Environmental Management Accounting Procedures and Principles

Environmental Management Accounting
Procedures and Principles
1. Provisions
Provisions must be made by law for uncertain accounts payable (e.g., pensions, taxes) and
potential losses from pending business transactions when a company prepares its financial
statements. Provisions are also made for accounts payable the exact amount of which has not
yet been determined (e.g., tax consultancy fees for preparation of financial statements). Other
accepted provisions include provisions for poor maintenance (waste disposal), clean-up of
contaminated sites and reforestation (recultivation) which are also admissible under the tax
law.
Provisions may always be made if damage to the environment has already occurred, e.g., in
the case of clean-up of a contaminated site. Provisions for damage which is imminent but has
not yet occurred are usually difficult to assess in compliance with the tax law and must
therefore be considered as an imputed risk in cost accounting.
The financial statements list the estimated amounts of all accounts payable while the profit and
loss accounts show the annual allocation or liquidation of provisions which have altered the
earnings of the business year. More explanations on environmentally relevant provisions are
provided in chapter 4 under item 1.7 of the environmental cost scheme.
2. Accounts payable
Accounts payable for supplies and services are incurred by every company from the receipt of
a supplier’s invoice until the day of payment. Sometimes, each supplier has his separate
account and the annual sales and invoices are stated there collectively, if they are not easily
found in the profit and loss accounts. For instance, the total quantity of a given chemical
substance which has been purchased from a supplier may be extracted from that supplier’s
collected invoices registered on his account. The invoices of the disposal firm may be
dispersed across various accounts, but posted collectively into the supplier’s account.
3. Deferred items
This item ensures compliance of the financial statement with the matching principle on the cutoff
date of 31 December and is not environmentally relevant.
5.2. Deriving expenditure from the profit and loss statement
The profit and loss statement may be arranged according to the expenditure or costcategories-oriented
format or to the operational (cost-of-sales) format. In the cost-categoriesoriented
format, all earnings and expenses of a period are listed. Operational expenditure is
broken down into material and personnel expenditure, depreciation and other expenses. The
accumulation and clearance of work in process and finished goods is determined by a stocktaking
at year-end, assessed at production cost and posted as correction of sales revenue.
In the cost-of-sales format, the actual sales of a period are compared only to those expenses
which have been incurred for the manufacture of the products sold. The cost-of-sales format,
therefore, requires a constant collection and assessment of inventory increases of finished
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