Green Accounting or Environmental Accounting

  

Green Accounting or Environmental Accounting

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Abstract

Various States have their own policies and programs for the formulation and implementation of green accounting. Nevertheless, there is no country with regulations and rules in place necessitating firms to issue a firm-wide stand-alone report on the performance on the environment, which can affect zonal, regional, and international societies. This research paper aims at exploring the concepts of green accounting and the probability of widening the applicability of the green reporting concepts to be used by government officials to make businesses responsible for their externalities. The paper discusses the significance of green accounting as a section of the accounting knowledge and education, outlines the pas and the present mandatory and regulatory status of green accounting and its association with different professions. It also proposes a compulsory environmental filing system and examines its probable benefits and characteristics. The fundamental aim of the system is to track the entire life cycle of every key resource and to gauge the impact of businesses on the hosting community.

 

 

 

 

 

 

 

Table of Contents

Abstract

Table of Content

Background of the study

Relevance of the study

Need for the project

Intended population of the project

Importance of the study

Project Description

Objectives of the study

Literature Review

Present status of Environmental accounting

Environmental accounting implementation Awareness

Stand-Alone Implementation of Environmental accounting and Reporting

Mandated Environmental accounting and Reporting Annual Reports

Standards for Environmental Reporting

Sustainable Development

Research Methodology

Research Findings

Recommendations and Conclusion

Bibliography

 

Background and Relevance of the study

The origin of the green accounting is not a new addition in the legal systems. However, when often discussing it, it is reflected as a new addition to the legal systems and jurisprudence in the world. Studying varied religious views on the issue of environmental conservation highlights matters clearly mentioned on the significance of this form of education. Thus, it has a long history. Since the 1970s, there has been literature on environmental accounts in some countries. For example, the works of Henry Peskin at RFF on the design of accounts for the United States are some of the earliest resources on green accounting. There was a concerted effort in the 1980s by institutions such as The World Bank, UNSTAT, and the UNEP (Burritt, 2011). For instance, the publication by UNSTAT called ‘Handbook for Integrated Economic and Environmental Accounting was published in 1997. Additionally, UNEP with UNSTAT in conjunction with other experts prepared a practical manual for adopting the System of Environmental Accounting.

Over the last 20 years, about 25 countries have experimented with environmental accounting. In Norway, some information was identified as relates to energy resources and air pollution in the State. The country started collecting data on sources of energy, forests, fisheries, and minerals to address scarcity of resources in the 1970s. Over the years, Norwegians have extended their accounts to incorporate data on air pollutant emissions. According to Burritt (2011), the inclusion of this information allows them to predict the impact of varied growth patterns on conformity with global conventions on pollutant emissions. They use this information as an input into a macro economic approach. The first country for which forest depletion was carried out into a green GDP was Indonesia (Darabi et al., 2012). This was carried out with the support of the World Resources Institute. The government of Indonesia has been investigating its system of environmental accounting. On the other hand, Namibia has been putting into action the approach based on various natural resources such as land degradation and the allocation of water.

The government of Netherlands has been creating the National Accounting Matrix, which includes Environmental Accounts. The information is used to trace how far the State is from the environmental protection goals and objectives. Chile’s Central Bank undertook to build up environmental accounts getting concerned with the mineral resources and forest. Additionally Costa Rica took part in an exercise of forest depletion related to that of Indonesia with the support of the Institute of Costa Rican Centro Cientifico Tropical and the World Resources Institute (Darabi et al., 2012). The Philippine government has been carrying out some tasks on the same issue. Specifically, the Natural Resource Accounting Project is identifiable in this regard. The U.S. has not been a leader in the arena of environmental accounting. In the administration of Clinton, the Bureau of Economic Analysis made an incursion into environmental accounting in the mineral sector.

Relevance of the study

Environmental accounting is an essential tool for comprehending the significance of the natural environment in the economy. Green accounts give data that outlines the contribution of natural resources to economic welfare and the expenses caused by resource degradation or pollution (Aronsson and Lofgren, 2010). Green accounting is a proposed discipline, which deals with the inclusion and the consideration of the procedures of accounting, specific and general issues associated with social and environmental impacts, restrictions, and regulations. The commencement of this proposed inclusion and consideration of Environmental accounting and reporting should be in college syllabus in the form of case studies, collateral reading assignments, and scientific and public student awareness in advanced and intermediate accounting courses in order to examine present state and future concerns of environmental accounting and reporting.

Albeit much attention is paid to environmental concerns in the accounting field, in many higher learning institutions, the general notion about the application and adoption of the green accounting and reporting in the real world is lagged behind. This arises from two main causes; incomplete or lack of incomplete comprehending of the social and environmental impacts of green accounting and reporting. The other cause is the insufficiency of the required auditing and accounting procedures and tools for implementing the green accounting and reporting. As concerns the real adoption, lack of adaptation arises from three main reasons. First is the lack of clear-cut tools and regulations of implementing the green accounting and reporting (Aronsson, and Lofgren, 2010). The second cause is the scattered roles of imposing and implementing of green accounting along with accounting standard setters, legislatures, governmental accounting and professional organizations, social and environmental agencies. The third reason, on the other hand, is inexperienced corporations personnel to fully and forthrightly describe the environmental activities in stand-alone environmental disclosures and corporations’ annual reports. Additionally, there are no formalized formats for the presentation of information on environment either in components of annual reports or stand-alone reports.

