ACCOUNTING FOR STATE INDUSTRIAL AND COMMERCIAL ENTERPRISES IN A DEVELOPING COUNTRY WITH SPECIAL REFERENCE TO SRI LANKA

Abstract

Attached

It has become clear that the developing countries such as Sri Lanka can no longer rely solely on the price mechanism for the efficient allocation and utilization of available resources. Free market competition, which is a prerequisite for the working of the price mechanism, may lead to the wastage or less than optimal allocation of resources. There has therefore been increasing acceptance of central planning as a policy tool in the strategy for economic development in emerging countries. Since public ownership of resources facilitates planning and c9ntrol from above, economic development planning tends to encourage the expansion of public sector enterprises. The Sri Lanka government is committed to a policy of establishing a mixed economy in which most of the major industrial and commercial enterprises belong to the planned ot public sector of the economy. The changes in economic and business conditions towards state ownership have created new challenges for accounting and accountants. With the introduction of comprehensive planning in the public sector, the need for reliable financial information has greatly increased. That information is necessary for the efficient utilization of resources through state planning because any plan is only as good as the data on which it is based. Particularly pertinent for planning purposes is information about the present stock and disposition of resources. The investigation on which this thesis is based led to the conclusions that: (a) the existing accounting systems used by state enterprises in Sri Lanka are defective, (b) there is no clearly defined function for accounting reports under existing accounting systems, (c) as a result, accounting is not serving satisfactorily as a source of information, and (d) there has not been any detailed study in this respect in Sri Lanka. This thesis seeks to shed some light on a largely neglected area in the study of accounting. The primary objectives of this exercise are: (a) to draw attention to the existing accounting problems of state industrial and commercial enterprises in Sri Lanka in relation to financial reporting, and (b) to try and develop a set of ideas which may be used in formulating a system of accounting suitable for the special needs of the state ente!prises in Sri Lanka. The ideas developed point to the need for a system of accounting based on current market prices and which takes account of the full effects of price and price-level changes. It is argued that such a system will be of greater assistance in the process of decision making by interested outsiders, particularly regulatory bodies in regard to the financial affairs of these enterprises. In developing the ideas referred to, some reliance is placed on the work of R.J .Chambers. The commercial activities of s.tate enterprises are not in principle different from those of private enterprises. The proposed system of accounting, accordingly, i~an adaptation of the style of accounting developed and advocated by Chambers and R.R.Sterling, with only minor modifications to allow for the special circumstances arising from the particular functions served and the ownership r structure of enterprises.