THE IMPACT OF ENVIRONMENTAL ACCOUNTING INFORMATION

DISCLOSURE ON THE QUALITY OF FINANCIAL REPORTS OF OIL AND

GAS COMPANIES IN NIGERIA.

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 CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

No business can survive without its environment. According to Emmanuel, Elvis and Abiola

(2019), environmental accounting is an aspect of accounting that generates reports for both

internal and external use; it has become the concern and focus of corporate bodies to utilize

environmental information in making a management decision.

According to Ezeagba, Rachael and Chiamaka (2017), environmental accounting describes the

effort of accounting standard setters, professional organizations and governmental agencies to

get corporations to participate proactively in cleaning and sustaining the environment and to

describe fully, their environmental activities in either their annual reports or stand-alone

environmental disclosure. Ofoegbu and Megbuluba (2016) depicted that environmental

accounting is designed to provide information for the assessment of company's behaviour

towards its environment and the economic consequence of such action. Therefore the system of

environmental accounting provides both Financial Information in monetary units, and Non-

financial Information in physical unit`s (Panigrahi, 2015 as cited in Ofoegbu and Megbuluba,

2016). Environmental accounting is said to cover all information relating to the environment. It

includes environment related expenditure, environmental benefits of products and details

regarding sustainable operations (Irish, 2000). Kayode (2011) is of the opinion that

environmental accounting is the report by the directors of an organization which attempts to

quantify the costs and benefit of that organisations operation in relation to the environment and

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environmental issues such as pollution, deforestation habitat for endangered and threatened

species affects everyone, but mostly developing countries.

Companies are expected to prepare annual reports which shows both qualitative and quantitative

information about their operations and performance to be presented to their shareholders and

stakeholders. Environmental accounting information needs not be the product of accountants,

nor need to be used by accountants. Rather, it is any information with either explicit or implicit

financial content that is used as an input to a firm’s decision - making”. Product designers,

financial analysis, and facility managers are equally likely to be users of environmental

accounting data (Emmanuel, Elvis and Abiola,(2019).

According to Srinivasa (2014), the importance of environmental accounting and reporting is

expanding because of expansion in the environmental challenges, economic, communal and

technological developments. As a result of environmental issues, most developed countries have

initiated mandatory disclosure of environmentally related matters (Uwuigbe and Jimoh, 2012).

In the developing countries and Nigeria in particular, research previously conducted has shown

that environmental accounting information disclosure is voluntary as a result of non-availability

of either local or international standards to guide disclosure. Companies tend to disclose this

information to conform to industry practices, pressures from environmental activist and

advocates, relationship with the parent company (Multinational corporations), the ownership

structure of the company, size and level of profitability etc. The current position of

environmental accounting reporting and disclosures might best be described as confusing and

full of ambiguity (Emmanuel et. al, 2019). Environment accounting information disclosure

involves the identification, measurement and allocation of environmental costs, and the

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integration of these costs into business and encompasses the way of communicating such

information to companies’ stakeholders. In this sense, it is a comprehensive approach to ensure

good corporate governance that includes transparency in its societal activities (Bassey, Effiok

and Eton, 2013).

Eyenubo, Mohamed and Ali (2017) defined financial reporting as the financial disclosure

statements that will disclose the financial status in the annual reports and strengthen the

investors’ confidence in making credible decisions about their organizations. Financial reporting

is considered as being of high quality if it possesses three attributes which include transparency,

full disclosure and comparability. Environmental accounting disclosure for some period of time

in Nigeria has been more of exploratory and descriptive and it only focused mainly on the

phenomenon. According to the Global Reporting Initiative (2011:6) “thousands of organizations

worldwide now produce sustainability reports. KPMG research revealed that in 2008 nearly 80

percent of the largest 250 companies worldwide issued sustainability reports, up from around 50

percent in 2005.” Similarly, KPMG International Survey of 2011 which covers 34 countries

(Nigeria inclusive) indicated that 95 percent of the 250 largest global companies now reports on

their corporate responsibility activities. Also, corporate responsibility reporting has gained

ground within the Top 100 companies in each of the 34 countries (KPMG, 2011:4-9).

Audit committee is one of the factors that could influence the quality of financial reports. The

effectiveness of the audit committee in overseeing the financial reporting process could depend

on its size and the independence of members (Klein, 2002). The existence of an audit committee

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in an organization is beneficial to management, external and internal auditors, since it enhances

the quality of the internal control system (Musa, Oloruntoba and Oba, 2014).

However, a large number of oil and gas companies are still apathetic about their environmental

and social responsibility. Based on this divide, this study examines the relationship between

environmental accounting information disclosures and quality of financial reports, this study

contributes to existing literature by examining this issue within the context of some selected oil

and gas companies in Nigeria to ascertain the level of environmental accounting information

disclosures and its impact on the quality of financial reports.

1.2 Statement of the Problem

The deficiency in the financial reports of some oil and gas companies in Nigeria has been

observed to be the inability of firms to disclose information relating to their environment which

has not enable stakeholders makes informed decisions. The financial reports of oil and gas

companies published annually convey information on amortization of intangible assets and

depreciation of their non-current assets but neglect the degradating effects caused by their

operation in the environment.

According to Pramanik, Shil and Das (2007), some of the specific issues (problems) regarding

the environmental accounting and reporting include: identification of environmental costs and

expenses, capitalization of costs, identification of environmental liabilities and measurement of

liabilities. At present, no accounting standard has been issued for accounting treatment of these

specific items. Some guidelines regarding these issues have been issued by many organizations

such as International Chamber of Commerce, the Japanese Industry Association, the Chemical

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Manufacturing Association, Inter-governmental and Working Group of Expert on Intimation

Standards of Accounting and Reporting. As regard environmental reporting, different

organizations have also issued guidelines. Nevertheless, these guidelines are only advisory in

nature and not mandatory.

Uwuigbe and Jimoh (2012) viewed that some developed countries have initiated mandatory

disclosures in the reporting requirements; however, in most developing countries like Nigeria,

Malaysia and Turkey, environmental accounting information disclosure still heavily relies on

voluntary initiatives of the reporting entities. Environmental pollution is one of the challenges

Nigeria is facing and still at its verge of rampancy. Firms do not know the degree or cost of their

environmental liabilities and so likely misuse them or miscalculate them and undervalued it

because they will not be accountable for it and not disclose it to their stakeholder, thus render

financial reports incomplete.

Furthermore, broad research has not been conducted on how disclosing environmental

accounting information will have a significant impact on the quality of financial reports. This

study tends to analyze the relationship between environmental accounting information

disclosures and quality of financial reports by examining the effects of environmental accounting

information disclosure, firm size and financial leverage( determinant of environmental reporting)

on the firms return on asset (ROA a quantitative measure of the quality of financial reports.).The

study will be using a quantitative factor(items found in the financial statement ROA)to measure

the quality of financial reports, enlightening corporate entities on the need to internalize

environmental costs into their corporate accounts, and ways of communicating it to companies’

stakeholders, to make informed decisions and to make appropriate recommendations.

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1.3 Objectives of the study

The broad objective of this study is to examine the impact of environmental accounting

information disclosure on the quality of financial reports of oil and gas companies in Nigeria.

The specific objectives are to;

i. Determine the relationship between environmental accounting information

disclosure and return on asset (ROA).

ii. Examine if firm size is significantly related with return on assets(ROA)

iii. Evaluate the effects of leverage on return on assets(ROA)

1.4 Research Questions

Based on the above stated objectives of the study, the research questions developed to guide the

study are:

i. What is the relationship between environmental accounting information disclosure

and return on asset (ROA)?

ii. What significance does firm size have on return on assets (ROA)?

iii. What effect does financial leverage have on return on assets (ROA)?

1.5 Research Hypotheses

In conjunction with the stated objectives and research questions, the following hypotheses were

formulated:

Hypothesis I

Ho: There is no significant relationship between environmental accounting information

disclosure and return on asset (ROA)

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Hypothesis II

H0: There is no significant relationship between firm size and return on assets (ROA)

Hypothesis III

H0: There is no significant effect of leverage on return on assets (ROA)

1.6 Significance of the Study

Presently in Nigeria, no law requires corporate entities in Nigeria to prepare and publish

environmental reports. This study will be an eye opener to regulatory authorities to put in place a

set of laws that will encourage environmental accounting information disclosure in the financial

reports.

In addition, this study will help to awaken the need for the Financial Reporting Council (FRCN)

of Nigeria to put machineries in place for environmental accounting information reporting

standards. It will create awareness and enlighten corporate organizations that do not adopt

environmental accounting reporting to understand the importance of this reporting systems and

its impact on the financial reports. It will improve the professional accountancy bodies in their

mandatory continuing programmers in Nigeria.

Also, this study will provide huge benefits for academic scholars, students and other researchers

that intend to research on related field of discipline by adding to the literature on the components

of environmental accounting information disclosure and widens their potential knowledge on the

need to disclose environmental accounting information. It will definitely offer a body of reserved

knowledge to future researchers.

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1.7 Scope of the Study

The study will examine the impacts of environmental accounting information disclosure on the

quality of financial reports. It will use secondary data to gather information from five selected oil

and gas companies namely CHEVRON, OANDO, CONOIL, TOTAL and MOBIL in Nigeria by

looking into the firm’s annual financial reports covering the periods of ten (10) years between

2009 and 2018.

