Environment Accounting

1. Environmental Accounting
Kulbir Singh

2. Introduction
The term “environmental accounting” is open to
interpretation. In this guideline, environmental
accounting is the identification, measurement and
allocation of environmental costs, the integration of
these environmental costs into business decisions
and the subsequent communication of the
information to a company’s stakeholders.
Identification includes a broad examination of the
impact of corporate products, services and
activities on all corporate stakeholders.

3. According to the United States Environment
Protection Agency (US EPA):
An important function of environmental
accounting is to bring environmental costs to
the attention of corporate stakeholders who
may be able and motivated to identify ways of
reducing or avoiding those costs while at the
same time improving environmental quality.

4. Reasons
• To help managers make decisions that will reduce or
eliminate their environmental costs;
• To better track environmental costs that may have been
previously obscured in overhead accounts or otherwise
overlooked;
• To better understand the environmental costs and
performance of processes and products for more
accurate costing and pricing of products;
• To broaden and improve the investment analysis and
appraisal process to include potential environmental
impacts; and
• To support the development and operation of an
overall environmental management system.

5. Forms of Environmental Accounting
• Environmental Management Accounting
• Environmental Financial Accounting
• Environmental National Accounting

6. Objectives
• Taking the total stock of assets or reserves related
to environmental issue & changes therein.
• Estimation of the total expenditure protection or
enhancement of environment.
• To identify that part of the gross domestic product
which reflects the cost necessary to compensate for
the negative impact of economic growth i.e. the so-
called defensive expenditure to protect
environment.

7. • Assessment of environmental costs & benefits
(i) The decrease (depletion) in natural resources due to their
use in production & final demand and
(ii) The changes in environmental quality resulting from
pollution & other impacts of production & consumption &
other natural events on one hand, & the expenditure for
environmental protection & enhancement of the
environment on the other.
• Elaboration & measurement of indicators, relating to
environmentally adjusted product & income which are
disclosed by Environmentally Adjusted Net Domestic
Product (EDP), i.e., Net Domestic Product minus
Environmental costs.
• Analysis of EDP : It is to plan the use of resources by
squeezing them & reducing waste to attain sustainable
development.

8. Need of Environmental Accounting at
Corporate Level
• Meeting regulatory requirements or exceeding that expectation.
• Cleaning up pollution that already exists and properly disposing of
the hazardous material.
• Disclosing to the investors both potential & current, the amount
and nature of the preventative measures taken by the
management (disclosure required if the estimated liability is
greater than a certain percent say 10 per cent of the company’s
net worth).
• Operating in a way that those environmental damages does not
occur.
• Promoting a company having wide environmental attitude.
• Control over operational & material efficiency gains driven by the
competitive global market.
• Control over increases in costs for raw materials, waste
management and potential liability

9. Scope of Environment Accounting
• From Internal point of view
• From external point of view

10. From Internal point of view
Investment made by the corporate sector for
minimization of losses to environment. It
includes investment made into the environment
saving equipment devices. This type of
accounting is easy as money measurement is
possible.

11. From external point of view
• Degradation and destruction like soil erosion, loss of
bio diversity, air pollution, water pollution, voice
pollution, problem of solid waste, coastal & marine
pollution.
• Depletion of nonrenewable natural resources i.e.
loss emerged due to over exploitation of
nonrenewable natural resources like minerals,
water, gas, etc.
• Deforestation and Land uses

12. ADVANTAGES OF ENVIRONMENTAL
ACCOUNTING
• The accounting system helps to detect any leakages
spills or any such problems with the operation and
process at an early stage, thus reducing the risk of
future problem.
• It helps to measure the environmental problem impact
of each and every process and operation on the air,
water, soil, worker’s health and safety and society at
large.
• It helps to measure the organization environmental
performance.
• It gives an indication of the effectiveness of the
environmental management and suggests how it can
be improved.

13. Continue…..
• It provides a database for corrective action and future places
it identifies the area where the steps have to be taken to
reduce the waste, raw material and energy consumptions.
• The result of the environmental accounting system helps the
management to develop its environment strategy for moving
toward a greener corporate culture.
• Proper environmental accounting system facilitates proper
reporting of the results of environment practices followed by
the company. It facilitates communicating environmental
performance towards stakeholder which goes along way in
enhancing the corporate image of the organization.
• Environmental accounting leads substance to verify
compliance to local, national and international standards or
best available techniques as well as company’s own standard
as stated in company’s environmental policy.

14. LIMITATIONS OF ENVIRONMENTAL
ACCOUNTING
• There is no standard accounting method
• Comparison between two countries of firm is not
possible if the method of accounting is different
• Input for environmental accounting is not available as
the cost and the benefits relevant to environment are
not easily measurable.
• Many business and government organization even large
and well managed ones don’t adequately track the use
of energy and material or the cost of inefficient
material use, waste management and related issue.
Many organization therefore significantly
underestimate the cost of poor environment
performance to their organization.

15. Continue…..
• It mainly considers the cost internal to the company and excludes
the cost to the society
• Environment accounting is long term process therefore to draw
conclusion with help of it is not easy
• Environmental accounting cannot work independently. It should
be integrated with financial accounting which is not easy.
• Environmental accounting must be analysed along with other
aspects of accounting because costs and benefits to the
environment depend upon the results of financial accounting,
management accounting, cost accounting, tax accounting, etc.
• The user of information contained in environmental accounting
needs adequate knowledge of process of environmental
accounting as well as rules and regulations prevailing in that
country either directly or indirectly related to environmental
aspects