ADVANCED FINANCIAL ACCOUNTING

CIA - 3
CHRIST UNIVERSITY
INTRODUCTION
Every business has a responsibility to make the maximum
possible use of its resources both human and material. An
enterprise is a corporate citizen. Like a citizen it is esteemed
and judged by its actions in relation to the community of
which it is a member as well as by its economic performance.
Responsibility towards environment has become one of the
most crucial areas of social responsibility. Therefore, the need
of environmental accounting has emerged. Environmental
accounting, is also known as Green accounting.

INTRODUCTION
Environmental accounting needs to work as a tool to measure
the economic efficiency of environmental conservation
activities and the environmental efficiency of the business
activities of company as a whole. Management seldom tries
to make proper arrangement to save the environment unless
it is required as per law as there is no direct relationship
between investment and benefits. It is accounting for any
costs and benefits that arise from change to a firm's, products
and processes where the change also involves a change in
environmental impact.
Corporate enterprises are facing the challenges to determine
their true profits, which are environmentally sustainable ones.
For this, companies need to account for the environment.
They should take account of its most significant external
environmental impacts and in effect, to determine what profit
level would be left if they attempted to leave the planet in the
same state at the end of the accounting period as it was in the
beginning.

Environmental accounting

It is a part of accounting proper, its target is to incorporate
both economic and environmental information. It can be
conducted at the corporate level or at the level of a national
economy through the National Accounts of Countries
Environmental accounting is a field that identifies resource
use, measures and communicates costs of a companys or
national economic impact on the environment. Costs include
costs to clean up contaminated sites, environmental fines,
penalties and taxes, purchase of pollution prevention
technologies and waste management cost


SCOPE OF ENVIRONMENT ACCOUNTING
The scope of Environmental Accounting is very wide.
It includes corporate level, national and international level. As
far as this paper is concerned the stress is given on the
corporate level accounting.
The following aspects are included in Environment Accounting:
1. From Internal point of view, investment made by the
corporate sector for minimization of losses to environment. It
includes investment made into the environment saving
equipments or tools. This type of accounting is easy because
money measurement is possible.

SCOPE OF ENVIRONMENT ACCOUNTING
2. From external point of view, all types of losses indirectly due
to business activities. It mainly includes:
(i). Degradation and destruction like soil erosion, loss of
biodiversity, air pollution, voice pollution, water pollution,
problem of solid waste, coastal and marine pollution.
(ii). Depletion of non-renewable natural resources i.e. loss
emerged due to over exploitation of non-renewable natural
resources like water, minerals, gas, etc.
(iii) Deforestation and carelessness uses of Land
Levels of Environmental accounting

Global environmental accounting is an accounting
methodology that deals areas includes energetics, ecology
and economics at a worldwide level.
Internationally, environmental accounting has been
formalised into the System of Integrated Environmental and
Economic Accounting, known as SEEA.
National environmental accounting is an accounting
approach that deals with economics on a country's level


Levels of Environmental accounting

Corporate environmental accounting focuses on the cost
structure and environmental performance of a company.
Environmental management accounting focuses on making
internal business strategy decisions. It can be defined as:
the identification, collection, analysis, and use of two
types of information for internal decision making:
1) Physical information on the use, flows and fates of energy,
water and materials (including wastes) and
2) Monetary information on environmentally related costs,
earnings and savings.

Forms of Environmental accounting

1) Environmental Management Accounting (EMA):
Environmental Management Accounting with a particular
focus on material and energy flow information and
environmental cost information. This type of accounting can
be further classified in the following sub-systems:
(i). Segment Environmental Accounting: This is an internal tool
of environmental accounting for selecting an investment
action, or a project, related to environmental conservation
from among all processes of operations, and to weigh up
environmental effects for ascertain period.

Forms of Environmental accounting

(ii) Eco Balance Environmental Accounting: This is an internal
tool of environmental accounting for supporting PDCA for
sustainable environmental management activities.
2. Environmental Financial Accounting (EFA): Environmental
Financial Accounting with a particular focus on reporting
environmental liability costs and other relevant environmental
costs.
3. Environmental National Accounting (ENA): National Level
Accounting with a particular focus on natural resources stocks
and flows, environmental costs and externality costs etc.
Environmental Accounting at Corporate Level helps to know
whether corporation has been fulfilling its responsibilities
towards environment

Need of Environmental Accounting:
It helps to know whether corporation has been discharging its
responsibilities towards environment or not. Basically, a
company has to fulfill following environmental
responsibilities.

a. Meeting regulatory requirements or exceeding that
expectation.

b. Cleaning up pollution that already exists and properly
disposing of the hazardous material.

c. Disclosing to the investors both potential & current, the
amount and nature of the preventative measures taken by the
management (disclosure required if the estimated liability is
greater than a certain percent of the company's net worth).

