As an issue, the environment has been growing in significance in the minds of the community and, more recently, in the minds of business. Everyone remembers the Exxon's Valdez disaster, Shell's run-ins with Greenpeace and Nike's sweatshop scandal. Whether or not these events represented true ecological or social disasters is hotly debated, but one thing is not – they all hit the major news outlets and were public relations nightmares. To avoid such nightmares, many companies are opting for transparency not only in their financial statements, but also in their nonfinancial information, such as reports on their environmental record, social responsibility and sustainability (McCrary, 2002). In this context the aim of this paper is to examine the nature of environmental accounting and to describe how companies are responding to pressures to keep accounting records of the impact that their productive processes have on the environment.
Table of Contents
1. INTRODUCTION
2. THE ISSUE OF ENVIRONMENTAL ACCOUNTING
3. EVALUATIONS OF THE ENVIRONMENTAL ACCOUNTING
4. CONCLUSION
Objectives and Topics
This paper examines the nature of environmental accounting and analyzes how corporations respond to increasing pressures to document and disclose the impact of their productive processes on the natural environment.
- The role and definition of Environmental Financial Accounting (EFA) and Environmental Management Accounting (EMA).
- The historical development and motivations behind the adoption of environmental accounting practices.
- Barriers to effective disclosure, including the valuation of natural resources and lack of standardized frameworks.
- The debate regarding the commercial viability and "win-win" potential of integrating environmental measures into business strategy.
Excerpt from the Book
EVALUATIONS OF THE ENVIRONMENTAL ACCOUNTING
Traditional accounting usually provides only an onesided information for it excludes non-priced transactions and natural resources which are very important to the assessment of welfare. Environmental researchers have argued that a better role of accounting on the environment is long overdue (Jones, 1996). Including environmental effects will provide a more complete reporting system for the management of the firm. Many corporations produce environmental reports on a voluntary basis and increasingly, self-regulation has been adopted by large companies united, for example, by professional bodies or tourism associations (Herath, 2005).
Many critics say that companies undertake environmental accounting for compliance reasons, and to maintain good public relations. Michael Porter and Claas van der Linde (1995) on the contrary suggested that ‘going green’ may reduce business costs. They also provide examples of firms that have reduced costs as a result of undertaking an environmental audit and changing their production processes and making them more environmentally friendly. The Dutch flower industry serves as an example. The Dutch government was becoming tougher on the discharge of chemical fertiliser into the soil. An environmental audit resulted in a change of method. Thus, plants are no longer grown in soil but in a closed loop water-based system. As a consequence, growers complied with their government's current and forecast future legislation and achieved a reduction in their costs. Other writers, however, have disagreed with this ‘win win’ approach and argued that not all firms can achieve cost savings from the application of strict environmental manufacturing processes.
Summary of Chapters
1. INTRODUCTION: Outlines the increasing societal and business significance of environmental issues and defines the objective of the paper to investigate environmental accounting practices.
2. THE ISSUE OF ENVIRONMENTAL ACCOUNTING: Discusses the integration of environmental data into financial and management accounting systems, defining EFA and EMA while noting the challenges of standardization.
3. EVALUATIONS OF THE ENVIRONMENTAL ACCOUNTING: Analyzes the debate between compliance-driven reporting versus the strategic potential of "going green" to reduce costs and gain competitive advantage.
4. CONCLUSION: Summarizes the current state of "creative chaos" in environmental reporting and emphasizes the necessity for international standards to move toward an effective reporting framework.
Keywords
Environmental Accounting, Management Accounting, Financial Accounting, Sustainability, Corporate Social Responsibility, EMA, EFA, Environmental Disclosure, Environmental Impact, Business Strategy, Cost Control, Green Accounting, Stakeholders, Environmental Audits, Competitive Advantage.
Frequently Asked Questions
What is the fundamental focus of this paper?
The paper explores how modern businesses are incorporating environmental impact data into their traditional accounting systems to satisfy stakeholders and address ecological concerns.
What are the primary thematic areas covered?
The key themes include the distinction between financial and management environmental accounting, the historical shift toward corporate transparency, and the economic implications of environmental reporting.
What is the main goal of the research?
The goal is to describe the nature of environmental accounting and evaluate how companies respond to external and internal pressures to document their environmental footprints.
Which methodology is applied?
The work employs a literature-based analytical approach, reviewing existing studies, definitions from professional bodies like the IFAC and AICPA, and evaluating various industry-specific case studies.
What does the main body discuss?
It covers the definitions of EFA and EMA, the evolution of environmental accounting since the 1970s, obstacles such as the valuation of natural resources, and the debate surrounding the profitability of environmental initiatives.
Which keywords characterize the work?
The paper is centered on terms such as Environmental Accounting, Sustainability, Management Accounting, Environmental Disclosure, and Corporate Social Responsibility.
What role does the "creative chaos" concept play in the conclusions?
The author uses this term to describe the current unsystematic state of environmental reporting where companies develop individual, non-comparable methodologies in the absence of unified international standards.
How does the author view the "win-win" argument for businesses?
The author presents a balanced view, noting that while proponents like Porter and van der Linde suggest environmental audits lead to cost savings, other researchers argue that such changes can impose significant, short-lived financial burdens on firms.
- Quote paper
- Ecaterina Volosin (Author), 2008, Environmental accounting, Munich, GRIN Verlag, https://www.grin.com/document/116913
