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Int. j. econ. manag. soc. sci., Vol(3), No (7), July, 2014. pp.


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International Journal of Economy, Management and Social Sciences


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Environment Accounting
Nikzad Amiri *
Science and Research Branch, Islamic Azad University, Qom, Iran.

Sayed Hesam Hesam Panah

Boroujerd Branch, Islamic Azad University, Boroujerd, Iran.

Ardeshir Bostan
M.A. Student, Science and Research Branch, Islamic Azad University, Ilam, Iran.
*Corresponding author:



Environmental accounting
Lawful costs
Optional costs
Social costs

Economic growth makes pressures on the Earths natural systems and resources intensified. Managers of
business units seek to lower operational costs and environmental impacts caused by operational activates.
Due to its financial view, traditional accounting system provides managers with no relevant information on
environment costs.
The aim of environmental accounting is to prepare information that helps managers assess control, decision
making, and reporting performances for respective organization or region. Environmental accounting is
based on environmental and economic concepts, criteria and values. In order to achieve this end, cultural
changes are felt necessary, but the tragic fact is that economy continues its growth while the environment, on
which economy depends, shows no growth. Although economic indicators like investment, production and
commerce exhibit a positive trend, basic economic indicators of environmental conditions get increasingly
more negative. Today, environmental accounting is developing and progressing rapidly. An appropriate
environment is needed by competitive success in long term and, to attain it, environmental accounting is
considered a vital tool. All cases mentioned determine national environmental accounting development.

Given the increasingly growing population and limited natural resources available, issue of environment protection has been identified as one of
the most important issues in human societies (Mola Nazari, 2003). In present age, given the presence of some environmental limitations,
especially on world trade, and narrower competition arena, it is generally agreed upon that business units managers are under increasing
pressures; they need not only to reduce operational costs, but also to minimize environmental impacts caused by their own operational activities.
Such pressures are exerted by stockholder groups, government, mass media, consumers, investors, and other organizations.
In order to reduce environmental impacts of their own operational activities, corporations have no remedy but introducing information on
environmental costs into their accounts and decisions.
Studies show that, considering the size and high importance of environmental costs, they are ignored by managers because information provided
by traditional accounting system in this field is generally imperfect, incomprehensible, and irrelevant.
Environmental accounting provides an organization with a tool which reconsidered traditional accounting system and rectified it in such a
manner that it can process and report information on environmental costs properly and, then, provide managers with it. Environment accounting
system is based on the idea of transformation and complementation of classic accounting. In this direction, it is necessary to calculate costs
caused by air pollution and its resolution as a function of products/ services production along with the costs profits resulting from products/
services them. Environment accounting can create a link connecting environmental managers and accountants, encouraging both groups to work
together moving on a direction where both financial and environmental performances of corporations will improve in the future (Sajjadi and
Jalili, 2007).

Concept of Environment Accounting

Environment means all objects surrounding us. But modern meaning of this term is a complex and interwoven phenomenon including all
biologically and physically social environments. Our environment is divided into pieces like a cake slices, which are referred to as subsoil slice,
middle slice named biosphere, upper slice named atmosphere, and that part of the Earth which is covered by water and ice named hydrosphere.
These slices connect an interwoven chain likes to each other so that any unreasonable manipulation, whether structural or compositional, will
break whole environmental interconnected chain which, in some cases, is not repairable and/ or its repair takes tens of years.
Environment accounting is a broad term with application in different fields:
Evolution and disclosure of environment financial information for financial reporting and accounting.
Evaluation and use of environment monetary and physical information for environment management accounting.
Estimation of impacts and costs of external environment, which is often referred to as total cost accounting.
Accounting of flows and accumulation of natural resources in accordance with monetary and physical values, which is referred to as
natural resources accounting.
Gathering and reporting accounting information within organizations in the form of natural resources accounting information for
national accounting purposes (Marfo, 2009).


Environment Accounting
International Journal of Economy, Management and Social Sciences Vol(3), No (7), July, 2014.

