GREEN ACCOUNTING

S. SUDHAMATHI, Assistant Professor , Alagappa Institute of Management,

Alagappa University, Karaikudi. -4, Mobile : 9442473775
Prof. Dr.S. KALIYAMOORTHY, Professor & Director, Alagappa Institute of
Management, Alagappa University, Karaikudi-4
ABSTRACT

Green accounting is a type of accounting that attempts to factor environmental

costs into the financial results of operations. It has been argued that gross domestic
product ignores the environment and therefore decision makers need a revised model
that incorporates green accounting. The green accounting deals with accounting and
management issues relating to environmental and social impacts, regulations and
restrictions, safety, environmentally sound, and economically viable energy production
and supply Green accounting requires multidisciplinary knowledge in behavioral
science, engineering, sociology and even biology. The fundamental premise behind
green accounting is that organizations should internalize environmental costs. The aim
of green accounting is the acknowledgement and attempt to identify ways of
diminishing the negative effects of activities and systems on the environment. The
foremost role of green accounting is to tackle the social environmental problems and
may have impact on attaining sustainable development and environment in any country
and influences the company’s behavior in confronting social and environmental
responsibility issues. green accounting is plays critical role in promoting the public and
the environmental organizations that could be worked based on the human rights
approach.

Keywords : Green Accounting, behavioral science, Engineering, Environmental cost,

Gross domestic product, sociology.
INTRODUCTION

Green accounting is a type of accounting that attempts to factor environmental

costs into the financial results of operations. It has been argued that gross domestic
product ignores the environment and therefore decision makers need a revised model
that incorporates green accounting. Green accounting (also known as environmental
accounting) seeks to better measure sustainability by expanding gross measures of
national welfare (product, investment, etc.) to include non-market values, in particular
ones associated with environmental goods and services. In addition, green accounting
seeks to incorporate costs and benefits of environmental protection and depletion of
natural capital – two measurements not typically included in national accounting
systems such as gross domestic product. While opinions vary on how to perform green
accounting, the technique is used worldwide.

HISTORY

In former, green accounting is found to knowledge of environment accounting

(EA) practices. The EA is embedded to be function with agency accountability
managerial and investor interests. That is, green accounting is wider organization and
individual understanding of stakeholder movement and including the community, too.

Green environment accounting focuses on systems to be life cycle of resource,

and it is moved to recognized organization as sustainable. That is to try campaigning
among corporations, employee, community, and government dealing with effects and
benefits of activities to care environment together seriously. Moreover, this can tell the
people the in world that it happened.

MAIN OBJECTIVE OF GREEN ACCOUNTING

 Identifying, collecting, calculating and analyzing material and energy-related

costs;
 Internal reporting and using information about environmental costs;
 Providing other cost-related information in the decision process, with a view to
adopting efficient decisions and contributing to environment protection.

NEED OF GREEN ACCOUNTING

Accounting for the environment or the acronym “Green accounting” is

receiving increased attention in the recent times. Many companies, particularly small
medium enterprises (SMEs) are now interested in being “green”, as many investors
place a high value on environmental responsibility. Many environmental costs can be
significantly reduced or eliminated as a result of business decisions, ranging from
operational and housekeeping changes, to investment in greener process technology to
redesign processes or products. Industry and the green movement are tilting towards
consensus on the pivotal concept of sustainable development. Better natural resource
and green accounts would provide valuable insights into the interaction between the
environment and the economy.
 National accounts are primarily an economic framework and are not suitable
for an adequate representation of all environmental changes. There are also serious
problems involved with the valuation of resource and environmental stocks. Especially
for developed nations where the main environmental concern is with pollution impacts,
greening the accounts is of limited value. However, integrated resource accounting is
vital for developing nations which have a heavy dependence on natural resources, and
for which conventional accounting can lead to distorted and destructive macroeconomic
and trade policies.

PRINCIPLES OF GREEN ACCOUNTING

"Selling natural assets and including the proceeds in the gross domestic product,
GDP, is wrong on both economic and accounting grounds."

