May-2015

EMA
EMA that can be adopted by production units of various
companies. The paper concludes with Section 5 where
limitations of the study as well as some recommendations
are provided.
Environmental Management Accounting (EMA):
There is no single unanimously accepted single definition
in literature of EMA. International Federation
of Accountants (IFAC), 2008, broadly defined EMA as
“identification, collection, analysis and use of two types
of information for internal decision –making.
1. physical information on the use, flows and densities of
energy, water, materials and wastes.
2. monetary information on Environment related costs,
earnings and savings. Thus, EMA provides quantitative
physical information on one hand (as in kg, joules, meters,
pounds and monetary information on the other
[IFAC, 2005].
Such integrated information is of much importance
because an organization must have accurate data on the
amounts of wastes and emissions, both in physical and
in monetary amounts if it wants to manage and reduce
the environmental impacts of its products. A number of
companies are reporting on the physical quantities of resources
used and waste generated only. Nevertheless, it is
only when the environmental matters are measured in
terms of money that people take note of it. Herein lays
the importance of EMA.
Importance and Benefits of EMA for an organization
The problems associated with conventional management
accounting need to be addressed to understand the importance
of EMA. Problems with conventional management
accounting are:
Performance appraisal techniques are short term in
their focus;
Lack of attention towards stock and flow accounting;
A narrow focus on manufacturing.
These drawbacks or lack of recognition of environmental
impacts have given way to the following problems:
Environmental costs are assumed not to be important;
Certain types of environmental costs are not identified
or tracked;
Indirect environmental costs are included with the
general business overheads;
Investment appraisal excludes environmental consideration;
Little accounting for sustainability issues.
Amongst all the benefits of EMA, the most important
one is that EMA helps the management to identify the
various ‘hidden’ environmentally induced costs , for eg.
• energy cost of wasted materials ( portion of input materials
that end up as waste)
• purchase cost of wasted materials
• processing cost of wasted materials
• administration cost of processing waste and wasted materials
• cost of machinery abrasion caused by wasted materials
• labour cost of processing waste and wasted materials
cost of additional storage space for waste [Centre for Sustainability
Management, University of Luneberg, 2005 ]
EMA helps the companies to identify and keep a record
of these hidden costs of products and process which
are usually hidden as a part of general overhead cost items
and the line managers are not even aware of them. For
example minimizing the amount of wastes reduces the
waste disposal costs along with reduction in total purchasing
costs of materials , operating costs , labour and costs of
handling materials and wastes and helps the organization
to save money. Case studies undertaken by World Resource
Institute (WRI) have shown that environmental
costs can account for 20% of total costs ( Ditz et al. 1995)
.EMA reveals financial benefits and potential cost saving
that can be gained from addressing environmental challenges
facing the business. By identifying and reducing
environmental costs, EMA can help to increase the profit
margin and market share of the organization [Kurniati et
al., 2010]. However, setting up a proper framework is a
key issue in identifying and reducing environmental costs.
Framework for implementing
EMA for a corporate entity
Literature survey and real life experience based on interaction
with the companies in India it is felt that there is
a need for this tool to help managers of the business to
trace the environmental costs (transparent and hidden)
caused by their production processes. This will help the
managers to better understand what gives rise to costs
and how they can be managed and further to understand
the importance of investing in environmental management
activities and cleaner technologies. Environmental
accounting can track crucial indicators over time using
information that is routinely recorded but rarely exploited,
thus enhancing a firm’s self-knowledge and its environmental
accountability [Ditz et. al, 2000].
The EMA of an entity can be been done by following
two methods of assessment:
1. preparation of eco-balance sheet.
78 the MANAGEMENT ACCOUNTANT MAY 2015
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