Environmental Management Accounting Procedures and Principles

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Environmental Management Accounting Procedures and Principles a consistency check provides great optimization potentials, and has thus become a major tool in environmental accounting. Therefore it is desirable for the technical and financial bookkeeping to be conducted in a compatible way. Emissions Input Product Waste Wastewater Figure 30. Process flow charts: opening the black box Splitting up the corporate flows into cost centres, or even down to specific production equipment allows for more detailed investigation of technical improvement options, but also for tracing the sources of costs. Special attention should be drawn to the quantitative recording of materials on a consistent kilogram basis. The key questions are: • Which cost centres have processed how much of the materials? • Can material input be further divided into production lines or specific equipment? • How large were the resulting emissions, scrap and waste, preferably recorded separately for each cost centre, production line and machinery? The process level is the main focus for pollution prevention projects. Data on the process level is also necessary for further analysis by products. It is crucial that the system boundaries for financial calculation by cost centres and for technical monitoring can be related to each other. To ensure consistency between data from cost centres and process flow charts, the methods of activity based costing and of flow cost accounting have been developed. 6.3. Activity-based costing This section discusses activity-based costing of pollution prevention. The focus of this approach deals with correct allocation of costs to products, by reducing the amount of costs hidden in overhead cost categories. Applying this approach can improve economic -72-
Environmental Management Accounting Procedures and Principles performance as a consequence of improved environmental protection. 9 this approach could distort product pricing and investment decisions. Moreover, ignoring The example in figure 30 shows that costs of “joint” environmental cost centres, such as incinerators, waste water treatment plants, etc., should be differentiated from other overhead costs. The manufacturer has three production steps that all produce waste. The entire waste is treated in a shared incinerator on the production site. The costs of incinerating the waste from current production are $800; the remaining overhead costs for general administration, salaries of top management, etc. are $9,000. Figure 31. Tracking and tracing of environmental related costs Source: Schaltegger, Müller, 1997. 9 See Schaltegger et al., The description of ABC in the following is taken from S. Schaltegger and K. Müller, (1997). -73-
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