Environmental Management Accounting Procedures and Principles
Environmental Management Accounting Procedures and Principles
Environmental Management Accounting Procedures and Principles
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<strong>Environmental</strong> <strong>Management</strong> <strong>Accounting</strong><br />
<strong>Procedures</strong> <strong>and</strong> <strong>Principles</strong><br />
6.4. Flow cost accounting<br />
SEQARABISCH<br />
6.4.1. What is the purpose of flow cost accounting?<br />
Flow cost accounting is an essential instrument in a new management approach known as<br />
flow management 11 <strong>and</strong> goes beyond assessment of environmental costs. The aim of flow<br />
management is to organize production end-to-end in terms of flows of materials <strong>and</strong><br />
information – all structured in an efficient, objective-oriented manner. Energy flows can be<br />
thought of in the same way as material flows, especially since it is often in material form (in the<br />
full sense of the word, e.g., coal, oil, gas) that energy first enters a company. Therefore the<br />
word “material” is used as generic for materials <strong>and</strong> energy.<br />
End-to-end analysis with the principle of flow management involves not only the company’s<br />
flows of materials but also its organizational makeup (i.e., structural organization, procedural<br />
organization) <strong>and</strong> the configuration of its various integrated information systems (i.e., materials<br />
management, production planning <strong>and</strong> control, financial accounting, cost accounting, <strong>and</strong><br />
controlling).<br />
Flow management focuses on the flow of materials is center stage among the company’s<br />
various organizational functions - <strong>and</strong> the company can be defined as a material flow<br />
system (see figure 34). This includes, on the one h<strong>and</strong>, the classical material flows along the<br />
value-added chain, from incoming goods, by way of various processing stages, through to<br />
product distribution to the customer. It also includes, on the other h<strong>and</strong>, all the material losses<br />
incurred at various stages along the logistics chain (e.g., rejects, scraps, chippings, destruction<br />
of expired items or damaged goods), which then leave the company as environmentally <strong>and</strong><br />
economically undesirable residue (solid waste, effluent, emissions). The corporate material<br />
flow balance is divided into various production steps <strong>and</strong> cost centres. For a more detailed<br />
material flow model that has been designed for a project in the pharmaceutical industry please<br />
refer to the annex.<br />
11 The description of flow cost accounting has been provided by IMU Augsburg. See also M. Strobel<br />
(2000), LfU 2000.<br />
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