduction

Agenda

Item 1	Explain organization planning.
Item 2	Define levels of responsibility.
Item 3	Discuss organization structures in terms of the functional, product, and geographical approaches.
Item 4	Describe the advantages of decentralization.
Item 5	Define responsibility accounting and the three types of responsibility centers.
Item 6	Explain the principal controls of responsibility accounting systems.
Item 7	Identify the essentials of performance reports.
Item 8	Define controllable costs.
Item 9	Explain the need for incentive plans and their associated goal congruence problems.

In this chapter, one of the most important responsibilities of the CFO—assuring accountability of resources—will be discussed. Before one can fully appreciate responsibility accounting, it is necessary first to discuss decentralized operations. The question of how much decentralization is desirable in a company has been a controversial subject for many years. As a company grows, upper‐level management must continually reassess, rearrange, and, willingly or not, delegate many of its responsibilities among middle‐ and lower‐level managers. At the point where it is desirable or necessary to separate physical units of the organization, upper‐level management must decide first how to divide the responsibilities and the activities, and second how to coordinate the decentralized segments.

Moreover a great deal of attention has been focused on responsibility ...