ASSESSING THE USE OF ENVIRONMENTAL

MANAGEMENT ACCOUNTING AS A TOOL

TO CALCULATE ENVIRONMENTAL COSTS
AND THEIR IMPACT ON A COMPANY’S
ENVIRONMENTAL PERFORMANCE
REPORT OF ARTICLE REVIEW

SEMINAR IN MANAGEMENT ACCOUNTING

SHAC 2153

GROUP MEMBER’S MALAR RAVE

NAME (SX190061HACS04)
TELAGAVATHY KALIAPPAN (SX190067HACS04)
BALA SARASWATHY RAJENDRAN
(SX190050HACS04)
PONNARESY MUTHUSAMY
(SX200900BSCHS04)
LECTURER NAME DR NURSYAZWANI BINTI MOHD FUZI
 SHAC 2153/SBSC 2153
SEMINAR IN MANAGEMENT ACCOUNTING
SEMESTER I, 2021/2022

ASSIGNTMENT QUESTIONS

ASSESSING THE USE OF ENVIRONMENTAL MANAGEMENT ACCOUNTING AS A

TOOL TO CALCULATE ENVIRONMENTAL COSTS AND THEIR IMPACT ON A
COMPANY'S ENVIRONMENTAL PERFORMANCE

ABSTRACTS

In this article review, what we can abstract is that the aim to investigate the
Environment Management Accounting in order to identify the environmental costs and their
impact on environment performance. Environmental Management Accounting is an
environmental management tool that is used to trace environmental costs directly to the
processes and products that are responsible for all the related costs in the environment.

Furthermore, this environmental project to improve environmental performance

needs many pilot projects to be conducted that demonstrate a positive impact on an
organization. But Environment Management Accounting implementation remains slow and
lagging behind in South Africa this is highlighting the problems that are needed to be
prioritized when considering the adoption of cleaner production in the upcoming time.

Previous research identified that traditional costing systems did not adequately
account for the actual environmental costs incurred by companies as much of these costs
were hidden under overhead accounts. Hence, production costs were high, resulting in
incorrect profit margins being set and ultimately impacting on company profitability

Next, this EMA also uses a research methodology which is quantitative and
qualitative involving triangulation. By using the research methodology both of them can help
EMA in improving the environmental and economic performance of an organization by
providing managers with more accurate values of their environmental costs.

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INTRODUCTION

Emissions and poor air quality has become a major issue In many developing
countries because as a result of an increase in industrial activity, electricity demand and
transportation. The importance and the grow of Cleaner Production (CP) occurs when there
is higher energy and raw material prices and it focuses on improved productivity and
reduced impact as the result of design over the life of products, processes and services.

Large savings potential and opportunities for CP to address environmental issues

successfully are not easily identified by companies since there is no monitoring and data
collection in place. Thus, inefficient processes and technologies that are used by many
companies that are obsolete instead of state-of-the art processes, resulting in higher
production costs, which, in turn, affect their profitability and competitiveness.

Environmental Management Accounting (EMA) acts as a effective tool to collect

environmental and sustainability, evaluate and interpret the information needed to estimate
the potential for cleaner production saving with particular emphasis on non-product output
costs and to make decisions to choose the right CP options, have been established in
several business cases.

However, significant gap in academic knowledge concerning EMA and its role in
identifying inefficiencies in a production process and benchmarking environmental costs
makes the level of implementation of EMA in practice is low to yield superior environmental
and economic performance.

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METHODOLOGY

In this research methodology, there are two key topics implemented. Which are
research method and data analysis. Initially, the research methods alluding to this article are
following a multi-method approach or likewise called method triangulation, in this method
triangulation the researcher will execute both quantitative and qualitative data analysis
methods. Since the managers are the only main respondents who can give the necessary
data information to this study, the researcher planned to conduct a census study. The
census study is the place where included every one of all the members of the management
team including top management, middle-level managers, and frontline managers. This
method is utilizing a qualitative and quantitative methodology to have the actual data.

The qualitative methodology comprises interviews and observation sessions. In the

meantime, quantitative methodology included questionnaires and quantified input and output
material flows using mass flow balance. The triangulation method to move toward data
collection enhances accuracy as it included a blend of three approaches which are
questionnaires, interviews, and systematic observation. This triangulation method is utilized
to expand the confidence in research data analysis and to build up the legitimacy of the EMA.

Following are, data analysis is to analyze quantitative information, the researcher has
used a number of tools such as tables, figures, models, and charts. The statistical packages
for social sciences were utilized for descriptive and inferential statistics data analysis and the
interviews data were analyzed using the relevant statistical methods. . Reliability of primary
data was established by using questionnaires to collect data on the company’s current level
of environmental performance and economic impact. The two most important aspects of
precision are reliability and validity. Reliability and validity are concepts used to evaluate the
quality of research. Reliability is about the consistency of action on similar subjects. Validity
is about the accuracy of a measure. The higher degree of reliability, the higher considered
“acceptable”.

