In today's business world, every decision on significant development is to be considered to bring effect on the economy as well as the environment. However, in exercising the real practice, its activity distinguishes environmental impacts to be discounted or overlooked (Boyce, G., 2000). The environment is difficult to be valued as for the clean air and water, and therefore it is often to be measured as free goods or resources are being utilised enormously and yet being insignificantly valued. These would have shown that large numbers of organisation devalue the waste's true costs which eventually will affect the companies' environmental performance (Watson and Mackay, 2003).
The importance of human ethics in relation to the society has caused a strong pressure to the company on the significance of adopting environmental policy (Comite, U., 2009). A good environmental policy is able to facilitate the company to develop a good business image and reputation, enhance brand value, and therefore attract potential investors. Other than that, it also keeps away from costly court cases and bad publicity for the company (Watson and Mackay, 2003).
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There are a large numbers of global communities is now on the track of recognising the necessary for a further sustainable environment. These expectations on environmental sustainability are to be fulfilled only if organisations are likely to enhance their environmental performance (Clarke and O'Neill, 2006), where it may advantage the company in a way that providing competitive advantage on worldwide basis (Yakhou and Dorweiler, 2004). It will soon add value to the company's decision making process, customers, and the societies in the future. Thus, it is visibly shown that the role of accounting is essential in developing a robust environmental policy.
ROLE OF ACCOUNTING
The requirements on accountants are gradually higher for the provision of environmental performance information and environmental cost as the global society has increasingly attentive to the current's natural environment state and environmental issues consciousness (Masanet-Llodra, M., 2006). Lodhia (2003) clarifies that the important role of accountants in organisations towards environmental awareness has been conceived in their reporting, auditing and managerial skill. Other than that, public are also expecting accountants to re-standardise and allied its knowledge (Clarke and O'Neill, 2006) and in the process of structuring environmental accounting may well conveyed various of skills (Boyce, G., 2000).
Another justification Clarke and O'Neill (2006) gives is that accountants are improving in presenting influential computation and investigation of financial and non-financial data and the relationship of environmental performance. They provide management accounting reports from internal and annual reports and other corporate disclosures from external. For that reason, environmental accounting is likely to include the costs and benefits measurement and reports environmental impact that does not value in monetary terms, so as to achieve its sustainability (Boyce, G., 2000). By taking in the environmental impacts, the organisation's management are more likely to produce reporting systems that are even complete.
Financial accounting and management accounting are able to link costs and detect material flows given that environmental accounting does not have established standards in general (Manaset-Llodra, M., 2006). Thus, Lodhia (2003) further explains that accounting set up the culture of an organisation and contains great influences on the success and reliability of a business which will helps the company in building up a good environmental policy. Likewise, it is voluntary for the organisation to adopt or not of the environmental policy and it is fully dependence on the organisation itself whether to take it or not as a module of its business policy (Yakhou and Dorweiler, 2004).
Environmental issues have to be recognised by the organisations for an environmental performance to be efficient and then stick to the control and measurement in accordance with the company's strategic objectives and environmental policy (Clarke and O'Neill, 2006). Environmental accounting delivers internal usage information on environmental to help in making decisions on price, capital budgeting and control overhead (Yakhou and Dorweiler, 2004). Management accounting is here to play a role by presenting several of tools in assisting the organisation to recognise these environmental issues.
Based on the description of Yakhou and Dorweiler (2004), Environmental Management Accounting (EMA) computes the financial costs and benefits which are associated to the environmental. It also measures the environmental taxes for equipment used for pollution control where expenses and capital will be influenced. For tools such as Environmental Cost Accounting (ECA), Letmathe and Doost (2000) justifies that this method is deriving costs efficiently from analysing caused and effect where costs are directly attributable that presenting the every portion of environmental on the processes of business and inputs' real costs. These both tools are similar in a way that costs derived from activities that will affect the environment will be valued and recognised as an expense. Nevertheless, Herath (2005) argues that natural resources have a significant problem in conveying its value in monetary terms where its prices are not easily to be observed. In this manner, management are taking these real costs as consideration and could based on these costs and guide them in the planning, control and supervision and therefore strategies of the business which could aid in complying its environmental policy.
