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All organizations should know and concerns about environmental issues. For an organization to manage the environmental issues, it needs a variety of types of expertise including accounting and finance as one of them. The two types of accounting that take place in an organization are Financial Accounting and Management Accounting. Therefore, financial accounting (FA) and management accounting (MA) have played a role in the environmental policy's development as well. In general, financial accounting refers to preparation of financial statements to fulfill stakeholders' needs whereas management accounting is focusing on providing information to internal management for decision making.
Why is environmental policy important? Because there are many external and internal stakeholders have interest in the organizations' environmental performance. For example, employees as internal stakeholders might be affected by pollution in the work area and thus external stakeholder such as communities will also have the same impact. Organizations must find efficient and effective ways to minimize and manage the impact. Therefore, environmental policy should be well structured to reduce negative effect on the environment. If the organizations have environmental policy well structured, organizations will also have better allocation of resource. Strong environmental policy might lead to additional environment-related cost that is why organizations should be creative and find cost-efficient ways by reducing the use of water, energy and raw materials. Organizations that do not have environmental policy well design will experience difficulties such as there will be many of their employees might not continue working or even nobody wants to work in that company since they care about their healthy is one of the difficulties.
Organizations will get many benefits if environmental issues are able to be overcome. By reducing the use of energy, raw materials and any resources, it would not only make environmental improvements but it will also save money since the materials purchased will decrease. Therefore, company will also create less pollution as waste disposal reduced. Less pollution will bring positive effect on human health so that employees are able to work without worrying too much about their health and communities will live their life in clean environment. The positive impact will not only affect employees and communities but it will affect the company itself as the company is creating more productive workforce. If the company has good environmental policy, it will encourage innovation that makes a company's image become better and thus will bring advantage in competing with other companies as well. The well designed of environmental policy would bring successful environmental management accounting system as well.
Financial accounting plays a role in environmental issue which is called Environmental Accounting (EA). Environmental accounting provides data and information of the company's environment-related liabilities for external use to show environmental information to the public such as expenses and earnings that is connected to company's environmental performance. Thus, environmental accounting will be able to predict potential environment, estimate liabilities and generate provision for environmental risk. In order to do all that, company has done some research and development. Environmental accounting should be regulated by environmental laws and use international standards. There is a higher step of environmental accounting which is called Environmental Cost Accounting (ECA). Environmental Cost Accounting is including every cost that is related to environmental action. The need for environmental accounting is important in every business.
Management accounting also plays a role in environmental issue and it is called as Environmental Management Accounting (EMA). The use of environmental management accounting is the opposite of environmental accounting. It is normally for internal use whereas environmental accounting is for external use. Environmental management accounting's purpose is to do collecting, analyzing and reporting the environmental cost information for internal management to make decisions within the company. In order to improve the management accounting, target and objection have to be set. Information of environmental management accounting can also be used to help Life-Cycle Costing (LCC) and that makes environmental management accounting becomes more important not only for management decision but for all kinds of management activities.
In order to make good environmental policy and obeyed by the employees are not an easy task because all organizations will face some issues and problems. The issues and problems will be able to be discovered by measuring environmental information and allocate environmental cost. How to measure information of environmental? Environmental information is based on environmental accounting, it measures environmental impact in terms of monetary. Environmental information is required to help in making decision, to measure the progress of environmental targets and environmental information must be disclosed to the public. One of the major problems in disclosing organization's environmental information is lacking of quantitative measurement and thus, proper measurement could not be performed. Allocating environmental cost with properly can solve the problem of disclosing environmental information. The meaning of environment cost is including all costs happened that is related to environmental damage and protection.