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7ENVIRONMENTAL ACCOUNTING: INFORMATIONAL BASE FOR POLICY MAKERS
Malinovska Daria PhD Student,
Taras Shevchenko Kyiv National University
ABSTRACT
This paper undertakes an assessment of a place of environmental accounting in environmental managing system on a world level. It is necessary to ensure appropriate environmental accounting at all lower levels to collect qualitative information on the state level to take to appropriate environmental policies. In our times the companies do not have a clear idea of environmental accounting principles and way how to manage it. Environmental accounting provides policymakers with timely and relevant information.
Keywords: environmental accounting, informational needs, environmental policies.
Problem setting. Environmental problems are the major problems in the world. This is clear and there is no need to prove it. People try to deal with them, but face with many issues. First, they face with problems in indication the reasons. This stage is very important, because only after that can be found out their solutions. But also we need to see the result: were our actions effective or not. So we need reliable information, which will describe current situation, give us the opportunity to compare current and past results and find out tools that can be used to predict future results.
General reliable information is a key to success. It helps you to make deliberate decisions in time. Management at all levels needs to have information day-to-day, because they want to see information about current position of company. Moreover one of the most common indicator of success is income/ losses. So to provide management with different kind of information organization has to lead appropriate accounting and bookkeeping.
If we talk about environmental and especially about unpredictable nature of it, managers should always keep abreast of company's capabilities and potential losses in case of natural disasters. The importance of accounting in general is not in doubt. But, unfortunately, the importance of environmental accounting is underestimated. In our opinion, this is because companies do not have a clear idea of environmental accounting principles and a way how to manage it.
Analysis of recent research and publications. Many scientists and economists such as F.F. Butynets , N.O. Hura, N.I. Dorosh, L.I. Maksymiv , L.G. Melnik, V.G. Shvets and others. [1-4] studied the problems of accounting and control as an integrated system. However, despite the importance of the
problems of accounting and control, environmental aspects are explored not enough yet.
Unsolved aspects of the problem is that companies do not have effective environmental accounting system and even do not realize its need. Accordingly, government do not have reliable informational base for decision make on country level, result of it - not effective environmental policy. The process of information collections should be built systematically from the very beginning.
Purposes of the article are researching informational needs of all type of informational users of environmental accounting and building system of informational collection from enterprises to government.
Main body. According to INTOSAI data environmental accounting provides a framework for organizing information on the status, use, and value of natural resources and environmental assets - including fisheries and forest accounts, among others - as well as expenditures on environmental protection and resource management. The latest categorization of environmental accounts by the international community include four types of accounts - natural resource asset accounts, pollution and material physical flow accounts, monetary and hybrid accounts, and environmentally-adjusted macroeconomic aggregates. Importantly, environmental accounting provides a way to link environmental data with the economic data [5].
Necessary one need to ensure appropriate environmental accounting at all lower levels to collect qualitative information on the state level to take to appropriate environmental policies. Schematically, the process data is shown in Fig. 1.
World level
Government's level
Government'5 level
Company's level ^HCompany's level Company's level
Fig.1 The process of collecting information on different levels for environmental policies preparation
First of all it is necessary to ensure access to reliable information from the first level (of the company). For this purpose information needs to be comparable and it should be presented in a manner which is suitable for further processing. Environmental accounting aims to provide the opportunity. Effectively constructed system of environmental accounting will provide all necessary information.
At the enterprise level environmental records satisfy different information needs of the main users groups, in particularly owners, employees, customers, suppliers, NGOs, the public and others. Each of these groups has its own information needs that must be considered in process of building a system of environmental accounting.
Business in Ukraine, unfortunately, mostly focused on getting "quick" money and the main priority of business is to get all possible profit now. But if the company has one of its areas of development environmental or "green" activities, the owners should be given a report on the work and findings. In accordance with the practice of international companies, such information is prepared in the form of a special non-financial report, which is generally published on the website of the company. Accounting data and statistical surveys are the information base for such report. Typically, the information is presented cumulatively and basic accounting period is a year. For this purpose it is necessary to conduct certain of accounts, which will accumulate information about ongoing environmental activities.
Get instant data is management requirement. To build and control a company management need time to get current information about the company in terms of its environmental performance. Ensure that accounting of environmental activities should be made on a daily basis, because it allows managers to keep «abreast» and react to changes.