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Life-cycle analysis in Clarke and O'Neill (2006) explanation is also a tool where costs and benefits are distributable to environment impacts and enhancement which as a result generally improve the environmental performance by emphasising the prospects. Additionally, Lodhia (2003) have also discussed on a related tool which is the full cost accounting or life-cycle costing. This tool tries to allocate cost from the activities of the organisation on environment. Thus, it is well understood that organisation will be forced to reduce on activities of possible harmful outcomes after these costs are being taken responsible by the organisation. Herath (2005) added that full cost environmental accounting will only be occupied by companies which have clearly defined foresight on sustainable development. But on the other hand, Herath (2005) further argues that there is another drawback in assessing natural resources where there is a balance in assessing environmental gains and losses which is also perceived when realising costs on the same harm with the readiness to receive compensation and readiness to pay. Thus, adopting tools is vital in developing a strong environmental policy which would not only reduce impacts and yet facilitates in improvement of environmental performance in order for the organisation to be sustained.
As mentioned by Yakhou and Dorweiler (2004), there is a tool which is Environmental Management System (EMS), comprised of both environmental cost accounting and life-cycle costing. EMS is using ISO 14001, an international based standard as its guide. As obligatory by ISO 14001, it requires on documents relating to environmental policy; associate the positions and effects; evaluating objectives to comply with major influences; objectives planning and documentation on assessment of achieving objectives; and lastly training and auditing plans (Manaset-Llodra, M., 2006). Statement according to Manaset-Llodra (2006) says that this qualification helps to improve the environmental performance and encourage better changes in the objectives of organisation in environmental management. Other than that, Yakhou and Dorweiler (2004) add that this qualification also gives the organisation a competitive advantage and ranks the organisation a position in the global markets. However, Yakhou and Dorweiler (2004) further argue that the ISO14001 could have a risk that the organisation might misuse the standards in their environmental performance and contrary to legal compliance.
Under the requirement of EMS, Perez et al (2007) illustrates that the organisations of Eco-management and Audit Scheme (EMAS) have to find out the training needed by its accountants and other employees to ensure that they have sufficient level of environmental knowledge and awareness, but training could be a problem as it will incur high cost for the organisation. Nevertheless, training is likely to result in a firm knowledge and awareness on environmental and competence and proficiency of the whole organisation regardless of accountants as well as other employees.
EMS also contains an essential part where supported by the International Chamber of Commerce and European Commission (Watson and MacKay, 2003). It is called the environmental audit. Letmathe and Doost (2000) describes this tool as a mechanism of minimising costs and environmental impacts as it consistently and methodically inspects the environmental performance of an organisation whether is in contrast with the established goals and the environmental policy. Hence, EMS is a tool of monitoring the organisations for a constant improvement in its environmental performance so that the organisation is in accordance with its environmental policy and the organisation could be even more sustainable and benefited in its industry and leads to a longer term of organisational success. Management accounting is therefore plays a role in the development a robust environmental policy with the assistance of these tools and leads the company to a more sustainable future.
As discussed by Comite (2009), environmental accounting is the methods of taking in the effect of the company's activities as it helps to convert natural resources to be consumable for which its value could be revealed in the market. Another illustration of Yakhou and Dorweiler (2004) gives is that environmental accounting also makes environmental information visible in order to form consciousness for external users such as public whether financial or non financial. These natural resources are for example like usage amount, use of land, effluences and other reasons that arising environmental effects which are required entirely to be internalised in the accounts (Comite, U., 2009). Once these real costs are exposed to the markets, it would benefits the company in a way that public have good perception towards the organisation and attracting new business opportunities for the organisation and hence organisation will be more sustainable.
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Other than that, Manaset-Llodra (2006) also states some examples like buying property, plant and equipment which also needed to be taken into accounts solely for the grounds that it is for protection or environmental factor and capitalise them only if these costs are likely to bring future benefits. Furthermore, organisations are expected to be able to estimate its activities' possible environmental impact and consequently assess the contingent liabilities and make provisions on risk of the environmental (Lodhia, S., 2003). By taking in environmental acquisition which will be generating future benefit as asset and estimation of liabilities will eventually proven that the organisations are not hiding these costs from exposure to the public and does not deceive the users and thus environmental policy is in a strong development state as the information delivered by the company are much more reliable.
Environmental accounting is relating information of both qualitative and quantitative to communicate the organisations' environmental impacts on the activities to a particular group of interested parties in the society and in short as external reporting of environmental performance (Clarke and O'Neill, 2006). Yakhou and Dorweiler (2004) explains environmental reporting as illustrating the reliability which may need reliability and intelligibility regarding environment and organisation's improvement requirement, products and practices of the business, and organisational structure for interested external users. But Herath (2005) have also defended that an environmental accounting is to be expected to have problems related to particular technologies and organisation was forced to adopt these environmental friendly methods to their production. As a result, environment accounting in the view of these organisations might think that it possibly will incur some sort of compliance costs or penalties because of the too much diminution of natural resources.
