Environmental Management Accounting Procedures and Principles

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Environmental Management Accounting Procedures and Principles • the creation of additional accounts, expansion or generation of additional material stock numbers; • assignment of certain material groups (e.g., operating materials) to warehousing or production planning systems (e.g., packaging material); • reorganization of cost accounting; and • creation of additional records, especially with regard to emissions. Clear definitions as to which elements of the input/output analysis are recorded in which accounts, which material numbers are assigned to which accounts and which materials are also recorded in stock management are essential. The objective is to obtain as complete as possible a listing of those substances that may be environmentally harmful and list them in separate accounts. This will help avoid having to break down accounts at a later date to show quantities used. Another area with optimization potential is the distribution of individual elements in cost-accounting categories (direct costs, overhead costs, distribution to cost centres and cost carriers). 5.3.1. Raw materials Raw materials constitute the major part of a product. In many companies, warehouse management and production planning systems monitor their purchases and input into production. In most companies, raw materials are already being recorded in a very detailed manner via accounts as well as material stock numbers, warehousing, production planning systems and cost accounting. Thus, material purchasing prices and quantity data are available in most cases. If need be, average prices can be used to calculate the weight values. The assignment of accounts to material stock numbers sometimes raises questions. Raw materials and auxiliary materials are often assigned to own accounts, since they usually contain rather homogenous substances and significant purchase values. 5.3.2. Auxiliary materials Auxiliary materials are a part of the product but are not obvious to the consumer (i.e., glue in a table or shoe). The use of auxiliary materials is recorded less frequently in production planning systems. For this reason, quantities, flows and causes of non-efficient material use are often unknown. If, on the other hand, their purchase is inventory-managed through warehousing, annual use can be calculated. -46-
Environmental Management Accounting Procedures and Principles 5.3.3. Packaging Packaging materials are purchased for use with the company’s products. In countries with licensed packaging systems, such purchases are recorded in detail. Product packaging is usually integrated into production planning systems and in warehouse inventory management. In most companies, material used for product packaging is usually considered as a separate cost category. It is partly integrated into the production planning systems and to that extent also recorded through material stock numbers. In some companies, packaging material is recorded through material numbers but is not recorded in the warehouse inventory. Frequently, the same packaging material purchased is not assigned to the corresponding account and material stock numbers but is subsumed under other operating costs or under overhead. In many cases, account assignment does not correspond with cost category or material number assignment and should be re-examined. Records can be divided into single or multiple systems; multiple systems (such as pallets) can also be recorded through fixed assets. In the input/output analysis, average quantities received and sold should be recorded. Packaging material delivered by suppliers is included in the purchase price and, while often generating costs a second time via disposal costs, is only rarely recorded separately, despite the fact that it constitutes a large share of waste incurred. While product packaging leaves the company together with the product and must still be disposed of by either the retailer or the consumer, the company must dispose of supplied packaging material unless it is shipped back to the supplier. 5.3.4. Operating materials Operating materials are not part of the product but are necessary for the production and administrative processes (i.e., solvents, small tools, office materials, etc.). They may contain harmful and toxic substances, e.g., for use in the laboratory or workshop, which often have to be disposed of separately as hazardous waste. In many companies they are not traced by the storage administration system but are recorded as expenditures during purchasing. Very rarely is their consumption assigned to a cost centre, which makes subsequent tracing difficult. While their consumption is recorded in the production overhead cost surcharges, a comparison with actual consumption is rarely done. If these materials are not included in the material stock management system during the first year of environmental management accounting, it is best not to include them but to focus on raw materials and auxiliary materials. When recording operating materials, it should be ensured that no services and labour costs are entered into the accounts. These should be recorded separately. A detailed breakdown of operating costs must reflect the special characteristics of a sector or company. In principle, all accounts of the profit and loss calculation should be examined for material flows in order to compile a complete material flow balance sheet. In practice, for the -47-
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