Chapter 17
Environmental and social management accounting
Copyright ª 2006 McGrawHill Australia Pty Ltd
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Corporate social responsibility and external reporting
• Involves taking into account the social and environmental impact of corporate activity when making decisions
– May increase profitability
– Determine long-term survival
• Communicated to stakeholders in annual reports, environment reports, stakeholder impact reports, social impact reports and social audit reports
continued
Copyright 2006 McGraw-Hill Australia Pty Ltd
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Corporate social responsibility and external reporting
• Triple bottom line reporting
– Focus on financial (economic), social and environmental aspects of performance
– Aimed at a broader range of stakeholders • Social performance
– Impact of an organisation's behaviour on society, including the broader community, employees, customers and suppliers
• Environmental performance
– Impact of an organisation's behaviour on the environment, including natural systems of land, air and water, people and other living organisms
Copyright 2006 McGraw-Hill Australia Pty Ltd
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Environmental management accounting (EMA)
• Consists of environmentally-related management accounting systems and practices
• Life cycle costing, environmental cost accounting, environmental performance measures, assessment of environmental benefits, strategic planning for environmental management
• EMAtechniques
– Financially-oriented EMA – Physically-oriented EMA
Copyright 2006 McGraw-Hill Australia Pty Ltd
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Financially-oriented EMA
• Environmental costs
– Incurred to prevent, monitor and report environmental impacts
– Cost of waste management systems, environmental training, legal activities and fines, record keeping and reporting, cost of remediation of environmental impacts
• Environmental product costing
– Involves tracing direct and indirect environmental costs to products
– The cost of waste management, permits and fees, recycling
continued
Copyright 2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith
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Financially-oriented EMA
• Environmentally-linked capital expenditure
– Driven by the desire to improve the organisation's environmental impact, or by the need to comply with environmental regulations
• Environmentally-induced revenues
– Arise from positive environmental actions of the organisation
– Increased revenue from the sale of recycled materials, from higher selling prices for greener products
– Increased customer satisfaction, improved employee morale, increase in future profits
Copyright 2006 McGraw-Hill Australia Pty Ltd
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Physically-oriented EMA
• Physically-oriented EMA
– Mechanisms that focus on supplying information that accounts for the organisation’s impact on the natural environment
– Kilograms of noxious waste emissions, kilowatt hours of electricity used, decibels of noise
– Used for tactical decisions and capital expenditure decisions
Copyright 2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith
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Environmental management systems (EMS) and EMA
• Systems that organisations put in place to manage their environmental performance
• Recycling systems, systems to monitor and control levels of liquids, material and atmospheric discharge and waste
• ISO 14001 is an international standard for EMA and its audit
• EMS and adoption of ISO 14001 requires that environmental performance be measured against policies, objectives and targets
Copyright 2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith
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The benefits of recognising environmental and social impacts
• There is an increasing awareness that recognising environmental and societal impacts can have broad implications for an organisation
• Attracting highly skilled employees who wish to work for an environmentally-responsible organisation
• Enhancement of the organisation’s reputation as a responsible and caring organisation
• Identification of potential cost savings
continued
Copyright 2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith
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The benefits of recognising environmental and social impacts
• Reduction of risk of current and future activities • More effective management of resources
• Improvements in competitiveness – Greater attractiveness to customers – Positive reputation
Copyright 2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith
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Difficulties in recognising and measuring environmental and social impacts
• Costs of environmental impacts are often hidden or forgotten, even though they may be substantial
• They may be difficult to recognise
• Future ecological and social issues are not yet known
– Current work practices and operations may have future environmental and social consequences which we cannot predict
• Many costs and benefits are external to the organisation
– Difficult to detect and assess continued
Copyright 2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith
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Difficulties in recognising and measuring environmental and social impacts
• Many costs and benefits are difficult to measure in financial terms
– They relate to the future, and the size of the impact may be unknown
• Defining environmental costs
– The costs that an organisation incurs to prevent, monitor and report environmental impacts
– US EPAdefines 5 tiers of environmental costs – Private costs (tiers 1 to 4) and societal costs
Copyright 2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith
17-12
Copyright 2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith
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