Managerial Auditing Journal

Environmental audit: theory and practices

Josephine Maltby
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Josephine Maltby, (1995),"Environmental audit: theory and practices", Managerial Auditing Journal, Vol. 10 Iss 8 pp. 15 - 26
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 ENVIRONMENTAL AUDIT: THEORY AND PRACTICES
Environmental audit: theory and
practices
Josephine Maltby
A survey of environmental consultants’ views on the purpose of audit
Introduction
Environmental audit is not a new activity. The
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International Chamber of Commerce (ICC) published its
Guide to Effective Environmental Auditing[1], jointly
written by staff of Arthur D. Little, a consultancy firm,
and the US manufacturing company, Allied-Signal. They
refer to “[the authors’] collective experience of more than
60 years in conducting environmental audits around the
world”. Elkington[2, p. 16] claims that ICI began
environmental auditing in the 1960s, although it then
ceased for an unspecified length of time, resuming in 1989.
It is only in very recent years, however, that interest in
environmental audit – both among practitioners and
potential clients – has become widespread.
It is possible to identify two sets of forces encouraging
companies to adopt environmental audit. What might be
termed direct pressures are those explicitly encouraging
the introduction of environmental audit; indirect pressures
are the range of threats and opportunities presented by
environmental awareness among customers, competitors
and legislators.
The major direct pressure for the mandatory introduction
of environmental audit comes from the EC. The EC’s
original proposal was for specified sectors of industry to
be subject to a mandatory audit. In the face of industry
opposition, the EC has dropped this scheme and replaced
it with a voluntary scheme involving what it calls an eco-
audit[3]. Companies registering under the scheme will be
required to have an environmental policy and an
environmental management system, and to have
quantifiable targets for continuous improvement of
performance. They must carry out an audit at regular
intervals – a minimum of every three years. The products
of the audit will be an audit report, submitted to
management, and a published environmental statement,
reflecting the audit results. The report and the statement
will both be subject to independent external validation.
Companies participating in the scheme will be entitled to
publicize their status.
Managerial Auditing Journal, Vol. 10 No. 8, 1995, pp. 15-26 © MCB University
Press Limited, 0268-6902
15
BS 7750, the draft British Standard on environmental
management, requires that the operation of the
environmental management system “should be internally
audited and evaluated on a regular, pre-determined basis”.
This audit should be performed by staff who are within
the organization but independent of the areas being
audited and reporting directly to management – the
classic formulation of the duties of an internal auditor.
The Standard was introduced in March 1994; it remains to
be seen how anxious companies will be to comply with it,
and whether it will have the same wide currency as BS
5750, to which some 35,000 UK firms have registered.
One indirect pressure for companies to introduce
environmental audit is the move towards public
environmental disclosure. The eco-audit would involve the
publication of an environmental statement; the form and
content of such a statement are as yet undefined, but
certain companies are already making environmental
disclosures. The scope of these disclosures varies
considerably. At one extreme, they are paragraphs in the
directors’ report; at the other, Norsk Hydro has produced a
report as substantial as a set of published financial
statements. Items in the directors’ report do not attract
separate mention in the audit report on the financial
statements, unless they are incompatible with the rest of
those statements. No UK company has as yet incurred a
qualified audit report on the grounds of the environmental
disclosures in its financial statements.
Environmental audit reports have been commissioned,
however, by companies making more extensive
disclosures. The major example to date is Norsk Hydro,
which published a 28-page environmental report on its
UK operations in 1990. Independent environmental
consultants (Lloyd’s Register) performed a “review”
(Norsk’s terminology) on the report, and their summary of
findings was published as its last section. Caird Group plc
has commissioned two environmental audits in 1989 and
1991 from Mott MacDonald and a “shareholders’
summary” of the auditors’ findings was published. A
distinction might be drawn between the two companies’
reporting. Norsk wrote and published a report on its
activities and commissioned an independent statement of
opinion from Lloyd’s Register; in the case of Caird, the
auditors both summarized Caird’s activities and expressed
an opinion on them. It seems likely that companies
 16 MANAGERIAL AUDITING JOURNAL 10,8
prepared to go to the (voluntary) trouble and expense of
issuing environmental reports, will wish them to be
accompanied by an audit opinion. A survey of the growth
in the environmental consultancy market[4] quotes Peter
Jones of Rechem Environmental Services: “It does not
make sense to have your own environmental group carry
them [audits] out because no one will believe your results”.
A further, growing, indirect pressure for environmental
audit is the legal one. Recent UK environmental legislation
has presented company management with a variety of
possibilities for falling foul of the law, incurring expense,
and in some cases being sentenced to prison. Newly
created regulatory bodies are empowered to recover clean-
up costs from polluters. Emissions to water or air or
discharges of solid waste must be consented and
production may be summarily shut down if the company
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exceeds the terms of the consent. Businesses have a duty
of care to ensure that contractors disposing of their waste
are not breaking the law. In addition to these and other
statutory requirements, businesses are faced with the
possibility of developments in the area of civil liability for
environmental damage, leading to more claims, higher
damages and a wider definition of matters awarded legal
protection – it may become possible for claims to be
brought by people who do not have property rights in an
affected area but have suffered loss of amenity.
Developments in statute and civil law present
management with a new area of risk. Environmental audit
can be invoked as one possible management strategy for
monitoring and reducing that risk.
These different direct and indirect pressures encourage
different types of audit. The British Standard essentially
requires the introduction of an internal audit; eco-audit
requires both internal and external audit. Published
environmental statements, it is argued, need an external
audit to give them credibility. Monitoring of legal risks
might be adequately done internally, provided that the
necessary skills are available in-house. This is an
important proviso. The environmental audit potentially
requires a knowledge of the legal framework within which
the company operates, and also of any forthcoming
changes in the law, an understanding of the company’s
