Environment Management Accounting

Environment Management Accounting [EMA]: An Overview By

Dr. Vijay Pithadia Reader in Management Shri Leuva Patel MBA Mahila College Chakkar Garh Road, Amreli–365 601 GJ

Abstract: Many people are willing to pay more for a product that is environmentally friendly. Many companies are now interested in being "green," as many investors place a high value on environmental responsibility. The concept of environment management accounting is new for India but the recent policies of Indian government of liberalization have catalyzed the need or practice of environment management accounting in India. EMA focuses on costs internal to the company; EMA does not include external costs to individuals, society, or the environment for which a company is not legally held responsible. More accurate and comprehensive information to support the establishment of and participation in voluntary, costeffective programs to improve environmental performance. Key Words: Environment accounting, Rig-Veda, Environmental accounting background and overview, Reasons for change, External Environmental Auditing, EMA, Evaluation of Facility-Level, Implementing EMA. Availability of Data: Quoted data and information are available from public sources, which are mentioned in references. Environmental costs and obligations are significantly growing and continue to grow as the world becomes more environmentally conscious. Public corporations are being held more responsible and accountable to be good environmental citizens. A number of environmental legislations have been enacted to address the emergence of a worldwide "green movement." In some cases in years past, environmental issues were virtually ignored by both corporations and individuals. Hazardous waste and other such items were considered a cost of a growing economy. Times have changed as people now realize the effects of waste products that potentially could damage parts of the environment. Many people are willing to pay more for a product that is environmentally friendly. Many companies are now interested in being "green," as many investors place a high value on environmental responsibility. Some corporations have had to pay to clean up their past environmentally "unfriendly" behavior. However, most firms have established good reputations as environmentally "friendly."

Conceptual frame work of environment management accounting has been describe in "Rig-Veda", the pioneer religion theorem of Hindu Philosophy as according " sky is like a father, earth is like a mother, a space as their children " Thus Rig-Veda reflects that environment is to be valued like parents and love like children. The concept of environment accounting and auditing may be new for western accounting thinkers. There may be conflicts between understanding and implementation. Few notes started its relevance for country. Such as establishment of new accounting standards concerning to environment management accounting in India. Secondly it should require to include into specialized accounting education syllabus and to create awareness of importance of environmental accounting to the accounting practitioners for serving its exact purpose. EMA: Background and Overview Environment Management Accounting (EMA) is the identification, collection, estimation, analysis, internal reporting, and use of materials and energy flow information, environmental cost information, and other cost information for both conventional and environmental decision-making within an organization. For companies that have the goals of saving money, especially environmental costs, and reducing environmental impacts, EMA provides essential information for meeting those goals. Key points to note are: • • • •

EMA focuses on costs internal to the company; EMA does not include external costs to individuals, society, or the environment for which a company is not legally held responsible. EMA places particular emphasis on accounting for environmental costs. EMA also encompasses explicit information on physical flows and fates of materials and energy. EMA information can be used for most types of management activity or decision-making within an organization, but is particularly useful for proactive environmental management activities.

EMA is not merely one environmental management tool among many - rather, EMA is a broad set of principles and approaches that provides the materials/energy flow and cost data critical to the success of many environmental management activities. Terms or tools such as full cost accounting, total cost assessment, cost accounting, materials accounting, life cycle assessment, life cycle costing, and activity based costing are associated with EMA. EMA: Reasons for Change EMA researchers and proponents recognize the limitations of conventional management accounting approaches for management activities and decisions involving significant environmental costs and/or significant environmental consequences/impacts. The unintentional "hiding" of many environmental costs in overhead accounts • •

Inaccurate allocation of environmental costs from overhead accounts back to processes, products, and process lines Inaccurate characterization of environmental costs as "fixed" when they may actually be variable (or vice-versa) and

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The actual lack of inclusion of relevant and significant environmental costs in the accounting records at all.

