Environment Management Accounting [EMA]: An

Overview

By

Dr. Vijay Pithadia

Reader in Management
Shri Leuva Patel MBA Mahila College
Chakkar Garh Road, Amreli–365 601 GJ

Abstract:

Many people are willing to pay more for a product that is environmentally friendly.
Many companies are now interested in being "green," as many investors place a high
value on environmental responsibility. The concept of environment management
accounting is new for India but the recent policies of Indian government of
liberalization have catalyzed the need or practice of environment management
accounting in India. EMA focuses on costs internal to the company; EMA does not
include external costs to individuals, society, or the environment for which a
company is not legally held responsible. More accurate and comprehensive
information to support the establishment of and participation in voluntary, cost-
effective programs to improve environmental performance.

Key Words: Environment accounting, Rig-Veda, Environmental accounting

background and overview, Reasons for change, External Environmental Auditing,
EMA, Evaluation of Facility-Level, Implementing EMA.

Availability of Data: Quoted data and information are available from public
sources, which are mentioned in references.

Environmental costs and obligations are significantly growing and continue to grow
as the world becomes more environmentally conscious. Public corporations are being
held more responsible and accountable to be good environmental citizens. A number
of environmental legislations have been enacted to address the emergence of a
worldwide "green movement."

In some cases in years past, environmental issues were virtually ignored by both
corporations and individuals. Hazardous waste and other such items were considered
a cost of a growing economy. Times have changed as people now realize the effects
of waste products that potentially could damage parts of the environment. Many
people are willing to pay more for a product that is environmentally friendly. Many
companies are now interested in being "green," as many investors place a high value
on environmental responsibility. Some corporations have had to pay to clean up their
past environmentally "unfriendly" behavior. However, most firms have established
good reputations as environmentally "friendly."
Conceptual frame work of environment management accounting has been describe in
"Rig-Veda", the pioneer religion theorem of Hindu Philosophy as according " sky is
like a father, earth is like a mother, a space as their children " Thus Rig-Veda reflects
that environment is to be valued like parents and love like children. The concept of
environment accounting and auditing may be new for western accounting thinkers.
There may be conflicts between understanding and implementation. Few notes
started its relevance for country. Such as establishment of new accounting standards
concerning to environment management accounting in India. Secondly it should
require to include into specialized accounting education syllabus and to create
awareness of importance of environmental accounting to the accounting practitioners
for serving its exact purpose.

EMA: Background and Overview

Environment Management Accounting (EMA) is the identification, collection,

estimation, analysis, internal reporting, and use of materials and energy flow
information, environmental cost information, and other cost information for both
conventional and environmental decision-making within an organization. For
companies that have the goals of saving money, especially environmental costs, and
reducing environmental impacts, EMA provides essential information for meeting
those goals. Key points to note are:

• EMA focuses on costs internal to the company; EMA does not include external
costs to individuals, society, or the environment for which a company is not
legally held responsible.
• EMA places particular emphasis on accounting for environmental costs.
• EMA also encompasses explicit information on physical flows and fates of
materials and energy.
• EMA information can be used for most types of management activity or
decision-making within an organization, but is particularly useful for proactive
environmental management activities.

EMA is not merely one environmental management tool among many - rather, EMA is
a broad set of principles and approaches that provides the materials/energy flow and
cost data critical to the success of many environmental management activities.
Terms or tools such as full cost accounting, total cost assessment, cost accounting,
materials accounting, life cycle assessment, life cycle costing, and activity based
costing are associated with EMA.

EMA: Reasons for Change

EMA researchers and proponents recognize the limitations of conventional

management accounting approaches for management activities and decisions
involving significant environmental costs and/or significant environmental
consequences/impacts. The unintentional "hiding" of many environmental costs in
overhead accounts

• Inaccurate allocation of environmental costs from overhead accounts back to

processes, products, and process lines
• Inaccurate characterization of environmental costs as "fixed" when they may
actually be variable (or vice-versa) and
 • The actual lack of inclusion of relevant and significant environmental costs in
the accounting records at all.

