Essay: Benefits & Limitations Of Environmental Management Accounting

Consideration of Environment and Protection

Question:

Discuss about the Instability Vulnerability and Trials of Truth.

A variety of abnormal and natural phenomena has been raised because of population growth and steadily increasing industrial development, including  acid rain, global warming, and depletion of the ozone layer, which has result in environmental deterioration during the recent few decades, as a result, it has aroused worldwide social attention as one of the largest threats (Abdallah,2016). It is becoming serious for stakeholders to add environmental accounting as a consideration. According to Amiruddin, Environmental accounting is a important aspect since it conveys to the stakeholders of the company about the information that the environment should be protected. It is essential for the companies to engage in environmental management accounting for the sake of meeting the social requirements, in order to achieve environmental sustainability, focusing on technical innovations particularly (Armstrong, 2014). This essay will discuss that the environmental management accounting has been awarded and concerned crucially by evaluating the benefits and limitations to the business and its stakeholders; also, it should be concerned by management accountants as imperative.

There are two main aspects can demonstrate the environmental management accounting has to be considered cautiously

The first one is the general awareness of environment consideration and protection, which has been continuing increased during last decades. (Banerjee, 2014) stated that it has generated a broad range of actual and potential accounts of organizational interactions with physical environment and social responsibility caused by the development in the social and environmental reporting system in the environment over the last 40 years. He claimed that “accounts of sustainability “is a possible topic which may mention by “stakeholders” during the organizations speaks in 1990s, and it is deliberately or not drew our attention (Burns, Warren & Oliveira, 2014). The resources in this world is finite for both environmental and financial, based on this, environmental ‘protection and conservation’ has been seen as a necessary consideration which generates one aim to encourage ecologically sustainable development, therefore, in order to spend limited environmental budgets efficiently to achieve highest possible benefit for the environment, it is obligatory for companies and governments to take it seriously conforming to (Cokins, Cherian & Schwer, 2015).

The development of environmental awareness for the business is a gradually advancement during the last few decades. (Deegan 2017) related that sustainability has become a leading position for the government future construction and development, since the publication of The Brundtland Report in 1987. After 1987, ‘sustainable development’ has been recognized as a growing emphasis for the business which is pointed so as to meet the needs the present without accumulatively costing the environment, economic, and society in the future. In other words, the business owners need to meet their own needs based upon reducing the impact on the socio economic and environmental aspects along their lifecycles. However, Nyquist (2016)(secondary from Ensuring Sustainability: A Preliminary Study of EMA, argues that many companies rarely disclose the ‘real’ information about the environmental issues on the reporting list in their financial calculation systems. Those costs for the environmental care in all probability be “hidden” under overheads (IFAC, 2015).

Development of Environmental Awareness for Business

According (DRURY, 2013) to it has been found in most parts that the information about managing accounting information is for internal intention which is virtually beyond the consideration of external use.

One option is incorporating the legally-binding with companies’ performance and intensifying the degree of implementation regulation, which should become the main point of carrying out process the development and implement about environmental management accounting. There are some relevant regulations have been introduced: According to IFAC, a business’s sustainability development acquire the sufficient details about environmental management costs which generated from each operation parts. In 1998, the society for the International Federation of Accountants (IFAC) has defined the environmental accounting which means the management of the performance of the environment and economic performance so as to develop and implement appropriate measures relating to the accounting systems. This includes the reporting and auditing of the companies, thus it is typically involved with lifecycle costing and the various benefits of assessment and strategic planning in this case stated from ACCA. The US Environmental Protection Agency(EPA) refers that carrying out the full cost accounting (FCA) is one of the most essential actions should be taken by companies. Fully implementing FCA points out that the costs should be allocated properly with a product or product line no matter it is direct or indirect (Ho, 2014). The Japanese Ministry of the Environment’s environmental accounting proposes some guidelines which identify the cost categories should include deliberations of business area claims that the significance of social reporting (CSR) and sustainability reporting (SR) has been gradually mattering by more and more companies in recent years. Social reporting is based on legitimacy theory, which has to correspond with various stakeholders expectations and intending to gain the trust of stakeholders therefore obtain better support from them. However, sustainability reporting aims to place more focus on not only meeting the stakeholders expectations, also, caring the social impacts which are coasted by the company and considering remain or improve the company’s future generation’s ability at the same time. In addition, sustainability reporting contains the company’s general performance in community development, particularly inspecting in company’s operation system (Zoni,2017).

In the present business world, the companies are able to describe the process of accounting as to identify the cost, processes and services. The conventional accounting system plays a crucial role in the growth of the overall global business which is not applicable to the environment costs. Thus the companies predict the indirect and general costs.EMA was a new form which was incorporated so as to overcome the disadvantages of the traditional accounting.