Eco -conscious person emerges in today's world, who prefers eco- friendly products and manufacturers who care about the environment. Based on this we can build an effective policy of environmentally responsible businesses in obtaining additional profits in the long run. But at the same time, new media users - buyers. Their information needs arise in the context of the harmful effects of the products of the company and the overall environmental policy of the company. Submission or publication of the results of environmental activities can boost your company image and confidence of customers and the public.
Environmental activities of the company is the subject of interest also for the region's population, which is the main representatives of civil society activists and organizations who are interested in information about how venture led environmentally responsible activity, eliminated negative effects of their activities on the environment, etc.
The main problem of satisfying all mentioned above issues is the evaluation of environmental liabilities. In accounting transactions are displayed if can be reliably estimated and determined by their cost.
These transactions are booked as costs in the accounting book. This raises the problem of determining the sufficiency of the costs incurred, and it is necessary to establish the value of the damage in monetary terms and compare the results with the magnitude of the costs incurred. In Ukraine there have
been developed Guidelines on the assessment of damages from emergency situations of technogenic and natural character, which state that the total losses from the effects of PSD is calculated as the sum of fixed local loss.
Environmental management accounting is a key to solve all mentioned problems. Environmental management accounting represents a combined approach that provides for the transition of data from financial accounting, cost accounting and mass balances to increase material efficiency, reduce environmental impacts and risks and reduce costs of environmental protection. EMA is performed by private or public corporations, but not by nations and has a financial as well as a physical component [6].
As mentioned in her article Christine Jasch, the core focus of environmental management accounting and of the EMA UN DSD methodology is assessment of total annual environmental expenditure on emission treatment, disposal, environmental protection and management. In addition, and that is new and challenging for most companies, the material purchase value of all non-product output and its production costs are added. This total sum often provides a frightening picture of total annual costs of inefficiency and gets companies to improve their information systems and material efficiency options, which is the goal in the light of cleaner production.
If we talk about environmental activity, we mean chiefly money, that business spend on it, in other words about its costs. So we need to study factually system of environmental costs. As practice shows, little percentage of companies have got a separate system of cost accounting. The cost policy builds on the figures from financial accounting and statements. Financial accounting designed to satisfy interests of stakeholders or owners. It is regulated by national laws and accounting standards unlike management accounting.
The core parts of environmental information systems are material flow balances in physical units of material, water and energy flows within a defined system boundary. This can be done at the corporate level, but can also be taken further to directly address cost centers and production processes or even down to specific machinery and products. It would then become the task of process technicians and not necessarily accountants to tackle and trace the necessary data [2].
Environmental management accounting should be a complex of financial data's, material flow balances and cost accounting to increase efficient of environmental activity. It is performed by private and public companies. Nations do not use it in country's interests, just some separate tools.
C. Jasch highlights key application fields for the use of EMA data which are:
— assessment of annual environmental costs/ expenditures
— product pricing
— budgeting
— investment appraisal, calculating investment options
— calculating costs and savings of environmental projects
— design and implementation of environmental management systems
— environmental performance evaluation, indicators and benchmarking
— setting quantified performance targets
— cleaner production and Eco-design projects
— external disclosure of environmental expenditures, investments and liabilities
— external environmental or sustainability reporting
— other reporting of environmental data to statistical agencies and local authorities.
But the Guidelines are developed for the assessment of damages. Unfortunately, Ukraine has not developed mechanisms to assess current environmental commitments, making impossible conduction a full analysis of the adequacy of the costs incurred. Establishment of procedures for environmental assessment at the level of plans and programs must improve their practice, creating more consistent framework for action by incorporating important environmental information in decision-making. The inclusion of a wider set of factors in decision making should contribute to their sustainability and efficiency.
In practice, environmental accounting is a process of accumulating environmental costs on separate accounts. The company has various kinds of environmental costs in the process of doing business. These costs refer to a certain account, named for example "environmental costs". This account, in accordance with the accounting policies may be a part of the production costs, or may be a separate component costs.
Another way to reflect environmental costs that is better aligned with international accounting standards (IAS), is the creation of provisions for elimination of environmental effects.