1.8 Operational Definition of Terms

Environmental Accounting: This can be described as the effort of accounting standard setters,

professional organizations and governmental agencies to get corporations to participate

proactively in cleaning and sustaining the environment and to describe fully, their environmental

activities in either their annual reports or stand-alone environmental disclosure.

Environmental Accounting Information Disclosure: This means the disclosure, notification

or reporting of information in relation to any Soil or Groundwater Contamination by or on behalf

of the Purchaser to any Environmental Authority or Third Party.

Financial Reporting Quality: Financial reporting quality provides decision-useful information,

which is relevant and faithfully represents the economic reality of the company's activities during

the reporting period as well as the company's financial condition at the end of the period.

Leverage: The ratio of a company's loan capital (debt) to the value of its ordinary shares

(equity); gearing. It can also refer to the amount of debt a firm uses to finance assets.

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Firm size: The scale or volume of operation turned out by an entity. It significantly affects the

efficiency and profitability of the firm. It may be small, medium or large.

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 CHAPTER TWO

LITERATURE REVIEW

2. I CONCEPTUAL FRAMEWORK

2.1.1 Environmental Accounting

Environmental accounting sometimes referred to as “green accounting “or “resource

accounting”.

Environment accounting involves the identification, measurement and allocation of

environmental costs, and the integration of these costs into business and encompasses the way of

communicating such information to companies’ stakeholders. Environmental accounting data is

not only used by companies or other organizations internally, but is also made public through

disclosure in environmental reports.

According to environmental accounting guidelines (2002) Environmental accounting, as defined

in these guidelines, aims at achieving sustainable development, maintaining a favourable

relationship with the community, and pursuing effective and efficient environmental

conservation activities. These accounting procedures allow a company to identify the cost of

environmental conservation during the normal course of business, identify benefit gained from

such activities and provide the best possible means of quantitative measurement (in monetary

value or physical units) and support the communication of its results. Environmental Accounting

is designed to provide information for the assessment of company's behaviour towards its

environment and the economic consequence of such action. It is the practice of incorporating

principles of environmental management and conservation into reporting practices and

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cost/benefit analyses. Environmental accounting is structured to identify measure and

communicate a company’s activities based on its environmental conservation cost or economic

benefit associated with environmental conservation activities, the company’s financial

performance which is expressed in monetary value, and its environmental conservation benefits,

the organization’s environmental performance, which is designated in physical units.

UK Environmental Agency (2006) proposed that Environmental Accounting is the collection,

analysis and assessment of environmental and financial performance data obtained from business

management and financial accounting system. It is the incorporation of environmental costs and

information into a variety of accounting practices (Graff, Reiskin, White, & Bidwell, 1998).

Daferighe (2010) opined that environmental accounting involves the identification, compilation,

analysis, use and reporting of environmental liabilities and financial material. Environmental

accounting can be employed in every industry, no matter the size of the firm, small or large.

According to the US EPA (1995) Environmental Accounting is defined as identifying and

measuring the costs of environmental materials and activities and using the information for

environmental management decisions. The purpose is to recognize and seek to mitigate the

negative environmental effects of activities and systems. This makes environmental issues

visible to the organization and society and also enables the organization to define its central

environmental issues in the organization by providing an accurate and detailed picture of

environmental concerns.

Kayode (2011) is of the opinion that environmental accounting is the report by the directors of

an organization that attempts to quantify the costs and benefit of that organization’s operations in

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relation to the environment. He further explained that environmental accounting is more than

accounting for environmental benefits and costs. It is accounting for any cost and benefits that

arise from changes to a firm’s products or processes, where the change also involves a change in

environmental impacts.

2.1.2 Functions and Roles of Environmental Accounting

The functions of environmental accounting are divided into internal and external functions.

(1) Internal Functions

Internal function makes it possible to manage environmental conservation cost and analyze the

cost of environmental conservation activities versus the benefit obtained, and promotes effective

and efficient environmental conservation activities through suitable decision-making.

They are carried out within a company to assess the cost incurred by environmental

conservation activities and the related benefits, and are beneficial in improving the efficiency and

effectiveness of environmental conservation activities and help in gaining an understanding of

what impacts such activities might have on business operations. By using environmental

accounting as an environment information system, it plays the role of a tool to be employed by

management and related business segments.

(2) External Functions

By disclosing the quantitatively measured results of its environmental conservation activities,

external functions allow a company to influence the decision-making of stakeholders, such as

consumers, investors, and local residents. External functions are effective in conveying

information about a company’s environmental activities to stakeholders.

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Environmental accounting data is made public through environmental reports, and covers a

company’s stance on environmental conservation activities and concrete measures being taken

by the company. By disclosing such information, society’s trust and confidence in the company

improves and aids in achieving a better public assessment. Therefore, environmental accounting

not only fulfills a company’s accountability to people outside the company, such as consumers,

investors and local residents, but also facilitates attaining a fairer corporate assessment, not just

from the standpoint of environmental conservation.

2.1.3 Accounting Interest in the Environment

Accounting has an instrumental role in disclosing environmental responsibility for different

entities either industrial or commercial service and at all levels whether micro or macro.

Substantial effort and resources have been deplored to ensure that our natural environment is not

treated as a free good (Tapang, Bassey & Bessong, 2012).

Thus, accounting became concerned with achieving new goals such as measuring and evaluating

potential or actual environmental impacts of projects and organizations. These new goals are of

great importance as they enable many users to take different development decisions that are

economically and environmentally sound (Bala and Yusuf, 2003).

Ali (2002) identified the main reasons of accounting interest in the environment as follows;

(i) Many environmental costs can be significantly reduced or eliminated as a result of

business decisions, ranging from operational and housekeeping changes to investment

in clearer production, to redesign of processes/products.

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(ii) Cost (and, thus potential cost savings) may be obscured in overhead accounts or

otherwise overlooked.

(iii) Many organisations have discovered that environmental costs can be offset of

generating revenues through sales of waste by products for example; accounting for

environmental costs and performance can support an organisation’s development and

operating in an overall Environmental Management System (EMS) and 150 14000

accreditation.

(iv) Environmental expenditure whether capital (CAPEX) or operating costs (OPEX)

increase dramatically day after day.

(v) Management needs financial data about these expenditures.

(vi) For strategic cost leadership (Driving Cost).

(vii) There is need to prioritized these expenditures.

(viii) There are increasing needs from different stakeholders (government, investors,

lenders, banks, non-governmental organisation’s etc.) to have financial data on the

environmental performance of different organizations.

(ix) If accounting does not provide financial data on the environmental performance of

organisation’s that will help non-complying organisations’ (entities) to pollute

environment and spoil resources and yet appear more economic efficient than the

other which incur cost to save the environment.

(x) Naturally any entity have a main output and a secondary output which mainly

pollutes the environment and thus if the entity does not incur costs to mitigate or

prevent it, a third party in the society have to bear it (the concept of externality).

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 (xi) Environmental risks may result in huge environmental liabilities and subsequently the

organisation/entity may be obliged to outlay payments which may affect seriously the

liquidity and financial position of the organisation.

(xii) Managing resources properly in an environmentally friendly way will result in a

competitive advantage for such organisation.

(xiii) There is a general trend to evaluate the organisation’s performance according to its

social and environmental effectiveness.

(xiv) Current practices demonstrate that, no track for environmental costs was available as

it was charged randomly. Therefore, there is a need for proper charging and

allocation. Distinguishing between environmental cost and other costs will lead to

proper cost allocation of these costs and thus precise pricing and will help to develop

sustainability indicators.

2.1.4 Objectives of Environmental Accounting

Environmental Accounting is an important tool for understanding the role played by the natural

environment in the economy. It provides data which highlight both the contribution of natural

resources to economic well-being and costs imposed by pollution or resources degradation.

Disclosure of environmental accounting information is a key process in performing accountability.

Consequently, environmental accounting helps companies and other organisations boost their public

trust and reputation that are associated with receiving a fair assessment.

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Pramanik, Shil and Das (2007) are of the opinion that environmental accounting is required to fulfill

a lot of demands from different stakeholders. However, for academic reason, the following basic

objectives were identified as cited in (Bassey, Effiok, & Eton, 2013):

.Environmental accounting would aid the discharge of organisations accountability and increase its

environmental transparency. It helps negotiation of the concept of environment and determines the

company’s relationship with the society in general and the environmental pressure group in

particular. This helps an organisation to strategically manage a new and emerging issue with its

stakeholders because of the ethical investment movement, ethical investors require companies to be

environmentally friendly; therefore, by upholding friendly image, companies may be successful in

attracting fund from “green” individuals group. Environmental accounting consumerism movement

launched by environmental lobby groups encourages the consumer to purchase environmentally

friendly products i.e. green products. Thus, companies’ producing green products may take

competitive marketing advantage by disclosing the same. By making environmental disclosure,

companies may show their commitment towards introduction and change and thus appear to be

responsive to new factors.

Companies engaged in environmentally unfriendly industries stir strong public emotion. There is a

strong environmental lobby against these industries and green reporting may be used to combat

potentially negative public opinions. By cultivating the enlighten approach of environmental

accounting, companies can increase their image of being enlighten to the outside world and these,

can be regarded as enlightened companies( Pramanik, et al,2007).