Environment accounting is a set of activities which increase ability of accounting system to detect, record and report effects caused by
environment destruction and pollution and which can be employed by large and small corporations different industries systematically on
different scales and/ or on the basis of intended bases.
That how corporations choose environment accounting reflects goals and reasons for its use (Sajjad, and Jalili, 2007).
This branch of accounting applies to micro and macro economies. At micro economy level (business units), environment accounting can be
applied to financial accounting and management accounting. Financial accounting, through which business units report accounting information
on their economic activities to organizational users, has established some requirements to disclose environmental debts and costs. This issue is
considered by financial accounting in viewpoints of users of financial reports for making decisions and fulfilling public responsibilities
(Kazemzadeh Orossi, 2003). In the area of management accounting, environmental accounting delivers some services to managers and business
units. Management can use information obtained from environmental accounting for some of their internal decisions as follows:
To design products and production processes,
To assess performance and control costs,
To invest in fixed assets, and
To manage wastes (Sajjadi and Jalili, 2007).
At micro economy level, environment accounting is used to calculate costs of underground resources and their resulting flows. The definition
given for national revenues to calculate environmental accounting accounts such as gross national product (GNP) is an example of
environmental accounting application at macro economy level (Graph et al.,1998).
Objectives of environment accounting:
1. To determine environmental opportunities and limit extra cost with no added values.
2. To estimate and calculate corporations' environmental costs and to include them generally in the factory overhead.
3. To identify environmental opportunities in order to make net profit.
4. To establish and maintain an environmental information system to enhance operational management.
5. To determine costs and future return from implementation of environment management information system.
6. To help to design environment friendly processes of products/ services production (Abdi and Aghdam, 2008).

Environmental Accounting advantages


An appropriate environmental accounting system is a supportive measure to attain sustainable development, which is to some extent an
important tool to measure, control, and make decisions.
2. Environmental expenditures, whether capital or current, are increasing significantly day by day.
3. Management needs financial information on environmental expenditures.
4. To plan basic costs requires financial information.
5. Environmental costs may be hidden on overhead accounts or otherwise be ignored.
6. Users needs for financial information on environmental performance of different organizations are growing.
7. Many of environmental activates are quantities, and financial in nature, therefore, they influence organizations costs, assets, and debts
8. It is obvious that each business unit has a major and a minor input of which environment pollution is an example.
9. Environmental risks may result in huge environmental debts and, consequently, an organization or business unit may accrue high costs
affecting its liquidity and financial situation seriously.
10. Accurately managing resources with environment friendly attitude results in such direct benefits as higher goodwill and/ or a better
image of organization.
11. Environment friendly attitude provides organizations with competitive advantages.
12. Environmental costs and performance accounting can support organizational development and implementation of environment
management system (EMS) and ISO 14000 credential.

Environmental Accounting Framework

Environmental accounting is a flexible tool capable of covering different frameworks and of being used on different scales. Scale and degree of
environmental accounting depend on corporations resources, needs, and goals.
Environmental accounting can be applied to following different scales:
Separate or collective product processes;
Production systems;
Products and/or product lines; and
Production equipment (Sajjadi and Jalili, 2007).
Environmental accounting framework is of interest in setting reporting standards. Following items are emphasized on in providing a lawful
framework of environmental accounting:
1. To raise the level of awareness of environmental topics;
2. To develop policies to help to identify environmental issues as well as to evaluate and report them;
3. To prepare educational programmers through disciplines interested in environmental issues and in accounting evolutions and reports;
4. To develop and pay attention to environmental accounting.
Such a framework demonstrates that accounting profession is accepting recent issues in domain of environmental accounting. In fact,
professional accounting pays special attention to the role of environmental accounting by adopting this principle that environmental issues play a

Nikzad Amiri *, Sayed Hesam Hesam Panah, Ardeshir Bostan


International Journal of Economy, Management and Social Sciences Vol(3), No (7), July, 2014.

fundamental role in human beings survival (Abdi and Aghdam, 2008).

