Management and financial accounting


Executive Summary

Most organizations are targeted to be successful whenever they are established. However, the success of the business may highly depend on the environmental policy formulated by the management department. For this reason, reliable management and financial accounting are observed to play a great role in facilitating strong environmental policy formulation. For this reason, organizational operations are made successful for along period of time (Moral-Basco 2010, p. 217). To establish how successful business organizations can be development, this research paper will analyze the environmental management accounting process. Similarly, this research paper will evaluate recycling processes by various companies, as a way of protecting the environment.


In most business organizations, managers respond to environmental issues through placing a risk framework of the environment. When making informed decisions for company performance appraisal in relation to costs, companies must connect environmental issues with those accounting issues. Nevertheless, such links of environmental and accounting issues will be challenged by limited communications links between accountants and environmental managers (Gray 2003, p. 262). Communication challenges will be as result of variation in professional interests and operational cultures of organizations. Additionally, environmental accounting, reporting and auditing has had a growing importance. Such importance has been facilitated by an increase in pressure for companies to disclose their environment issues on transparent or publicly accessible information basis.

Findings and Discussions

Environmental Management Accounting

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EMA provides reports which can be used internally, generating information on environment which assists in management decision making. Management decisions are made on overhead control, capital budgeting and pricing. Effects of business activities on the environment are revealed in varied forms. Effects can be in-form of media involving water, air or underground pollution. Another form of effects relates to targets which include land, drinking water, or habitat belonging to endangered or threatened species (Gray 2003, p. 254). Lastly, impacts on environment are revealed in form of global sites involving atmosphere, oceans or land mass. Pollutants such as warming, hazardous or toxic are influences various business activities. However, in order to control such environmental impacts by pollutants, multiple disciplines are required to analyze the effects. Afterwards, the analysis of the environmental effect is integrated into management decisions plus the accounting reporting procedures.

EMA has been recently recognized as an eminent environmental management tool. EMA has assisted in integration of business interests with company's environmental interests. Integration of the two components has enhanced corporate eco-efficiency by reducing environmental costs and making companies products more competitive. Effective EMA application may to some extent require the use of AIS (i.e. accounting information systems) in ir5der to ensure effective financial management. Government may utilize economic instruments in internalizing environmental externalities. Such application can be more effective where incentives produced are not limited by inadequate cost accounting whereby EMA can be greatly significant. Similarly, environmental costs can assist in definition of the environmental management strategies. In addition, environmental costs can define ways in which environmental performance indicators can be advanced through development of sustainability indicators belonging to various product chains (Rikhardsson & Bennet 2005, p. 119).

EMA for cleaner production

Sustainability in business needs corporations to develop in a manner that is environmentally, economically and socially sustainable. Consequently, corporate sustainable development requires progress towards cleaner production. In addition, ability to recognize cleaner production can be facilitated through reduced production costs and fewer environmental effects via reduced or controlled material use (Schaltegger et al 2008, p. 443). EMA for cleaner production establishes a group of tools to enable companies to evaluate collect and interpret information. This information is required to estimate organizational abilities to apply cleaner production in realization of cost savings plus best decision making strategies on available options for cleaner production. For this reason, EMA has been observed to be driving environmental progress, increased competitiveness among companies, cost savings plus corporate sustainability by use of cleaner production.

Efficient environmental management

Evaluation of environmental costs and activities are necessary while attempting to establish an efficient environmental management process. Environmental accounting can be employed to provide qualitative assessments of costs and impacts of environmental protection measures. New components can be added to the environmental accounting system to enhance an effective environment accounting system. Whenever environmental accounting is introduced within any organization operation, staff members get environmental consciousness (Gray 2003, p. 254). Similarly, the company's effort to focus on reducing costs is sharpened thereby magnifying the positive impacts of the environmental measures. Companies' motivation in costs reduction can be facilitated by cooperation strategies within firms operations. Actually, environmental accounting is normally focused on disclosing company's information facilitating clarification on firm's financial health position for stakeholders' interests. Another objective of the environmental accounting system is introduction of continuous environmental preservation activities. When environmental accounting is efficiently done by companies, environmental investments and sustenance environment preservation activities are enhanced.