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2.1.5 Target Period and Scope of Calculations

Target Period

In principle, the target period covered should be the same as the period covered by the company’s

environmental report. Basically, information pertaining to the company’s financial accounting,

environmental activities and environmental accounting should all be coordinated to match the said

company’s business fiscal year.

Aggregation Scope

The aggregation scope should also conform to that of the environmental report. Fundamentally, the

scope should be companywide. In addition, the scope can be adjusted when necessary to collect data

for a corporate group or individual business site. It is best to extend the scope of accounting

successively to conform to a company’s actual business conditions.

2.1.6 Structural Elements of Environmental Accounting

According to Environmental Accounting Guidelines (2002), Environmental Accounting consists of

the following structural elements with the purpose of attaining two types of benefits derived from

cost incurred from environmental conservation activities during regular course of business.

(1). Environmental Conservation Cost

Investments and expense related to prevention, reduction, and/or avoidance of environmental

impact, removal of such impact, restoration following the occurrence of disaster, and other activities

are measured in monetary value. Investment amounts are expenditures allocated during a target

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period for the purpose of environmental conservation. The benefits from these investments are seen

over several periods and are recorded as expense during the depreciation period (the amount of

depreciable assets recorded during the period under financial accounting standards).Expense

amounts refer to the expense or losses recorded under financial accounting standards resulting from

the consumption of goods and services for the purpose of environmental conservation.

(2)Environmental Conservation Benefits

Benefits obtained from the prevention, reduction, and/or avoidance of environmental impact,

removal of such impact, restoration following the occurrence of a disaster, and other activities are

measured in physical units.

(3)Economic Benefit associated with Environmental Conservation Activities

Benefits to a company’s profit as a result of carrying forward with environmental conservation

activities are measured in monetary value.

2.1.7 ENVIROMENTAL ACCOUNTING INFORMATION DISCLOSURES

This study separated environmental accounting disclosure into financial indicators, non-financial

indicators and performance indicators. According to Hansen and Mowen (2000) as cited in Enarho

(2009) environmental costs are attributable to creating, discovering, treating and preventing

environmental degradation. Ideally, environmental cost includes all costs about organisational

activities that impact the environment (Deegan, 2002).

Ong,Tho,Goh, Thai and The B.H (2016) viewed environmental accounting information disclosure

as a planned statement that depicts a company’s environmental burden and environmental efforts

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including company’s objectives, environmental policies, environment activities and impacts,

reported and published periodically to the public. Environmental accounting information disclosure

as defined by Alok, Nikhil and Bhagam (2008) cited in Olayinka and Oluwamuyiwa (2014) is the

umbrella term that depicts different ways that companies disclose information about their

environmental activities to various users of financial statement. From the foregoing definitions,

environmental disclosure entails where a company voluntarily or statutorily required by law to

provide in annual reports environmental management and environmental development cost.

Dibia and Onwuchekwu (2015) claim that companies through environmental disclosure, may seek

to capture public perception toward their operation. By disclosing the quantitatively measured

results of its environmental conservation activities, it serves as an external function which allows a

company to influence the decision making of stakeholders, such as consumers, investors, and local

residents (Ministry of Environment, Japan 2002 as cited in Environmental Accounting Guidelines

2002).

Environmental information serves as a medium of communication between the company and its

stakeholder. Disclosure is necessary because of the importance and the devastating impact of

company’s activities on the environment. Disclosure could be fixed into company’s annual reports;

alternatively it could be presented separately.

Environmental Costs: These are costs that organisations incur to prevent, monitor and report

environmental impacts ( KASNEB, 2014 as cited in Emmanuel et al 2019).

US EPA (1995) defines five tiers of environmental costs namely; conventional, hidden, contingent,

image, relationship and societal costs. These costs are broadly divided into two: private costs and

societal costs. Private costs are borne by the firm whereas societal costs are borne by society.

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Private Costs: Conventional costs are the costs of capital equipment, raw materials and supplies.

The costs of using raw materials, utilities, capital goods and supplies are usually addressed in cost

accounting and capital budgeting but are not usually considered environmental costs. However,

decreased use and less waste of raw materials, utilities, capital goods and supplies are

environmentally preferable, reducing both environmental degradation and consumption of natural

resources.

Hidden Costs: This refers to the results of assigning environmental costs to overlook future and

contingency cost. There are several types of environmental costs that may be potentially hidden

from managers; first are the upfront environmental costs, which are incurred prior to the operation

of a process, system, or facility. These can include costs related to sitting, the design of

environmentally preferable products or processes, qualifications of suppliers, evaluation of

alternative pollution control equipment and so on. Whether classified as overhead or R&D

(Research and Development), these costs can easily be forgotten when managers and analysts focus

on operating costs of processes, systems and facilities. Secondly, we have the regulatory costs from

activities such as monitoring and reporting of environmental activities and emissions, the cost for

searching for environmentally responsible suppliers and on-going cost of cleaning contaminated

land (KASNEB, 2014).

Contingent Costs: These are environmental costs that are not certain to occur in the future but

depend on uncertain future events. They are costs that may or may not be incurred at some point in

the future. For example, the cost that is involved in remediating future spills (KASNEB, 2014).

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Image and Relationship Costs: These are less tangible costs because they are incurred to affect

subjective perceptions of management, customers, employees, communities and regulators. This

category can include the costs of annual environmental reports community involvement activities

and costs expended voluntarily for environmental activities (KASNEB, 2014).

Societal Costs: These are costs that an organisation imposes on others for which they may not be

held legally responsible and which cannot be compensated for in legal system (KASNEB, 2014).

For instance, damage caused to river because of polluted waste-water discharge, or to ecosystems

from solid waste disposal or to asthmatics because of air pollutant emissions are all examples of

external costs for which an industry often does not compensate (Uwaloma, 2011).

Non-financial Indicators: According to Karambu and Joseph (2016), non-financial information is

information that concerns the environmental objectives, the management, the policy and other

appearances that can broadcast environment performance in non-financial information.

The disclosure requirements according to Global Reporting Initiatives under Non-financial

information concerning the environmental objectives are:

Compliance (Monetary value of significant fines and the total number of non-monetary sanctions

for non-compliance with environmental laws and regulations).

Performance indicators on the environment (water, air and soil): These indicators are defined by

the Global Reporting Initiative, and other organisations. The disclosure requirement according to

Global Reporting Initiative comprised under Performance indicators are:

Water (Total water withdrawal by source; Water sources significantly affected by the withdrawal

of water; Percentage and the total volume of water recycled and reused).

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Biodiversity (Location and size of land owned, leased, managed in, or adjacent to, protected areas

and areas of high biodiversity value outside protected areas, description of significant impacts of

activities, products and services on biodiversity in protected areas and areas of high biodiversity

value outside protected areas; Habitats protected or restored; Strategies, current actions and future

plans for managing impacts on biodiversity; Number of IUCN Red List species and national

conservation list species with habitats in areas affected by operations, by level of extinction risk).

Emissions, Effluents and Waste (Total direct and indirect greenhouse gas emissions by weight;

Other relevant indirect greenhouse gas emissions by weight; Initiatives to reduce greenhouse gas

emissions and reductions achieved; Emissions of ozone-depleting substances by Weight; NO, SO,

and other significant air emissions type and weight; Total water discharge by quality and

destination; Total weight of waste by type and disposal method; Total number and volume of

significant spills; Weight transported, imported, exported, or treated waste deemed hazardous under

the terms of the Basel Convention Annex I, II, III, and VIII and percentage of transported waste

shipped intentionally; Identity, size, protected status, and biodiversity value of water bodies and

related habitats significant affected by reporting organisation’s discharges of water and runoff

(Karambu and Joseph ,2016).

Products and Services (Initiatives to mitigate environmental impacts of products and services, and

extent of impact mitigation; Percentage of products sold and their packaging materials that are

reclaimed by category).

Materials (percentage of materials used that are recycled input materials)

Energy (Direct energy consumption by primary Source, Indirect energy consumption by primary

Source; Energy saved due to conservation and efficiency improvements, Initiatives to provide

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energy-efficient or renewable energy based products and services, and reductions in energy

requirements as a result of these initiatives; Initiatives to reduce indirect energy consumption and

reductions achieved)

Financial Indicators

Financial indicators (investments and acquisitions of environment assets, costs, provisions) these

indicators expose in monetary terms the behaviour of firms regarding environmental reporting.

Transport (Significant environmental impacts of transporting products and other goods and

materials used for the organisation’s operations, and transporting members of the workforce).

Overall Total environmental protection expenditures and investments by type (Karambu and

Joseph, 2016).

Environmental disclosure can be mandatory or voluntary. Environmental information disclosure is

significant because it helps stakeholders to recognise the impact an organisation has on the

environment and the impact the environment has on the organisation. Environmental information

form part of the items disclosed in the company’s corporate social responsibility. We recommend

the active disclosure of environmental accounting information via an environmental report in regard

to the external functions of environmental accounting.

2.1.8 Formats for Disclosing Environmental Accounting Information

To promote uniform understanding by the society at large, these guidelines contain standard formats

recommended for use. There are three examples of formats here depending on policies for gathering

environmental accounting information or activities. A company can select a separate format that

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best suits the disclosure of individual information. In this case, the company should state the details

of its disclosure method, the reason and the correlation with the disclosure format.

(1)Disclosure Format A: Focusing on Environmental Conservation Cost

This format can be used when environmental conservation costs are the main focus. The status of

environmental conservation activities is made clear through environmental conservation cost.