According to IAS 37 the amount recognized as a provision
should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date, that is, the amount that an entity would rationally pay to settle the obligation at the balance sheet date or to transfer it to a third party [7]. This means:
o Provisions for one-off events (restructuring, environmental clean-up, settlement of a lawsuit) are measured at the most likely amount.
o Provisions for large populations of events (warranties, customer refunds) are measured at a probability-weighted expected value.
o Both measurements are at discounted present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the liability.
At the same time standard provides recognition of contingent liabilities:
o a possible obligation depending on whether some uncertain future event occurs, or
o a present obligation but payment is not probable or the amount cannot be measured reliably.
Since there is a common ground as regards liabilities that are uncertain, IAS 37 also deals with contingencies. It requires that entities should not recognize contingent liabilities - but should disclose them, unless the possibility of an outflow of economic resources is remote. So in the Fig-3 we show three possible ways to disclose the environmental actions and liabilities in accounting system.
Methods of disclose information about environmental activity
accumulating environmental costs on separate accounts
creation of provision s for the elimination of environmental effects
récognition of contingent liabilities
Fig. 3 Methods of disclosure of information about environmental activity
Consequently, the company independently chooses how to display environmental performance. At the legislative level, there are no requirements according mappings environmental activity in accounting system. The only factor, which should be considered in the process of building an accounting system, is the information that is needed to be given in reports to the Government monitoring office. Environmental reporting is a way to transfer data from enterprise to government levels. The reports should contain all relevant information, that is needed or can influence the process of decision-making. The process of constructing environmental reports, according to Lies Boutena, Sophie Hoozeea can be of greater value than the actual reports themselves. [8]. This is because in process of preparing the needed report an accountant or a manager has a
great opportunity to control the provenance of data and analyze all relevant information. Also, it makes process of evaluation results of environmental activity more accessible.
So business transfers the information about their environmental activity to the government level using environmental reporting.
The second level is a government. Ministry of Ecology and Natural Resources of Ukraine is a central executive authority activity of which is governed and coordinated by the Cabinet of Ministers of Ukraine.
Ministry of Ecology and Natural resources operates in the field of environmental protection, ecological safety, treatment of waste, hazardous chemicals, pesticides and agricultural chemicals and perform state ecological expertise.
The Ministry is entitled in the area of atmospheric air, preservation of ozone layer, restoration and protection of flora and fauna, restoration and protection of lands, restoration and protection of water resources (surface, ground, sea waters), efficient usage of water resources.
Moreover, Ministry ensures legal and regulatory governing of the water management and land reclamation, geological study and efficient usage of mineral resources, as well as performs state supervision on the fulfillment of the requirements of the environment legislation [9].
The structure of Ministry of ecology of Ukraine is shown
on the Fig.2. Each of the units has clear responsibilities and powers. Based on them, and they will carry out control over certain areas of the enterprise.
The company shall submit to the Ministry a list of reports on environmental protection and usage. Ukraine has introduced an environmental tax, which is controlled by Tax Office of Ukraine. But the main function of control over natural resources is still responsible to the Ministry of Environment. For efficient operation and control over resources Ministry created environmental audit.
Fig.2 The structure of Ministry of ecology of Ukraine
Environmental Audit - is a documented systematic independent evaluation process, which includes the collection and evaluation of objective evidence to establish compliance with defined activities, events, conditions, environmental management system. The evidence must be evaluated objectively to determine how well the legislation of Ukraine on Environmental and other criteria of environmental audit are being met.
However, companies are controlled by the Ministry of Environment, they also submit reports to the State Statistic Service of Ukraine. Statistic Service built a system of national accounts based on data's from these reports, which are the basis for decision-making at the state level. Statistics Authority distributes all the information between major accounts.
According to the INTOSAI's data there are four types of environmental accounts:
1. Natural resource asset accounts primarily focus on stocks of natural resources. Accounts contain data on opening stocks, closing stocks, and changes to stocks. Two types of changes to
stocks are differentiated: changes due to economic activity (e.g., mining minerals) and changes due to natural processes (e.g., births and deaths of trees in a forest account).
a) Physical asset accounts track the physical amount of a resource. These accounts provide indicators of ecological sustainability and can be used to show the effects of policy on resource stocks. Thus, they can help managers monitor resources more effectively. An example of a physical asset account is a land account that tracks the conversion of agricultural land to urban settlements.
b) Monetary asset accounts establish a monetary value for the total national wealth of a resource. These accounts can be used in conjunction with national economic accounts to determine a country's total wealth, the diversity of a country's assets, how the ownership of assets is distributed, and how assets are vulnerable to price fluctuations - which is particularly important in economies that depend heavily upon unprocessed goods. An example of a monetary asset account is a forest account that tracks the value of native forests.
