Environmental cost accounting entails pointing out the specific areas that an organization has used its money in for the purpose of managing the environment. The principle is in itself an act of law that came into being back in the year 19981.Organizations were given this mandate of ensuring that their activities do not lead to the pollution of the environment because they are the ones that emit large volumes of toxic waste into the environment. On the other hand, organizations must account for every penny that they spend because that is what amounts to transparency.
In addition to that the monies that were spent towards safeguarding the environment must be properly documented in written financial statements that are published by media houses for the purpose of creating awareness on the activities of a given organization. Environmental costs can be divided into four groups of expenses namely (1) Environmental Prevention Costs, (2) Appraisal Costs, (3) External Failure Costs and (4) Internal Failure Cost
It is defined as the cash that is set aside for the purpose of funding activities that are thought to prevent the accumulation of waste in the environment2.
1. Andraca, Roberto de, and McCready, Ken F. 1994. Internalizing Environmental Costs to Promote Eco-Efficiency. Business Council for Sustainable Development, Geneva.
2. Aldrich, James R. 1994. "Expected Value Estimates of the Long-Term Liability from Land filling Hazardous Waste," Journal of Air & Waste Management. Vol. 44. June.
It is necessary to designate money for these activities because all the activities of an organization have to be budgeted for. The activities here include sensitizing communities on the importance of using renewable products and also the collection of used products with the aim of recycling them3. On the other hand, failure to account for the money spent in these activities could result in misunderstandings because it might be translated to mean that some elements in a given organization are stealing money. Additionally, without money the said activities can not take place effectively especially when they have to be done outside the company's compound.
Environmental Appraisal Costs
These are the expenses that are incurred by an organization while carrying out activities that evaluate the possible consequences of an organization's operations on the environment4. For instance an organization's products may be subjected to inspection by the concerned government agencies and normally there is a predefined fee that has to be paid by the organization in question. It then follows that such monies have to be accounted for in the company's financial records.
Environmental accounting system
It is advisable for organizations that report on their environmental expenses to have an environmental accounting system. These systems are designated for entering data that is related to expenses incurred while conserving the environment. Just like other systems, it is possible to customize this system such that it only includes financial reports that do not put the company's reputation at stake.
This means that an organization can still ignore some expenses in its reports as explained in the above scenario. On the other hand having an operational environmental accounting system enhances the reputation of the company in the public arena. This is because it creates an impression that the company has the best interests of its customers at heart whereas they are only out to make huge returns.
List of References
Andraca, Roberto de, and McCready, Ken F. 1994. Internalizing Environmental Costs to Promote Eco-Efficiency. Business Council for Sustainable Development, Geneva.
Aldrich, James R. 1994. "Expected Value Estimates of the Long-Term Liability from Land filling Hazardous Waste," Journal of Air & Waste Management. Vol. 44. June.
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