Results of benefits are stated as qualitative summary.

(2)Disclosure Format B: Comparison of Environmental Conservation Benefit

This format is used to compare environmental conversation cost and environmental conservation

benefit. By using quantitative information to express benefit, a company’s cost performance to

benefit for environmental conservation activities becomes clear.

(3)Disclosure Format C: Comparison of Overall Benefit

This is intended for comparison of the environmental conservation benefit and economic benefit

associated with environmental conservation activities against environment conservation cost. This

gives a comprehensive and clear picture of a company’s cost performance to benefit for

environmental conservation.

2.1.9 FINANCIAL REPORTING

Financial reporting is the disclosure of financial results and related information to management and

external stakeholders (e.g., investors, customers, regulators) about how a company is performing

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over a specific period of time. Financial Reporting is a very important and critical task of an

organisation. It is a vital part of Corporate Governance.

This involves the disclosure of financial information to the various stakeholders about the financial

performance and financial position of the organisation over a specified period of time. These

stakeholders include – investors, creditors, public, debt providers, government and government

agencies. In case of listed companies the frequency of financial reporting is quarterly and annually.

It includes all financial communication from the business to outside users including press releases,

shareholder minutes, management letters and analysis, auditor’s reports and even the notes of

financial statements. Basically, anything that can convey financial information to the public is

considered financial reporting of some kind.

Financial reporting uses financial statement to disclose financial data that indicate the financial

health of a company during/over a specified period of time. The information is vital for

management to make decisions about the company’s future and provides information to capital

providers like creditors and investors about the profitability and financial stability of the company.

It is a way of following standard accounting practices to give an accurate depiction of a company’s

finances which includes revenues, expenses and cash flows.

This is usually considered an end product of Accounting. The typical components of financial

reporting are;

i. The financial statements – Statement of financial Position, Statement of Profit or Loss account,

Cash Flow statement and Statement of changes in stock holders’ equity

ii . The notes to financial statements

26
iii. Quarterly and Annual reports (in case of listed companies)

iv. Prospectus (in case of companies going for Initial Public Offers)

v. Management Discussion and Analysis (in case of public companies)

2.1.10 Objectives of Financial Reporting

According to International Accounting Standard Board (IASB), the objective of financial

reporting is “to provide information about the financial position, performance and changes in the

financial position of an enterprise that is useful to a wide range of users in making economic

decisions.”

The following points sum up the objectives and purposes of financial reporting:

i. Providing information to the management of an organisation which is used for the purpose of

planning, analysis, benchmarking and decision making.

ii. Providing information to investors, promoters, debt providers and creditors which are used to

enable them to make rational and prudent decision regarding investment, credit etc.

iii. Providing information to shareholders and public at large in case of listed companies about

various aspect of an organisation.

iv. Providing information about the economic resources of an organsation, claims to those resources

(liabilities and owner’s equity) and how these resources and claims have undergone change over

a period of time.

v. Providing information as to how an organisation is procuring and using various resources.

27
vi. Providing informatoion to various stakeholders regarding performance management of an

organisation as to work diligently and ethically in discharging their fiduciary duties and

responsibilities.

vii. Providing information to the statutory auditors which in turn facilitates audit.

viii. Enhancing social welfare by looking into the interest of employees, trade union and

government.

2.1.11 Importance of Financial Reporting

The importance of financial reporting cannot be over emphasised. It is required by each and every

stakeholder for multiple reasons and purpose. The following points highlights why financial reporting

framework is important:

i. It helps an organisation to comply with various statues and regulatory requirements. The

organisations are required to file financial statements to the Registrar of Companies (ROC) for

government owned agencies. In case of listed companies, quarterly as well as annual results are

required to be filed to stock exchanges and published.

ii. It facilitates statutory audit. The statutory auditors are required to audit the financial statements of

an organization to express their opinion.

iii. Financial report forms the backbone for financial planning, analysis, benchmarking and decision

making. These are used for the above purposes by various stakeholders.

iv. Financial reporting helps organisations to raise capital both domestic as well as overseas.

v. On the basis of financials, the public at large can analyse the performance of the organisation as

well as of its management.

28
vi. For the purpose of bidding, labour contract, government supplies etc., organisations are required

to furnish their reports and statements.

2.1.12 Attributes of Financial Reports

Qualitative characteristics are the attributes that make financial information useful to users. For

analytical purposes, qualitative characteristics can be differentiated into Fundamental and Enhancing

qualitative characteristics.

Fundamental Qualitative Characteristics

Fundamental characteristics distinguish useful financial reporting information from that which is not

useful or misleading.

The two fundamental qualitative characteristics are:

1. Relevance

2. Faithful Representation

Relevance: In accounting, the term ‘relevance’ means it will make a difference to a decision maker.

Relevant information is capable of making a difference in decisions if it has either predictive value or

confirmatory value or both.

The relevance of information is affected by its nature and materiality.

Faithful Representation: The financial report represents an economic phenomenon in words and

numbers. The financial information in the financial report should represent what it purports to

represent. Meaning that it should show what really are present (example: Position of Assets and

29
Liabilities) and what really happened (example: Position of Income and Expenditure), as the case

may be.

There are three characteristics of faithful representation:

1. Completeness: Depiction of all necessary information for a user to understand the phenomenon

being depicted. It includes all necessary descriptions and explanations (adequate or full disclosure of

all necessary information)

2. Neutrality: Depiction is without bias in the selection or representation of financial information. It

must not be manipulated in any way in order to influence the decision of users. (Fairness and freedom

from bias), we often refer to a term called true and fair view in accounting.

3. Free from error: This means there are no error and inaccuracies in the description of the

phenomenon and no errors made in the process by which the financial information was produced.

(No inaccuracies and omissions). This does not mean no inaccuracies can arise, particularly in case of

making estimates. The standards expect that the estimates are made on realistic basis and not

arbitrarily.

ENHANCING QUALITATIVE CHARACTERISTICS

Enhancing Qualitative Characteristics distinguish more useful information from less useful

information.

The Enhancing Qualitative Characteristics are divided into four attributes which include; understand

ability, comparability, verifiability and timeliness.

30
Understand ability: The information must be readily understandable to users of the financial

statements. This means that the information must be clearly presented with additional information

supplied in the supporting footnotes as needed to assist in clarification.

Comparability: The information must be comparable to the financial information presented in other

accounting periods, so that users can identify trends in the performance and financial position of the

reporting entity.

Verifiability: If information can be verified (e.g. through an audit) this provides assurance to the

users that it is both credible and reliable.

Timeliness: Information should be provided to users within a timescale suitable for their decision

making purposes.

High quality financial reporting refers to overall financial reporting including disclosures, which

result in fair representation of a company’s operation (include both earnings and cash flows) and

financial position. Both quality and quantity of disclosure play a vital role in financial reporting

quality. If the levels of disclosure do not indicate quantitative factors, the financial reports will be of

poor quality since they do not meet the external shareholders need for accounting information.

31
2.2 Theoretical Framework

This study reviews the relevant theories that explain the association between the disclosure of

environmental accounting information and quality of financial reports. The theoretical reviews

covered are; Legitimacy, Stakeholder and Signaling Theory.

2.2.1 Legitimacy Theory

Legitimacy is a generalised perception assumption that the actions of an entity are desirable, proper

or appropriate within some socially constructed system of norms, values and definitions (Suchman,

1995).

Legitimacy theory as used in this research work seeks to show that companies operations are carried

out according to the way that will not harm the society. Dowling and Pfeffer (1975) in its definition

of legitimacy theory state that a firm can exist when its value system is consistent with the value

system of the larger social system in which it is located. It may provide useful insight for corporate

social environmental disclosures. This theory explains the existence of social and exchangeable

relationships between company and the community. The legitimacy theory believes that the

management provides information to make the company look good in the eyes of stakeholders but

this information may be suitable for making sound investment decision (Martin and Bikki, 2010).

According to Juru (2013), the argument that over the years, the increased environmental disclosures

and reporting witnessed was as a result of pressures from stakeholders was founded on legitimacy

theory.

32
Companies use the legitimacy perspective to disclose voluntary environmental information which

shows that they are conforming to the expectations and values of the society within which they

operate (Uwalomwa, 2011) .O’Donovan (2000) opined that legitimacy theory, on the other hand,

emphasises why corporations disclose environmental information to the society.

2.2.2 Stakeholder Theory

A basis for stakeholder theory is that companies are so large and their impact on society are so

persuasive that they should discharge on accountability to many more sectors of society than solely to

shareholders. Not only are shareholders affected by companies but they in turn affect enterprises in

the same way ( Jill, 2007).

The proposition of stakeholder’s theory in relation to firm’s success is dependent upon the successful

management of all the relationships that a firm has with its stakeholders .Stakeholder is a term

originally introduced by Stanford Research Institute (SRI) as those groups without whose support

the organisation would cease to exist. In developing the stakeholder theory, Freeman (1983)

incorporates the stakeholder’s concept into categories;

(i) A business planning and policy model and

(ii) A corporate social responsibility model of stakeholder management.

In the first model, the stakeholder analysis focus on developing and evaluating the approval of

corporate strategies decisions by groups whose support is required for the firm’s continued existence.

The stakeholders identified in this model include the owners, customers, public groups and suppliers.

