P5考官有关环境管理会计文章.docx
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P5考官有关环境管理会计文章.docx
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P5考官有关环境管理会计文章
Environmentalmanagementaccounting
byShaneJohnson
01Jun2004
Thisarticleisintendedtohelpstudentsunderstandenvironmentalmanagementaccounting,itsincreasingimportance,andnewdevelopments.
Theglobalprofileofenvironmentalissueshasrisensignificantlyduringthepasttwodecades,precipitatedinpartbymajorincidentssuchastheBhopalchemicalleak(1984)andtheExxonValdezoilspill(1989).Theseeventsreceivedworldwidemediaattentionandincreasedconcernsovermajorissuessuchasglobalwarming,depletionofnon-renewableresources,andlossofnaturalhabitats.
Thishasledtoageneralquestioningofbusinesspracticesandnumerouscallsforchange.ThesequestionshavenotonlybeenraisedbyorganisationssuchasFriendsoftheEarth,Greenpeace,orgroupsof'eco-warriors',butfromtheUnitedNations,theEuropeanUnion,theUKgovernment,theBritishBankersAssociation,insurancecompaniesandpensionfunds.Recognitionthatourcurrentwayoflifeposesathreattousandourplanet,hasledtoglobalagreementsonactiontopreventfutureenvironmentaldamage.SuchagreementsincludetheMontrealProtocol,theRioDeclaration,andtheKyotoProtocol.
Businesseshavebecomeincreasinglyawareoftheenvironmentalimplicationsoftheiroperations,productsandservices.Environmentalriskscannotbeignored,theyarenowasmuchapartofrunningasuccessfulbusinessasproductdesign,marketing,andsoundfinancialmanagement.Poorenvironmentalbehaviourmayhavearealadverseimpactonthebusinessanditsfinances.Punishmentincludesfines,increasedliabilitytoenvironmentaltaxes,lossinvalueofland,destructionofbrandvalues,lossofsales,consumerboycotts,inabilitytosecurefinance,lossofinsurancecover,contingentliabilities,lawsuits,anddamagetocorporateimage.
Nearlyallaspectsofbusinessareaffectedbyenvironmentalpressures,includingaccounting.Fromanaccountingperspective,theinitialpressureswerefeltinexternalreporting,includingenvironmentaldisclosuresinfinancialreportsand/ortheproductionofseparateenvironmentalaccounts.Muchhasbeenwrittenaboutthenatureandqualityoftheseaccounts(seeGrayandBebbington,2001foranintroductionintothisarea).However,environmentalissuescannotbedealtwithsolelythroughexternalreporting.Environmentalissuesneedtobemanagedbeforetheycanbereportedon,andthisrequireschangestomanagementaccountingsystems.
EnvironmentalReviewofConventionalManagementAccounting
Inanidealworld,organisationswouldreflectenvironmentalfactorsintheiraccountingprocessesviatheidentificationoftheenvironmentalcostsattachedtoproducts,processes,andservices.Nevertheless,manyexistingconventionalaccountingsystemsareunabletodealadequatelywithenvironmentalcostsandasaresultsimplyattributethemtogeneraloverheadaccounts.Consequently,managersareunawareofthesecosts,havenoinformationwithwhichtomanagethemandhavenoincentivetoreducethem(UnitedNationsDivisionforSustainableDevelopment(UNDSD),2003)).Itmustberecognisedthatmostmanagementaccountingtechniquessignificantlyunderestimatethecostofpoorenvironmentalbehaviour.Manyoverestimatethecostandunderestimatethebenefitsofimprovingenvironmentalpractices.
Managementaccountingtechniquescandistortandmisrepresentenvironmentalissues,leadingtomanagersmakingdecisionsthatarebadforbusinessesandbadfortheenvironment.Themostobviousexamplerelatestoenergyusage.ArecentUKgovernmentpublicitycampaignreportsthatcompaniesarespending,onaverage,30%toomuchonenergythroughinefficientpractices.Withgoodenergymanagement,wecouldreducetheenvironmentalimpactofenergyproductionby30%andslash30%oforganisations'energyexpenditure.FrostandWilmhurst(2000)suggestthatbyfailingtoreformmanagementaccountingpracticestoincorporateenvironmentalconcerns,organisationsareunawareoftheimpactonprofitandlossaccountsandthebalancesheetimpactofenvironment-relatedactivities.Moreover,theymissoutonidentifyingcostreductionandotherimprovementopportunities,employincorrectproduct/servicepricing,mixanddevelopmentdecisions.Thisleadstoafailuretoenhancecustomervalue,whileincreasingtheriskprofileofinvestmentsandotherdecisionswithlong-termconsequences.Ifmanagementaccountingasadisciplineistocontributetoimprovingtheenvironmentalperformanceoforganisations,thenithastochange.EnvironmentalManagementAccounting(EMA)isanattempttointegratebestmanagementaccountingthinkingandpracticewithbestenvironmentalmanagementthinkingandpractice.