Accounting educators feel that their willingness to teach matters on the environment is obstructed due to learners’ unawareness of environmental concerns particularly in their early studies. During the 1980s, studies focused on reporting matters specifically related to Safety, Health, and Environmental reporting. For instance, Triple Bottom Line was based on environmental quality, social justice, and economic prosperity. Presently, only few countries across the globe have substantial requirements for environmental accounting and reporting. In addition, up to date there are no formalized formats for environmental information presentation in reports. To lessen the gap between the real application and educational aspect of environmental accounting and reporting, a number of steps are proposed. The first is the creation of agencies or societies of environmental accounting and reporting to undertake the responsibilities of studying and examining the case and scientific studies in documented and open literature that is available (Smith, 2011). Additionally, they should be responsible for unifying common regional or global environmental accounting terminologies and aspects. Furthermore, they should set starting directions and points for environmental, governmental, managerial and social personnel and educators. They should also implement standardized templates and formats for green accounting and reporting. The second step proposed is to develop the required legislature for adopting and examining the green accounting in reports of corporations. Moreover, there is a need to define and stipulate the recognition of and assessment of liabilities for environmental remediation (Smith, 2011). There is a need to facilitate taxation policies to include incentives of environmental accounting and reporting. These steps show the significance of environmental accounting, and, therefore, the significance of the research. The implementation of environmental accounting and reporting has and is becoming a growing concern in many nations.

As mentioned earlier, the project is essential and may be used by learners, environmental, governmental, and social institutions in understanding the key aspects of environmental accounting and reporting. There is a need to carry out the research in order to identify the benefits and drawbacks associated with green accounting and reporting.

Project Description

As discussed earlier, environmental accounting is an essential tool for comprehending the function performed by the natural environment in the economy. New programs and policies have been developed such as the Green Accounting Initiative; to assist the members comprehend ho the tool can assist them in improving environmental management (Smith, 2011). Green accounting refers to adjustment of the National Accounts System to integrate the depletion or use of natural resources. Green accounting is essential for a number of reasons. This leads to the objectives of the study. The general objective of the study is to find out why implementing environmental accounting is of great significance. The specific objectives of the study include establishing the benefits of adopting environmental accounting and reporting, determining the main drawbacks to the implementation process, and establishing ways to lessen the gap that exists between the educational aspect and the applicability of green accounting and reporting. These will be analyzed through looking at the present status of environmental accounting and reporting.

Literature Review

There are some essential unpublished and published works on matters related to green accounting and reporting. There has been increasing pressures on the environment, as well as, environmental awareness, which have created the need to report for the interaction between all the economy’s sectors and the environment (Debnath et al., 2012). Conventional national accounts are concerned with the measurement of economic growth and performance as represented in the marketplace activity. Additionally, it deals with the sustainability of development and growth, the coverage and scope of economic accounting that requires to be widened to incorporate the application of natural assets and losses that are non-marketed in income- creation arising from the degradation and depletion of natural capital. These conventional reports do not apply the frequently applied adjustment for depreciation for man-made assets to natural assets. Because sustainable development comprises environmental and economic dimensions, it is crucial that national reports represent the application of natural assets together with produced capital consumption (Debnath et al., 2012).

Present status of Environmental accounting

Environmental accounting implementation Awareness

A number of nations have their implementation policies for Environmental Accounting. One way for holding businesses responsible for their actions is to require them to report on the actions. Over the last 20 years, the breadth and level of reporting on environmental matters have increased radically as a consequence of accounting standard setting, governmental regulations, and voluntary reporting. According to Aronsson, and Lofgren, (2010), environmental and external reporting performance, today occurs through Pollution Release and Transfer Registers, as elements of traditional financial reports. The requirement for corporate reporting of financial and environmental performance has realistic potential in offering a higher level of visibility to the activities of the environment and impacts on and providing insights on what is frequently invisible to concerned social groups and the government. It is also essential to acknowledge that visibility is not the only probable impact of corporate reporting in this arena, but instead its future expectations for development and sustainability. It is indeed possible that such reporting can reduce negative liability or effects about a firm and its environmental activities. Additionally, firms are interested in the potential for environmental reporting to rise their spread and legitimacy in the wider world.