Basic Concept for Environmental Management Accounting

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In order to control environmental impacts efficiently, constant efforts towards advanced activities are indispensable. Environmental management accounting ought to be accomplished in a manner that economic value is established through environmental activities. EMA will thereby enable organizations to survive economically while higher corporate values are upheld. For this reason, tools adequate for investment efficiency evaluation of the activities of the environment must be availed to assist in decision making (Rikhardsson & Bennet 2005, p. 344). For example, Ricoh Group has been in the process of developing an effective accounting systems environment to serve as a significant tool for realizing environmental management. Ways companies carry out recycling process

In the first illustration, Severnside Recycling is a UK-based recycling company that supply, recycle or recover waste papers. In the first phase, disposal and segregation is done. While trying to make packaging suit recycling process, the company segregates paper from other wastes. For practical or cost effective strategies, segregation is done at the source of the wastes. Severnside avails varieties of containers depending on the size required, where materials are stored in readiness for collection. In addition, the company provides training or advice for the best ways of segregating wastes and on the best containers for a particular need. In the second phase, Severnside has availed a fleet of vehicles to service many sites on daily basis. Such vehicles collect recyclable materials from the designated areas (Winslow 2008, p. 804).

However, the type of storage containers provided by Severnside will determine which vehicle will be used to collect the recyclable items. Some vehicles collect cardboard by lifting or emptying containers contents into compaction unit which is mobile. Consequently, space is saved and the vehicle is allowed to move to the next collection point. In third phase, once segregation of the cardboard is done, plus collection and transportation to the recycling facilities, sorting is done if necessary. After sorting, the baling is done in sizes which are acceptable within the group's mills. Within the 4th phase, loose cardboard is transported to the conveyer belt prior to the baling press. In the press, the loose material is then pressed to a compact bale at a weight of 500-1000kilograms. When the bale is being ejected from the heavy duty machinery, the bale is tied and secured with the use of steel baling wires. Bales are then transported to the mills in full loads (Rikhardsson & Bennet 2005, p. 301).

In the 5th stage of milling process, the cardboards sent to the mills for recycling is tested. This testing ensures the bales aren't contaminated with other materials. Afterwards the cardboard is reduced to a particular individual fiber in the pulping process. Small contaminates elements such as coatings, particles or addictives are separated. Pulps are then sent through several heats, chemical and mechanical stages to improve the pulp further. Lastly, the raw material is then rolled and layered in order to make large paper reels which are ready for production process. In the 6th phase, reels from the mills are then transported to the production facilities where they are then converted into new packaging product directly delivered to the consumers. After use by the consumer, the material is collected again by Severnside Company to carry out the recycling process again (Moral-Basco 2010, p. 218).

In addition, there are Companies that carry out Environmental Soil Management (i.e. ESMI) by remediating or recycling contaminated soils. ESMI companies are responsible for contaminated soil treatment in the Northeast. Such soil contamination may involve solvents, fuels, oils, PCBs or coals tars. ESMI is permitted to carry out treatment of contaminated soils up to 425000tons very year in New York (Rikhardsson & Bennet 2005, p. 294). For environmental remediation projects which are large, ESMI owns a dynamic capacity portable treatment firm able to treat soils within the project site. Treatment at the sites enables the company to save on transportation costs, transportation liability while at the same time availing soils suitable for site re-use. ESMI applies a treatment process called thermal desorption, which is a proven technology in permanently destroying hydrocarbons plus other organic contaminates.

Treatment process of this company achieves more than 99% destruction efficiency ensuring contaminated media is successfully remediated to below detection limit level. In he process, contaminated items are heated inside a rotary dryer at temperature, level of 350-1000F depending on the type of the contamination. In the second phase, the desorbed contaminants are heated up to above 1500F. Gas stream emanating from this process is then cooled inside an evaporative chamber of cooling before entry into bag house where any other particulates are eliminated before exiting the process of treatment. Treated soils by ESMI are returned to the consumers for re-use purposes or are recycled into several construction materials for industrial or commercials applications. Thermal desorption never at all damage the characteristics of soil which are responsible for enabling the soil to support biological activity in future (Moral-Basco 2010, p. 219).

