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READ NOW! The 4 External Factors Affecting Professional Accountancy Practice

Before discussing The External Factors Affecting Professional Accountancy Practice, let us know what the accounting environment is. Accounting environment includes institutional environment, legal environments, accounting conventions, accounting standards, audit standards, professional accounting bodies, etc. A country’s core accounting system is affected by a variety of historical, economic, socio-cultural, institutional, and other non-accounting factors also and it may vary from country to country.

Accounting practices in different countries influenced by different factors. This article has mentioned some factors those have a great impact on accounting practices in different countries. For a professional accountancy practice, external factors that are dominant in the domain are discussed below, in short.

(a) What are the main external factors in Professional Accountancy Practice?

External factors would be dominant in the domain include the following:
 Rival accounting firms seeking to take clients themselves
 Other professional practices which may direct work toward us
 Regulations such as tax laws, accounting standards and audit standards
 The labor market for post-qualified and qualified accountants
 The general state of the economy and its effect on business

(b) How do these main environmental/external factors affect the strategies of the Accountancy practice?

These factors create opportunities and threats. New regulations create a need for professional advisers to provide guidance to clients. Competitors or a thriving labor market with higher pay create threats (incidentally notice how you changed your perspective on the last point because you would like to have the higher pay but you are calling it a threat for your firm). This illustrates how flawed the distinction between ‘internal’ and ‘external’ is when we discuss environmental analysis.

External factors in professional accountancy practice
External factors in Professional Accountancy Practice

(c) How do managers perceive the environment of the organization?

(c) This will depend on the managers psychological make-up. Some will see it as a tiresome bind that makes them have to keep changing things and also which makes it hard to plan or feel certain. Others will see it as invigorating. A very interesting test of management is the extent to which they see themselves as powerless in the faces of environmental changes or whether they believe they can shape and respond to them.

(d) How do managers incorporate environmental/external issues into decision-making?

(d) Again, this varies. Some will avoid making decisions which could be affected by environmental uncertainty, and will wait till it settles down (hence incrementalism). Some will simply ignore environmental issues that cannot be proven. Perhaps a more balanced approach is to adopt strategies that would still deliver benefit under a number of environmental developments or perhaps have several courses of action running at the same time, with each one designed to take advantage of different environments. In another context, energy companies invest in several different technologies because they do not know how oil prices and environmental regulations will develop.

Moreover, a good professional accounting practice in a country may be established for its political stability, economic growth, and transparent systems in all public and private sectors. Capital market, inflation, Political and economic relations with other countries, legislative system etc. are also influence the professional accounting practice. A business may have little or no control over external influencing factors. Such factors may include economic, social, financial, legal, political, technological, institutional, geographical, competitive situation and markets .

READ MORE: How to Choose An Accounting Firm

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