Stand-Alone Implementation of Environmental accounting and Reporting

Presently, there is no country with official regulations that require firms to issue reports on their environmental performance on their own. With the introduction of legislation in Sweden in the year 1989, all activities that require special permits as a result of the incidence of environmental hazards should present an annual report on the environment to the appropriate authorities. According to Debnath et al. (2012), as from 1996, firms in Denmark with considerable environmental effect have been required to submit a green account, giving in details considerable energy consumption, water, and consumption of raw materials. In 1999, Netherlands began setting it a mandatory that firms with significant environmental implication submit environmental reports for the public and the government on identified sites of operations (Debnath et al., 2012). Contents of the report to the government are validated by governmental authorities and include information on soil pollution, emissions, soil clean up, and the firm’s environmental policy. The number of firms that willingly issue these kinds of reports on environmental performance have been on the increase just like the diversity of forms of reports submitted. A majority of reporting firms prepare health, safety, and environmental report. In the recent years, however, firms are also concerned with social issues.

Mandated Environmental accounting and Reporting Annual Reports

Information contained in traditional yearly financial reports is mandated by a lot of national governments, stock exchange regulatory bodies, and accounting standard-setting bodies. In the environmental disclosure sphere, professional regulators or governmental agencies’ intervention is essential because various scholars argue that voluntary environmental reporting cannot work (Farouk et al., 2012). In addition, the most critical financial matters associated with environmental accounting is the disclosure of potential liabilities related to environmental clean ups. Presently, a firm subject to the Annual accounts Act (AAA) must include inn the directors’ report the disclosures of the impact of the environment of the firm’s activities and the utilization and disposal of its products. Firms are also supposed to report the measures in place in order to reduce or prevent their negative impacts of the environment and their consumption of energy and raw materials. Members of the European Commission are encouraged to enhance increased degrees of matters of measurement and recognition of environmental assets, liabilities, contingent liabilities, and expenses to establish an essential part of a firm’s policies, as well as, improvements on environmental protection, emissions, and resource consumption (Farouk et al., 2012).

Starting in 2004, firms had to disclose some non-financial information such as information associated with environmental concerns in order for users of annual reports to gain a comprehension of the firm’s growth and development, position, or its performance in the industry the firms belongs to. This applies to all firms whose financial results and positions are influenced by environmental matters. The Accounting Standards Board issued in the United Kingdom, in 2005, requires the firm management to prepare financial reports with the inclusion of environmental matters information where appropriate (Farouk et al., 2012). The guide of implementation that accompanies the standard recognizes that the appropriate degree of disclosure on matters of the environment is industry-specific. However, it suggests that all firms face matters related to energy and water consumption, waste, and climatic changes. Moreover, Australia has lately passed legislation associated with compulsory environmental reporting in the annual reports. The level of compulsory disclosures of environmental matters in traditional yearly reports has increased drastically over the last decade.

Standards for and Benefits of Environmental Reporting

The International Organization for Standardization issued ISO 9000 in 1987. This is a standard that fundamentally concerns itself with quality management. On the other hand, ISO 14000 focuses on environmental management while ISO 14001 is concerned with addressing the management systems of the environment (Hajek, 2012). It is of global concern that some companies may choose only what to report, therefore, reporting only the ‘good news’ of the company. Additionally, there is the problem of verification of green reporting given the unclear standards. It is essential to note that, during the establishment of financial accounting standards, most activities of business were country specific. Consequently, the accounting standards are being implemented at a slow rate. However, to some extent, they are being accepted across the world. According to Hajek (2011), this comes with excess positive implications with the adoption of environmental policy and considerably negative implications for firms that have prosecution issues with environmental agencies. It has been noted that environmental responsibility results to higher dividends for firms that have adopted the environmental policy. Therefore, it is right to argue that a good environmental policy establishes an ethical corporation.

Sustainable development (to be continued)

 

References

Darabi, R., Akbari, M., & Mohamadi, S. (2012). Analyzing environmental accounting position. Interdisciplinary Journal of Contemporary Research in Business, 4(3), 42-52.

Debnath, S., Bose, S. K., & Dhalla, R. S. (2012). Environmental Management Accounting: An Overview of its Methodological Development. International Journal of Business Insights & Transformation, 5(1), 44-57.

Farouk, S., Cherian, J., & Jacob, J. (2012). Green Accounting and Management for Sustainable Manufacturing in Developing Countries. International Journal of Business & Management, 7(20), 36-43.

Hajek, M. (2012). Forestry externalities in the environmental management accounting system. Problems of Management in the 21st Century, 5(1), 31-45.

Jaipiem, K. (2012). Environmental management accounting practices and firm value: an empirical investigation of iso 14000 firms in thailand. Review of Business Research , 12(3), 1-26.

Smith, R. (2011, April 14). Environmental Accounting and Reporting | Applications | Oracle. Oracle | Hardware and Software, Engineered to Work Together. Retrieved March 25, 2013, from http://www.oracle.com/us/products/applications/green/accounting-reporting-410442.html

Aronsson, T., & Lofgren, K.-G. (2010). Handbook of environmental accounting. Cheltenham, UK: Edward Elgar.

Burritt, R. (2011). Environmental management accounting and supply chain management. Dordrecht [etc.: Springer.

 

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