To get a proper estimate of net value added, we must subtract depreciation of

assets. This is done for produced assets in the calculation of net national product (NDP).
Even though NDP is rarely estimated, depreciation of produced assets is fairly small
and predictable. Declines in natural assets, on the other hand, may be large and volatile,
and are not reflected at all in the estimates of GDP commonly used for macroeconomic
analysis. It simply embodies a correct accounting principle for estimating sustainable
income.

GREENING THE NATIONAL ACCOUNTS

Greening the national accounts cannot fully capture many aspects of

environmental deterioration such as biodiversity loss, nor can they provide a solution
for a broad range of environmental problems. For these purposes, physical rather than
economic indicators of environmental change are more appropriate.

"Greening the national accounts is more important for economic than for
environmental policy. Especially for those countries whose natural resources are
rapidly eroding, and the erosion is counted misleadingly in GDP as value added. Once
the accounts are greened, macroeconomic policies need to be re-examined along the
lines elaborated in this paper."

ABC METHOD

Green accounting which observes ABC method principles helps measure saving
costs as a result of reducing raw materials cost during the recycling or reusing period.
As a consequence, ABC or ABM method provide that understanding approach and
those target areas for considering the opportunities of designing costs of the main
environmental activities.The application of the ABC method principles is
recommended for prompting environment improvement results.

GREEN ACCOUNTING MEASURES

Consist of questioning the departments or functional services grouped

according to processes, and within the processes, the specific environmental activities.
A selection technique will be used, meant to reduce the excessive number of specific
environmental activities, even a regrouping of these activities into processes.

Description Green Accounting Issues and Scope

Pollution Prevention Costs Costs incurred to prevent air and water pollution along with
water treatment facilities and other activities.
Environmental Protection Costs of energy saving measures as well as costs of global
Costs warming reduction measures.
Costs of Resource Recycling Costs incurred for waste reduction and disposal as well as for
water conservation, rainwater usage and other measures
aimed at efficient resources usage.
Environmental Restoration Cost of environmental restoration operations (eliminating soil
Costs and ground water contamination, environmental
compensation, etc.)
Management Costs Management-related environmental protection costs
including environmental promotion activities and costs
associated with acquiring and maintaining ISO 14001
certification.
Social Promotion Activities Environmental protection costs stemming from participation
Costs in social activities such as participation in organizations
concerning with environmental preservation etc.
Research and Development Environmental protection costs for research and
Costs Development activities and costs of environmental solutions
business activities (Green product/environmental technology
design and development costs, environmental solutions
business costs, others) etc.

ADAPTION OF GREEN ACCOUNTING

 Setting up the objectives of green accounting.

 Setting up the GA project team and project

Running(the team will analyze the following matters)

 1. Identifying the significant influences of the enterprise on the environment
2. Determining the forms of impact on the Environment
3. Definition of the environmental costs

Environment Forms of impact on the Action taken as a result of the

analysis environment - by environment analysis
elements means of

Products - discharged rivers; - controlling impact on the

Services - used underground waters discharged environment;
Activities by - adapting to legal requirements,
sewage; according to the
- gas emissions in the atmosphere; legislation in the filed.
- vibration noises;
- abnormal situations;
- other pollution factors.

Technology - quantity, product nature, its - controlling the impact on the

environmental environment;
sensitivity; - current situation;
- created/natural/possible incidents - product’s life cycle;
and/or - studying product-related
accidents; ecological aspects and the
corresponding interest rate of the
clients;
- adapting to legal requirements,
according to the
legislation in the filed.
• Identification of possible difficulties encountered after covering the two stages
and seeking future opportunities

• Identification of possible difficulties encountered after covering the two stages

and seeking future opportunities
COMPARISON OF TRADITIONAL AND GREEN ACCOUNTING

Traditional accounting Environmental accounting

Perspective Corporate economic Link between the economy and the

(financial) aspects environment

Task Show the general Show environmental performance;

economic situation; Show environmental liabilities and
Cost management environmental costs

