Environmental Management Accounting Procedures and Principles

Environmental Management Accounting
Procedures and Principles
shares but not total ownership of their reporting entities. Thus, questions of consolidation as in
financial reporting arise.
Financial accounting standards have defined three methods of consolidation, depending on
the share which a company participates in another company.
1. Full consolidation is used by the parent company which controls the majority of the voting
rights of a subsidiary (50 to 100 per cent). The parent overtakes the complete profit and
loss account by adding together assets, liabilities, equity, earnings and expenses and
deletes all internal deliveries within the group.
2. The equity method is used for associates, which are neither a subsidiary nor a joint
venture to the parent, but in which it has a significant influence (between 20 to 49 per
cent). The equity method considers the actual change in value of the share of the equity,
but does not integrate sales, assets or liabilities. All internal deliveries are eliminated.
3. The proportionate method is applied for investments between 1 to 19 per cent of the
share capital as well as for joint ventures. Typically, the value of the shares in the books
remains unadjusted until significant changes occur.
In environmental reports the degree of ownership of sites is hardly ever mentioned. Also the
method of consolidation is hardly ever disclosed or even discussed. In practice, many
companies fully consolidate subsidiaries of more than 50 per cent, but without adjustment for
internal deliveries, and neglecting minority investments. Thus, the consolidating practices and
system boundaries for financial and environmental reporting can differ significantly. Comparing
and relating financial data like turnover and EBIT to environmental data like energy use or total
CO2 emissions is often significantly hampered.
Resulting recommendations are:
1. All sites and subsidiaries should apply the same definitions for data collection.
2. All sites and subsidiaries should apply the same input/output chart of accounts for the
material flow balance.
3. Before benchmarking sites, process flow charts must be compared and harmonized.
4. All sites and subsidiaries should apply the same consolidation methods.
5. The consolidation principles should be disclosed.
6. Internal deliveries should be adjusted.
7. When calculating key figures, the same consolidating principles should be used as in
financial and environmental accounting.
8. In environmental reports, total sales, EBIT and share of each company should be
disclosed.
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