33
In the second model, the corporate planning and analysis extends to include external influences

which may be adversarial to the firm. These adversarial groups may include regulatory

environmentalists and/or special interest groups concerned with social issues. This model enables

managers and accountants to consider a strategic plan that is adaptable to change in the social

demands of non-traditional stakeholders groups. The main concern of stakeholder’s theory in

environmental accounting is to address the environment costs elements and valuation in its inclusion

in financial statements. Stakeholders are a group of people that an organisation cannot do without.

Therefore, there is a need to recognise and satisfy their interest. Manufacturing companies in Nigeria

ought to adapt to changing social demands of these groups.

According to Abubakar, Moses and Inuwa (2017) the community where the company operates has

interest in knowing the company’s effort and concern towards improving and reducing the

devastating effect of their operation on the environment. To meet this demand, it can only be satisfied

through disclosure of environmental information in annual report. Corporate social and

environmental responsibility encourages strong relationship between firm and society where it

operates (Aggarwal, 2013). He also opined that where a company ignores the stakeholder’s interest it

may contaminate the organisation’s image, which would have a devastating effect on the firm’s

financial performance. Based on stakeholder theory, Ullmann (1985) explains that if a stakeholder

controls an important source of business, the business will find a way to satisfy their needs.

Environmental accounting information disclosure is considered an effective governance strategy that

addresses relationships and satisfies need of stakeholders.

34
2.2.3 Signaling Theory

According to Nguyen & T’ran (2019) suggests that asymmetric information between businesses and

investors leads to adverse selection for investors. To avoid this situation, businesses voluntarily

publish information and give positive signals to the market. According to this theory, the larger the

business, the greater the imbalance of information (Guthrie & Parker, 1989)

According to signaling theory Spence (1973), the main objective of the firm disclosure is to inform

analyst and investors of the firm quality and value. This suggests that voluntary disclosure decision

lead to reporting of relevant information about firm’s performance.

Signaling theory posits that the most profitable companies provide the market with more and better

information, because the general disclosure level depends on many factors which will enable firms to

disclose their environmental costs in their annual reports, the theory focus on a focal point of the

signal that companies send to the financial market especially profitability indicators.

2.2.4 Theoretical Underpinning

Stakeholders Theory

This theoretical approach is the most relevant theory to this study. It explains accounting information

disclosure as an obligation and the rights of the stakeholders. Stakeholders are groups who have

economic interest in the performance of an entity; they are being influenced by the corporate

activities of an organization. To ensure continued survival of an entity, it requires stakeholders

support and approval. The more powerful they are, the more the organization must adapt to their

interests and demand. Stakeholders are a group of people that an organisation cannot do without.

35
Therefore, there is a need to recognise and satisfy their interest. Oil and gas companies in Nigeria

ought to adapt to changing social demands of these groups. The main concern of the stakeholder’s

theory in environmental accounting is to address the environmental costs elements and valuation and

its inclusion on the financial statements ( Bassey, Effiok & Eton, 2013).

2.3 Empirical Review

This study reveals the view of reputable researchers on environmental accounting information

disclosure and its impact on the quality of financial reports. Their views, locations, methodology

used, results of findings and their recommendations were discussed.

Abubakar, Moses, and Inuwa (2017) examined the impact of environmental disclosure on

performance of listed cement and breweries companies in Nigeria. The population of the study

consists of nine cement and breweries companies listed on the Nigerian Stock Exchange. Three listed

cement and four breweries companies were selected as a sample for this study. Secondary data were

used and were collected from annual report of selected companies for the period of five years from

2011 – 2015. Ordinary Least Square regression technique was employed to analyse the data. Content

analysis was used for measuring quantitative environmental disclosure and unweighted approach was

used to rank environmental disclosure indices for measuring qualitative voluntary environmental

disclosure. Return on Asset (ROA), Return on Equity (ROE), and Earnings per Share (EPS) were

used as proxies for measuring performance. The empirical result indicates that environmental

disclosure qualitative (EDQN) has a positive insignificant on ROA and EPS at 0.707 and 0.616

respectively; it has negative insignificant impact on ROE at 0.756. on the other hand, environmental

disclosure qualitative (EDQL) has positive significant impact on ROA at 0.025 also with EPS at 0.00;

36
it however has positive insignificant impact on ROA at 0.660 and is statistically significant, also a

negative impact on ROE and EPS is insignificant. The control variable firm size (FRMS) has positive

significant impact on EPS at 0.009. The study recommends that cement and breweries companies

should practice how to disclose more environmental information. Government should also come up

with clearly define policy on environmental disclosure issues and should ensure its full

implementation.

Bassey, Sunday and Okon (2013) studied the impact of environment accounting on organisational

performance with particular reference to oil and gas companies operating in the Niger Delta region of

Nigeria. The study was conducted using Pearson’s product moment correlation coefficient. Data

gathered were presented using tables and analysed using the Pearson’s product moment analysis. It

was discovered that environment cost has satisfied correlation with firm’s profitability. It was

concluded that environmentally friendly firms will significantly disclose environmental related

information in financial statements and reports. The study suggested that companies should adopt a

uniform method of reporting and disclosing environmental issues for the purpose of control and

measurement of performance and that accounting standards should be published locally and

internationally and reviewed continually to ensure dynamism and compliance to meet environmental

and situational needs.

Oyedokun, Egberioyinemi and Tonademukaila (2019) examined the effect of environmental

accounting disclosure on firm value of listed industrial goods companies in Nigeria from 2007-2016.

The ex-post facto research design was adopted in this study while the data were gathered through

individual sample company annual financial statement. Multiple regressions were used to analyse the

effect of environmental accounting disclosure on firm value. Environmental accounting disclosure

was measured by non-financial indicators, financial indicators and performance indicators, while the

37
firm value is measured by Tobin’s Q. from the result, it is evident that non-financial indicators have

positive significant effect on the firm’s value while performance indicators have a negative

significant effect on firm value and the financial indicator has no significant effect on firm value of

industrial goods companies in Nigeria. Therefore, there is a need for corporate entities to improve

their environmental responsibility practices and disclose comprehensively their environmental risks,

liabilities and impact on the environment. The study suggests that sanctions be put in place to

encourage disclosures most especially non-financial indicators because it has direct influence on the

firm’s value of the industrial goods companies in Nigeria.

Ezeagba, Rachael and Chiamaka (2017) investigated the relationship of environmental accounting

disclosures on financial performance of food and beverage companies in Nigeria. Specifically, the

study examined the relationship between environmental accounting disclosures and return on equity

for food and beverage companies in Nigeria. It also examined the relationship environmental

accounting disclosures and return on capital employed of food and beverage companies in Nigeria

among others. Four hypotheses were formulated and tested in line with the objectives of the study.

Data for the study were collected through secondary sources and analysed using Pearson’s correlation

statistical technique and multiple regressions, with the aid of SPSS version 20.00. The study revealed

that there is a significant relationship between environmental accounting disclosures and return on

equity of selected companies. It also revealed a negative relationship between environmental

accounting disclosures and return on capital employed and net profit margin of selected companies.

Based on these findings, the researcher recommends among others, that firms should adopt uniform

reporting and disclosure standards of environmental practices. This will enhance control and

measurement of performance. The study also advocates that firms (especially smaller ones), should

38
be encouraged to disclose their environmental practices in their annual reports in order to enhance

their competitiveness which would subsequently lead to higher corporate performance.

Ofoegbu, Grace N. and Megbuluba Aminoritse (2016) examined the influence of firm characteristics

on the quality of Corporate Environmental Accounting Information Disclosure (CEAID) in the

Nigeria manufacturing companies. Ex-post facto and content analysis research designs were adopted.

The study collected panel data for seven year period covering 2008-2014 from the annual report of

ten quoted manufacturing firms. The study applied the use of Weight Average Environmental

Disclosure Index to measure the quality of CEAID based on financial disclosure. The pooled panel

data and least square were used to estimate the influence of the independent variable on dependent

variables. The results strongly showed the firm’s financial performance has a significant impact on

the quality of CEAID, but firm size has no impact on the quality of CEAID. The descriptive analysis

of CEAID showed that the highest quality of CEAID as examined using Global Reporting Initiative

and ISO 14301 environmental requirements is far below standard at 2.5%. The study concluded that

voluntary CEAID alone would not enhance the quality of CEAID in manufacturing firms in Nigeria.

Mohammad, Sutrisno, Prihat and Rosidi (2013) examine stakeholder theory and legitimacy as well as

eco-efficient related to effect of environmental accounting performance and environmental disclosure

as mediation on company value. Samples are 59 companies that were selected using purposive

sampling technique. Analysis technique used is the Partial Least Square (PLS). Research results

indicate that environmental accounting implementation has effect on environmental information

disclosure, environment information disclosure has effect on company value, environmental

performance has effect on company value, and environmental performance has effect on

environmental information disclosure. However, environmental accounting implementation has not

been able to affect company value through environmental accounting information disclosure, as well

39
as environmental performance has not been able to affect company value through environmental

information disclosure.

2.4 Summary of Literature Review

This study conceptual framework ostensibly examined the nature of environmental accounting,

functions and roles of environmental accounting, accounting interest in the environment, objectives

of environmental accounting, target period and scope of calculation, structural elements of

environmental accounting, environmental accounting disclosure, formats for disclosing

environmental accounting information, meaning of financial reports, objectives of financial reports,

importance of financial reports and attributes of financial reports.

