The basis for establishing what is found in the firm's management organization chart which documents the reporting relationships and the responsibilities of its executives?

Question

Options

• Amaintenance system
• Bresponsibility accounting system
• Capproved system
• Dcontrollable accounting system

• A
  3% (1)
• B
  77% (23)
• C
  7% (2)
• D
  13% (4)

Explanation

Responsibility accounting system (B) is correct because it is the framework that aligns authority and accountability with the organizational hierarchy. It assigns financial responsibility to specific managers based on what they control, making the org chart the structural foundation - each box on the chart corresponds to a responsibility center (cost, revenue, or profit center) managed by an accountable executive.

Why the distractors are wrong:

• A (maintenance system) - relates to equipment upkeep tracking, not organizational authority or reporting lines.
• C (approved system) - not a recognized accounting or management term; a distractor with official-sounding language.
• D (controllable accounting system) - "controllability" is a concept within responsibility accounting, not a system in its own right.

Memory tip: Think "who is responsible for what?" - the org chart shows who reports to whom, and responsibility accounting is the system that formalizes those reporting lines into financial accountability. If you see "reporting relationships + executives," think responsibility.

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