Angelica Joy S. de Castro BSA IV-2 Managerial Finance: Environmental Accounting I.

RESEARCH

"A successful environmental management system should have a method for accounting for full environmental costs and should integrate private environmental costs into capital budgeting, cost allocation, process/ product design and other forward-looking decisions ... Most corporate information and decision systems do not currently support such proactive and prospective decision making." (EPA, 1995a) What is Environmental Accounting? Environmental accounting is a term with a variety of meanings. In many contexts, environmental accounting is taken to mean the identification and reporting of environment specific costs, such as liability costs or waste disposal costs. For the purposes of this analysis, a much more general definition is used. "Environmental accounting" is more than accounting for environmental benefits and costs. It is accounting for any costs and benefits that arise from changes to a firm's products or processes, where the change also involves a change in environmental impacts. Functions and Roles of Environmental Accounting The functions of environmental accounting are divided into internal and external functions. (1) Internal Functions As one step of a companys environmental information system, internal function makes it possible to manage environmental conservation cost and analyze the cost of environmental conservation activities versus the benefit obtained, and promotes effective and efficient environmental conservation activities through suitable decision-making. It is desirable for environmental accounting to function as a business management tool for use by managers and related business units. (2) External Functions By disclosing the quantitatively measured results of its environmental conservation activities, external functions allow a company to influence the decision-making of stakeholders, such as consumers, business partners, investors, local residents, and administration. Structural Elements of Environmental Accounting Environmental accounting consists of the following structural elements with the purpose of attaining two types of benefits derived from costs incurred from environmental conservation activities during the regular course of business. (1) Environmental Conservation Cost Investments and expense related to the prevention, reduction, and/or avoidance of environmental impact, removal of such impact, restoration following the occurrence of a disaster, and other activities are measured in monetary value. Investment amounts are expenditures allocated during a target period for the purpose of environmental conservation. The benefits from these investments are seen over several periods and are recorded as expense during the depreciation period (the amount of depreciable assets recorded during the period).

(2) Environmental Conservation Benefit Benefits obtained from the prevention, reduction, and/or avoidance of environmental impact, removal of such impact, restoration following the occurrence of a disaster, and other activities are measured in physical units. (3) Economic Benefit Associated with Environmental Conservation Activities Benefits to a companys profit as a result of carrying forward with environmental conservation activities are measured in monetary value. II. REACTION

Environmental accounting (EA) is an accounting for any costs and benefits that arise from changes to a firm's products or processes, where the change also involves a change in environmental impacts. I think this type of accounting goes way back just that it is often neglected or they dont know that they are reporting about it. But due to recent series of events, I think that its time for Philippines to widely use this type of approach. Changes occur from time to time and so should business reporting. People nowadays are much more concerned on what is happening in his surroundings which makes EA a type to be accounted for. And that is why I will make a point as to why environmental accounting. 1. Effectiveness and efficiency Doing the right things and doing things right, we could achieve both. Just like what is mentioned about the juice company. The foil left by cutting the packaging for tetra juice packs cannot be used again; therefore it will already be accounted for as wastes. The wastes that we are talking about are not just wastes but trucks and trucks of wastes. Dumping of this waste is already a problem as with its effect to the environment. Costs are to be incurred to hire those trucks and these costs would be material to the company. What they did is they made bags out of it. That is efficiency. They avoid those costs in an environment friendly way. But its not always just what you have; you got to be open for options, options that are advantageous to the company AND to the environment. We also have to be effective. The quality of a product speaks about its maker. A company should account not only the cost it would incur but the more benefits it would bring even at a higher cost. We should comply with statutory requirements at the same time. An example is for materials acquisition of the companys product, you will choose the one that is in line with the statutory requirements than others with a much less cost. But of course the company should find options where they can achieve to be effective and efficient at the same time. Perhaps a cheaper material but still have the quality to be non-toxic to users. 2. A factor for capital budgeting decision making In a company, environmental accounting is a factor to account for in its costing practices and processes such as capital budgeting. EA can be a great factor on whether to accept or reject a certain project or to make a decision regarding capital acquisitions. From what I remember, a great example is our quiz in HBO last semester. Theres a merchandising company that sells copper plate rolls or something like that. They are now deciding on whether to manufacture their own product but to make that product, certain health complications could be inherent to

the people living near that factory due to chemicals used. Would it be recommendable to make their own product? The answer is no because people in that community should also be taken into account and another problem would arise if one of them would file a suit about that then a contingency liability is on the line too. By using EA, we could prevent the possible losses that the company can incur. In other cases, the acquisition of a high-technology machine that could minimize wastes would be a commendable option for the company. 3. Credibility on accounting Information With regards to capital budgeting, projected cash flows are needed. As what Ive read, The

first point to make about these calculations is that they are most frequently estimated costs and benefits, and thus are inescapably uncertain. Improved environmental cost accounting can improve the accuracy of these estimates by offering a more complete accounting of the cash flows and by providing estimates that exhibit less uncertainty. The value of improved accounting data is fairly obvious: the better the data, the more likely the firm is to pick investments with truly superior prospects. From this , EA could be a great factor to arrive at much more certain estimates that would make the informations more reliable.
4. In line with the corporates social responsibility From scraps to wastes, this can have a great impact on the company when analyzed and not just in the company but also in the environment. As i thought about it, environmental accounting is a requirement to satisfy the firms corporate social responsibility. Jollibee as an example, now use paper cups, paper bags and the like which are environment friendly because it is their corporate social responsibility to its community to preserve the environment by not using plastics. And using those types of materials can be also cost efficient. They give back in a way that they also have a gain in what they give back for the people. Thanks to environmental accounting. As a whole, I think EA is not a new approach but rather a much more improved traditional accounting technique. You can sum it up as PARCEB it can Prevent, Avoid and Reduce costs and still achieve Environmental Benefits. It enhances every bit of information for a better financial reporting with the focus of not only the profits but also the environment. Its like hitting two birds in one stone and this approach is exactly what the Philippines need. Its about time to give back to the environment. As we all know, if we continue to abuse our natural resources then sooner or later, all of us will be affected. Not just businesses but also the people itself. We should remember that the environment is also our business.