Sample Research Paper Summary: Environmental Management Accounting

Environmental Management Accounting

Environmental management accounting is the analysis of various environmental impact factors in terms of cost aversions and cost creation. The origin of this subject is based on the rising environmental concerns relating to management of the environment and the resultant effects such as global warming, depletion of resources and destruction of natural habitats. The subject of environmental management accounting incorporates aspects of financial accounting as it takes into consideration the costs incurred through environmental programs and the costs averted through the same.

Based on environmental management accounting reports, organizations can make decisions regarding the best environmentally conscious corporate social responsibilities to undertake and how the process can best be managed to maintain organizational effectiveness. Environmental management accounting involves modifying systems of accounting to incorporate material utilization i.e. intake and use of natural resources and the evaluation of the efficiency of such resources. Consequently, from the EMA reports, opportunities for environmental enhancement can be recognized by organizations.

In the organizational context, three key aspects which include management accounting, financial accounting and now EMA prevail. While financial accounting focuses entirely on the provision of fiscal reports concerning expenditures and revenues, management accounting focuses on aspects of management as well as on aspects of financial reporting.

However, management accounting does not incorporate environmental aspects hence the need for EMA. Consequently, Schaltegger and Burrit (2000) argue that the major difference between environmental accounting and management accounting is that while management provides information relating to both monetary and physical organizational aspects, the environmental aspects covers issues of the ecological system, as well as environmental differentiation in accounting.

Practicing EMA is a challenging as well as beneficial concept in the organizational set up. From the work of Bennett et al (2003), EMA is essential since it is applicable in internal organizational initiatives such as those that are based on the development of green products and other environmentally supportive programs. For instance, programs such as efficiency in the use of energy, material and water resources and reduction of costs and environmental impacts of operations can only be achieved through application of EMA in the accounting process.

Apart from this, organizations can also benefit through the use of EMA in understanding opportunities for enhancement through product pricing, mixing and development decision making. In the long term, such practices can aid in the improvement of customer value making the organization more profitable. From this perspective, EMA aids in the provision of rewards in monetary terms through higher efficiency operation procedures, reduction in resource use and reduced missions and reduced wastes (Burritt et al, 2002).

Although EMA provides various benefits to organizations, it is important to note that the process is not devoid of challenges. First, the process of data collection is ineffective during the use of EMA which makes the process vulnerable to decision making based on inaccurate data or misinterpreted data. In addition to this, overhead costs in most cases hide environmentally related costs and benefits. From this point it is therefore still difficult to relate to accuracy in the use of EMA.

Furthermore, although EMA can be used to make past reports on environmental issues, it is clear that the ability of such systems to predict future environmental information is limited. Another challenge posed by EMA is inappropriate investment decision making since the decisions are made in ignorance, lack of comprehensively of the environmental issues in question and inconsistency in environmental information.

 

 

 

References

Bennett, M., Rikhardsson, P., & Schaltegger, S. (2003). Environmental Management         Accounting: Purpose and Progress. Dordrecht/London: Kluwer Academic Publishers.

Burritt, R.L., Hahn, T., & Schaltegger, S. (2002). Towards a Comprehensive Framework for Environmental Management Accounting. Australian Accounting Review, 12, 39-50.

Schaltegger, S., & Burritt, R.L. (2000). Contemporary Environmental Accounting: Issues,             Concepts and Practice. Sheffield, UK: Greenleaf Publishing.

 

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