Definition, Types, Benefits, and Example
:max_bytes(150000):strip_icc()/https-www.investopedia.com-terms-a-accountability-primary-FINAL-2be10e089f5d42629803cea7885a023d.png "Definition, Types, Benefits, and Example")
What Is Accountability?
Accountability refers to the acceptance of responsibility for honest and ethical conduct toward others. A company’s accountability extends to its shareholders, employees, and the wider community in which it operates. Accountability also implies a willingness to be judged on performance.
Key Takeaways
- Accountability is the acceptance of responsibility for one’s actions.
- Financial accountability includes a requirement in the U.S. that public corporations make accurate financial records available to all stakeholders.
- Accountability in the workplace can include setting deadlines, delegating tasks, defining ownership, and rewarding success.
- Accountability can help invoke confidence from external investors, loyalty from employees, and better company returns.
- There’s been an increased focus on other elements of corporate accountability such as ethical conduct, environmental impact, a commitment to diversity, and fair treatment of employees.
How Accountability Works
Accountability is an essential concept in corporate finance. It’s defined as an entity’s steps to take responsibility for its actions. This can range from accounting for financial discrepancies, conduct toward employees, financial mismanagement, or losing shareholder confidence.
The concept is particularly relevant to the accounting practices a company adopts when it prepares the financial reports that are submitted to shareholders and the government. A company can’t retain the confidence of its customers, regulators, or the markets without checks, balances, and consequences for wrongdoing,
Corporate accountability has come to encompass a company’s activities as they affect the community. A company’s environmental impact, investment decisions, and treatment of its employees have all come under public scrutiny.
Important
Each industry has its own standards and rules for accountability that may evolve over time, such as the rules for social media accountability.
Types of Accountability
The concept of accountability runs throughout all industries, sectors, companies, and professions.
Corporate accountability
Accountability is about numbers. Every public company must publish a quarterly and annual financial report detailing its income and expenses. An independent auditor is responsible for reviewing a company’s financial statements and obtaining reasonable assurance that the financial statements are free from any material misstatements caused by error or fraud. This auditor holds the company accountable for its reporting.
Accountability requires that corporate accountants be careful and knowledgeable because 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. 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. The nonpartisan Center for Political Accountability and the Wharton School at the University of Pennsylvania publish a joint annual index that rates major public corporations’ disclosure and oversight policies regarding their donations to political causes and candidates.
The Center for Political Accountability shines a spotlight on corporate spending that aims to influence politicians. KFF Health News reported in-depth in 2021 on a campaign by the pharmaceutical industry to head off a proposal to allow Medicare to negotiate drug prices with vendors. The report named members of Congress who accepted political donations from drugmakers.
The Center for Political Accountability noted that 218 large public companies had adopted political disclosure policies by 2023.
Fast Fact
Accountability is subjective. Merck was named the most responsible company in 2024. HHP was the highest-rate company regarding responsibility in 2023, however, according to Newsweek. McKinstry was top-rated in terms of a Corporate Equality Index. There’s a spectrum of accountability that companies land on and where they land can constantly change.
Government accountability
The role of corporate cash is only one of the global issues regarding government accountability. The U.S. Agency for International Development (USAID), the federal agency that administers civilian foreign aid, measures government accountability by the following key factors:
- A free and fair political justice system
- The protection of human rights
- A vibrant civil society
- Public confidence in the police and courts and security sector reform
The Government Accountability Project protects federal, state, and local whistleblowers who spot problems and report them to appropriate agencies. Governments are held accountable through unofficial internal audits.
Important
The U.S. State Department took over USAID operations in February 2025. More than 80% of U.S. foreign aid contracts were canceled a month later. Some future accountability measures and efforts are uncertain.
Media accountability
The media in the U.S. is uniquely protected from interference by Congress by the First Amendment. This doesn’t mean that it’s free from accountability, however.
The media has long been under the constant scrutiny of several watchdogs, both internal and external. These have been augmented by independent fact-checking organizations such as FactCheck.org, Snopes, and PolitiFact in the internet era. They and other organizations monitor the media for bias and errors and publish their findings.
Individuals can easily contribute to the conversation thanks to social media. There’s debate whether platforms like Facebook are publishers or if the users are the publishers, however. Social media continues to be under fire for spreading dangerous misinformation in either case, for providing a platform for hate speech, and for having a generally lacking sense of accountability.
Accountability in the Workplace
Employees must conduct themselves with accountability for their companies to be successful. This is accomplished in several ways.
The soft skills of accountability include showing up to work when expected and being prepared for the tasks of the day. Accountability extends to every department and every employee because it begins with being present, honest, and engaged in everyday tasks outside of one’s job.
There’s 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 don’t belong to them personally. Managers have a duty of accountability to properly oversee employees, treat them well, and guide them through growth opportunities.