processes, raw materials, products, wastes and energy
usage, the effects of each of these on the environment
locally and globally, and the ability to suggest ways in
which the company might change or improve what it does.
Only the largest companies can afford to maintain all
these skills permanently in-house. For this reason, it is
likely that, whatever the form and purpose of
environmental audits, most audit work will be carried out
for companies by consultants. These consultants may act
as “external” or “internal” auditors, depending on their
terms of engagement, but it will be they who perform
audit for the majority of businesses.
This article falls into four sections. The first examines the
definitions of the scope and purpose of environmental
audit which have recently been advanced. The second
gives an overview of the environmental consultancy
industry and considers the relationship between the
industry and the developing concept of the environmental
audit. The third and fourth sections summarize the results
of the survey carried out among a sample of
environmental consultants and consider the implications
of the findings.
The draft proposal for the eco-audit scheme quotes the
ICC definition of an environmental audit quoted above. It
is combined, however, with two elements absent from the
ICC’s prescription – the requirement to publish the results
of the audit and the requirement for independent
validation. The objectives of environmental audit set out
in the draft proposal go beyond the ICC’s emphasis on the
implementation of management policies. They also
include “increasing awareness within the company itself,
the competent authorities and the general public, about
needs, priorities, scope and ways for environmental
performance improvements”, “informing the authorities
and the public” and “inciting companies to commit
themselves to continuous performance improvements”.
The internal audit is to be subjected to external
monitoring and its results are to be made public. This is
still only a draft proposal, and the scheme it outlines a
voluntary one, but it is worth emphasizing that it would
subject the internal management audit to public scrutiny
in a way not envisaged by the ICC.
Defining environmental audit
There has not been, until very recently, any discussion of
environmental audit in the auditing literature. For
instance, Gwilliam[5] does not mention the term in his
discussion of social audit, nor do Gray et al.[6] in their
coverage of environmental disclosure. This silence can
perhaps be explained by the embryonic and uncertain
nature of environmental audit. The conflicting definitions
of environmental audit offered by the ICC and Elkington
encapsulate some of the uncertainties.
The ICC[1, p. 3], defines environmental audit as
a management tool comprising a systematic, documented,
periodic and objective evaluation of how well environmental
organisation, management and equipment are performing
with the aim of helping to safeguard the environment by: (i)
facilitating management control of environmental practices;
and (ii) assessing compliance with company policies, which
would include meeting regulatory requirements.
The key-word here is “management”. The nature of the
environmental audit is determined by management
policy; “the aim of helping to safeguard the environment”
is literally tucked away in a subordinate clause. The same
managerial emphasis is apparent in the draft British
standard on environmental management systems. This
defines environmental audit as “a systematic evaluation to
determine whether or not environmental performance
complies with planned arrangements, and whether or not
these arrangements are implemented effectively, and are
suitable to fulfil the organisation’s environmental
policy”[7].
 ENVIRONMENTAL AUDIT: THEORY AND PRACTICES
The foreword to Elkington’s survey of environmental
audit is by Sir Trevor Holdsworth, president of the
Confederation of British Industry. He takes the ICC
definition as a starting-point: “[T]his management tool
has been developed to respond to a real business need. It
helps to identify where environmental improvements and
efficiency savings can be achieved and longer-term
viability secured. It provides a ready return on investment
and for this reason alone rightly deserves the popularity it
is gaining in the business world”[2, p. 5].
Holdsworth does go on to mention other advantages of
environmental audit: providing an early warning,
increasing employee awareness, facilitating insurance
cover, testing environmental performance against aims
and intentions – but his emphasis is on environmental
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audit as an instrument of management policy rather than
a safeguard of the environment. Management is protecting
its interests by increasing profit and reducing the risk of
expensive litigation.
Medawar describes social audit as “latching on to major
companies – if not with the consent of the management
then without it – and examining and reporting on their
activities as they affect employees, consumers, local
communities and other interests”[8, p. 389]. The social
audits carried out by Public Interest Research Centre Ltd
included in some cases the consideration of environmental
issues, for instance in the audit of Coalite, but from a
different viewpoint from that advocated by the ICC and
Holdsworth. These were external rather than internal
audits, and whatever the standards were against which
achievements were measured, they were not standards
predetermined by management. Medawar discusses at
some length the difficulty of evolving standards against
which corporate behaviour might be judged. He concedes
that “an irresistible, objective and verifiable conclusion” is
rarely possible in management decision making; the value
of social reporting and auditing lies in the provision of
information and the expression of an independent point of
view.
[I]f behaviour cannot always be defined (by means of
standards and measures) for what it should be, it can almost
always be recognised for what it is. [A]n independent view
may never be a definitive one, though it will be almost bound
to improve on the accounts that the average company will
prepare on or by itself [8, p. 394].
Environmental audit began, then, as an internal
management activity, aimed at furthering the policies of
management. Its starting-point was diametrically
opposed to social audit, which was a critical, external
review of the firm’s impact on its social and physical
environment. The literature of external audit has tacitly
acknowledged this managerial bias by ignoring
environmental audit. Gray and Symon[9] recognize the
current imprecision in the use of the term “audit” in an
environmental context. They list five prerequisites for an
audit under company law: an independent auditor,
information to be audited; standards as a basis for
judgement; distinct and identifiable bodies of information
17
preparers and users; and information systems generating
audit evidence. Using these criteria, they claim that “most
uses of the term ‘audit’ are not audits at all but, more
usually, a form of review”[9, p. 10; 10,11].
A surprising feature of the recent upsurge of interest in
environmental audit has been an assumption that the
audits carried out by large companies have been in the
social audit tradition. This assumption is exemplified by
