Environmental Management Accounting Procedures and Principles

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Environmental Management Accounting Procedures and Principles Residual waste accounting, in a subsequent phase, not only measures the costs of waste by their disposal costs, but also adds the material purchase values and pro rata production costs. The system boundary is the corporation and identical to financial reporting. This approach is also at the core of the method described in the present report which aims to provide a comprehensive statement of annual environmental costs. Act ivit y-based cost i ng impr ov es int er nal company cost calc ulati on by all oc at i ng cost s typic all y f ound in over head cost s to the pol lut ing ac t iv it i es and pr oduct s. Si gnif i cant materi al fl ows are t raced thr oughout t he company and t hei r cos ts are al loc at ed back t o t he poll ut i ng c os t c entr es. Flow cost account ing aims not mer el y to separ at e the cos t s of envi ronment al pr ot ect ion but to det ec t all materi al fl ows via the company ’s cost c entr es and to reas s es s product i on cost s and per cent age amount s added in the vari ous phas es of produc ti on, l ik e es t imat ed sc rap per cent ages, was te rates, et c. Techni c al pr oc es s flow chart s suppor t this appr oac h. Whil e the met hod in det ai l as s es ses the aggr egated amounts and cos ts of mat er i al fl ows, whic h res ul ts in a bet ter cal c ul at ion of product i on cost s, it avoi ds the need to separate the env ir onment- rel at ed s hare and to obtain a compl et e lis t of ot her env i ronment al cost s. The sy s tem boundar i es are the s ev er al pr oduct ion proces ses and c os t c entr es in a company . The input/output analysis of material flows can be further subdivided from the company and process levels to the product produced. The product assessment comprises two levels. Internal company is the subdivision of the process data to the produced products. The other level of product assessment leaves the company and follows the product throughout its life cycle by adding upstream and downstream life-cycle stages. This method, based on the material flow thinking, has been incorporated into ISO 14040 ff. 2 A further step, a method called life-cycle costing, tries to incorporate the related cost caused over the whole life cycle of a product. In life-cycle costing the accounting boundaries of the company cut across, as is the normal time horizon of accounting, which causes substantial methodological and practical problems. In theory, in competitive markets, the material purchase price is expected to reflect the costs that have been incurred up to the point of sale anyway. In addition, the estimation of external costs is cumbersome and does not provide much informative value, due to the low quality and inconsistency of the data. Thus, the methodology has not gained much attention. Life-cycle costing is not addressed in this book. With increased product stewardship and product-service systems, where the ownership of the product remains at the producer, a modified version of life-cycle costing might gain more interest. Different companies might define “environmental costs” differently and use a variety of methods for cost assessment. Often, the distinction between health and safety and risk management poses questions. For the purpose of internal management, focus should not be so much on the definition, as long as all significant and relevant costs are included in decisionmaking. 2 International Standard Organization, ISO 14040: Life Cycle Assessment – Principles and Frameworks (1998). -14-
Environmental Management Accounting Procedures and Principles Distribution to environmental media Sometimes, national statistics laws or other assessment procedures require that environmental costs are categorized by environmental medium. Also for internal control purposes, the share of costs for waste disposal or water treatment can show interesting results and trends. In the field of national integrated environmental and economic accounting, substantial methodological developments have taken place since the United Nations Statistics Division published Integrated Environmental and Economic Accounting: Handbook of National Accounting (SEEA) in 1993. In collaboration with the London Group on Environmental Accounting, the United Nations Statistics Division is currently revising the System of integrated Environmental and Economic Accounting (SEEA) to include new methodological developments, in particular in non-monetary (physical) accounting. The Nairobi Group consists of experts from international organizations (UNEP, Eurostat, World Conservation Union (IUCN), the World Bank, the United Nations Statistics Division), non-governmental organizations (World Wide Fund for Nature (WWF)) and national government offices. Within the Department of Economic and Social Affairs of the United Nations Secretariat, the Statistics Division worked closely with the Division for Sustainable Development in developing a framework and a set of indicators. These indicators are currently being tested in several countries from all regions of the world. 3 The Environmental Protection and Resource Management Accounts of SEEA 2000 provide for the assignment of transactions to the following classes: • Protection of ambient air and climate; • Wastewater management; • Waste management; • Protection of soil and groundwater; • Noise and vibration abatement; • Protection of biodiversity and landscape; • Protection against radiation; • Research and development; • Other environmental protection activities. 3 For further information refer to: www.un.org/Depts/unsd/statcom and http://ww2.statcan.ca/citygrp/london/publicrev/ch4intrev.pdf . -15-
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Environmental Management Accounting Procedures and Principles

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