A company builds, manages, and sustains accountable practices in a few ways:
- Making employees verbally commit to completing certain tasks and ensuring that they follow through with them
- 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 so the owner of that task or project must be held accountable should there be a problem
Internal vs. External Accountability
Internal accountability refers to the practices within a company. This type of accountability is maintained through internal controls, performance evaluations, audits, and a strong corporate culture. Regular performance reviews and audits help identify areas where employees and departments may need improvement.
External accountability pertains to a company’s obligations and responsibilities to outside parties such as regulators, investors, customers, and the general public. It’s often enforced through legal requirements, industry standards, and public scrutiny. Companies must regularly disclose financial information, comply with environmental regulations, and meet consumer protection laws or there may be legal consequences that are detrimental to the company’s ability to function.
Both forms of accountability must be present for a company’s success and sustainability but there are different risks to each. Internal accountability ensures that the organization operates efficiently and ethically from within. External accountability is the most detrimental and costly but it doesn’t happen on its own. Failure to uphold internal accountability leads to problems with external accountability.
Benefits of Accountability
Accountability is different at every company but there are overarching benefits that it can provide when a business can appropriately execute accountability practices.
Operational excellence
Accountability promotes operational excellence. Employees are more likely to put forth stronger effort when they understand that their work is being looked at and evaluated. It’s understood that what they do matters, especially when they’re rewarded for strong accountability with raises, promotions, and public recognition.
Company resources
Accountability isn’t limited to just doing your job. It’s the practice of being honest and responsible for your actions in all situations. Accountable employees are held to a standard that company resources are to be respected. They’re less likely to mistreat company assets because they understand that there will be consequences.
Materiality
Companies with a standard of accountability will have boundaries for acceptable deviation. A company might allow for a certain dollar threshold of financial misstatement due to immateriality. It won’t accept larger errors, unexplainable variances, or delays in reporting if it holds itself accountable to a low threshold of materiality.
Investor trust
Accountability builds external investor trust. An investor’s confidence in a company is only driven so far based on the prospect of financial success. Investors must believe that a company is well-run, honest, competent, and efficient with its resources. It will be seen more favorably, especially compared with an untrustworthy adversary, if a company can demonstrate its accountability.
Fast Fact
A 2022 research study by Pew Research found that 51% of the so-called “cancel culture” was a movement to hold people accountable for their actions while 45% saw the movement as punishment for people who didn’t deserve it.
Example of Accountability
Corporate accountability can be hard to quantify but that doesn’t stop anyone from trying. One real-world example is the Volkswagen emissions scandal, often referred to as “Dieselgate.” It exposed how Volkswagen had deliberately installed software in its diesel vehicles to cheat on emissions tests.
The United States Environmental Protection Agency (EPA) found in 2015 that many VW cars sold in America had a “defeat device” in diesel engines that could detect when they were being tested. Cars normally emit up to 40 times the allowed levels of nitrogen oxides, pollutants that contribute to the formation of smog and acid rain and are linked to various respiratory diseases.
The ultimate fallout was that Volkswagen faced hefty fines and settlements. The company agreed to spend up to $25 billion in the U.S. alone to address claims from regulators, car owners, and dealers. This included buying back affected vehicles, funding environmental programs, and compensating owners. Several executives were charged and Volkswagen pleaded guilty to criminal charges and agreed to pay $4.3 billion in penalties in 2017.
The scandal led to significant changes in Volkswagen’s leadership. CEO Martin Winterkorn resigned and other top executives were suspended or left the company. VW undertook various internal reforms to improve compliance and transparency. They implemented stricter environmental standards and compliance measures to prevent future misconduct. Volkswagen also issued public apologies, acknowledging their misconduct and committing to making amends.
How Is Accountability Defined in the Workplace?
Accountability in the workplace goes beyond giving each employee a task to complete in a project. It also means making each individual accountable for the success or failure of their contribution to the overall project. It’s all about the ownership of success or failure.
What Does the Government Accountability Office (GAO) Do?
The Government Accountability Office (GAO) is the audit agency of the U.S. government.
It evaluates the effectiveness of U.S. programs and proposed programs. One of its ongoing reviews examined the effectiveness of $4.7 trillion in federal spending related to the COVID-19 pandemic. It made recommendations for changes to prevent the misuse of funds, fraud, and errors in relief payments.
What Is the Difference Between Accountability and Responsibility?
A responsibility is an assigned or self-assigned task or project. Accountability implies a willingness to be judged on the performance of the project. It doesn’t exist in a vacuum. It requires transparency and effective communication of results with all parties that may be affected.
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. That concept has expanded to encompass a corporation’s performance and responsiveness to environmental, social, and community issues.
link