Geddes[12, pp. 215]. Geddes describes environ-mental
audit as an “emerging area of social audit practice”. He
goes on, “The proliferation of environmental auditing by
private companies is a key theme of other contributors to
this book and will not therefore be dealt with here. But it is
not only private – or public – companies which have been
advancing environmental audit practice”. The inference is
that the audits carried out by private companies represent
an advance in social audit. Geddes is linking the
“management tool” described by the ICC with social audit,
which he has earlier described as proposing “a broader
financial and economic perspective, reaching beyond the
individual enterprise … to the local economy of which it is
a part”.
The discussion in the preceding section of this article of
the pressures for environmental audit identified different
forces working in different directions. The EC’s proposals
for an eco-audit scheme, outlined above, are relevant here
because they seem to invoke both meanings of the
environmental audit. The objectives of environmental
audit set out by the EC in the draft proposal go beyond the
ICC’s emphasis on the implementation of management
policies. They also include “increasing awareness within
the company itself, the competent authorities and the
general public, about needs, priorities, scope and ways for
environmental performance improvements”, “informing
the authorities and the public” and “inciting companies to
commit themselves to continuous performance
improvements”. The internal audit is to be subjected to
external monitoring and its results are to be made public.
This is still only a draft proposal, and the scheme it
outlines a voluntary one, but it is worth emphasizing that
it would subject the internal management audit to public
scrutiny in a way not envisaged by the ICC.
Power[13] juxtaposes the two competing views of
environmental audit and points out the two sets of
dichotomies that exist. He notes the managerial bias in the
ICC’s definition of environmental audit, quoted earlier in
this article and contrasts this with Medawar’s “protest-
driven conception of audit”[13, p. 37]. Power’s subtitle
“Between protest and professionalization” sums up this
dichotomy. Related to it, but distinct from it, is another set
of oppositions – between what Power terms “scientific and
accounting cultures” and, more specifically, between their
approaches to environmental risk. Environmental audit as
practised by accountants, in Power’s view, may be only
another variant of compliance audit. The auditor defines
environmental risk and then audits the effectiveness of the
management information system in monitoring that risk.
Issues that cannot be translated into the “economic and
 18 MANAGERIAL AUDITING JOURNAL 10,8
risk-based language”[13, p. 39] of financial audit are
ignored. Power sees in the debate about environmental
audit not only a conflict between managerial and critical
notions of audit but also a dispute about what are the risks
that should be reported; he sees a danger that
environmental audit will narrow its focus to address only
the issues with which accountants feel comfortable.
The issue of the tension between the two constructions of
environmental audit is discussed at some length because
of its implications for the future development of the
discipline. The advantages to corporate management in
conflating the two meanings of audit are evident. An
activity that is designed to promote management policies,
reduce risk and cut costs is aligned by the use of the term
“audit” with a rigorous, independent and challenging
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scrutiny of environmental performance. This potential for
confusion and manipulation makes it desirable to gain an
understanding of the way in which the concept of
environmental audit is currently interpreted. For all but
the largest companies, environmental audit will be carried
out by consultants. For this reason, this article attempts to
outline the views of environmental consultants about the
function of environmental audit. Consultants do not have a
monopoly on the concept of audit: businesses, regulators,
local and national government and the public at large all
have a legitimate interest in the way environmental audit
develops. But as consultants are likely to carry out most of
the audit work undertaken in the immediate future, it
seems appropriate to draw on their views. The following
section therefore looks at the views of members of the
environmental consultancy industry.
The environmental consultancy industry
The Directory of Environmental Consultants[4], published
by Environmental Data Services (ENDS), lists 225
environmental consultancy firms and notes that their
numbers have increased by 80 per cent since its first
edition in 1988[14]. Environmental audit is not the main
reason for this increase, but rather one of many activities
demanded by business and government in response to
legal, consumer and competitive pressures. Four
specialisms account for nearly half the turnover of the
ENDS list of consultants – environmental impact
assessment (EIA), and advice on water pollution, waste
management and contaminated land. Audit represents
about 5 per cent of consultancy business.
The ENDS Directory[4] includes a one-page entry for each
of the firms it lists, summarizing and describing that
firm’s services. For instance, Environmental Strategies
Ltd includes in its entry: “Environmental auditing: site
and operational audits for corporate, insurance and
merger and acquisition assessments”. A review of other
firms’ directory entries yields a variety of implied
definitions of environmental audit, for instance:
Site survey: advice on liabilities and consents for companies
engaged in manufacture.
Assessment of operating facilities; compliance evaluation
with corporate environmental policies and legislation;
reviews of environmental management strategies and
procedures.
Design of programmes for management and control.
Reviews and audits of existing environmental impact
assessments.
Advice to confectioners on improving recyclable content of
packaging.
Of these definitions, the first two quoted are reminiscent of
the ICC definition quoted earlier. The next three travel
progressively further away from it. “Design of
programmes” is a stage in the creation of a system, not of
its audit; review and audit of environmental impact
assessment and advice on packaging might be part of an
environmental audit but are not in themselves audits.
It is unimaginable that statutory auditors in the UK would
describe their services in such diverse ways, with, for
instance, production of the weakness letter or advice on
systems design being characterized as an audit. Financial
audit is subject to very detailed regulation, by means of
statute and case law professional pronouncements, and
most recently, the creation of a monitoring body which
oversees practitioners. The standard of work done varies,
many would say to an unacceptable degree, but some
consensus exists among practitioners about the nature of
the audit and the steps that audit work should include.
The provision of environmental audit represents a
response by the consultancy industry to a demand from
clients; it does not at present operate within any
framework of statutory or professional requirements, and
individual practitioners are therefore constructing