EnvironmentalManagementAccounting
EMAisthegenerationandanalysisofbothfinancialandnon-financialinformationinordertosupportinternalenvironmentalmanagementprocesses.Itiscomplementarytotheconventionalfinancialmanagementaccountingapproach,withtheaimtodevelopappropriatemechanismsthatassistintheidentificationandallocationofenvironment-relatedcosts(BennettandJames(1998a),FrostandWilmhurst(2000)).ThemajorareasfortheapplicationforEMAare:
∙intheassessmentofannualenvironmentalcosts/expenditures
∙productpricing
∙budgeting
∙investmentappraisal
∙calculatingcostsand
∙savingsofenvironmentalprojects,orsettingquantifiedperformancetargets.
EMAisaswide-ranginginitsscope,techniquesandfocusasnormalmanagementaccounting.Burrittetal(2001)stated:
'thereisstillnoprecisionintheterminologyassociatedwithEMA'.TheyviewedEMAasbeinganapplicationofconventionalaccountingthatisconcernedwiththeenvironmentally-inducedimpactsofcompanies,measuredinmonetaryunits,andcompany-relatedimpactsonenvironmentalsystems,expressedinphysicalunits.EMAcanbeviewedasapartoftheenvironmentalaccountingframeworkandisdefinedas'usingmonetaryandphysicalinformationforinternalmanagementuse'.
Burrittetaldevelopedamulti-dimensionalframeworkofEMA(Figure1).Theirframeworkconsidersthedistinctionsbetweenfivedimensions:
∙internalversusexternal
∙physicalversusmonetaryclassifications
∙pastandfuturetimeframes
∙shortandlongtermand
∙adhocversusroutineinformationgatheringintheproposedframeworkfortheapplicationofEMA.
Figure1:
ProposedframeworkofEMAaccordingtoBurrittetal(2001)
WithinthisframeworkthedifferenttechniquesofEMA-suchasenvironmentallifecyclecostingorenvironmentalcostaccounting-canbeplacedandassigned.Themanagementofacompanycanchooseappropriatetoolsonthebasisoftheirinformationneeds.
Similarly,inaseriesofpublications(1997,1998a,1998b),BennettandJamesdescribethediverserangeandscopeofenvironmentalmanagementaccounting.Theyprovideasetofusefulmodels,oneofwhichis'TheEnvironment-RelatedManagementAccountingPyramid',tohelpevaluateenvironmentalmanagementaccountingpracticesaswellastohelpinthedesignandimplementationofnewsystems.
AccordingtoBennettandJames(1998a)(Figure2),EMAisconcernedwithgatheringdatarelatedtotheenvironment(lowestlevels),whichareconvertedthroughtechniquesandprocesses(middlelevel)intoinformationwhichisusefulformanagers(top).Keydataisbothnon-financialandfinancialinnature.Managementaccountingtechniquessuchasperformancemeasurement,operationalbudgeting,costingorpricingareusedforthetransformation.
Figure2:
Theenvironment-relatedmanagementaccountingpyramid,BennettandJames(1998A)
Examplesoftechniques
RedefiningCosts
Aliteraturereviewrevealsvariousapproachestothedefinitionofenvironmentalcosts.In1998,theUSEnvironmentalProtectionAgencyarguedthatthedefinitionofenvironmentalcostsdependedonhowacompanyintendstousetheinformation,forexampleincapitalbudgetingorproductdesign.Theyintroducedterminologythatdistinguishesbetweenconventionalcosts,potentiallyhiddencosts,contingentcosts,andimageandrelationshipcosts.
Conventionalcostsarethoserawmaterialandenergycostshavingenvironmentalrelevance.Potentiallyhiddencostsarethosewhicharecapturedbyaccountingsystems,butthenlosetheiridentityin'overheads'.Contingentcostsmaybeincurredatafuturedate-forexamplecostsforcleaningup.Theyarealsoreferredtoascontingentliabilities.Imageandrelationshipcostsareintangibleinnatureandinclude,forexample,thecostsofproducingenvironmentalreports.
However,suchcostspaleintoinsignificancewhencomparedwiththecostsassociatedwithbeingseentobehaveinanirresponsiblemanner.TheinfamousBrentSparincidentthatcosttheShelloilcompanymillionsofpoundsintermsoflostrevenuesviatheresultantconsumerboycott,isanexampleofthepowerfulinfluencethatenvironmentalconcernhasintoday'sbusinessenvironment.Shelllearnedthelesson,albeitsomewhatbelatedly,andasaresultcompletelyre-engineereditsenvironmentalmanagementsystem.
ACCAhasalsopublishedaresearchreportoutlininganagendaforactiononfullcostaccounting(Bebbington,Gray,HibbitandKirk,2001),whichcontainsadetailedreviewofthebusinesscaseforadoptingfullenvironmentalcosting.Oneexampleofthepotentialgainsfromusingfullcosting(sometimesreferredtoaslifecyclecosting,BennettandJames(1998b))canbeseeninthecaseofXeroxlimited.
Xeroxlimited,asubsidiaryofXeroxCorporation,introducedtheconceptoflifecyclecostingforitslogisticchain.ThecorebusinessofXeroxlimitedismanufacturingphotocopiers,whichareleasedratherthansold.ThismeansthemachinesarereturnedtoXeroxli
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