A Teaching Note on the Controllability “Principle” and Responsibility Accounting

• In Event: Management Accounting

Abstract

The idea that employees should be evaluated and held responsible only for the things they control seems like common sense. However, sometimes applying common sense leads to fallacies. Antle and Demski (1988) present numerical illustrations that demonstrate controllability is neither necessary nor sufficient for a measure to be useful in performance evaluation. They assert that what is important is that the measure is informative, conditional on all other information available. This teaching note, based on Arya, Glover & Radhakrishnan (2005), takes things a step further. It illustrates a situation where a performance measure is clearly informative in light of other information available, but still is not useful in performance evaluation. The rationale underlying the illustrations and analogies to business settings are discussed.

Authors

• steven T schwartz, Binghamton University

• Richard A Young, Ohio State University

• Eric E Spires, Ohio State University