environmental audit as they see fit.
The nature of the industry encourages diversity in the
definition of environmental audit. The consultants listed
in the ENDS Directory[4] exhibit a wide variety of
specialisms. Some have a background in engineering,
others in landscape design, others again are ecologists or
geologists, and others are part of management
consultancy or accountancy firms. Some consultants are
one-person operations, others have hundreds of
employees; some are independent specialists, others are
attached to international groups which offer services other
than environmental ones. As noted above, there are
powerful regulatory forces which impose a common
understanding of financial audit on its practitioners; there
is also a shared background of training and professional
experience. This largely common culture is not present in
environmental audit; it is practised by people with very
disparate training and experience.
The consultancy industry has made recent attempts to
create some standardization of its activities. The Institute
of Environmental Assessment was formed in 1990 to
provide “an independent reference point for
environmental impact assessment standards”[4]. In 1991,
the Association of Environmental Consultancies (AEC)
 ENVIRONMENTAL AUDIT: THEORY AND PRACTICES
was launched by a group of 20 consulting firms. In
addition to acting as a forum for consultants, its stated
aim is to develop and maintain standards in the
consultancy industry. It has drawn up draft codes of
practice for environmental audit and environmental
assessment projects. The AEC’s chairman is quoted in an
AEC press release as saying that “the AEC was
determined to play a full role in the development of the
highest professional standards and to secure a leading role
for its members in the rapidly developing European
market for environmental consultancy services”. The
juxtaposition of the two aims implies that the consultancy
industry is aware of the desirability of being perceived by
its potential clients to be operating within standards. In
the absence of legislative intervention, it seems likely that
initiatives like the AEC’s will be the source of standards
for the industry in the foreseeable future.
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Environmental audit is currently at a crucial stage in its
development as a discipline. There is a growing demand
for audit services and a growing body of practitioners in
the field. What has yet to be formed is a consensus among
practitioners, clients, legislators and users of
environmental information about the purpose of the audit,
and consequently about the form that it should take. The
aim of the survey, which is summarized in the remainder
of this article, was to elicit the views of environmental
auditors about the the purpose of the audit and to
ascertain what form their work takes and for whom they
carry it out. It was also intended that the survey should
address the issue raised by Power[13] – the extent to
which consultants’ backgrounds affect their views of
audit: “[A]ccounting firms are not the only organizations
offering environmental audit services. In the UK there are
also engineering- and science-based consultancies … It is
worth speculating about whether there may be
considerable conflict ahead between scientific and
accounting cultures; particularly concerning the relative
representation of these cultures in the new AEC”[12, pp.
40-1].
The survey was carried out between November 1991 and
January 1992 by means of a postal questionnaire (see
Appendix) which was sent to the 21 member firms of the
AEC. The AEC was selected because it offered a means of
contacting firms which were actively involved in
environmental consultancies and whose management
might be presumed to have some interest in the
development of environmental audit as a discipline.
Clearly, the use of a small sample and a questionnaire
approach raises certain difficulties. It is not suggested that
the responses received are in any sense statistically
representative of the views of the consultancy profession,
nor that a fairly short questionnaire is the optimal method
of eliciting respondents’ views on a complex topic. The
perceived advantage of the postal questionnaire was that
it permitted several firms to be contacted and to respond
within a short time period. The insights gained from this
exercise will, it is hoped, be tested and refined in the next
stage of this work, a more detailed case study of a limited
number of firms within the industry.
19
Findings
Respondents
Of the 21 firms contacted, 17 replied. The respondents
were divided into two categories, reflecting Power’s
distinction between “scientific” and “accounting” cultures.
Where the majority of a firm’s staff had a qualification in
environmental science or engineering, the firm was
classed as “environmental” in approach – referred to
henceforward as the E group. Firms where accountants,
managerial consultants or lawyers were in the majority
were classed as “managerial” – the M group. In terms of
staffing, the difference was quite clear cut; firms tended to
have a clear preponderance of staff with one or the other
type of expertise. Thirteen of the respondents qualified for
the E group and the remaining four for the M group. The
small size of the original sample and, more particularly,
the very small size of the M group, make it unsafe to
conduct any kind of statistical analysis of the results. The
findings below represent an attempt to summarize the
data and draw out any obvious similarities or differences
between the groups. No claim is made that the results are
statistically reliable.
Firms surveyed
The sizes of firms in each group showed a wide variation.
The largest E firm had 2,500 employees and the smallest
21; M firms varied in size from 10,000 employees (one of
the major international accountancy practices) to eight.
Apart from environmental audit, most firms offered
several other services, and in most cases, environmental
audit represented no more than 20 per cent of turnover.
The only exception was one of the M firms, an
international accountancy practice, which offered no other
environmental services. The M firms generally offered a
more restricted range of services than the E firms, with
more emphasis on strategy and policy advice and less on
technical areas such as investigation of pollution; this is
entirely compatible with their different staff profiles. For
most firms, manufacturing industry made up the largest
proportion of the client group; local government was the
second-largest user.
Audit work done
The majority of firms carried out audits on a non-
recurring basis; some work – but not much – was done
regularly, but less often than annually. Most of the E
group’s work was performed on individual sites belonging
to the client, while the M group performed audits on the
client company as a whole. Firms were evenly divided
between using a standard audit programme with
modifications and devising an individual programme for
each client.
Respondents were asked what audit procedures they
carried out in the course of fieldwork; the items suggested
were based on those performed in a financial audit, but
respondents were given the opportunity to indicate any
others which they also carried out. There was no
procedure that was invariably performed by all
respondents, but some appeared to be more frequently
 20 MANAGERIAL AUDITING JOURNAL 10,8