2. Pollution and material physical flow accounts provide information at the industry level about the quantity of resources-energy, water, and materials-that are used in economic activities, and quantity of residuals-solid waste, air emissions, and wastewater-generated by these activities. In addition, these accounts often include data on pollution and material flows in relation to other countries, such as cross-boundary pollution and exports of goods. These accounts can take several forms, but they are generally organized to show the origin (supply) and destination (use) of materials and pollution. More detailed accounts also show how inputs are transformed into other products, pollution, and waste, and they provide information on the net material accumulation to either the economy or environment (i.e., the difference between the total inputs and the total outputs of each activity).
3. Monetary and hybrid accounts separate data from countries' conventional accounts to focus on expenditures and taxes related to protecting and managing the environment, as well as the economic contribution of environmental services industries. There are five types of monetary and hybrid accounts:
a) Environmental protection and resource management expenditure accounts identify expenditures made by industry, government, and households to protect the environment or manage resources.
b) Environmental goods and services industry accounts outline environmental goods and services and their contributions to GDP, employment, and exports.
c) Environmental and resource tax accounts contain taxes and other fees collected by the government for pollution emissions and resource use.
d) Monetary flow accounts assign a monetary value to the environmental costs and benefits tied to resource use and the generation of pollutants.
e) Hybrid flow accounts combine physical flow accounts and monetary flow accounts in one matrix.
4. Environmentally- adjusted macroeconomics aggregates the use of the previous types of environmental accounts to adjust product and income accounts to assess overall environmental health and economic progress [5].
Information on these accounts is very important and must reflect reality. Decisions taken in the state of directions of domestic and foreign policies based on these data in the
accounts.
In conclusion, we want to say, that one of the conditions for a rapid response to events is informativenes to appropriate persons. Responsiveness to the problem is a key success factor especially in the areas ofenvironmental safety. So environmental accounting is important at all levels. It provides policymakers with timely and relevant information. So if we disclose relevant information in a wrong way this may lead to making incorrect decision and finally to incorrect environmental policy. In this way policymakers have got no relevant information base and consequently their policy won't be effective. So if we want to build environmental responsible country we should be responsible at all levels of information collection.
References:
1. Butynets F.F. Bukhhalterskyi finansovyi oblik: pidruchnyk dlia studentiv spetsialnosti «Oblik i audyt» vyshchykh navchalnykh zakladiv. - 5 vyd.., dop. i perer. / Butynets F.F.- Zhytomyr: PP «Ruta», 2003. - 726 s.
2. Hura N.O.Oblik vydiv ekonomichnoi diialnosti / Hura N.O. - K.: Tsentr uchbovoi literatury, 2010. - 392 s.
3. Dorosh N.I. Audyt: teoriia i praktyka/ Dorosh N.I. -K.: Vy-vo «Znannia», KOO, 2006. - 495 s.
4. Shvets V.H. Teoriia bukhhalterskoho obliku: pidruchnyk [Tekst]: [monohrafyia]/ V. H. Shvets. - 3-e vyd., perer. i dop. - K. : Vy-vo «Znannia», 2008. - 535 s.
5. Environmental Accounting: Current Status and Options for SAIs: http://www.environmental-auditing.org/LinkClick.aspx?fileticket=s%2fFCvUzSK sk%3d&tabid=128&mid=568
6. Jasch Christine The use of Environmental Management Accounting (EMA) for identifying environmental costs/ Christine Jasch // Journal of Cleaner Production// № 11, 2007, p. 667-676
7. IAS 37 Provisions, Contingent Liabilities and Contingent Assets: http://www.iasplus.com/en/standards/ias/ ias37
8. Boutena Lies On the interplay between environmental reporting and management accounting change / Lies Boutena, Sophie Hoozée // Management Accounting Research // № 24, 2013, p. 333-348
9. Ministry of ecology and natural resources of Ukraine: http://eng.menr. gov.ua