Various theoretical frameworks have attempted to explain the concept of environmental accounting

information disclosure. Three theories have been discussed in this theoretical review. The theories are

namely; Legitimacy theory, Stakeholder theory and Signaling theory.

Several review of the literature has been conducted on environmental accounting information

disclosure and quality of financial reports. The findings of these studies have also been examined in

this chapter.

Many studies have been carried out on this area of study but there is lack of consensus on the impacts

of environmental accounting information disclosure on the quality of financial reports. Some studies

have found the impact to be significant while some authors found an insignificant effect. This study

tends to examine the relationship that exist between environmental accounting information

disclosure and the quality of financial reports of oil and gas companies in Nigeria using regression

40
statistical analysis considering the quantitative measure of the quality of financial reports which

previous research had failed to examined. This research work focuses on implementing regulatory

body that will enforce oil and gas companies to disclose their environmental costs, risks and

liabilities in their financial reports and how corporate entities will be enlightened on the benefits

derived from disclosing information relating to their environment. This will ensure high quality

reporting and overall competence of their financial reports disclosed to the outside world and also

manages their earnings.

41
 CHAPTER THREE

METHODOLOGY

1.1 Research Design

The design adopted for this study is descriptive research design which measures two variables;

independent and dependent variable. The study is concerned with determining cause and effect

relationship and to understand which variable is dependent and which is independent. This

research design is the best in explaining where two variables are related and where they vary

together with the help of enough information or data for testing cause and effect relationship.

The research is designed to examine the impacts of environmental accounting information

disclosure on the quality of financial reports.

1.2 Population of the study

The population for the study comprises all the oil and gas companies in Nigeria from January

2009 to December 2018. This study is analyzed under the duration of ten years to see the

significance of the exercise.

1.3 Sample Size and Sampling Technique

Five oil and gas companies (CHEVRON, OANDO, CONOIL, TOTAL AND MOBIL) in Nigeria

are selected for the period, 2009-2018 as the sample size for this study. In this study, the

researcher employed simple random sampling method as the sampling technique. This study will

only take account of the disclosures made in the annual reports because this is the most authentic

and reliable document produced by the companies annually.

42
1.4 Method of Data Collection

Data was exclusively collected from the annual financial reports of five selected oil and gas

companies in Nigeria through secondary sources. Data from secondary sources include those

collected from internet, textbooks, journals, library research and government publications

covering ten-year period from 2009 to 2018.It is always a mandatory requirement for firms listed

on the NSE(Nigerian Stock Exchange) to publish their financial reports annually to the

shareholders and other interested parties to enable users make informed decisions. Data for ten

(10) years (January 2009 to December 2018) were collected and analyzed.

1.5 Method of Data Analysis

The collected data was classified, sorted, coded and then tabulated for easy analysis. Data were

analyzed with the use of regression as a statistical tool, and this was done with the help of

statistical package known as SPSS (Statistical Package for Social Science).This package enables

the research work to derive various terms for the decision and with which the others hypotheses

were tested through it, among them are F-statistics, R2, adjusted R2 and Durbin Watson among

others.

The model is significant in that:

i. It measures the relationship between two or more variables

ii. It shows when the hypothesis should be accepted or rejected.

iii. It also determines the positive or negative association or correlation between the

dependent variable (return on assets) and independent variables (environmental

disclosure, firm size and leverage).

43
1.6 Model Specification

The Model for this study will be developed to assess the impacts of environmental accounting

information disclosure on the quality of financial reports of oil and gas companies in Nigeria.

This section specifies the model with which economic phenomenon will be explored empirically.

Specifically, the stated hypotheses were modeled as follows:

ROA= β0 + β1EAID + β2FSZ + β3LEV + ε

Where: ROA=Return on assets

α= y intercept of the regression equation.

β1, β2and β3=are the slope of the regression.

EAID=Environmental Accounting Information Disclosure (Environmental accounting

disclosure means the disclosure, notification or reporting of information in relation to any Soil or

Groundwater Contamination by or on behalf of the Purchaser to any Environmental Authority or

Third Party).

FSZ=Firm size: (The scale or volume of operation turned out by an entity. It significantly affects

the efficiency and profitability of the firm. It may be small, medium or large).

LEV=Financial leverage (The ratio of a company's loan capital (debt) to the value of its ordinary

shares (equity); gearing. It can also refer to the amount of debt a firm uses to finance assets).

ε=error term.

44
 CHAPTER FOUR

DATA ANALYSIS, RESULTS AND DISCUSSION OF FINDINGS

4.0 INTRODUCTION

This chapter of the study report deals with the analysis of data collected and presented for

empirical examination of identified phenomena. It also deals with the interpretation of the

analysed data. The researcher conducted a regression analysis of the variables in consideration, a

test of the model and hypotheses formulated earlier in the course of the study.

All data used were collected from the annual reports and accounts of five selected oil and gas

companies. The data set covers the periods between 2009 and 2018 and is presented in a tabular

format in the appendix of the report.

4.1 Descriptive Analysis

Table 4.1 Table showing Descriptive Statistics for the Variables

ROA EAID FSZ LEV

Mean 0.261281 8.123866 6.833191 0.182578
Median 0.122181 8.361978 7.008865 0.377778
Maximum 0.124535 8.759946 8.082667 0.132572
Minimum 0.038901 6.773021 5.589963 0.013077
Std. Dev. 0.042478 0.595651 0.551940 0.532734
Skewness 4.923128 -1.221473 -0.695191 -0.226035
Kurtosis 2.262957 2.988739 2.925869 0.064832
Probability 0.000000 0.001996 0.132731 0.001897
Observations 50 50 50 50
Source: Researcher’s field work (2020).

45
Where ROA = Return on Assets

EAID = Environmental accounting information disclosure

FSZ = Firms size

LEV = Leverage

Interpretation

Table 4.1 above presents the descriptive and statistical summary of each of the variables

(dependent and independent variables).

The average Return on Asset (ROA) during the years under review is 0.261281 and it ranges

from 0.038901(minimum) to 0.124535(maximum). The test of normality such as skewness and

kurtosis are observed in the table above. The skewness parameter coefficient of 4.923128 shows

that return on asset (ROA) data is positively skewed and the kurtosis value is 2.262957. This

variable is platykurtic in nature because their kurtosis statistics rate is less than three. The

standard deviation is a measure of the amount of variation or dispersion of a set of values. A low

standard deviation indicates that the values tend to be close to the mean of the set, while a high

standard deviation indicates that data points are spread out over a wider range of values. The

standard deviation of 0.042478 that corresponds to Return on Assets (ROA) above shows that

the variable has a very low standard deviation signifying a small deviation from their respective

mean value. Return on Assets (ROA) can be measured by dividing the business net income by

average total assets employed by the firm; it is a ratio that shows how much of profit a company

earned from its resources and assets. The higher the return, the greater the benefit earned by the

46
company. Companies with better environmental accounting information disclosures had higher

Returns on Assets (ROA).

The average Environmental Accounting Information Disclosure (EAID) during the years under

review is 8.123866 and it ranges from 6.773021 to 8.759946. The skewness parameter

coefficient of -1.221473 shows that waste management data is negatively skewed and the

kurtosis value is 2.988739, which is platykurtic in nature because it is less than three. The

standard deviation of 0.595651 that corresponds to Environmental accounting information

disclosure above shows that the variable has a very low standard deviation signifying a small

deviation from their respective mean value.

The mean of firm size (FSZ) during the years under review is 6.833191 and it ranges from

5.589963 to 8.082667. The skewness parameter coefficient of -0.695191 shows that earnings per

share (EPS) data are negatively skewed and the kurtosis value is 2.925869.The kurtosis rate is

less than three and shows it is platykurtic in nature. The standard deviation of 0.551940 that

corresponds to firm size above shows that the variable has a very low standard deviation

signifying a small deviation from their respective mean value.

The average financial leverage (LEV) during the years under review is 0.182578 and it ranges

from 0.013077 to 0.132572. The skewness parameter coefficient of -0.226035 shows that return

on equity (ROE) data is negatively skewed and the kurtosis value is 3.064832 with a standard

deviation of 0.532734.

47
4.2 Variance Inflation Factor (VIF)

Table 4.2 Tolerance value and Variance Inflation Factor (VIF)

Variable Tolerance VIF

Environmental Accounting Information 0.091809 3.245372

Disclosure (EAID)

Firm Size (FSZ) 0.002798 7.707849

Leverage (LEV) 0.006726 4.486099

Return on Asset (ROA 0.017554 5.966443

Source: Author’s Computation Using Eview 9(2020)

The tolerance value and the variance inflation factor (VIF) are two advanced measures of

investigating the existence of multicollinearity between the explanatory variables of the study. In

table 4.3, the variance inflation factors are consistently smaller than ten indicating absolute

absence of multicollinearity (Neter, Kutner, Nachtsheim and wasserman, 1996 and Johansen,

1999).

This shows the appropriateness of fitting the model of the study within the three independent

variables. In addition, the tolerance values are consistently smaller than 1.00 thus providing

further evidence of the absence of multicollinearity among the explanatory variables (Tobachmel

and Fidell, 1996).

48
4.3 Hypotheses Testing

This section deals with examination of the relationship that exists between the variables

identified in the study as stated in the research objectives, research questions and the hypotheses.

