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Environment
Environment
Environmental management accounting has wide scope and techniques, similar to normal
management accounting systems. In fact, experts such as Burritt et al (2001) said that “there is
still no precision in the terminology associated with EMA”.
Such experts view environmental management account as an application similar to the traditional
accounting system with the focus on calculating the environmentally-induced effects of
companies, which are measured in financial units, and company-related effects on environmental
systems, that are articulated in physical units. Often times, environmental management
accounting is seen as a part of the framework for environmental accounting and is defined as
“using monetary and physical information for internal management use”.
In a similar manne
EMA is beneficial for internal management initiatives that have specific environmental focus.
This can be cleaner production, “green” product or new service design, or environmentally
preferable purchasing and also environmental management systems. Data from EMA
information have been increasingly used for external reporting purposes. Therefore, EMA cannot
be considered as only one environmental management tool amongst the others available. It can
be considered as broad set of principles that provides information vital for the success
environmental management activities. EMA has become important, not only for environmental
management decisions, but also for all types of management activities (Frost 2000). Benefits has
been demonstrated through graphical representation, please refer to the below diagram:
EMA researchers have stressed on the use of EMA approaches for Investment Appraisal.
Investment Appraisal has been considered to be a vital management. With regards to investment
appraisal, organizations should consider all potentially relevant and significant costs, that may
include, environment-related costs which may affect the return on investment. It may also
involves uncertain costs that may be the handled by scenario analysis (Jasch).
Furthermore, companies need to find out the environmental costs from the account sheets which
are often hidden under the overhead accounts, direct labor accounts or direct material accounts. It
has been found that in most cases, environmental costs are hidden in different parts of the
management accounting system. For instance, the below diagram illustrates that the
environmental cost is being hidden under direct labor, direct material and overheads.
To accrue greater benefits from the environmental management accounting system the company
should also identify opportunities that may generate revenue by selling waste by-products and
integrating the environment with various other aspects of business management that support and
implement the system. The firm should also determine the costs and savings that the system
might generate, and identify the precise method for pricing products as per industry standards.
Last but not the least; companies should also focus on designing more environmental friendly
products and attuning the processes that might provide a competitive edge to the company over
its nearest rivals (Hansen 2005).