EMA brings many potential benefits to industry including:

• The ability to more accurately track and manage the use and flows of energy
and materials, including pollution/waste volumes, types, and fate
• The ability to more accurately identify, estimate, allocate, and manage/reduce
costs, particularly environmental types of costs
• More accurate and comprehensive information to support the establishment of
and participation in voluntary, cost-effective programs to improve
environmental performance
• More accurate and comprehensive information for the measurement and
reporting of environmental performance, thus improving company image with
stakeholders, such as customers, local communities, employees, government,
and finance providers.

Environment Management Accounting: Implementing EMA

EMA provides two types of data to assist companies in making decisions about capital
investment, product/process costing, strategic planning, or other business
opportunities. One type is cost information; the other type is physical flow
information (e.g., raw materials use and waste generation rates). Companies may
approach the data collection in different ways. For example, some companies may
simply conduct a more careful examination of existing cost data and combine it with
existing materials flow knowledge to make more informed decisions. Other
companies may do actual mass balances on their processes to better understand
previously hidden losses. Some examples of physical flow information include:
quantity of chemical brought on-site, quantity of chemical produced on-site, quantity
of chemical consumed in the manufacturing process, q quantity of chemical in the
product, quantity of chemical in the waste, water use, wastewater generation, and
energy use.

Surveys of Industry Practices

The surveys of current industry practices in environment management accountings of

major corporations within a variety of industries and provides a perspective of the
current state of the art of environmental management accounting, as well as some
important differences in organizational approaches. Here the reporting, data
handling, and follow-up processes of selected leading environmental management
accounting programs were analyzed in-depth to develop perspectives on the diversity
in audit reporting techniques, formats, and approaches to provide clear and
appropriate disclosure of audit findings. In addition, we have informally surveyed
hundreds of companies at our various audit seminars and workshops.

External Environmental accounting for the Board of Directors

Working for a committee of the boards of directors of several major U.S. companies,
serve as external auditors and conduct an independent environmental verification
program. As part of these client assignments, the corporation to further develops and
strengthens its internal EHS, and product safety audit program. The boards of
directors find our assistance to be very valuable to them in assuring compliance.

Audits in Highly Sensitive Situations

Working for outside counsel in dozens of highly sensitive situations, we conduct

audits of numerous facilities that pose significant environmental problems. In one
such assignment, a team of audit experts conducted several field visits to
independently determine compliance with national, state, and local environmental
regulations; assess whether facility operations and practices pose potentially serious
health or safety risks; and determine conformance with corporate policies and
procedures.

Evaluation of Facility-Level Environmental Compliance

For a large international manufacturer of industrial/agricultural equipment, we

developed a program to evaluate the environmental compliance and management
systems in place at the facility level. The purpose of the assessments was to identify
those areas where environmental risks had not been identified or had not been
adequately addressed and to evaluate the management systems in place to direct
environmental issues. We provided two to six team members with project- and
industry-specific expertise for each assessment. The assessments involved interviews
with management, engineering, maintenance, and operational personnel; inspections
of environmental activities and review of environmental documentation and
programs.

References:

[1] ABBOTT W F and MONSEN R J On the measurement of corporate social

responsibility: self reported disclosure as a method of measuring corporate social
involvement Academy of management journal September 1979
[2] ALHASHIM D Social accounting in Egypt International journal of accounting
Spring 1977
[3] AMERICAN ACCOUNTING ASSOCIATION Report of the committee on accounting
for social performance Accounting review 1971

[4] FREEDMAN M and STAGLIANO A European unification, accounting harmonization,

and social disclosures International journal of accounting 1992
[5] GRAY R and others Struggling with the praxis of social accounting: stakeholders,
accountability, audits and procedures Accounting, auditing and accountability journal
1997
[6] GUTHRIE J and PARKER L Corporate social reporting: a rebuttal of legitimacy
theory Accounting and business research Autumn 1989

