Explain how the management by exception doctrine relates to responsibility accounting.

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Answer 1

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In a responsibility accounting system, reports are prepared in such a manner as to provide the most detailed information at the lowest possible level within the organization. That information is then reported only in summary form at the next-highest level. Thus, the report for a manager at this next-highest level would contain detailed information about the revenue and cost items that are directly under his or her control, plus summary data for the responsibility centers that fall under his or her chain of authority. This method of summarization would continue up the chain of command. Under this approach to reporting, each manager receives only summary information regarding the performance of the responsibility centers that are under his or her supervision. However, the summary data should be sufficient to advise the manager of any problems within any of the centers. Accordingly, managers concentrate only on the exceptional items that are highlighted in their responsibility reports. Of course, this is management by exception in practice.