The model formulated earlier is tested using the simple linear regression with the Eview 9.0. It

should be noted that the chosen alpha (𝛂) at 5% significant level is 0.05

4.3.1 Test of Hypothesis One (H01)

Research Objective 1: To Determine the relationship between Environmental Accounting

Information Disclosure (EAID) and Return on Assets (ROA)

Hypothesis 1

H01: There is no significant relationship between Environmental Accounting Information

Disclosure (EAID) and Return on Asset

Research Model 1: ROAit= β0+ β1ENDit+ e ------------equ 1

49
Table 4.3.1 Regression Analysis for Hypothesis 1

Dependent Variable: ROA

Method: Panel Least Squares

Variable Coefficient Std. Error t-Statistic Prob.

Environmental Accounting 0.882058 3.417503. 6.110327 0.0000

Information Disclosure (EAID)

C -1.300000 2.342698 -5.552497 0.0000

R-squared 0.437518 Mean dependent var 12612818

Adjusted R-squared 0.425800 S.D. dependent var 17424781

F-statistic 37.33609 Durbin-Watson stat 2.008764

Prob(F-statistic) 0.000000

Source: Author’s Computation Using Eviews 9.0(2020)

Interpretation

ROAit= β0+ β1ENDit+ e ------------equ 1

ROAit= -1.30+ 0.88ENDit+ e ------------equ 1

Table 4.3.1 shows that the t-statistics value for environmental accounting information disclosure

(EAID) as proxy of the independent variable for hypothesis one is 6.11 with a coefficient of 0.88

at 5% level of significance. This result indicates that environmental accounting information

disclosure (EAID) positively affects return on asset (ROA) under study, which means that a

percentage increase in environmental accounting information disclosure (EAID) will increase the

return on asset by 0.88. The coefficient of determination (R2) value of 0.438 portends that

50
environmental accounting information disclosure (EAID) explained about 43.8% variation in

return on asset. Information being disclosed in environmental accounting includes waste

management, employee health and safety disclosures, pollution control and environmental

remediation costs among others which serves as a measure of this variable, the more efficient

environmental costs are being managed ,the greater the benefit derived by the company.

Companies with better environmental accounting information disclosures tend to have a higher

Return on Assets (ROA) which measures the dependent variable been revealed in the study.

In the realm of extant literature, the finding of this study is in line with that of Ndukwe Dibia and

Onwuchekwa (2015) who conducted a study on the empirical analysis of the determinants of

environmental accounting information disclosure (EAID) using oil and gas companies in

Nigeria. Specifically, the study objectives are to examine the effect of Firm size, Profit, Leverage

and Audit firm type on environmental accounting information disclosures.

Meanwhile, the p-value of 0.00 which is significant at 5% provides statistical evidence for which

this study rejects the hypothesis number one of the study (H01) which states that there is no

significant relationship between Environmental accounting information disclosure (EAID) and

return on asset. We can therefore conclude, based on the analysis and the parameters, that there

is significant relationship between environmental accounting information disclosure (EAID) and

return on asset.

4.3.2 Test of Hypothesis Two (H02)

Research Objective 2: Examine if firm size is significantly related with return on assets.

51
Hypothesis Two

H02: Firm size is not significantly related with Return on Asset (ROA)

Research Model 2: ROA= β0+ β1FSZ+ e ------------equ 2

Table 4.3.2 Regression Analysis for Hypothesis 2

Dependent Variable: ROA

Method: Panel Least Squares

Variable Coefficient Std. Error t-Statistic Prob.

Firm Size (FSZ) 0.275000 1.419581. 2.780541 0.0009

C -1.399284 3.417587 -0.409436 0.0040

R-squared 0.372533 Mean dependent var 12612818

Adjusted R-squared 0.358039 S.D. dependent var 17424781

F-statistic 32.69244 Durbin-Watson stat 1.854185

Prob(F-statistic) 0.008905

Source: Author‘s Computation Using Eviews 9.0 (2020)

Interpretation

ROAit= β0+ β1FSZit+ e ------------equ 2

ROAit= -1.39+ 0.28FSZit+ e ------------equ 2

Table 4.3.2 shows that the t-statistics value for firm size (FSZ) as proxy of the independent

variable for hypothesis two is 2.78 with a coefficient of 0.28 at 5% level of significance. This

result indicates that firm size (FSZ) positively affects return on asset (ROA) under study which

52
means that a percentage increase in firm size (FSZ) will propel an increase in return on asset by

0.28.The coefficient of determination (R2) value of 0.373 portends that firm size (FSZ) explained

about 37.3% variation in return on asset. Larger firms with high corporate reputation are likely to

voluntarily disclose information pertaining to their environment to build their image and have

competitive advantage over others compare to smaller firms. Firms with a better environmental

accounting information disclosure (usually larger firms) tend to have higher returns on assets.

In the realm of extant literature, the finding of this study is in line with that of Umuokoro (2016)

who conducted a study on the empirical analysis of the determinants of environmental

disclosures using oil and gas companies in Nigeria. Specifically, the study shows that firm size

significantly influences firm performance proxied by return on asset

Meanwhile, the p-value of 0.01 which is significant at 5% provides statistical evidence for which

this study rejects the hypothesis number two of the study (H02) which states that firm size is not

significantly related with Return on Asset (ROA). We can therefore conclude, based on the

analysis and the parameters, that firm size is significantly related with Return on Asset (ROA).

4.3.3 Test of Hypothesis Three (H03)

Research Objective 3: Evaluate the effects of financial leverage on Return on Asset (ROA)

Hypothesis Three

H03: There is no significant relationship between financial leverage and Return on Asset (ROA)

ROA= β0+ β1LEV+ e ------------equ 3

53
Table 4.3.3 Regression Analysis for Hypothesis 3

Dependent Variable: EPS

Method: Panel Least Squares

Variable Coefficient Std. Error t-Statistic Prob.

Financial Leverage (LEV) 1.476661. 0.496025. 2.626767 0.0003

C -0.865539 1.768536 -2.288711 0.0037

R-squared 0.396952 Mean dependent var 12612818

Adjusted R-squared 0.365507 S.D. dependent var 17424781

F-statistic 19.46370 Durbin-Watson stat 1.891695

Prob(F-statistic) 0.000335

Source: Author’s Computation Using Eviews 9.0(2020)

Interpretation

ROAit= β0+ β1LEVit+ e ------------equ 3

ROAit= -0.86+ 1.48LEVit+ e ------------equ 3

Table 4.3.3 shows that the t-statistics value for financial leverage (LEV) as proxy of the

independent variable for hypothesis three is 2.63 with a coefficient of 1.48 at 5% level of

significance. This result indicates that financial leverage (LEV) positively affects return on asset

(ROA) under study which means that a percentage increase in financial leverage (LEV) will

propel an increase in return on asset by 1.48.The coefficient of determination (R2) value of 0.397

portends that leverage (LEV) explained about 39.7% variation in return on asset. Financial

leverage is also a determinant of environmental reporting (independent variable) which shows

54
the presence of debts in the capital structure of a firm. It can also refer to the amount of debt a

firm uses to finance its assets. This variable is measured using Debts- to-Assets Ratio which

equates Total Debt/Total Assets. As indicated in the result, the leverage of firms tends to grow as

level of voluntary environmental disclosure increases. Companies with high leverage tend to

disclose more (usually they are larger firms who prefer outside capital (debt) rather than fresh

equity) and thus bring about an increase in the amount of returns earned from their assets.

In the realm of extant literature, the finding of this study is in line with that of Bassey, Sunday

and Okon (2013)who examined the impact of environmental accounting and reporting an

organizational performance with particular reference to oil and gas companies operating in Niger

Delta of Nigeria. The study shows that leverage significantly influence return on asset

Meanwhile, the p-value of 0.01 which is significant at 5% provides statistical evidence for which

this study rejects the hypothesis number three of the study (H03) which states that there is no

significant relationship between financial leverage and Return on Asset (ROA). We can therefore

conclude, based on the analysis and the parameters, that there is significant relationship between

financial leverage and Return on Asset (ROA)

4.4 Discussion of Findings

Having examined the formulated research hypotheses using the regression t with the aid of

Eview 9, the result of hypothesis one revealed that there is significant relationship between

Environmental Accounting Information Disclosure (EAID) and return on asset. The implication

of this finding is that an increase in Environmental Accounting Information Disclosure (EAID)

will have a positive effect on Return on asset. This means that a direct relationship exists

55
between Environmental Accounting Information Disclosure (EAID) and Return on asset. This

finding corroborates that of Ndukwe Dibia and Onwuchekwa (2015) who conducted a study on

the empirical analysis of the determinants of environmental accounting information disclosures

using oil and gas companies in Nigeria. Specifically, the study objectives are to examine the

effect of Firm size, Profit, Leverage and Audit firm type on environmental accounting

information disclosures. The cross-sectional research design was utilized in undertaking the

study. A sample of 15 companies drawn from the oil and gas sectors of the Nigerian stock

exchange for 2008-2013 financial years was used for the study. Secondary data was sourced

from the annual reports of the sampled companies while the Binary regression technique was

used as the data analysis method. The finding of the study shows that firstly; there is a significant

relationship between environmental accounting and financial report quality.