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RESULTS AND DISCUSSION

Corporate environmental strategy of the organization

This segment discusses the management’s perception of the extent to which

environmental issues are integrated into the organization’s corporate strategies. Refer to the
analyzed results in table 2, the first two statement which are “integrated environmental
issues are incorporated into the company’s strategic planning process” and “reducing the
environmental impact of products and processes forms part of the Total Quality
Management (TQM) policy” scores highest percentage of respondents agreeing the
statement. While, the last two statement about environmental objectives and development of
new product scores lower percentage compared to the first two statement.

Eventhough, it scores lower percentage of the respondent agreeing, large number of

respondents indicating neutral view with 31.43% for statement three and 45.71% for
statement four. This results shows the ambiguity around this issue, and that management’s
understanding of environmental responsibility during strategic decision making is necessary
to represent this commitment both within and outside the organization. One of the
challenges to measure environmental performance is lack of clear environmental goals.
Overall, the different level of agreement shows that managers have limited knowledge on the
organization’s corporate environmental strategy, particularly in concern of environmental
objective and new product development.

Environmental Related Acivities

Environmental related activities that have been practiced in the organization in order
to implement environmental management was the subject of this question. The average
percentage represents for respondents who agree that environmental activities are regularly
done is 39.76%.The highest rank scored by “Identification of environmental related cost” and
followed by the “estimation of environmental related contigent liabilities.Literature suggest
that an EMA system should be implemeted to overcome the limitation of conventional
management acounting. This is because it unable to detect hidden environmental related
cost.

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Reasons for the promotion of clean production by industries

This section investigate the manager’s perception of factor that promote the
adoption of cleaner production in industries. Uncertainty about business sustainability was
the the most critical factor. The findings shows that external factors have a greater influence
on whether a company adopts cleaner output compared to internal factors. The obstacles
faced in clean production implementation are low management engagement, a lack of
environmental knowledge, weak communication, and financial problems.

Cause of pollution/Waste generation

This section is concerned on the most important causes of waste or pollution in the
company. The results indicates that the most important cause of pollution is input and raw
material waste and no planning for production, purchasing and sales was rated as the least
important cause. Material costs make up the highest portion of costs about 50% in a
manufacturing company. By reducing material usage the amount of waste can be reduced
hence this can save the cost. As a solution, Material Flow Cost Accounting can be used to
help managers identify environmental and economic benefits of adopting cleaner production
techniques and technologies.

Perspectives of environmental management accounting

This section deals with manager’s perception of environmental management

accounting preactices within the organization. The findings shows that most of the
environmental management accounting practices are not being implementd expect for
environmental impact audits. In this case, since the organization is ISO 14001 accredited,
environmental impact audits are mandatory. EMA is a tool that traces environmental related
cost that are generally hidden under overheads . Recent development in EMA indicates the
greater need for accounting information when making decision regarding environmental
projects. The organization uses a traditional cost accounting system which is inadequate in
incorporating environmental information into general management accounting information.As
a solution, EMA will provide the transition of data from cost accounting and financial
accounting to minimize the environmental impact by increasing material efficiency.

Environmental Audit Assessments

This part discusses on annual environment impact and other audit assessments and
whether the organization was currently practicing these. In general, respondents agree that
their organization does conduct regular environmental audit assessment. According to ISO
14001 EMS give continuous improvement in achieving environmental performance that is
consistent with the organizations environmental policy.
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CONCLUSION

The purpose of this study was not only to identify environmental costs associated
with the manufacturing process, but also to identify areas where future savings could be
generated. The company's environmental data processing isn't well-coordinated. Paper and
pulp processing uses a lot of resources and produces a lot of waste. There isn't much said
on how effectively they handle those data and knowledge availability. There is no
environmental management accounting element of the company. When it came to
determining environmental challenges, no financial requirements were included. The
corporation is insensitive to the real cost of their own environmental costs associated with
their operating operations. Opportunities for better financial results have gone undetected.
Despite having a high level of environmental awareness, the company's general knowledge
of various environmental costs, as well as the recognition and distribution of environmental
costs, is constrained.

The company considers environmental costs as well as the calculation of contingent

liabilities. Unfortunately, environmental costs aren't really linked to certain production
methods or products. The cost of waste disposal was not routinely collected and measured,
and the cost of waste handling within the company was seldom considered. This kind of
knowledge was only accessible to accountants. The explanation for this can largely be
traced to the company's traditional accounting scheme. The most difficult aspect of applying
environmental management programmes, according to studies, is a lack of funding. The
inability to motivate employees has also been described as a big issue.

Environmental matters are handled solely by the environmental consultant, though at

times, environmental issues are delegated to an environmental expert. There is a lack of
interdepartmental cooperation and no link between the financial and non-financial data
collection processes.

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