Need of Environmental Accounting:
d. Operating in a way that that environmental damage does not
occur.

e. Promoting a company having wide environmental attitude.

f. Control over operational & material efficiency gains driven by
the competitive global market.

g. Control over increases in costs for raw materials, waste
management and potential liability

LIMITATIONS OF ENVIRONMENTAL
ACCOUNTING

Limitations of Environmental Accounting are as follows:

1. There is no standard accounting method for Limitations of
Environmental Accounting.
2. Comparison between two countries or firms is not possible if
method of accounting is different.
3. Input for Environmental Accounting is not easily available as
costs and benefits relevant to the environment are not easily
measurable.

LIMITATIONS OF ENVIRONMENTAL
ACCOUNTING
4. Many businesses and the Government organizations even
large and well managed ones dont sufficiently track the use
of energy and material or the cost of incompetent materials
use, waste management and related issue. Therefore, many
organizations, significantly underestimate the cost of
underprivileged environment performance to their
organization.
5. It mainly considers the cost internal to the concerned
institutions and excludes cost to society
6. Environmental Accounting is a long-term process. Therefore,
to draw a conclusion with help of it is not easy.
LIMITATIONS OF ENVIRONMENTAL
ACCOUNTING

7. Environmental Accounting cannot work independently. It
should be integrated with the financial accounting, which is
not easy.

8. Environmental Accounting must be analyzed along with other
aspects of accounting. Because costs and benefits related to
the environment itself depend upon the results of the
financial accounting, management accounting, cost
accounting, tax accounting, national accounting, etc.

9. The user of information contained in the Environmental
Accounting needs adequate knowledge of the process of
Environmental Accounting as well as rules and regulations
prevailing in that country either directly or indirectly related
to environmental aspects.

Environmental Accounting in India
India is facing the problem of protecting the environment and
promoting economic development. A tradeoff between
environmental protection and development is required. A
careful assessment of the benefits and costs of environmental
damages is necessary to find the safe limits of environmental
degradation and the required level of development. As far as
Indian corporate sector is concerned it has not been
performing as a good citizen hence there are many laws that
have been laid down and further amended from time to time
as and when required to bound the corporate sector to fulfill
their social responsibility for better development of Indian
Economy.
Environmental Accounting in India
The Government of India came out with a Policy Statement
for Abatement of Pollution in 1992, which declared that
market-based approaches would be considered in controlling
pollution. It stated that economic instruments will be
investigated to encourage the shift from curative to
preventive measures, internalize the costs of pollution and
conserve resources, particularly water. An important recent
development is the rise of judicial activism in the enforcement
of environmental legislation. This is reflected in the growth of
environment-related public litigation cases that have led the
courts to take major steps such as ordering the shut-down of
polluting factories.
Environmental Accounting in India
Environmental accounting and reporting have received
increasing attention of investors, creditors, regulators and
other stakeholders. With increasing social focus on the
environment, accounting fills an exceptional role in measuring
environmental performance. An increasing number of
companies in India are starting to disclose environmental
information in their annual reports. In the absence of any
comprehensive standards/guideline or legal requirements on
the issue in India, Companies do not follow a particular
pattern in reporting this information and thus, there is no
consistency in the reporting. Hence it is essential for the
company to set certain standards on their own towards the
environmental issues and also they must ensure that they are
socially responsible.
Legal Framework for Environmental
Accounting in India

With increasing global concern over the protection of the
environment, India too has set up a Union Ministry of
Environment with the object of coordinating among the
various states and the various ministries, the environmental
protection and anti-pollution measures. Essential legislation
has also been passed.
The laws relating to Environmental
Protection

Directly related to environment protection:
i. Water (Prevention and Control of Pollution) Act, 1974.
ii Water (Prevention and Control of Pollution) Cess Act, 1977.
iii. The Air (Prevention and Control of Pollution) Act, 1981.
iv. The Forest (Conservation) Act, 1980.
v. The Environment (Protection) Act, 1986.

The laws relating to Environmental
Protection
Indirectly related to environment protection:
a) Constitutional provision (Article 51A).
b) The Factories Act, 1948.
c) Hazardous Waste (Management & Handling) Rules, 1989.
d) Public Liability Insurance Act, 1991.
e) Motor Vehicle Act, 1991.
f) Indian Fisheries Act, 1987.
g) Merchant of shipping Act, 1958.
h) Indian Port Act.
i) Indian Penal Code.
j) The National Environment Tribunal Act, 1995

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