[7] P. C. Mishra, N. Behera, B. K. Senapati and B.C. Guru Advances in Ecology and
Environmental Sciences, Vedams e-Books (P) Ltd., New Delhi, 1995
Environmental Accounting and auditing in India Dr.
Vijay Pithadia
Assistant Professor,
Gardi School of Management Studies,MBA Program Affiliated to
Saurashtra University & Recognized by AICTERajkot – 360006 Mobile
Phone: +91 989 842 2655Drvijaypithadia@Gmail.Com Abstract: The
concept of environment accounting is new for India but the recent
policies of Indian government of liberalization have catalyzed the need
or practice of environmental accounting and auditing in India. At the
time into entering into 21st century there should require to established
new accounting standards concerning to environmental importance.
Secondly it should be included into specialized accounting education
syllabus. Thirdly to create awareness of importance related to
environmental accounting among accounting professionals in
India. Key Words: Environmental accounting, Rig-Veda,
environmental pollution, new accounting standards, accounting
education syllabus, accounting professionals Availability of Data:
Quoted data and information are available from public sources, which
are mentioned in references. Prologue: With the opening up of
market and globalization of the whole world become small place. At
the time of entering into 21st century the issues of environmental
accounting and auditing are new but the recent polices of Indian
government have catalyzed its importance as well as conceptual frame
work of environmental accounting has been describe in "Rig-Veda", the
pioneer religion theorem of Hindu Philosophy as according " sky is like
a father, earth is like a mother, a space as their children " Thus Rig-
Veda reflects that environment is to be valued like parents and love
like children. The concept of environment accounting and auditing may
be new for western accounting thinkers. There may be conflicts
between understanding and implementation. Few notes started its
relevance for country. Such as establishment of new accounting
standards concerning to environmental accounting and auditing in
India. Secondly it should require to include into specialized accounting
education syllabus and thirdly to create awareness of importance of
environmental accounting to the accounting practitioners for serving
its exact purpose. Some Notes for 21st Century: At the time of
entering into 21st century there should require few considerations
concern with the environmental accounting and auditing, those
are: [1] Environmental pollution:Economic data such as GNP, NNP,
Price and employment are widely used for judge the performance of
the country. However above all macro an economic estimate neglects
the concept of environmental pollution, it affects up to Ozone
layer. [2] New Accounting Standards: Presently in India there are
15 accounting standards published but there are lacks of accounting
standards concerning to the environmental accounting and auditing.
The ICAI gave the guidelines for the development of accounting
standards in India. [3] Accounting Education Syllabus: As the
input point of view it should required changing the accounting
education syllabus at graduate level and inclusion with environmental
accounting and auditing as per new accounting standard related to the
environmental accounting and auditing because of its wide importance
and applicability. [4] Significance: [A] Environmental Accounting
and accounting professionals: Importance of environmental
accounting and auditing creates awareness among the accounting
professionals. Made provision in the accounting statements as
according to new accounting standards related to environmental
accounting. The importance of environmental accounting is not limited
up to few points but also include each and every human beiges, earth
and eco system. [b] Government point of view: The government
should recover the cost of eco restorations from the polluters of the
environment and take other remedial measures as permitted by the
Supreme Court of India in its decision of March 1996. Secondly
Government should create the awareness for environment and its
importance through approximate ways and
techniques. Conclusion: The issue of environmental accounting is just
like Old wine in new bottle for India. Recent study describe that some
notes for 21st century. At present in India all such macroeconomic
estimates neglect factors such as depletion of natural resources,
environmental pollution congestion of perks as well as lack of
accounting standards concerning to the environmental accounting and
auditing in India. As a concluding remark the system of environmental
accounting is very useful for measuring economic development and
social well being. References: [1] ABBOTT W F and MONSEN R J On
the measurement of corporate social responsibility: self reported
disclosure as a method of measuring corporate social involvement
Academy of management journal September 1979[2] ALHASHIM D
Social accounting in Egypt International journal of accounting spring
1977[3] AMERICAN ACCOUNTING ASSOCIATION Report of the
committee on accounting for social performance Accounting review
1971 [4] FREEDMAN M and STAGLIANO A European unification,
accounting harmonization, and social disclosures International journal
of accounting 1992[5] GRAY R and others struggling with the praxis of
social accounting: stakeholders, accountability, audits and procedures
accounting, auditing and accountability journal 1997[6] GUTHRIE J and
PARKER L Corporate social reporting: a rebuttal of legitimacy theory
Accounting and business research autumn 1989 [7] P. C. Mishra, N.
Behera, B. K. Senapati and B.C. Guru Advances in Ecology and
Environmental Sciences, Vedams e-Books (P) Ltd., New Delhi, 1995