Relationship of accounting and environment
There is a lot of interest in protecting environment at all levels, which has been revealed in many countries by passing environment-related
Governments are searching for new solutions to prevent environment destruction. Clearly, to protect environment needs an independent
management system. As an important part of management information system, accounting information system can play a significant role in
providing environmental information. Accounting profession can provide management with proper information through due disclosure of how
environmental assets and debts are represented and how environmental expenditures are reflected.
Accounting focuses on economic aspects of environment. Introduction of environment into accounting system leads to the correction of
economic indexes and enables different users to make decisions supporting sustainable development. In addition, environmental accounting has
various implications and many uses. Environment accounting can support natural resources accounting at a broad level, ecological accounting at
the level of local offices, and financial accounting, industrial accounting, and management accounting at a small level (Seyyed Fahimnejad,

Environment reporting and Audit

Since environmental accounting also includes environment reporting and since environmental performance is important in the view of users of
financial reports, objectives of economic performance reporting are not in complete agreement with those of environment reporting, therefore,
need for specific reporting requirements is felt due to limitations on users interests (Kazemzadeh Orossi, 2003; Abdi and Aghdam, 2008).
Environmental reports indicate an organization strategic planning for customers natural supply and support chain (Bavaria, 2000). Corporations
financial statements are constantly examined by independent auditors. Some firms provide on their reports and account some information which
relates to environment damages inflicted by their own activities.
Predominantly, such information included details on air pollution, water pollution, and on fuel and materials the firms use. Some reports are
more comparative, may be descriptive, and may include quantitative data resulted from a business units environmental performance indexes.
Public interest in environmental protection has increased pressures on agencies to inspect and test damages their business activities inflict on
environment carefully; and this results in implementation of environmental activities auditing. Which takes measurement of pollutions and
damages the activates of agencies inflict on the society, public fallings about activities of business units, examination of legal restrictions faced
by business units, and comparative tests on ecology and terrain surrounding business units into account.
Environmental auditing is a systematic process needing to be planned, structured, and organized carefully. Since environmental auditing is a part
of long-term evaluation and examination process, it must be an iterative process so that, if necessary, different group be able to repeat it and
compare its results in order to reflect changes quantitatively and qualitatively (Hemmatfar et al., 2011).
As a key element in environmental reporting, disclosure of environmental reporting, disclosure of environmental accounting information enables
corporations to use it in order to find out how the environmental is prothected and to treat environmental issues (Japanese Environmental
Department, 2005). In addition, appropriately disclosing environmental information through financial reporting can create some positive attitude
among shareholders and in capital markets and, as a result, it leads to an increase in earnings and revenues per share and, ultimately, to an
increase in stocks value per day, which will contrive an increase in shareholders wealth.

Nowadays, many of corporations face environmental issues and search for proper practices of reporting and disclosing information to general
public. The issue of environmental pollution is one of the most important problems of todays mankind society, which is so intense in Iran that
its capital city has been considered one of the most polluted cities around the world. This suggests necessity of application of environmental
accounting as an effort in direction of environment protection.
In case of establishment of an ideal environmental accounting system in our country, undoubtedly, accountants can be a strong arm for
government in relation to economic and financial controls.
To achieve this end, it is necessary to identify and define objectives and functions of environmental accounting carefully and to found and
formulate standards, rules and measures on the basis of reasonable and practical principles.
Thus, professionally qualified circles must take responsibilities for formulating and regulating professional rules and, in particular, standards of
environmental accounting in order to require corporations to observe approved procedures.

1. Environmental accounting
2. 1970s is the time when environmental accounting subjects were developed for the first time. Term environmental accounts was introduce for
the first time in Norwey in 1970s and, then, was applied by other countries gradually. In 1975, Accounting Standards Board published news
letter no. 5 titled Accounting for Contingencies to help identify the situation, based on which possible damages to the environment are
reported in financial statements.
3. In 1990, Accounting Standards Boards published newsletter no. 8 (90) titled Capitalization of the costs of environmental pollution.
4. Environmental costs
5. Environmental auditing


Environment Accounting
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