Another justification made by Hearth (2005) is that, reporting was a type of important interaction for the business and supporting the decision makers as an external source. For internal users, it can be used for planning and supervising for the operational. Meanwhile, for the external users can applied it while assessing the natural resources usage. The reliability on the financial performance of the organisation is then delivers to stakeholders using its external reporting practice and therefore facilitates in making helpful economic decision (Lodhia, S., 2003). However, Lodhia (2003) have opinion over environmental accounting is that accountants might be a problem by itself of this new approach which they are not well prepared and unfamiliar yet to undertake these matters simply by reasons of lacking society awareness and knowledge. Some accountants still have the viewpoint that they do not realise its role as a leader in organisations' environmental accounting policy.
According to Comite (2009), the business environmental balance sheet is in objective of expressing the effect on nature and element employed on the natural resources by the production activities of the business. It intensely collects and plans the approaches in the manner of natural resources consumption and liquidation and also releasing the polluting material. The application of it are such as evaluating the overview quantitative environmental report which presents the environmental impact from its activities on the condition's overview and provides suggestion done due to the internal periodical reports to manage and supervise for the decisions made. Issues raised by Comite (2009) is that financial balance sheet is a compulsory must for all companies, while environmental balance sheet is a voluntary option because it was not required by any rules or regulations. It is fully based on whether it is required by the objectives of the organisation or specific request by any entity. The organisations are there to have the freedom to design and organise the environmental balance sheet in various manner based on their favourable given that there isn't any standard model set yet in the market (Comite, U., 2009).
According to Watson and Mackay (2003), it states that not all countries are obligatory required to disclose its environmental information and it was not supported by any internationally agreed standards. There are also certain organisations which are not willing to disclose their environmental information because some of them have a kind of idea that disclosure of a poor environmental may possibly causes the legislation on environmental becoming more restricted. This problem indicates that in exercising the environmental disclosure, management are somehow less objectivity for the reason that this is an unregulated environment which do not contains any control over the organisation (Watson and MacKay, 2003) and Herath (2005) argues that this disclosure is some kind of cheating to prevent any inspection by governments and environmental awareness public. The author further discussed that, organisations in susceptible industries or poor environmental performers are most likely to produced healthy or good environmental disclosures. By looking at this, this may have shown that certain organisations make used of the environment reporting to mislead the users.
Nonetheless, there are also a number of organisations which do not have any interest in environmental information disclosure as it specifies to give an assurance or commitment to its stakeholders on the environmental management of the organisation (Manaset-Llodra, M., 2006). Only companies those are willing to show their contribution and are willing to involve in environmental sustainable development will be leading to the association of the environmental accounting world on both financially and economically (Herath, G., 2005).
Accounting does play a significant role in contributing the value or cost by exercising wide range of practices whether both financial and non-financial such as performance evaluation, computations, analysis and reporting to aid the management in making all sorts of major decisions. The approaches and skills of accounting contributes along with more consciousness on environmental can expand outcomes of social and environment sustainability for social contributor (Clarke and O'Neill, 2006).
The business world will persists to have a risk as long as the environmental accounting being carrying on and treated as a voluntary or non compulsory basis, which the environmental accounting is either the neglected completely or misrepresented it so as to camouflage their accounts (Watson and MacKay, 2003). For the moment, the process of developing environmental accounting is difficult and complicated as it will require a number of alliances from different disciplines for example like accounting, management, economics, psychology and many others more. In future time, any undertakings or activities should be expected to contain interdisciplinary centralised (Herath, G., 2005).
In recent times, accounting is encounter with many problems and difficulties in the process of attaining the environmental results which could most likely minimise its social value and competency. Allocating these costs is possible to take place only if there is the occurrence of willingness to perform in gathering the environmental information of these resources (Watson and MacKay, 2003). Hence, accountants are expected to be aware and attentive to environmental matters and the application of its knowledge and understanding on it so that the efforts and tools in evaluating the environmental performance will works even more effectively and efficiently.
Therefore, it may conclude that the environmental policy is able to have a substantial effect on the financial performance of the organisations. In other words, organisations that are adopting good or positive environmental policy could derive numerous of business opportunities, whereas organisations with poor or negative environmental policy will be affecting its financial outcomes. The above statement has brought in and established a strong discussion among the organisations to investigate their position and attitude towards the environment in today's competitive business world.