EMA brings many potential benefits to industry including: • • • •

The ability to more accurately track and manage the use and flows of energy and materials, including pollution/waste volumes, types, and fate The ability to more accurately identify, estimate, allocate, and manage/reduce costs, particularly environmental types of costs More accurate and comprehensive information to support the establishment of and participation in voluntary, cost-effective programs to improve environmental performance More accurate and comprehensive information for the measurement and reporting of environmental performance, thus improving company image with stakeholders, such as customers, local communities, employees, government, and finance providers.

Environment Management Accounting: Implementing EMA EMA provides two types of data to assist companies in making decisions about capital investment, product/process costing, strategic planning, or other business opportunities. One type is cost information; the other type is physical flow information (e.g., raw materials use and waste generation rates). Companies may approach the data collection in different ways. For example, some companies may simply conduct a more careful examination of existing cost data and combine it with existing materials flow knowledge to make more informed decisions. Other companies may do actual mass balances on their processes to better understand previously hidden losses. Some examples of physical flow information include: quantity of chemical brought on-site, quantity of chemical produced on-site, quantity of chemical consumed in the manufacturing process, q quantity of chemical in the product, quantity of chemical in the waste, water use, wastewater generation, and energy use. Surveys of Industry Practices The surveys of current industry practices in environment management accountings of major corporations within a variety of industries and provides a perspective of the current state of the art of environmental management accounting, as well as some important differences in organizational approaches. Here the reporting, data handling, and follow-up processes of selected leading environmental management accounting programs were analyzed in-depth to develop perspectives on the diversity in audit reporting techniques, formats, and approaches to provide clear and appropriate disclosure of audit findings. In addition, we have informally surveyed hundreds of companies at our various audit seminars and workshops. External Environmental accounting for the Board of Directors Working for a committee of the boards of directors of several major U.S. companies, serve as external auditors and conduct an independent environmental verification program. As part of these client assignments, the corporation to further develops and

strengthens its internal EHS, and product safety audit program. The boards of directors find our assistance to be very valuable to them in assuring compliance. Audits in Highly Sensitive Situations Working for outside counsel in dozens of highly sensitive situations, we conduct audits of numerous facilities that pose significant environmental problems. In one such assignment, a team of audit experts conducted several field visits to independently determine compliance with national, state, and local environmental regulations; assess whether facility operations and practices pose potentially serious health or safety risks; and determine conformance with corporate policies and procedures. Evaluation of Facility-Level Environmental Compliance For a large international manufacturer of industrial/agricultural equipment, we developed a program to evaluate the environmental compliance and management systems in place at the facility level. The purpose of the assessments was to identify those areas where environmental risks had not been identified or had not been adequately addressed and to evaluate the management systems in place to direct environmental issues. We provided two to six team members with project- and industry-specific expertise for each assessment. The assessments involved interviews with management, engineering, maintenance, and operational personnel; inspections of environmental activities and review of environmental documentation and programs. References: [1] ABBOTT W F and MONSEN R J On the measurement of corporate social responsibility: self reported disclosure as a method of measuring corporate social involvement Academy of management journal September 1979 [2] ALHASHIM D Social accounting in Egypt International journal of accounting Spring 1977 [3] AMERICAN ACCOUNTING ASSOCIATION Report of the committee on accounting for social performance Accounting review 1971 [4] FREEDMAN M and STAGLIANO A European unification, accounting harmonization, and social disclosures International journal of accounting 1992 [5] GRAY R and others Struggling with the praxis of social accounting: stakeholders, accountability, audits and procedures Accounting, auditing and accountability journal 1997 [6] GUTHRIE J and PARKER L Corporate social reporting: a rebuttal of legitimacy theory Accounting and business research Autumn 1989 [7] P. C. Mishra, N. Behera, B. K. Senapati and B.C. Guru Advances in Ecology and Environmental Sciences, Vedams e-Books (P) Ltd., New Delhi, 1995