used than others. The most widely used procedures (in Table I. Audit objectives
descending order of popularity) were site visits,
interviews with management, observation of procedures
Ranking by Ranking by
and interviews with client staff. Documenting and testing Audit objective M group E group
systems and completion of an internal control
questionnaire were less widespread and tests on the
accuracy of clients’ sampling techniques were done by Test the client’s compliance
with legislation 3 1
most respondents only occasionally. Only three
respondents mentioned another audit procedure; in each Assess the impact of a new
case they referred to making contact with regulators. business development 11 11
There was no perceptible difference between the Test the client’s compliance with
procedures favoured by the E and M groups. its own internal policies 2 2
Help draw up environmental
Products of the audit policies/reporting systems 3 7
The procedures most frequently undertaken on Identify opportunities for improving
completion of the audit were reporting to management (on environmental performance 1 5
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audit findings and on action to be taken) and discussing
findings with senior management. Discussion of findings
with line management was less common. Reports were
prepared for shareholders only occasionally and by a
minority of respondents; the majority never reported to
shareholders.
Respondents’ views of environmental audit
Views were elicited in two different ways. Respondents
were asked to indicate the objectives of the audit work
they performed and to express agreement or
disagreement with a number of statements about
environmental audit. Some objectives and statements
related to audit as a “management tool”, checking on
compliance with legislation or company policy; others
related to the audit as a means of improving
environmental performance. Items were listed in random
order. There were some differences between the two
groups of respondents’ ordering of the items. Table I lists
the suggested audit objectives and shows the order of
importance assigned to them by each group. Table II
summarizes the degree of respondents’ assent to the
statements made about environmental audit (the higher
the ranking, the greater the agreement).
Environmental audit in practice: an analysis
The picture of respondents’ views of environmental audit
that emerges from the survey is clear in some respects and
confusing in others. It is fairly easy to obtain a picture of
what kind of audit work is being done by respondents, but
more difficult to summarize respondents’ views on the role
that the audit does or should play.
Environmental audit is only one of a number of services
that respondents provide, and less widely demanded than
other services they offer; this is in line with the ENDS
Directory’s summary of consultancy services[4]. Most
audits are done on a one-off basis for individual sites of
manufacturing companies. It is rare for the audit to
represent a recurring engagement. Some respondents
commented that it is too early to state whether audit work
is likely to recur. Given that many engagements will be
recent and that clients are unlikely to feel the need for an
Audit the performance of suppliers/
contractors 7 9
Assess the adequacy of internal
environmental auditing function 7 8
Test the adequacy of the client’s
monitoring and reporting systems 3 5
Assess the client’s risk of causing
environmental damage 3 2
Assess risk of litigation 10 2
Enable an opinion to be expressed
on the client’s environmental
reporting to third parties 7 10
annual audit, it may be that a pattern of visits has yet to
develop. It may also be the case, however, that some clients
see the audit as a once-and-for-all experience which it is
unnecessary to repeat. Audit fieldwork mainly takes the
form of visits, interviews and observation rather than
systems testing. This is an interesting finding, given the
emphasis placed by certain commentators on the
relevance of financial auditors’ experience to the
environmental audit. Gray and Symon[8, p. 11], for
instance, stress that “accountants trained as statutory
auditors should be in a position to assess the extent to
which environmental information systems … provide
sufficient evidence to come to conclusions about the
reliability of reported data”. The limitations of the
questionnaire survey make it impossible to follow up the
implications of this finding, but it would be of great
interest to examine auditors’ fieldwork in detail and
establish how far the systems testing which is the stock-
in-trade of the financial auditor has been transferred to the
environmental audit.
The questionnaire results suggest respondents normally
report to management on their findings and make
recommendations to them for action; it is rare for the
auditor to report to third parties or to express an opinion
on a report addressed to third parties.
It is much more difficult to arrive at a coherent view of
respondents’ attitudes to environmental audit. As noted
 ENVIRONMENTAL AUDIT: THEORY AND PRACTICES 21