Relevant Regulations for Environmental Management Accounting

The limitations are as follows:

1. It increases the interest rate as well as the fees or the environment cost. There shall be increase in the environmental awareness and regulation which has become very stringent. Thus companies have to spend a lot of their fund in accommodating these interests
2. There is no proper communication between the accounting and the environmental departments, it requires much costs so as to improve the performance in the environment. In this eco efficiency is a bridge in these interest rates (Keršulien? & Turskis, 2014).
3. If the environmental cost is hidden then the general cost center leads to the bloated overhead cost.
4. There is no proper allocation of the environment cost which is the fixed cost
5. The calculation of the volume and the cost of raw materials is inaccurate.EMA calculates that waste is a processing cost and it includes the cost of purchasing raw materials. Thus the actual cost is more than that of the calculated time
6. There is much relevant environmental cost incurred in the records of accounting.

There are a lot of advantages that EMA provides. If the company implements the environmental accounting then it is capable to provide many benefits directly as well as indirectly.

The benefits are those which help in the decisional process which acts as a beneficiary so ax to improve the informational support. There is a separate cost of environment which will be improved (Krishnan, 2015).

The support in the process of data reporting so as to identify the environmental costs which supports the economic entities so as to collect the data in the environmental impact in the internal and the external reports. The new opportunities are discovered by the analysis of environmental cost which identifies the opportunities that is employed for making savings through the resources. The competitive advantage is used in the proper advertising so as to develop the environmental management accounting.

In conventional cost accounting, the aggregation of environmental and non-environmental costs in overhead accounts results that they are ‘‘hidden’’ from management.

Therefore, it is very important to apply a systematic method that enables to evaluate effectiveness of proposed or implemented actions. This can improve the foundation necessary for local communities to avoid costly environmental management failures and to meet the common goal-to provide the scientific understanding required to measure, model, maintain and/or restore, at different scales, the integrity and sustainability of ecosystems now and in the future (Krumwiede & Lawson, 2017).

 By identifying, assessing, and allocating environmental costs, CP investment project development methodology developed by APINI and Nordic Environmental Finance Corporation (NEFCO) allowed companies’ managers to identify a number of opportunities for cost-savings. The methodology is based upon:

1. Identification of the current environmental impact of industry (including transport, energy production units) and other economic factors most closely associated with that impact;
2. Identification of available options to improve environmental and economic performance of the company and to restore degraded ecosystems

The structure of the methodology is as follows

1. Commitment at top management to implement cleaner production (Zarzycka, 2017).
2. Planning and organization (CP programme approval by a company’s top management; definition of CP program me goals; development of an organizational structure for the program me);
3. Assessment (screening of company’s production processes and equipment; development of material balances for processes and equipment; analysis and assessment of the information; option generation; option prioritization);
4. Feasibility study of the selected options (technical evaluation; environmental evaluation; economic evaluation);
5. Investment analysis (procurement of equipment; pay-back period; net present value; internal rate of return; sensitivity analysis; selection of CP innovation to be implemented)(Reference 14 from : Environmental management accounting in Lithuania: exploratory study of current practices, opportunities and strategic intents (Lambert & Pezet, 2013)

This progress is indicated by the application of latest technologies to improve the productivity of manufacturing companies. Companies have implemented various measures, such as the use of modern technology in production, acquisition, reduced-cost resource utilization and cost reduction, to improve productivity, efficiency and overall performance and to meet the expectations of stakeholders.  However, increasing the productivity and efficiency of companies often leads to environmental destruction, such as water and air pollution and deforestation (Lambert, 2015).

Environmental accounting is not limited to financial accounting because it includes management accounting. Environmental management accounting (EMA) is utilized to monitor and evaluate resource utilization efficiency and reduce the environmental impact of company operations. EMA provides improved and comprehensive approaches. The information from EMA is used in internal organizational calculations and decision making. EMA is an internal decision procedure that includes physical material and energy consumption, flows and final disposal, costs, savings and revenues related to the potential environmental effects.

Advantages of Environmental Management Accounting

Environmental management accounting is the way that businesses account for the material use and environmental costs of their business. Materials accounting is a means of tracking material flows through a facility in order to characterize inputs and outputs for purposes of evaluating both resource efficiency and environmental improvement opportunities. Environmental cost accounting is how environmental costs are identified and allocated to the material flows or other physical aspects of a firm’s operations (McNally & Tophoff, 2014).

Environmental and economic performance is through the development and implementation of appropriate environment-related accounting systems and practices. While this may include reporting and auditing in some companies, environmental management accounting typically involves life-cycle costing, full cost accounting, benefits assessment, and strategic planning for environmental management information in order to optimize corporate environmental and economic performance and to achieve sustainable business.

On the one hand, the benefits of engaging with sustainability implement has been emerged in a large amount of case studies, as stated in (Goretzki & Strauss, 2017).These case studies generally appoint that companies may affected by losing opportunities for economic and environmental performance improvement if they failed with recognition about environmental management account during organization activities.