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Thirdly, since 2000 Panasonic has been carrying out recycling process in technological expertise within Japan. Panasonic has established own-brand take-back system for computers across Europe. The take-back system ensures quality recycling process while at the same time eliminating risks facilitated by illegal dumping of wastes within Less Development Countries. Illegal dumping of wastes has been the current electronics industry concerns. Panasonic provides recycling solutions which cover 95% of the whole Group's global computer sales volume. Panasonic apply the approach similar to battery recycling as well offering guidance on how to conduct recycle process of individual's electronic products in every country (Rikhardsson & Bennet 2005, p. 216).

Pros and Cons of Environmental Accounting

Environmental accounting consists of two branches including environmental financial accounting (i.e. EFA) and Environmental management accounting (i.e. EMA). EFA is responsible for reporting environmental costs. On the other hand, EMA addresses mainly information on energy flow and material. Management Accounting is advantageous in bringing together environmental and economic information to a common framework. This common framework is employed in measuring the environmental contribution towards the economy. Environmental accounting is applied in preserving environmental integrity. Similarly, environmental accounting measures also the contribution of the economy to the environment. Additionally, policy makers are availed with the indicators or descriptive statistics. At the same time, environmental accounting monitors interactions between descriptive statistics and indicators plus monitoring a database used for strategic planning or policy analysis in a way to identify advanced sustainable paths fro development (Gray 2003, p. 255).

Nevertheless, Management accounting is limited in several ways. While making internal decisions, the procedures applied plus practices of conventional management accounting may not place adequate considerations to environmental costs. This lack of considerations for environmental costs will result from disclosure failures such costs. Normally, variable environmental costs generally are wrongly characterized as fixed costs (Winslow 2008, p. 784). Inaccurate accounting of the quantities or value of the materials wasted or energy plus environmental costs emanating from such inaccuracies makes such costs to be totally ignored within firms accounting records. As a result, environmental management is highly challenged since decisions made within the firms will be inefficient because they are based on inaccurate information.

International Accounting Standards-IAS 36/37

International Accounting Standards are normally used by industries to measure the environmental sustainability. To begin with, IAS 36 objectives were aimed at prescribing the procedures applied by companies to ensure that the firms' assets are not valued at an amount beyond the recoverable amount. Such exceeded amount within assets results to impairment while the standard requires the firm to recognize a loss in impairment. Similarly, IAS 36 specifies the timing for a firm to reverse a loss in impairment. At the same time, the standard prescribes particular disclosures related to impaired assets. IAS 36 application in accounting release of environmental facts is normally related to the asset los of value as a result of impairment (Dey 2007, p. 432).

Consequently, tangible assets such as technologies, and or impairment are linked with obsolescence of the firms' technologies. In such circumstances, companies need to recognize a los in impairment so as financial; statements especially the balance sheet can reflect the true image of the assets. IAS 37 on the other hand is related to contingent liabilities, provisions and contingent assets. An IAS37 objective aims at ensuring appropriate recognition criterion or basis of measurement is applied (Schaltegger et al 2003, p. 69). Such correct measurements are applied to contingent liabilities, provisions and contingent assets. Similarly, the standard ensures sufficient information disclosure of the financial statements is achieved to facilitate users properly understand the timings, amount and nature. In the environment, IAS 37 is applied in the balance sheet to make provisions for environmental liabilities or costs allowing companies to be answerable to possible risks. Similarly, outside the a balance sheet, IAS 37 implies that companies must present environmental facts, so as accounting information can show the true or faithful company image.