Table II. The degree of respondents’ assent to the statements
made about environmental audit
Statement
Companies in certain manufacturing
industries should be required by
law to produce an audited
environmental report annually
Environmental audit is best
described as a management tool
and its use should be at the
discretion of management
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Directory, it appears that practitioners regard audit as a
distinct discipline. Audit is not regarded as a means for
evaluating the impact of a new development on the
business, nor is it often applied to suppliers/contractors.
Degree of Degree of This is in keeping with earlier findings and with the drift
assent by assent by of the ICC’s definition of environmental audit, as an
M group E group
evaluation of an organization as a whole. Some
commentators have referred to the possibility of “issues
audits”, dealing with a particular aspect of operations[2,
p. 15; 15, p. 232], but it appears that these are infrequent in
practice. It is rare for consultants to be required to
Equal 2 Equal 1 evaluate the work of internal auditors; this confirms the
suggestion made earlier that environmental audit is
unlikely to be carried out in-house except in large
companies. Nor do consultants see it as their role to
1 Equal 4 express an opinion on external reports; as noted earlier,
external environmental reporting is still fairly unusual in

Evironmental audit is primarily

a means of ensuring compliance the UK.
with legislation 8 7
Environmental audit is primarily a The picture becomes much less clear cut when the attempt
means of identifying opportunities is made to reconcile respondents’ accounts of the audit
for improving environmental work they carry out with their views about what audit
performance Equal 5 Equal 1 should do. The lists of audit objectives and propositions
Environmental audit should be about the audit had been structured to include conflicting
subject to a standard-setting process views. Some items were applicable to the view of audit as
defining the audit scope and a “management tool”, others to audit as a critique of
methodology to be used Equal 2 3 company practice, others again could be reconciled with
Terms such as environmental
either view. It might have been expected, for instance, that
audit, environmental review and a respondent who endorsed the “management tool” view
environmental impact assessment of audit would have regarded as “very important” the
can be used interchangeably 9 9 objectives “to test the client’s compliance with its own
internal policies”, “to assess the client’s risk of causing
The scope and methodology of an
environmental damage” and “to assess the client’s
environmental audit should be agreed
between the auditor and the client
exposure to litigation”. Such a respondent would also have
and should not be predetermined by agreed strongly with the propositions describing audit as
outside bodies Equal 5 Equal 4 a management tool and that the scope and methodology of
the audit should be agreed between auditor and client.
Environmental audit is essentially
a review of systems and as such is
A respondent who stressed the role of audit as an
similar to financial audit Equal 2 8
independent evaluation of performance might have been
Environmental audit is chiefly expected to rank highly the objectives relating to
concerned with identifying the compliance with legislation and improvement of
impact of the client’s operations environmental performance. They might also have been
on the environment Equal 5 6 expected to assent to the propositions that audit should be
Note: The higher the ranking, the greater the agreement a legal requirement, that it should be subject to a standard-
setting process and that it is concerned with identifying
the effects of the client’s performance on the environment.
above, the questions about the objectives of their work and In practice, there was often little consistency between
their attitudes to environmental audit were designed to respondents’ accounts of their own audit objectives and
locate them between two positions – audit as a their support for propositions about the role of the audit.
management tool and audit “as a pressure for The E group, for instance, assented most strongly to the
fundamental change to corporate practice”[13, p. 38]. proposition that the environmental audit work they
Tables I and II demonstrate that respondents held certain perform is designed to test compliance with legislation,
views – they assented with certain propositions more than but ranked only seventh in importance the proposition
others and gave some audit objectives priority over others that environmental audit is a means of ensuring
– but it is difficult to find a common thread in these views. compliance with legislation. (The same disparity is
present, although slightly less marked, in the views of the
Some clear negatives do emerge. Environmental audit is M group.) Conversely, the E group assented most strongly
not perceived as the same as environmental review or to the proposition that environmental audit is a means of
impact assessment: despite the confusion suggested by identifying opportunities for improving performance, but
the varied definitions quoted earlier from the ENDS classed identification of such opportunities as only fifth
 22 MANAGERIAL AUDITING JOURNAL 10,8
among its audit objectives. The statements that
environmental audit should be mandatory for certain
industries and that its use should be at management
discretion represent opposing views of the role of the
audit, but responses did not show a clear differentiation
