Environmental accounting

Environment Accounting

1. Environmental Accounting Kulbir Singh

2. Introduction The term “environmental accounting” is open to interpretation. In this guideline, environmental accounting is the identification, measurement and allocation of environmental costs , the integration of these environmental costs into business decisions and the subsequent communication of the information to a company’s stakeholders. Identification includes a broad examination of the impact of corporate products, services and activities on all corporate stakeholders.

3. According to the United States Environment Protection Agency (US EPA): An important function of environmental accounting is to bring environmental costs to the attention of corporate stakeholders who may be able and motivated to identify ways of reducing or avoiding those costs while at the same time improving environmental quality.

4. Reasons To help managers make decisions that will reduce or eliminate their environmental costs; To better track environmental costs that may have been previously obscured in overhead accounts or otherwise overlooked; To better understand the environmental costs and performance of processes and products for more accurate costing and pricing of products; To broaden and improve the investment analysis and appraisal process to include potential environmental impacts; and To support the development and operation of an overall environmental management system .

5. Forms of Environmental Accounting Environmental Management Accounting Environmental Financial Accounting Environmental National Accounting

6. O bjectives Taking the total stock of assets or reserves related to environmental issue & changes therein . Estimation of the total expenditure protection or enhancement of environment. To identify that part of the gross domestic product which reflects the cost necessary to compensate for the negative impact of economic growth i.e. the so-called defensive expenditure to protect environment.

7. Assessment of environmental costs & benefits ( i ) The decrease (depletion) in natural resources due to their use in production & final demand and (ii) The changes in environmental quality resulting from pollution & other impacts of production & consumption & other natural events on one hand, & the expenditure for environmental protection & enhancement of the environment on the other. Elaboration & measurement of indicators, relating to environmentally adjusted product & income which are disclosed by Environmentally Adjusted Net Domestic Product (EDP), i.e., Net Domestic Product minus Environmental costs. Analysis of EDP : It is to plan the use of resources by squeezing them & reducing waste to attain sustainable development.

8. Need of Environmental Accounting at Corporate Level Meeting regulatory requirements or exceeding that expectation. Cleaning up pollution that already exists and properly disposing of the hazardous material. Disclosing to the investors both potential & current, the amount and nature of the preventative measures taken by the management (disclosure required if the estimated liability is greater than a certain percent say 10 per cent of the company’s net worth). Operating in a way that those environmental damages does not occur. Promoting a company having wide environmental attitude. Control over operational & material efficiency gains driven by the competitive global market. Control over increases in costs for raw materials, waste management and potential liability

9. Scope of Environment Accounting From Internal point of view From external point of view

10. From Internal point of view Investment made by the corporate sector for minimization of losses to environment. It includes investment made into the environment saving equipment devices. This type of accounting is easy as money measurement is possible.

11. From external point of view Degradation and destruction like soil erosion, loss of bio diversity, air pollution, water pollution, voice pollution, problem of solid waste, coastal & marine pollution. Depletion of nonrenewable natural resources i.e. loss emerged due to over exploitation of nonrenewable natural resources like minerals, water, gas, etc. Deforestation and Land uses

12. ADVANTAGES OF ENVIRONMENTAL ACCOUNTING The accounting system helps to detect any leakages spills or any such problems with the operation and process at an early stage, thus reducing the risk of future problem. It helps to measure the environmental problem impact of each and every process and operation on the air, water, soil, worker’s health and safety and society at large. It helps to measure the organization environmental performance. It gives an indication of the effectiveness of the environmental management and suggests how it can be improved.

13. Continue….. It provides a database for corrective action and future places it identifies the area where the steps have to be taken to reduce the waste, raw material and energy consumptions. The result of the environmental accounting system helps the management to develop its environment strategy for moving toward a greener corporate culture. Proper environmental accounting system facilitates proper reporting of the results of environment practices followed by the company. It facilitates communicating environmental performance towards stakeholder which goes along way in enhancing the corporate image of the organization. Environmental accounting leads substance to verify compliance to local, national and international standards or best available techniques as well as company’s own standard as stated in company’s environmental policy.

14. LIMITATIONS OF ENVIRONMENTAL ACCOUNTING There  is no standard accounting method Comparison between two countries of firm is not possible if the method of accounting is different Input for environmental accounting is not available as the cost and the benefits relevant to environment are not easily measurable. Many business and government organization even large and well managed ones don’t adequately track the use of energy and material or the cost of inefficient material use, waste management and related issue. Many organization therefore significantly underestimate the cost of poor environment performance to their organization.

15. Continue….. It mainly considers the cost internal to the company and excludes the cost to the society Environment accounting is long term process therefore to draw conclusion with help of it is not easy Environmental accounting cannot work independently. It should be integrated with financial accounting which is not easy. Environmental accounting must be analysed along with other aspects of accounting because costs and benefits to the environment depend upon the results of financial accounting, management accounting, cost accounting, tax accounting, etc. The user of information contained in environmental accounting needs adequate knowledge of process of environmental accounting as well as rules and regulations prevailing in that country either directly or indirectly related to environmental aspects

16. Thanks