Environment Management Accounting Paper

Environment Management Accounting Paper

Consequences of poor environmental behavior Punishment includes fines, more environmental taxes, loss in land value, extraction in brand values, loss of sales, consumer boycotts, inability to secure finance, loss of insurance cover, law suits and damage to corporate image. Traditional Management Accounting Many existing conventional accounting systems are unable to deal adequately with environmental costs and as a result simply attribute them to general overhead accounts.

Consequently managers are unaware of these costs, have no information with which to manage them and have no incentive to reduce them. Environmental Management Accounting-EMMA EMMA is an attempt to integrate best management accounting thinking and reactive with best environmental management thinking and practice. EMMA is the generation and analysis of both financial and Nan-financial information in order to support internal environmental management processes.

Major areas for the application for EMMA are: * In the assessment of annual environmental costs/expenditures Product pricing * Budgeting * Investment appraisal * Setting quantifiable targets in performance measurements Definition of Environmental costs 1 . LIST Environmental Protection Agency argued that the definition of environment cost depends on how a company intends to use the information, for example in capital budgeting or product design.

Conventional costs are those raw material and energy costs having environmental relevance * Potentially hidden costs- captured by accounting system, but lose their identity in overheads * Contingent costs may be incurred at a future date for example costs for cleaning up * Image and relationship costs- intangible in nature like the costs of producing environmental reports. 2. COCA has also published a research report outlining an agenda for action on full cost accounting, which contains a detailed review of the business case or adopting full environmental costing.

One example of the potential gains from using full costing referred to as lifestyle costing- the case of Xerox Limited where the whole chain cost analysis was made to make savings. 3. United Nations Division for Sustainable Development (UNDID 2003) total corporate environmental costs = environmental protection costs + costs of wasted materials + costs of wasted capital and labor Waste = production inefficiency (purchase value of non material output) Conventional accounting systems tend to attribute many of the environmental costs to general overhead accounts with the result that they re ‘hidden’ from management.

UNDID identifies management accounting techniques which are useful for the identification and allocation of environmental costs as: A. Input/output analysis- mass balance. This technique records material flows with the idea that ‘what comes in must go out- or be stored’ Figure 3: Input/output analysis according to Inventories (2003) B. Flow cost accounting- is a tool of a new management accounting approach- flow management. It makes material flows transparent by using various data, which are quantities (physical data), costs (monetary data) and ales (quantities x costs).

The material flows are divided into 3 categories: The material values and costs- materials which are involved in the various processes * The system values and costs are the in-house handling costs, which are incurred inside the company for the purpose of maintaining and us porting material throughput, e. G personnel costs or depreciation, delivery and disposal values and costs refer to the costs of flows leaving the company, for e. G transport costs or costs of disposing waste EMMA can benefit from flow cost accounting because it aims to reduce the annuities of materials, which leads to increased ecological efficiency.

Figure 4: The basic idea of flow cost accounting according to UNDID (2003) C. Environmental Activity Based Accounting Activity Based Costing- A method of managerial cost accounting that allocates overhead costs to the cost pools and cost drivers on the basis of the activities that caused the costs. BBC applied to environmental cost identifies: * Environment related costs- joint environmental cost centers, for e. G incinerators or sewage plants * Environmental driven costs- hidden in the mineral overheads and do not relate directly to a joint environmental cost centre, e. G increased depreciation of higher cost of staff.

Nevertheless they vary with the amount of throughput. D. Lifestyle costing Environmental Management as part of Total Quality Management * Continuous improvement * Zero Waste * Zero spills/pollution/accident/complaints Information systems need to be able to support such environmental objectives via the provision of feedback- on the success or otherwise- of the organizational efforts in achieving such objectives. This approach to environmental quality management requires the development of environmental performance measures and indicators that will enable a comprehensive review of environmental performance to be undertaken.

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