Environmental Accounting and auditing in India Dr. Vijay Pithadia Assistant Professor, Gardi School of Management Studies,MBA Program Affiliated to Saurashtra University & Recognized by AICTERajkot – 360006 Mobile Phone: +91 989 842 [email protected] Abstract: The concept of environment accounting is new for India but the recent policies of Indian government of liberalization have catalyzed the need or practice of environmental accounting and auditing in India. At the time into entering into 21st century there should require to established new accounting standards concerning to environmental importance. Secondly it should be included into specialized accounting education syllabus. Thirdly to create awareness of importance related to environmental accounting among accounting professionals in India. Key Words: Environmental accounting, Rig-Veda, environmental pollution, new accounting standards, accounting education syllabus, accounting professionals Availability of Data: Quoted data and information are available from public sources, which are mentioned in references. Prologue: With the opening up of market and globalization of the whole world become small place. At the time of entering into 21st century the issues of environmental accounting and auditing are new but the recent polices of Indian government have catalyzed its importance as well as conceptual frame work of environmental accounting has been describe in "Rig-Veda", the pioneer religion theorem of Hindu Philosophy as according " sky is like a father, earth is like a mother, a space as their children " Thus RigVeda reflects that environment is to be valued like parents and love like children. The concept of environment accounting and auditing may be new for western accounting thinkers. There may be conflicts between understanding and implementation. Few notes started its relevance for country. Such as establishment of new accounting standards concerning to environmental accounting and auditing in India. Secondly it should require to include into specialized accounting education syllabus and thirdly to create awareness of importance of environmental accounting to the accounting practitioners for serving its exact purpose. Some Notes for 21st Century: At the time of entering into 21st century there should require few considerations concern with the environmental accounting and auditing, those are: [1] Environmental pollution:Economic data such as GNP, NNP, Price and employment are widely used for judge the performance of the country. However above all macro an economic estimate neglects

the concept of environmental pollution, it affects up to Ozone layer. [2] New Accounting Standards: Presently in India there are 15 accounting standards published but there are lacks of accounting standards concerning to the environmental accounting and auditing. The ICAI gave the guidelines for the development of accounting standards in India. [3] Accounting Education Syllabus: As the input point of view it should required changing the accounting education syllabus at graduate level and inclusion with environmental accounting and auditing as per new accounting standard related to the environmental accounting and auditing because of its wide importance and applicability. [4] Significance: [A] Environmental Accounting and accounting professionals: Importance of environmental accounting and auditing creates awareness among the accounting professionals. Made provision in the accounting statements as according to new accounting standards related to environmental accounting. The importance of environmental accounting is not limited up to few points but also include each and every human beiges, earth and eco system. [b] Government point of view: The government should recover the cost of eco restorations from the polluters of the environment and take other remedial measures as permitted by the Supreme Court of India in its decision of March 1996. Secondly Government should create the awareness for environment and its importance through approximate ways and techniques. Conclusion: The issue of environmental accounting is just like Old wine in new bottle for India. Recent study describe that some notes for 21st century. At present in India all such macroeconomic estimates neglect factors such as depletion of natural resources, environmental pollution congestion of perks as well as lack of accounting standards concerning to the environmental accounting and auditing in India. As a concluding remark the system of environmental accounting is very useful for measuring economic development and social well being. References: [1] ABBOTT W F and MONSEN R J On the measurement of corporate social responsibility: self reported disclosure as a method of measuring corporate social involvement Academy of management journal September 1979[2] ALHASHIM D Social accounting in Egypt International journal of accounting spring 1977[3] AMERICAN ACCOUNTING ASSOCIATION Report of the committee on accounting for social performance Accounting review 1971 [4] FREEDMAN M and STAGLIANO A European unification, accounting harmonization, and social disclosures International journal of accounting 1992[5] GRAY R and others struggling with the praxis of social accounting: stakeholders, accountability, audits and procedures accounting, auditing and accountability journal 1997[6] GUTHRIE J and PARKER L Corporate social reporting: a rebuttal of legitimacy theory

Accounting and business research autumn 1989 [7] P. C. Mishra, N. Behera, B. K. Senapati and B.C. Guru Advances in Ecology and Environmental Sciences, Vedams e-Books (P) Ltd., New Delhi, 1995