ACCOUNTING ENVIRONMENT W.G.N.K.ILANGASEKARA 0054

INTRODUCTION “Accounting environment is the surrounding or the factors which effect the accounting in an organization.” Accounting environment mainly divided in to two types. 1. Internal Environment :- Internal environment can be controlled by the managers of the business 2. External Environment :- External environment is the environment which beyond the control of the individuals of the business

ECONOMIC & POLITICAL ENVIRONMENT SOCIAL & CULTURAL ENVIRONMENT LEGAL ENVIRONMENT EXTERNAL MANAGER INTERNAL ENVIROMENT SHARE HOLDER EMPLOYES ENTERPRISE NATURE & CULTURE NATURAL ENVIRONMENT TECHNICAL & PROFESSIONAL ENVIRONMENT TECHNOLOGICAL ENVIRONMENT

1. Internal Accounting Environment

Parties effect in Internal Accounting Environment Internal accounting environment is the environment that can be controlled by the managers of the business. Parties effect in Internal Accounting Environment 1. Managers 2. Employees 3. Share Holders 4. Enterprise nature and Culture

2. External Accounting Environment

2. External Environment External environment is the environment which beyond the control of the individuals of the business. Parties in External Environment Legal Environment Economic and Political Environment Social and Cultural Environment Technical and Professional Environment Technological Environment Natural Environment

LEGAL ENVIRONMENT

1. LEGAL ENVIRONMENT “Every organization should comply with legal requirement directly relevant to that particular entity and the general requirement of the country.” Some of the legal requirement directly applicable for the entities are as follows. Business ordinance Partnership ordinance 1890 Company Act No 07 of 2007 Consumer protection Act Inland Revenue Act No 10 of 2006 VAT Act No 14 of 2002 Nation Building Tax No 09 of 2009

POLITICAL ENVIRONMENT 2. ECONOMIC AND POLITICAL ENVIRONMENT

2. ECONOMIC AND POLITICAL ENVIRONMENT “Economic and political environment have a direct impact on accounting process. Changes occur in economic and political environment effect to the business as well as to the accounting process.” For example Effects of changes in Foreign Exchange Effects of tax policies of the government Effects of the changes in interest rates Privatization of corporations Effects of international economic depression Effects of changes in powerful leaders of the country

3. SOCIAL AND CULTURAL ENVIRONMENT

3. SOCIAL AND CULTURAL ENVIRONMENT Social and cultural values of the country will affect the organization. Some believes, behavior, attitudes directly or indirectly affect the organizations operations. For example Changes in population structure, social and cultural values Some occasions, regional festivals effect the business. example : -Sinhala Hindu new year festival will increase the demand for new cloths. Food and crackers. -In vesak season vesak card, oil lamp, oil demand will increase

4. TECHNICAL AND PROFESSIONAL ENVIRONMENT

4. TECHNICAL AND PROFESIONAL ENVIRONMENT In today accounting stands as a profession. In Sri Lanka professional environment of accounting is governed by the Institute of The Chartered Accountants in Sri Lanka(ICASL). Financial statements of the organizations of Sri Lanka has to be prepared according to the accounting standards recommended by the ICASL.

5. TECHNOLOGICAL ENVIRONMENT

5. TECHNOLOGICAL ENVIRONMENT In today technological changes take place in the world rapidly. Therefore the development in technology have given a major impact to the business. For example Using of Computerized accounting system:- Preparation of financial statement has become more convenience than manual process.

6. NATURAL ENVIRONMENT

6. NATURAL ENVIRONMENT Changes in natural environment may definitely effect for the business. It includes natural resources, weather, climatic conditions, port facilities, topographical factors such as soil, sea, rivers, rainfall etc. Every business unit must look for these factors before doing something.