Reducing and renewing EMA operations

Environmental costs are dependant on the way the company intends to employ information such as in capital budgeting or designing of a product. For example, US Agency of Environmental protection introduced a terminology that differentiates among conventional, contingent, image or relationship costs. For example, in Brent Spar incident, Shell Oil Company lost millions of money on lost sales/revenues as a result of consumer boycott. This is an example of implications or influences raising environmental concern due to impacts rendered to the business environment. For this reason, Shell Company re-engineered its system of environmental management. ACCA Company on the other hand has published a report recommending adoption of full environmental costing by business enterprises (Gray 2003, p. 252). For example, Xerox Limited Corporation which has introduced lifecycle costing concept focused to its logistic chain. Majorly, Xerox specializes in manufacture of photocopiers targeted to be leased rather than sold. This implies that the photocopiers are returned to the company after leasing period is completed. Previously, machines were being shipped in varied packaging forms. With time, Xerox Company had to purchase new machines to replace the formerly leased copiers due to shipping limitations. As a result, Xerox Company had to lose the original costs as they suffered on the disposal costs.

Generally, conventional systems of accounting have tendencies of attributing most environmental costs to the general overhead accounts. This creates unawareness to organizational management on the extents of environmental costs and therefore opportunities for cost savings are not identified. However, EMA makes attempts in making all costs which are relevant and significant visible so as they can be considered in any decision making process of the companies. Additionally, environmental issues have experienced increased concerns from the media over matters such as depletion of resources which are non-renewable, global warming plus natural habitat loss (Winslow 2008, p. 633). Business practices therefore have been questioned thus necessitating for drastic changes within such practices. Consequently, it's important to note that individuals' current life styles have posed threats to the whole planet. As a result, global agreements related to actions that can prevent environmental damage in the future have been established such as Rio Declaration, Kyoto Protocol and Montreal Protocol.

In addition, all business aspects are observed to be affected by pressure from the environment inclusive of accounting operations. Observing from an accounting perspective, pressures could be felt from external reports. Such external reports may include environmental disclosures within the financial reports or from separate environmental accounts (Moral-Basco 2010, p. 215). Nevertheless, issues of the environment cannot be tackled solely via the external reporting. Environmental issues must be managed in an effective way before reporting them, hence need for changes on the management accounting systems. Within companies, managers are not aware of the environmental costs and they attribute those costs to overhead accounts. For this reason, the managers have limited information or none on how to manage the environmental costs plus no incentives are availed to facilitate reduction of the environmental costs.

Similarly, most management accounting methods underestimate the environmental costs while at the same time underestimating the benefits derived from improved environmental practices. Management accounting methods may distort or misrepresent environmental issues causing business managers to result into bad decisions for their businesses and/ or the environment. For example, recently, UK government publicized campaign reports stating that most companies are averagely spending 30% heavily on energy via inefficient business practices. Proper energy management could reduce environmental impacts of production of energy by about 30% and slash 30% of companies' energy expenditure (Schaltegger et al 2008, p.505).

If companies do not reform their management accounting practices to incorporate concerns from the environment, profit and loss accounts or the balance sheet can be adversely affected by environmental related activities. Consequently, unreliable business development decisions will be made (Rikhardsson & Bennet 2005, p. 211). Similarly, when companies fail to adopt reliable management accounting practices, customer value will not be achieved as well. At the same time, investment risks which hold negative long-term decisions will be experienced. EMA on the other hand has been trying to integrate superfluous management accounting considerations to facilitate environmental practice deemed is attractive for profitability reasons. EMA has therefore been in a wide usage to generate and analyze financial and non-financial data or information in support of internal environmental management operations.

Conclusion and Recommendation

Environmental Management Accounting has been observed in the above discussion to facilitate essential accounting procedures for companies in relation to issues affecting the environment. Consequently, business operations have experienced successful internal environmental management. EMA has helped business to make viable decision on the business progress plus environmental protection. For this reason, it's recommendable for all business enterprises to adopt the EMA approach to assist the managers in making proper business decisions. Companies must reform their management accounting procedures and practices so that environmental concerns can be incorporated to facilitate efficient decision making procedures (Schaltegger et al 2003, p. 42).


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