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Environmental Accounting


A flexible tool to provide information not necessarily provided in traditional ... Goal of environmental accounting is to increase the amount of relevant data for ... – PowerPoint PPT presentation

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Title: Environmental Accounting

Environmental Accounting
  • Environmental Accounting Overview
  • What is environmental accounting
  • Why do environmental accounting
  • What is an environmental cost
  • System Strategies
  • Reactive, Proactive, Leadership
  • Business Purpose and Application
  • Example - Cost Allocation
  • Methodologies

Environmental Accounting Overview
  • What is environmental accounting?
  • A flexible tool to provide information not
    necessarily provided in traditional managerial

  • Goal of environmental accounting is to increase
    the amount of relevant data for those who need or
    can use it.
  • Relevant data depends on the scale and scope
    of coverage

Scale and Scope
  • Applicable at different scales of use and scopes
    (types) of coverage.
  • Application at an individual process level
    (production line), a system, a product, a
    facility, or an entire company level.
  • Coverage (focus) may include specific costs,
    avoidable costs, future costs and/or social
    external costs

Scale and Scope
  • Decisions on scale and scope of application
    significantly impact ability to assess and
    measure environmental costs
  • Process vs Facility
  • Discreet costs vs Hidden vs Contingent vs Image

Why do Environmental Accounting ?
  • Environmental cost can be significantly reduced
    or eliminated as a result of business decisions.
  • Environmental costs may provide no added value to
    a process, system or product (i.e. waste raw
    material )
  • Environmental costs may be obscured in general
    overhead accounts and overlooked during the
    decision making process.

Why do Environmental Accounting ?
  • Understanding environmental costs can lead to
    more accurate costing and pricing of products.
  • Competitive advantage with customers is possible
    where processes and products can be shown as
    environmentally preferable.

Environmental Costs
  • Major challenge in application of environmental
    accounting as a management tool is identifying
    relevant costs.
  • Cost definition determined by intended use of
    data (i.e. cost allocation, budgeting,
    product/process design or other management
    decision support).

Environmental Costs
  • Types of Environmental Costs
  • Conventional material, supplies, structure and
    capital costs need to be examined for
    environmental impact on decisions.
  • Potentially Hidden
  • Regulatory (fees, licenses, reporting, training,
  • Upfront and back end (site prep, engineering,
    installation, closure and disposal)
  • Voluntary (training, audits, monitoring and
  • Contingent penalties/fines, property liability,
  • Image Relationship with employees, customers,
    suppliers, regulators and shareholders

Overview Summary
  • Flexible tool to provide relevant data not
    ordinarily captured in traditional systems.
  • Successful application requires up-front
    understanding of scale and scope of application.
  • Once identified, information needs to be
    communicated/distributed to decision makers and
    considered as a component of managements
    decision making criteria

System Strategies
  • Environmental Accounting systems typically fall
    into one of three categories
  • Reactive
  • Proactive
  • Leadership

Reactive Systems
  • Typically spread costs (capital and expense)
    across various overhead categories.
  • Environmental costs typically not assigned to
    specific line/process or activity.
  • Reactive system fails to provide indication or
    quantification of environmental costs.
  • As a result it fails to identify cost drivers and
    minimizes opportunity to develop tactics to
    reduce these costs.

Proactive systems
  • Costs are categorized and assigned to specific
    process and activities.
  • Costs incurred can be identified, classified and
    quantified but are limited to discreet costs.
  • Decisions typically focus on incremental
    activities ( i.e. minimize waste, etc.).

Leadership Systems
  • Includes both financial and non-financial issues
    in the relevant data used in the business
    decision process.
  • Systems are designed to include value chain
  • Both the process as well as the product are
    evaluated for relationship between inputs and
    overall value provided to minimize total costs.

  • Utilization of data generated from application of
    environmental accounting tool can be used for a
    variety of decision classes including
  • Cost allocation
  • Capital budgeting
  • Product design

Cost Allocationan example
  • Goal - Bring environmental costs to attention of
    corporate stakeholders.
  • Four steps in environmental cost allocation
  • Determine scale and scope of the application
  • Identify environmental costs
  • Quantify those costs
  • Allocate those costs to responsible product,
    process or system

Traditional Cost System
Other Overhead
Toxic Waste Product B
Allocated Overhead
Product A
Product B
Modified Allocation System
Other Overhead
Toxic Waste Product B
Allocated Overhead
Product A
Product B
MethodologiesRelated Accounting Topics
  • Application of Environmental Accounting typically
    used in conjunction with
  • Activity Based Costing (ABC)
  • Total Quality Management (TQM)
  • Business Process Re-engineering
  • Balanced Score Card
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