The importance placed on environmental issues has increased during the last two decades. Businesses have become increasingly aware of the environmental implications on their operations, products, and services. Environmental risks may have serious consequences for the prospects of a company, with particular financial consequences. Businesses experience increased pressure from various stakeholders to report on environmental behaviour.
Smith and Lambell (1997) stated that the topic of environmental accounting is not new, because many companies already produce environmental statements within their annual reports. Traditional accounting techniques such as financial and management accounting are used to report on the environmental implications of a business.
Smith and Lambell (1997) also argued that companies should cease considering the environment as a given factor and take it into their accounts. This can be done by identifying the environmental costs of a product, service, or process. The environmental costs increased as a consequence of this, amongst other reasons. The existing conventional accounting systems are not able to deal with these environmental costs because they tend to attribute them to general overhead accounts. As result managers are often unaware of them and have no incentive to reduce them (UNDSD, 2003).
Environmental Management Accounting, a variant of environmental accounting, provides managers with knowledge about these environmental costs by extending conventional methods of accounting to capture them (Smith and Lambell, 1997).
Environmental Management Accounting (EMA) generates, analyses and uses financial and non-financial information to support internal management. It is a complementary management accounting approach to the financial accounting approach, according to Bennett and James (1998a). EMA helps to identify and allocate environment-related costs and aims to develop appropriate mechanisms for this (Frost and Wilmhurst, 2000). Key application fields for EMA are: assessment of annual environmental costs/expenditures, product pricing, budgeting, investment appraisal, calculating costs and savings of environmental projects, or setting quantified performance targets, to name only a few (Jasch, 2003). Frost and Wilmhurst (2000) stated that EMA practices have resulted in cost savings and competitive advantage.
Table of Contents
- Environmental Management Accounting
- Different Perceptions and Conceptions of EMA
- Environmental Costs
- Identification and Allocation of Environmental Costs
- Management Accounting Techniques for Identifying and Allocating Environmental Costs
Objectives and Key Themes
This text aims to provide an overview of Environmental Management Accounting (EMA), exploring its definitions, applications, and challenges. It examines different perspectives on EMA, analyzes the complexities of identifying and allocating environmental costs, and discusses various management accounting techniques relevant to EMA.
- Definitions and Interpretations of Environmental Management Accounting
- The Nature and Identification of Environmental Costs
- Methods for Allocating Environmental Costs
- Management Accounting Techniques in EMA
- Benefits and Challenges of Implementing EMA
Chapter Summaries
Environmental Management Accounting: This chapter introduces Environmental Management Accounting (EMA) as a crucial approach to integrate environmental considerations into business operations. It highlights the growing awareness of environmental impacts on businesses and the increasing pressure to report on environmental performance. The chapter discusses how traditional accounting methods are inadequate for addressing environmental costs, leading to the development of EMA as a complementary approach that uses both financial and non-financial information to support internal management decisions. The benefits of adopting EMA, including cost savings and improved competitiveness, are also emphasized.
Different Perceptions and Conceptions of EMA: This section delves into the diverse interpretations and definitions of EMA within the field. It acknowledges the lack of precise terminology and distinguishes EMA from broader environmental accounting. The chapter explores frameworks for understanding EMA's various techniques and dimensions, emphasizing the flexibility in selecting appropriate tools based on a company's specific information needs. Several key frameworks are referenced, offering alternative perspectives on defining and applying EMA. The distinction between internal and external reporting and the use of both monetary and physical units are crucial points emphasized in this section.
Environmental Costs: This chapter focuses on the complex nature of environmental costs. It explores various definitions of environmental costs found in the literature, highlighting the inconsistencies and diverse approaches to their categorization. The chapter presents the US EPA's taxonomy distinguishing between conventional, potentially hidden, contingent, and image/relationship costs, and discusses the challenges in defining and measuring these costs, particularly the difficulty of capturing "hidden" costs. It also introduces the UNDSD's perspective, which includes environmental protection costs, wasted materials costs, and wasted capital and labor costs.
Identification and Allocation of Environmental Costs: This section focuses on the significant challenge of identifying and allocating environmental costs within organizations. It highlights how conventional accounting systems often obscure these costs by grouping them under general overhead accounts. This lack of visibility hinders managers' ability to understand the extent of environmental costs and to identify opportunities for cost savings. The chapter stresses the importance of making these costs visible through the application of EMA principles to inform better business decisions. The inherent difficulties in accurately assigning environmental costs to specific products, processes, or departments are discussed.
Management Accounting Techniques for Identifying and Allocating Environmental Costs: This chapter explores various management accounting techniques useful for identifying and allocating environmental costs. The discussion includes input/output analysis (mass balance), flow cost accounting, and activity-based costing (ABC). Each technique is explained, detailing its methodology and its application within the context of EMA. The chapter emphasizes how these techniques can provide a more comprehensive and accurate understanding of the environmental costs associated with different aspects of a company's operations. The integration of physical and monetary data is highlighted as a key feature.
Keywords
Environmental Management Accounting (EMA), environmental costs, cost allocation, management accounting techniques, sustainability, eco-efficiency, input-output analysis, flow cost accounting, activity-based costing (ABC), environmental reporting, corporate environmental performance.
Frequently Asked Questions: Environmental Management Accounting
What is the overall purpose of this text on Environmental Management Accounting (EMA)?
This text provides a comprehensive overview of Environmental Management Accounting (EMA), covering its definitions, applications, challenges, and various management accounting techniques used within this field. It explores different perspectives on EMA, analyzes the complexities of identifying and allocating environmental costs, and discusses the benefits and challenges of implementing EMA within organizations.
What topics are covered in the Table of Contents?
The text covers: Environmental Management Accounting, Different Perceptions and Conceptions of EMA, Environmental Costs, Identification and Allocation of Environmental Costs, and Management Accounting Techniques for Identifying and Allocating Environmental Costs.
What are the key objectives and themes explored in this text?
The key themes include defining and interpreting EMA, identifying the nature of environmental costs, methods for allocating these costs, relevant management accounting techniques, and the benefits and challenges associated with implementing EMA.
What are the main points discussed in each chapter?
The chapters delve into the introduction of EMA and its importance in integrating environmental considerations into business operations; explore the diverse interpretations and definitions of EMA; analyze the complex nature of environmental costs, their categorization, and challenges in measurement; focus on the challenges of identifying and allocating environmental costs within organizational structures; and finally, examine various management accounting techniques (like input/output analysis, flow cost accounting, and activity-based costing) for identifying and allocating environmental costs.
What are the key challenges highlighted regarding environmental costs?
The text highlights the difficulties in defining and measuring environmental costs, especially "hidden" costs. It emphasizes that conventional accounting systems often obscure these costs, making it challenging to understand their extent and identify cost-saving opportunities. The accurate assignment of environmental costs to specific products, processes, or departments is also presented as a significant challenge.
What management accounting techniques are discussed for identifying and allocating environmental costs?
The text explores input/output analysis (mass balance), flow cost accounting, and activity-based costing (ABC) as key techniques for identifying and allocating environmental costs. The methodology and application of each technique within the context of EMA are explained, emphasizing the integration of physical and monetary data.
What are the key words associated with this text on Environmental Management Accounting?
Key words include: Environmental Management Accounting (EMA), environmental costs, cost allocation, management accounting techniques, sustainability, eco-efficiency, input-output analysis, flow cost accounting, activity-based costing (ABC), environmental reporting, and corporate environmental performance.
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- Isabell Keil (Author), 2003, Environmental Management Accounting, Munich, GRIN Verlag, https://www.grin.com/document/28900