between them; they were ranked respectively second and
first by the M group and fourth and fifth by the E group.
It is difficult, then, to conclude from the results of the
survey that practitioners make a clear distinction between
audit as an instrument of management policy and audit as
an independent, critical evaluation of performance. It
appears that respondents regard both uses of audit as
valid, and also that they do not perceive any contradiction
between them. An earlier section of this article suggested
that there were advantages for management in aligning
the two fundamentally different approaches; it would
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seem that auditors regard the audit as potentially both
serving management needs and acting as an independent
review of environmental performance.
Conclusion
The survey addressed Power’s suggestion that there is a
difference between “accounting” and “scientific” cultures
in environmental audit. Responses certainly indicated that
the M group attached greater importance than the E
group to the audit objectives of testing and developing
reporting systems. The M group also showed strong
support for the proposition that “environmental audit is
essentially a review of systems and as such is similar to
financial audit”; the E group did not support this
assertion. Power’s outline of the difference between the
two cultures suggested that accountants focus on risk;
respondents from both groups, however, attached roughly
equal importance to risk assessment, and the M group
actually rated one form of risk assessment – assessing the
client’s exposure to litigation – far more highly than did
the E group.
The results of the survey do not suggest that respondents’
views have polarized between “managerial” and “critical”
notions of environmental audit, nor that there is a marked
distinction between “accounting” and “scientific”
approaches among the practitioners who responded.
Respondents appear to view environmental audit more or
less equally as a management aid, a test of compliance and
a means of improving environmental performance, and to
see no contradiction between these functions. In the same
way, there is not much evidence that auditors from an
accounting background have a different approach from
that of scientists, other than placing a more marked
emphasis on the importance of systems.
These results could perhaps be attributed to the
shortcomings of the questionnaire as a research tool, and
to the difficulty of framing questions so as to do justice to
the multiple meanings that may be attached by
respondents to such terms as “risk” and “compliance”.
The drawbacks of the survey method are freely admitted,
but it remains noteworthy that respondents’ views of
environmental audit are so indeterminate.
The absence of generally accepted auditing standards is
likely to be a contributory factor to this indeterminacy. It
is possible to live with a view of audit as all things to all
interested parties until standard-setting specifies the
auditor’s duties and the nature of the auditor-client
relationship. But standards are being developed by
practitioners, and it will be a matter for concern if the
standards produced are so lax as to enshrine the present
confusion between contradictory views of audit. Further
research might usefully refine our understanding of
practitioners’ views and approaches, and also the actual
and potential impact of environmental audit on
management behaviour, ideally by case studies of
environmental audit work in practice.
Notes and references
1. International Chamber of Commerce, An ICC Guide to
Effective Environmental Auditing, ICC Publishing, Paris,
1991.
2. Elkington, J., The Environmental Audit: A Green Filter for
Company Policies, Plants, Processes and Products,
Sustainability/WWF, London, 1990.
3. After numerous delays and revisions, the eco-
management and audit scheme is due to come into force in
September 1995.
4. Environmental Data Services (ENDS), Directory of
Environmental Consultants, ENDS, London, 1990.
5. Gwilliam, D., A Survey of Auditing Research, Prentice-
Hall/ICAEW, London, 1987.
6. Gray, R., Owen, D. and Maunders, K., Corporate Social
Reporting: Accounting and Accountability, Prentice-Hall,
Englewood Cliffs, NJ, 1987.
7. BSI, 1991, p. 9.
8. Medawar, C., “The social audit – a political view”,
Accounting, Organizations and Society, Vol. 1 No. 4, 1976,
pp. 389-94.
9. Gray, R. and Symon, I., “An environmental audit by any
other name…”, Integrated Environmental Management,
No. 6, 1992, pp. 9-11.
10. The issue of definition has also been considered at great
length by the Canadian Institute of Chartered
Accountants.
11. CICA, Environmental Auditing and the Role of the
Accounting Profession, Canadian Institute of Chartered
Accountants, Toronto, 1992.
12. Geddes, M., “The social audit movement”, in Owen, D.
(Ed.), Green Reporting: Accountancy and the challenge of
the nineties, Chapman & Hall, London, 1992.
13. Power, M., “Auditing and environmental expertise:
between protest and professionalisation”, Accounting,
Auditing and Accountability Journal, Vol. 4 No. 3, 1991,
pp. 30-42.
14. By the 1992/93 edition of the ENDS Directory[4] there had
been another 50 per cent increase to 339 consultants.
15. Cairncross, F., Costing the Earth, Economist Books,
London, 1991.
 ENVIRONMENTAL AUDIT: THEORY AND PRACTICES 23

Appendix: Environmental audit questionnaire – the environmental audit-objectives

Listed below are a number of possible objectives of an environmental audit. Please indicate your view of their importance to the audit
work you undertake (4 = very important; 1 = not important).