Elements Financial accounting Environmental financial accounting

Management accounting External ecological accounting
Environmental management
accounting
Internal ecological accounting

Tools Financial and accounting Environmental reports

statements
Internal reports, reports

Methodology Assessment procedures, Environmental performance

evaluation,
Cost accounting
Life-cycle analysis,
Environmental cost-savings analysis

Unit Basically, financial units Financial and natural units

(excluding inventory)

Regulation Legal regulation Legal regulations require reporting

(financial accounting) of some elements of environmental
Voluntary (management performance
accounting)

Obligational Compulsory Some elements are required

characteristics

CHANGES PRODUCED BY GREEN ACCOUNTING AT COMPANY LEVEL

Considering the fact that the enterprise is already using the Activity-Based
Costing method (ABC) and green accounting respects its specific principles, the
changes will not be significant. The problem is to correctly identify environmental costs
and to use specific cost drivers for calculating correct production costs and obtaining
accurate information necessary for company management.

ADVANTAGES:

Adopting decisions about the financial performance of the organization and

green accounting, providing useful information for reaching cost minimization targets
(especially environment) and

negative impact on environment, presenting data about costs necessary for estimating
the financial impact of such initiatives as:

 Pollution preventing; designing environment and green accounting

improvement;
 Projection, costs, estimating life cycle in the
 Environment;
 Product circulation administration from environmental prospective;
 Supply process from environmental perspective; the product or producer’s
liability;
 Environment-centered management systems;
 Assessing, testing and reporting performances of
 Environmental activities;
 Reporting of these performances;
 Information source for other routine managerial activities such as: product and
process design, cost distribution and control, capital budgeting, supply process,
price policies, performance evaluation.

DISADVANTAGES:

The implementation of green accounting doesn’t represent a guaranty for

obtaining financial performance or environment-related performances.

CURRENT RESEARCH ISSUES OF GREEN ACCOUNTING

Boer and Chields (1994) presented paper about environment accounting

topics in the Journal of accounting of accounting public policy, its content deal with
reflecting a wide range of environment accounting issues. Walden and Schwartz (1977)
examined four industries: oil, chemical, consumer products, and forest products related
to environmental disclosures, especially about reaction to public pressure. They used
content analysis and found that positive relationship between externally reported events
and the level and quality (voluntary) environmental disclosure from in companies’
annual reports.

Lawrence and Khurama (1997) conducted research in Superfund Liabilities and

Governmental Entities: An Empirical Analysis. They investigated financial impact of
municipal government landfill cleanup, and timing and amounts of environmental
liability disclosure in financial report issued by these municipal governments. Then,
they found that relatively few municipalities accrued estimated cleanup costs: disclosed
these costs, and one more, these cleanup costs led to be a serious financial threat for
some these municipalities, but less other municipalities.

TREND AND FUTURE RESEARCH

The prior researches were conducted in EA less than financial accounting

research. It may be came from various such as many people still not recognize to the
effects of pollutions caused by no concentrating environment; theses EA research is
more difficult to explicit economic measures; in former, technologies do not more
progress to produce goods and services that demand resources increasingly (i.e. oil, gas,
water, air, ect.) to production process to response for customer needs. The main issues
in previous focus on repots and disclosures in accountabilities to environmental
liabilities, regulations, attitude of accounting practitioners, international standard,
measurement of environment accounting

Future EV research should be explored the structural and social causes of

environment problems which prior research beginning is conducted, and expanded
through globalization. It is pressured increasingly on report of accountants for
communities in corpora ting environment issues. Continuing future researches are
presented by Shields and Boer (1997) as follows

CONCLUSION

The green accounting is an emerging aspect of accounting science that will

influence, in the near future. The adoption of basic elements of green accounting will
portray the role of environment in the economy as well as render easier the analysis of
macroeconomic questions with the help of green accounting measures and thus, will
lead the economy to a viable path.