GREEN ACCOUNTING

ACT 4611 SEMINAR IN ACCOUNTINGS

GROUP 5
 Three types of
Green Accounting
 Green Accounting (also called
Environmental Accounting)
• This presentation focuses on the application of
environmental accounting as a managerial
accounting tool for internal business
decisions.
• “The process of identification, measurement,
accumulation, analysis, preparation, interpretation,
and communication of financial information used
by management to plan, evaluate, and control
within an organization and to assure appropriate
use of and accountability for its resources”
 Green Accounting
Practices
• Improving environmental performance,
• Controlling costs,
• Investing in “cleaner” technologies,
• Developing “greener” processes, and
products, and
• Forming decisions related to their
business activities.
 Main reasons for
Green Accounting
• Many environmental costs can be
significantly reduced or eliminated.
• Environmental costs (and, thus, potential
cost savings) may be obscured in
overhead accounts or otherwise
overlooked.
• Environmental costs can be offset by
generating revenues
 Environmental costs
• Costs incurred to comply with
environmental laws are clearly
environmental costs.
• For example,
– Costs of environmental remediation, pollution
control equipment, and noncompliance
penalties
 Terms of Environmental Costs

• Regulatory costs are costs incurred to comply with

federal, state, or local environmental laws (also termed
compliance costs).
• Voluntary costs represent costs incurred by a
company which are not required or necessary for
compliance with environmental laws but go beyond
compliance.
• “Gray zone costs” refers to costs that are not solely or
clearly "environmental" in nature but may also be viewed,
in whole or part, as health and safety costs, risk
management costs, production costs, operational costs,
etc.
 Terms of Environmental Costs

• Upfront costs include pre-acquisition or pre-

production costs incurred for processes,
products, systems, or facilities (e.g., R&D costs).
• Operational costs refer to costs incurred
during the operating lives of processes,
products, systems, and facilities, as opposed to
upfront costs and back-end costs.
• Back-end costs include environmental costs
that arise following the useful life of processes,
products, systems, or facilities.
 Terms of Environmental Costs

• Conventional costs include costs typically

recognized in capital budgeting exercises such
as capital equipment, raw materials, supplies,
and equipment. Referred to as usual costs in
EPA Pollution Prevention Benefits Manual.

• Direct costs is an accounting term for costs

that are clearly and exclusively associated with
a product or service and treated as such in cost
accounting systems.
 Terms of Environmental Costs

• Hidden costs refer to the results of assigning

environmental costs to overhead pools or overlooking
future and contingent costs.
• Overhead is often used synonymously with indirect
or hidden costs as comprising all costs that are not
accounted for as the direct costs of a particular
process, system, product, or facility. The underlying
distinction is between (1) costs that are either pooled
and allocated on the basis of some formula, or not
allocated at all, and (2) costs that an accounting system
treats as belonging (directly) to a process, system,
product, or facility (i.e., a cost center, in accounting
terminology).
 Terms of Environmental Costs

• Manufacturing or factory overhead refers to

costs that are allocated using more or less
sophisticated formulae as contrasted with
"general and administrative (G&A)" overhead
costs that remain in pools and are not allocated.
• General & administrative (G&A) costs are
overhead or indirect costs that are not allocated
to the costs of goods and services sold.
• Research and development (R&D) costs can
include the costs of process and product design.
 Terms of Environmental Costs

• Exit costs are the costs of proper closure,

decommissioning, and clean-up at the end of the useful
life of a process, system, or facility.
• Contingent costs refer to environmental costs that are
not certain to occur in the future but depend on uncertain
future events (e.g., costs of remediating future spills).
Sometimes referred to as "environmental liabilities,"
"liability costs," or "contingent liabilities."
• Future (or prospective) costs refer to environmental
costs that are certain to be incurred at a later date, which
may or may not be known. Sometimes referred to as
"environmental liabilities."
 Terms of Environmental Costs

• Environmental liabilities is an umbrella term used to

refer to different types of environmental costs including
costs for remediating existing contamination, costs of
complying with new regulations, future environmental
costs of current operations (also known as back-end or
exit costs), and/or contingent costs.

• “Less tangible costs” refers to expenses incurred

for corporate image purposes or for maintaining or
enhancing relationships with regulators, customers,
suppliers, host communities, investors/lenders, and the
general public. Also termed “relationship costs” or
“image costs.”
 Green or Environmental
Accountants
• Green accountants are held responsible to
identify and track green costs often times
working with site, research and development,
and production managers when planning their
budgets.

• Green accountants help management recognize

that the tax benefits, rebates and lower costs of
being environmentally friendly add up to a real
bottom-line reward for doing the right thing.
 AT&T and their Green
Accounting Approach

• The company defines green accounting as

“identifying and measuring AT&T's costs of

environmental materials and activities, and
using this information for environmental
management decisions”
 A corporate environmental policy

• Committing the company to …

– develop and use nonpolluting technologies,
– minimize wastes,
– increase recycling,
– design products and processes with
environmental impacts as a critical factor, and
– raise all employees' awareness of
environmental responsibilities.
 Formal environmental
management systems
• AT&T have begun or are exploring new business
approaches in which environmental accounting
can play a part:
– Activity-Based Costing/Activity-Based Management
– Total Quality Management/Total Quality Environmental
Management
– Business Process Re-Engineering/Cost Reduction
– Cost of Quality Model/Cost of Environmental Quality
Model
– Design for Environment/Life-Cycle Design
– Life-Cycle Assessment/Life-Cycle Costing
 Green accounting in AT&T

• The reason for Green Accounting

– to control/improve process costs
– to trace costs to green activities
– for investment decisions/trade-offs
– to assess design impacts, now and in the future
– to prove compliance with environmental standards
– to respond to customers and other stakeholders
– to support sustained growth of profitability
– to make it easier to understand AT&T's impacts on
the future.
 Two basic accounting
activities in AT&T

1) Planning, such as predictive analysis

weighing environmental impacts on the
future (i.e., life cycle analysis, target
costing), and

1) Collecting and reporting data.

 Group Member

• Ms. Ploypatsorn P. ID.4816772 No. 7

• Ms. Khanittha S. ID.4818658 No. 8
• Ms. Nutsuda C. ID.4911075 No. 14
• Ms. Paphawarin S. ID.4912508   No. 20
• Ms. Wilasinee T. ID.4913963 No. 28
• Ms. Wanting L. ID.4935240 No. 39
• Ms. Qian L. ID.4935313 No. 40
• Ms. Passorn J. ID.5010401 No. 41
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