1 2 3 4

To test the client’s compliance with legislation

To assess the impact of a new development (e.g. introduction of

new production techniques) in the client’s business

To test the client’s compliance with its own internal policies

To assist the client in formulating environmental

policies/reporting systems
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To identify opportunities for improving environmental performance

To audit the performance of the client’s suppliers/contractors

To test the adequacy of the client’s monitoring and reporting systems

To assess the adequacy of the client’s internal environmental

auditing function

To assess the client’s risk of causing environmental damage

To assess the client’s exposure to litigation as a result of current or

past activities

To enable an opinion to be expressed on the client’s environmental reporting

to third parties

Other (please describe)

–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Listed below are a number of statements about environmental audit and environmental reporting. Please indicate your view of them
by ringing the appropriate number (4 = agree strongly; 1 = disagree strongly)

Companies in certain manufacturing industries should be required by law

to produce an audited environmental report annually 1 2 3 4

Environmental audit is best described as a management tool and its use

should be at the discretion of management 1 2 3 4

Environmental audit is primarily a means of ensuring compliance with legislation 1 2 3 4

Environmental audit is primarily a means of identifying opportunities for

improving environmental performance 1 2 3 4

Environmental audit should be subject to a standard-setting process defining

the audit scope and the methodology to be used 1 2 3 4

Terms such as environmental audit, environmental review and environmental

impact assessment can be used interchangeably 1 2 3 4
 24 MANAGERIAL AUDITING JOURNAL 10,8

The scope and methodology of an environmental audit should be agreed 1 2 3 4

between the auditor and the client and should not be predetermined by outside bodies

Environmental audit is essentially a review of systems, and as such is similar to 1 2 3 4

financial audit

Environmental audit is chiefly concerned with identifying the impact of the client’s 1 2 3 4
operations on the environment

Are there any other comments about the nature and purpose of environmental audit which you would like to make? If so, please note
them below.
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Your audit methodology

(1) Please indicate what percentage of the environmental audits you perform are carried out:

Annually

Regularly, less often than annually

On a non-recurring basis

Total = 100 per cent

(2) Please indicate what percentage of the environmental audits you perform are carried out:

For the client company/organization as a whole

For an individual site only

Total = 100 per cent

(3) Do you use (tick one):

A standard audit programme

A standard audit programme with modifications for each individual client

An audit programme written specially for each individual client

 ENVIRONMENTAL AUDIT: THEORY AND PRACTICES 25

(4) Which of the following procedures do you undertake as part of the audit fieldwork? If you do carry them out, indicate whether it is
invariably, usually or occasionally:
Invariably Usually Occasionally

Documentation of client’s systems

Completion of standard internal control questionnaire

Interviews with client management

Interviews with client staff

Observations of client’s procedures

Testing accuracy of client’s sampling techniques

Testing accuracy of client’s record-keeping systems

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Site visits

Other (indicate)

(5) Which of the following procedures do you undertake on completion of the audit fieldwork? If you do carry them out, please indicate
whether it is invariably, usually or occasionally:
Invariably Usually Occasionally

Meeting with line management to discuss audit findings

Meeting with senior management to discuss audit findings

Preparation of a report to management detailing findings

Preparation of a report to management with advice on action to be taken

Preparation of a report to shareholders detailing findings

Other (please specify)

Your firm

(1) How many staff do you employ?

(2) Of these, how many have qualifications/expertise in: Number

Engineering

Management consultancy

Accounting

Environmental science

Environmental law
 26 MANAGERIAL AUDITING JOURNAL 10,8

(3) If a significant number have qualifications/expertise in other disciplines, please indicate below:

Discipline Number

Discipline Number

(4) Please indicate which of the services listed below your firm provides and approximately what percentage of your total turnover
they represent:

Environmental audit

Corporate environmental strategy

Environmental impact assessment

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Investigation of;

contaminated land

air pollution

water pollution

Waste management and advice

Other (indicate)

Total = 100 per cent

(5) Approximately what percentage of your client group consists of:

Manufacturing industry

Service industry

Local and national government

Voluntary bodies

Other (indicate)

Total = 100 per cent

Thank you for your assistance. Please return the questionnaire in the envelope provided.

Josephine Maltby is a Lecturer in Accounting and Financial Management at Sheffield University Management School,
Sheffield, UK.
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