Environmental Management Accounting Procedures and Principles

Environmental Management Accounting
Procedures and Principles
However , companies have been sl ow to move away from tradit ional end- of- pipe str ategi es towar d
more pr event ion-or iented practi ces . If , as many argue, poll uti on pr event ion pays , what account s
for thi s slow pace of change? If pr eventi on inves tment s are, in fac t, in the interes t of the fi rm,
what ac count s for the cont inuing rel uct anc e to mov e aggres si vel y toward a more preventativ e
poll uti on management mode? And why, in li ght of the publi ci zed benefit s of pol lut ion prev ention,
do firms, ev en lar ge sophi st icated ones , continue to be surpris ed when preventi on- or iented
pr oj ect s produc e adv ant ages to the firm far bey ond thos e expect ed of many conventi onal “must -
do”, compl iance-dr iv en capit al inv es tments ?
The explanat ion for thi s apparent contr adi ct ion seems t o be manifold:
1. The organiz at ional st ruc tur e and behaviour of compani es inhibit pol lution prevention
pr oj ect s from enteri ng the deci sion- mak ing proc ess from the out side, thereby pr ecl udi ng
thes e alternati ves f rom cons iderat ion by t he compani es;
2. Economic /fi nanci al barri ers link ed to methods of cost ac count ing and capital budget ing.
Ev en if a pollution preventi on project suc cessf ull y ent ered the capi tal budgeti ng pr ocess,
competi tion wit h other projects for limited capital res our ces is hamper ed by the poor
knowledge of the t rue c ost s of non-product output;
3. Psy chologic al and soc ial ef fects . Oft en, incr eas ed responsi bi lit y for mater ial flows and
al tered purc has ing and stock management rules are not in the inter es t of depart ment
manager s.
The bar riers of tr aditi onal acc ounti ng hav e been the focus of this report. The bas ic s of the
di ff erent ac counti ng pr ocedures and opportunit ies for thei r impr ov ement through determi nat ion of
annual env ir onment al ex pendi tur e, cost of non-produc t output , cost ac count ing for mater ial flows
and dec reased allocation to overhead cost cat egori es have been highli ghted. Appli cat ion focused
on i ndi cat or devel opment and inves tment appr ais al.
Financial statement audits are increasingly considering general risks. Financial statement
auditors seek to understand all significant aspects of business risk facing an organization and
how those risks are managed, so as to develop the most effective approach to gain assurance
about the reliability of management information and hence of reported information.
Business risk can be defined as any probability that the organization will not achieve its
business objectives. Accordingly, as sustainability becomes more important to the objectives
of a business and hence to its risk management and control processes, top management and
financial statement auditors are increasingly interested as well.
For the purpose of verifying sustainability, the principles of financial statement audits provide
the underlying methodology. There also is a trend away from separate financial and
environmental reporting and towards combined sustainability reports. There is little merit in
the long term in the development of environmental verification principles and financial
statement audit principles on separate tracks, as “in principle” they should be the same.
Likewise, there is little merit in two separate information systems in an organization, one for
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