Accordingly, it is difficult for the managers to appoint the cost of negative externalities in the financial management plans of organization and the decision can be misleader by even only a small part of internalized externalities. It will enhance the difficulty of decision making for the stakeholders at the same time, whom could be even more misleader by those ‘unexpected internalized externalities’ if there is no actual financial effects on business (Mistry, Sharma & Low, 2014).

It has been called “the language of business” and the accountant in follow provides solution areas of dealing endorsement together with monetary accounting, tax, compliance, management accounting, auditing, economic systems, custom planning, forecasting, payroll and more. But is the character of the accountant changing or not. And how container businesses payment from this change. Technology, the internet, better financial records and strain software has misused the respect accountants’ composition and brought efficiencies to accountancy practices. The cloud income that accountants preserve pool resources and drive with clients in unaffected time. Expectations of clients are changing (Nitzl et al., 2016). Accountancy practices are accumulation new army to their training portfolio, and emerging new breeds of accountants result in other skills and problem expertise to alleviate clients beyond the numbers.

Cloud accounting is the most up-to-date technological revolution in accountancy. Operational in the cloud with foodstuffs like Sage One means that numbers and software are offered online anytime and anywhere. Partnership owners know how to protect their finances up to rendezvous and re-examine issue act from any internet enabled device, together with PCs, Macs, smart phones and capsule devices. The accountant-client bond becomes new joint with the cloud enabling a real-time effective link someplace the accountant bottle impart clients with further many insights into their corporation to advantage them screen performance, form  decisions and plan (Soon,2017).

Limitations of Environmental Management Accounting

Accountants are taking on opportunities to differentiate their practices and prod towards value-added army and a file of thing skills together with HR, technology, marketing and leadership to comfort clients beyond the numbers. The client-accountant association is a partnership, with accountants caring about the success

Circumstances and milieu The organization has been interacting with its stakeholders since its inception (Warren & Burns, 2017). These stakeholder relations comprise evolved over time and the letters and notch of interaction is miscellaneous depending on the stakeholder groups and fields of organization activity.  Stakeholders are clear as organizations, associations and parties interacting with the European Medicines help (the help or EMA hereafter), which possess an appeal in or are influenced by the go to work of the EMA and its partners. The dub ‘partners’ distinguishes the Agency’s operational relations in the European dictatorial make contacts and encompasses the citizen competent authorities, the European Commission, European legislative body and other European Institutions (Sunarni,2013). They furthermore consist of global (organisations) partners, such as, the humanity Health Organization (WHO), US FDA, Health Canada, and Japanese narrow establishment (MHLW and PMD)

Additionally, EMA has put in set a new operational style in conditions of the plane of stakeholder involvement (inform, consult, consult & involve, cooperate / participate). Addressing the ‘inform’ expression of the methodology, which is enclosed by the EMA’s manage to transparency, is an crucial include of the Agency's operations. The EMA publishes in a row on its exact and non-scientific operations, description of its decisions and procedures, and organises stakeholder events. In addition, the known has the rectify to call in rank and credentials from the charity in accordance with its set of laws on entrance to ID and on admittance to information. ideology on stakeholder consultation (‘consult’/’consult & involve’) are heart industrial to rationalize the Agency’s attempt and to align it with EC enhanced adjustment Guidelines (SWD(2015) 111 final). In addition, new convention of procedure (Vakalfotis, Ballantine & Wall, 2013).

Additionally, EMA has put in room a new functioning slant in conditions of the flat of stakeholder involvement (inform, consult, consult & involve, cooperate / participate). Addressing the ‘inform’ air of the methodology, which is roofed by the EMA’s get in touch with to transparency, is an focal figure of the Agency's operations. The EMA publishes in order on its exact and non-scientific operations, account of its decisions and procedures, and organises stakeholder events. In addition, the municipal has the completely to demand in order and ID from the society in accordance with its policy on admission to credentials and on admission to information. ethics on stakeholder consultation (‘consult’/’consult & involve’) are mortal industrial to reorganize the Agency’s come up to and to align it with EC improved adaptation Guidelines (SWD(2015) 111 final). In addition, new regulations of procedures and clearness  lucidity is an significant countenance of the Agency's operations. As for any open authority, the organization strives towards personality as amenable as feasible about how it facility and how it reaches its opinions and decisions (Umo,2014).

Conclusion

Conclusion

This is essential and stands out as an basic standard in stakeholders’ family member management, behind the entire of the other philosophy outlined below. in truth transparent relationships between the help and its stakeholders, be them with tolerant organisations, healthcare professionals, consumer organisations, the academy or the pharmaceutical industry, buttress an receptive switch over of opinions, stimulate the initiation and citations of dreams and promote inlet decision-making. self-rule and integrity The Agency, its staff, members of the Management go aboard and logical Committees, rapporteurs and experts are functioning with important stakeholders for the shelter.

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