Environmental cost accounting: The bottom line for environmental quality management

Abstract

Recent years have seen the environment emerge as one of the most pressing issues facing American business. Eventually, environmental costs will affect the bottom line of every American company. A recent study in the National Law Journal estimates that cleanup of the nation's known hazardous wastes sites will cost $752 billion over thirty years under current environmental policies. Environmental legislation and regulations impose annual compliance costs estimated by the Environmental Protection Agency at more than $30 billion. In the near future, environmental expenses for cleanup, regulatory compliance, and management are anticipated to grow to between 2.5 and 3 percent of GNP. Corporations that wish to be competitive must successfully manage these costs while maintaining or improving their role as responsible corporate citizens. Implementing a comprehensive system for identifying and managing environmental costs requires a multidisciplinary team effort. Environmental costs impact product selection, design and pricing, capital budgeting, and future strategic direction. In order to make informed and meaningful managerial decisions on environmental programs, real cost data are vital. An environmental management systems (EMS) requires information to set goals and then monitor progress towards those goals over time. This article will discuss the current cost accounting systems (CASs) available to support the myriad goals of environmental management systems. In addition, the article will outline a framework for plotting the location of your current EMS on a matrix of regulatory and information requirements and evaluating whether your corporation's CAS is adequate to support the goals and objectives set by your environmental management program. By anticipating future regulatory and information requirements, flexible systems can be developed to adapt to new and more stringent regulations and more complex information requirements.

Environmental management accounting in local government: Functional and institutional imperatives

“…The more the accounting system is matched with organisational strategy, the more likely the objectives can be achieved (Langfield‐Smith, ). In line with previous thoughts by Russell, Skalak, and Miller () and Parker (; ), evidence from Qian et al. () and Christ and Burritt () suggests that proactive environmental strategy is likely to promote EMA use.…”

“…As Parker () suggested, green strategies promote clear templates for more integrated costing system design. This could involve the use of full‐cost accounting, total cost assessment and life‐cycle approaches for environmental management (Russell et al., ). Osborn () made a similar point for local government.…”

The role of accounting and the accountant in the environmental management system

“…However, it is suggested that the traditional cost accounting system has failed to assign environmental costs to the specific products and processes that generate them. This could mean environmental costs are aggregated into cost pools and allocated to products on the basis of measures of production volume such as machine or labour hours, or, alternatively, they may be subtracted in a lump sum from operating income (Russell et al, 1994). Traditional accounting systems can underestimate the cost of producing an item that generates a significant amount of waste, or overestimate the cost of an item that generates little waste.…”

The Adoption of Environment-related management accounting: an analysis of corporate environmental sensitivity

“…These arguments have been evidenced in prior research which has suggested that traditional cost accounting has generally failed to assign environmental costs to the specific products and processes that generate them (see, for example, Burritt 1997; Burritt and Gibson 1993;Greenberg and Unger 1992). Environmental costs may then be aggregated into cost pools and allocated to products on the basis of measures of production volume such as machine or labour hours, or alternatively, they may be subtracted in a lump sum from operating income (Russell et al 1994). The accounting system is therefore likely to underestimate the cost of producing an item that generates a significant amount of waste, or overestimate the cost of an item that generates little waste.…”

“…A growing body of literature has explored environment-related management accounting issues. This literature can broadly be classified as investigating accounting practices dealing with: specific issues (Rubenstein 1990;; entities (Bennett and James 1998b;Porter and van der Linde 1995;Schroeder and Winter 1997); or prescribing models or concepts that firms may consider in the introduction of environment-related management accounting systems or procedures (Azzone et al 1996;Bennett and James 1997;Burritt 1997;Epstein and Roy 1997;Krueze and Newell 1994;Parker 1996;Russell et al 1994;Smith and Lambell 1997). Significantly, there is now also a growing body of literature that discusses the triple bottom line concept.…”