Organisations and management accounting
Organisations and management accounting

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Organisations and management accounting

6.1 Political and legal environment

Clearly, there are laws that must be complied with, emanating from a number of sources, of which the organisation must be aware. These cover areas such as:

  • ways of doing business (e.g., included within contract law); professional negligence (included within the law of tort)
  • protection of consumers (e.g., Sale of Goods Act 1979, Consumer Credit Act 1974, 2006)
  • safe working environment for employees (health and safety legislation)
  • confidentiality and use of information held concerning customers or employees (Data Protection Act 1998)
  • duties of directors and financial reporting requirements (company law, in particular, the Companies Act 2006)
  • minimum wage, equal opportunities and unfair dismissal rules (employment law)pollution, waste disposal (environmental legislation)
  • tax liabilities (tax law).

In recent years, the European Union (EU) has become increasingly important for member states in terms of international trade rules. In addition to requiring the removal of trade barriers, the EU requires that:

  • there be free movement of capital between countries
  • governments do not discriminate between companies in different EU countries in awarding government contracts
  • financial services can be provided in any EU country
  • telecommunications organisations be opened up to greater competition
  • qualifications awarded in one country are recognised in the others.

In addition to the legal framework, government impacts directly on many organisations in a number of ways:

  • via taxes or subsidies to discourage/encourage particular activities (e.g., alcohol consumption)
  • national and, in particular, European, regulations have impacted on organisations in ways such as product standardisation, anti-discrimination legislation, workers’ rights, etc.
  • location incentives (often funded by the European Union) to encourage businesses to locate in particular areas
  • by providing barriers to entry (e.g., the requirement to obtain a license to operate) and thus restricting competition in a particular field
  • the government may be a major customer
  • anti-monopoly, competition legislation
  • as a supplier of infrastructure (e.g., roads), government can influence competition (e.g., road versus rail freight).

Political change, for example, wars, expropriation or nationalisation, political instability and so on, can also present a major threat to organisational plans.

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