BASIC DIMENSIONS OF ENVIRONMENTAL ACCOUNTING

Introduction

Traditional accounting has lost its instrumental ability of entailing the informational
dimensions that are requested in the process of comprehending the
phenomenon of identifying and reporting entity's activity in the context of
sustainable development. The requirements for new information relate to
economic, environmental and social sustainability of an entity.

In the modern society we are now living in, the importance of information on
social and environmental aspects is steadily growing. Currently, corporate
reporting is based on stakeholder requirements for ethical, environmental and
social information, which induced a completely new approach, an expression of
an active civil society that consists of consumers, employees, investors etc.

Economic entities around the world are increasingly recognizing the need to
conduct their operations in ways that are leading to minimal environmental
degradation. This reflection of an increasing great pressure led to the Kyoto
protocol in 1998.

However, the unwillingness to fully implement the Kyoto protocol by major

participants is evidence to the difficulties of managing environmental concerns
in a globalized competitive world-economic order. The demand for disclosure of
listed companies has dramatically increased and the failures of large companies
listed on the most important stock exchanges have placed extra pressure on
standard setters for the increase in the quality of corporate reporting (Beretta &
Bozzolan, 2004).

To satisfy the information needs of the market and provide the information
required for corporate transparency and accountability there is a consensus that

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the business-reporting model needs to expand beyond the traditional financial
reporting model that emphasizes backward-looking, quantified, financial
information (Beattie, Mc Innes, & Fearnley, 2004).

Integrating corporate social and environmental reporting into traditional

corporate reporting, has not gained an overall acceptance at the company’s
level, as it is a voluntary process, but more and more entities tend to disclose such
information in order to give confidence to stakeholders.

The main dimensions of environmental accounting include;

(1) Relevance
Environmental accounting should provide valid information related to a
company’s environmental conservation costs and benefits from associated
activities which contributes to the decision-making of stakeholders.

Materiality and Significance

Consideration should be given to the materiality and significance of relevance.

Aspects of Materiality and Significance

In environmental accounting, materiality is placed on the aspects of quantity
and significance is placed on the aspects of quality. From the standpoint of the
materiality, consideration is given to the quantitative impact of data that is
expressed in monetary value or physical units. The significance focuses on the
quality of information from the standpoint of environmental conservation or the
future impact that it carries.

(2) Reliability
Environmental accounting should eliminate seriously inaccurate or biased data
and aid in building the trust and reliability of stakeholders.
Faithful Representation;
When disclosing environmental accounting data, it should be represented

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accurately, faithfully.
In addition to the fact that the information must be accurate and without error,
it must represent the costs and benefits that could be reasonably expected to
represent without misleading.

b. Substance Over Form

Information disclosure should not just be a mere formality of following steps laid
out within these guidelines. When necessary, the company should determine an
appropriate method of disclosure which conforms to and accurately describes
the actual environmental activities being conducted.

c. Neutrality
Information that is disclosed taking a fair and impartial stance.
Fair and Impartial Stance
A fair and impartial stance is when the company avoids the arbitrary selection
of information or intentionally direct readers toward a given conclusion.

d. Completeness
The scope of environmental accounting should extend to all material and
significant information for all environmental conservation activities.

e. Prudence
Information that may be vague or unclear should be handled carefully and the
nature, scope and grounds on which it is based should be made clear.

(3) Understandability
By achieving understandability of disclosure of necessary environmental

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accounting data, environmental accounting should eliminate the possibility of
any mistaken judgment about the company’s environmental conservation
activities.

To ensure that the disclosed information is easy to understand for stakeholders,

wording should be made a simple as possible. No matter how complex the
content might be, it is necessary to disclose all essential information.

(4) Comparability
Environmental accounting makes it possible for a company to make year-on-
year comparisons.
Information provided should be comparable with different companies in the
same sector.

When disclosing environmental accounting data, it is important to assure that

comparability to avoid misconceptions by stakeholders.

Methods of comparison include comparisons of results between different fiscal

years for the same company or comparisons for the same fiscal year with a peer
company. Currently, in certain cases comparisons may be difficult even if all
companies follow these guidelines, as methods have yet to be established for
certain areas.

(5) Verifiability
Environmental accounting data should be verifiable from an objective
standpoint.
Verifiable information is data for which the same results can be obtained when
using premises, standards, and methods identical to those used by the party
which created the data.

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