The result of hypothesis two revealed that firm size is significantly related with Return on Asset

(ROA). The implication of this finding is that an increase in firm size will enhance the company

Return on Asset. This finding is in line with that of Umuokoro (2016) who conducted a study on

the empirical analysis of the determinants of environmental accounting information disclosures,

using oil and gas companies in Nigeria. Specifically, the study shows that firm size significantly

influence firm performance proxied by return on asset

Finally, the result of hypothesis three revealed that there is significant relationship between

financial leverage and Return on Asset (ROA). A positive relationship exists between leverage

and Return on Asset (ROA). This implies that an increase in leverage will propel an increase in

Return on Asset (ROA). This finding is in line with that of Bassey, Sunday and Okon (2012)

who examined the impact of environmental accounting and reporting an organizational

performance with particular reference to oil and gas companies operating in the Niger Delta

56
Region of Nigeria. The study was conducted using the Pearson’s product moment correlation co-

efficient. The elements were selected by means of random and stratified sampling technique.

Data were gathered from primary and secondary sources. Data collected were presented using

tables and analyzed using the Pearson’s product moment correlational analysis. It was found

from the study that employee’s health and safety cost has satisfied relationship with firm’s

profitability.

57
 CHAPTER FIVE

SUMMARY OF FINDING, CONCLUSIONS AND RECOMMENDATIONS

5.0 Introduction

`This study has been able to examine the impact of environmental accounting information

disclosure on the quality of financial reports in Nigeria. Five oil and gas companies were selected

for the period of 2009 to 2018. This chapter deals with summary of findings, conclusion,

recommendations and suggestions for further studies.

5.1 Summary of Findings

Having examined the research objectives and the hypotheses using regression statistical analysis,

it was discovered that environmental accounting information disclosure has significant and

positive effect on return on asset. Secondly, it was discovered that firm size has significant and

positive effect on return on asset.

Finally, the study discloses that there is a significant effect of financial leverage on Return on

Asset (ROA), which shows there was a strong relationship between financial leverage and

Return on Asset (ROA).

5.2 Conclusion

The study has made attempt to examine the impact of environmental accounting information

disclosure on the quality of financial reports in Nigeria, for the period covering 2009 to 2018; the

relevant data was extracted from the annual reports of the five selected oil and gas companies. In

this finding, it is evident that environmental accounting information disclosure has a strong

influence on the quality of financial reports.

58
It can be concluded that there is significant relationship between Environmental Accounting

Information Disclosure (EAID) and return on asset, the implication of this finding is that an

increase in Environmental Accounting Information Disclosure (EAID) will have a positive effect

on Return on asset. This means that a direct relationship exists between Environmental

Accounting Information Disclosure (EAID) and Return on asset. This finding corroborates that

of Ndukwe Dibia and Onwuchekwa (2015) who conducted a study on the empirical analysis of

the determinants of environmental accounting information disclosures using oil and gas

companies in Nigeria.

Firm size is significantly related with Return on Asset (ROA). The implication of this finding is

that an increase in firm size will enhance the company Return on Asset,

Finally, there is significant relationship between leverage and Return on Asset (ROA). A positive

relationship exists between leverage and Return on Asset (ROA). This implies that an increase in

leverage will propel an increase in Return on Asset (ROA). This finding is in line with that of

Bassey, Sunday, and Okon (2012) who examined the impact of environmental accounting and

reporting an organizational performance with particular reference to oil and gas companies

operating in the Niger Delta Region of Nigeria. The study was conducted using the Pearson’s

product moment correlation co-efficient. The elements were selected by means of random and

stratified sampling technique. Data were gathered from primary and secondary sources. Data

collected were presented using tables and analyzed using the Pearson’s product moment

correlational analysis. It was found from the study that employee’s health and safety costs have

satisfied relationship with firm’s profitability.

59
5.3 Recommendations

Based on the findings, the following recommendations are put forward:

i. Environmental accounting standards should be published locally and internationally and

reviewed continually to ensure dynamism compliance.

ii. Organizations should formulate and implement environmental friendly policies to

enhance their competitiveness.

iii. Government should make environmental reporting in annual reports compulsory since

most organizations hardly report their environmental activities in their reports.

iv. Corporate organizations on their part should ensure that they comply with the

environmental laws of the nation as it will go a long way in enhancing their

performances.

v. Accountants should be trained on environmental disclosures accounting.

5.4 Limitation of the study

The major limitation of the study faced by the author was financial constraint which was a highly

recalcitrant factor, yet the study was still successful.

5.5 Suggestions for Further Studies

This study examines the impact of environmental accounting information on the quality of

financial reports in the Oil and Gas Company, secondary data was used by analyzing and

examining the corporate report of the selected oil and gas companies. The outcome of study

showed that environmental accounting information disclosure proxied by environmental

accounting information disclosure, firm size and leverage have a significant influence on the

60
quality of financial reports, and this provides an important contribution to previous literature on

environmental accounting information disclosure.

61
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 APPENDIX

COMPANY YEAR Profit After Tax Total Assets Leverage EAID ROA
CHEVRON 2009 389012 148786000 8.17142509 8.172562068 0.00261
CHEVRON 2010 455144.04 161165000 8.20604251 8.207270733 0.00282
CHEVRON 2011 532518.5268 164621000 8.2150781 8.216485236 0.00323
CHEVRON 2012 623046.6764 184769000 8.26516218 8.266629108 0.00337
CHEVRON 2013 728964.6113 209474000 8.31961616 8.321130126 0.00348
CHEVRON 2014 852888.5953 232982000 8.36572961 8.367322369 0.00366
CHEVRON 2015 997879.6565 253753000 8.40269996 8.404411185 0.00393
CHEVRON 2016 1167519.198 266026000 8.42301388 8.424924084 0.00439
CHEVRON 2017 1365997.462 266103000 8.42281465 8.425049771 0.00513
CHEVRON 2018 1598217.03 260078000 8.41242658 8.415103617 0.00615
OANDO 2009 5480415 88752224 7.920498 7.948179245 0.06175
OANDO 2010 8343325 159933058 8.18066979 8.203938241 0.05217
OANDO 2011 120967123 171453090 7.70317068 8.234145317 0.70554
OANDO 2012 14374966 325786108 8.49333415 8.512932561 0.04412
OANDO 2013 15567097 356091230 8.5321479 8.551561278 0.04372
OANDO 2014 10786317 515063788 8.70266957 8.711861018 0.02094
OANDO 2015 12080675.04 534094121 8.71768169 8.727617798 0.02262
OANDO 2016 13530356.04 547965009 8.72789461 8.738752827 0.02469
OANDO 2017 15153998.77 571453009 8.74530829 8.756980524 0.02652
OANDO 2018 16972478.62 592341008 8.7599461 8.7725718 0.02865
CONOIL 2009 7563097 186986453 8.25387898 8.271810143 0.04045
CONOIL 2010 8546299.61 205685098 8.29477211 8.313202829 0.04155
CONOIL 2011 9657318.559 226253608 8.33565101 8.354595514 0.04268
CONOIL 2012 10912769.97 248878969 8.37651527 8.395988199 0.04385
CONOIL 2013 12331430.07 273766866 8.41736445 8.437380884 0.04504
CONOIL 2014 13934515.98 301143552 8.4581981 8.478773569 0.04627
CONOIL 2015 15746003.05 331257908 8.49901575 8.520166254 0.04753
CONOIL 2016 17792983.45 364383698 8.53981692 8.56155894 0.04883

66
CONOIL 2017 20106071.3 400822068 8.58060113 8.602951625 0.05016
CONOIL 2018 22719860.57 440904275 8.62136784 8.64434431 0.05153
TOTAL 2009 3255410 9184953 6.77302122 6.963076938 0.35443
TOTAL 2010 3580951 10287147 6.82647627 7.012294961 0.3481
TOTAL 2011 3939046.1 11521605 6.87981579 7.061512984 0.34188
TOTAL 2012 4332950.71 12904198 6.93304401 7.110731006 0.33578
TOTAL 2013 4766245.781 14452701 6.98616489 7.159949029 0.32978
TOTAL 2014 5242870.359 16187026 7.03918224 7.209167052 0.32389
TOTAL 2015 5767157.395 18129469 7.09209967 7.258385074 0.31811
TOTAL 2016 6343873.135 20305005 7.14492062 7.307603097 0.31243
TOTAL 2017 6978260.448 22741605 7.19764838 7.35682112 0.30685
TOTAL 2018 7676086.493 25470598 7.25028607 7.406039142 0.30137
MOBIL 2009 12097081 199564231 8.27292518 8.300082703 0.06062
MOBIL 2010 13367274.51 213533727 8.30139129 8.329466481 0.0626
MOBIL 2011 14770838.33 228481088 8.32982535 8.358850258 0.06465
MOBIL 2012 16321776.35 244474764 8.35822616 8.388234036 0.06676
MOBIL 2013 18035562.87 261587998 8.38659248 8.417617814 0.06895
MOBIL 2014 19929296.97 279899158 8.414923 8.447001591 0.0712
MOBIL 2015 22021873.15 299492099 8.44321639 8.476385369 0.07353
MOBIL 2016 24334169.83 320456546 8.47147122 8.505769147 0.07594
MOBIL 2017 26889257.67 342888504 8.49968605 8.535152924 0.07842
MOBIL 2018 29712629.72 366890699 8.52785932 8.564536702 0.08098

67