Company’s actual or potential impact
a. Define and describe environmental accounting. In your opinion is environmental accounting a legitimate topic to be included in the annual report? Justify your response. (500 words) Environmental accounting aims to incorporate both economic and environmental information that identifies measures and communicates costs from a company’s actual or potential impact on the environment (Jasch, C. , 2006; Odum, H. , 1996). These costs include costs to clean up or repair and make functioning contaminated sites, environmental fines, penalties and taxes, purchase of pollution prevention technologies and waste management costs.
As a system, environmental accounting consists of environmentally differentiated conventional accounting – measures impacts of the natural environment on a company in monetary terms) and ecological accounting (Waddock, 2005; Basu and Waymire, 2006; Smith, 1999) – measures the impact a company has on the environment, but in physical units which may be expressed on kilograms of waste produced, kilojoules of energy consumed more important than in monetary units.
To further understand what the possible causes are for the birth of environmental accounting, it is notable to look at prospectively for possible reasons in putting or adopting environmental accounting. Several reasons explain the adoption of environmental accounting as part of their accounting system (Snider
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Another reason is possibility of generating revenue which the company may offset against cost from the environment. This could taken by analogy with the concept of indirect tax where the company may just past on to the customer these indirect taxes being imposed by the government. Environmental account may also help the company to advance environmental performance which may have an encouraging effect on human health and business success.
Companies make this a reason since man no matter how motivated it may be for profit could only understood humanity in broader context by sharing in the social burden of promoting human health. Another possibility that companies may look into is the possibility to have a costing method that is more accurate and more reflective of the true cost of the product. Generically, accounting has always been aiming for accurate reporting of its cost, otherwise companies may just be miscalculating their incomes.
They may be made to believe that they are earning when in reality they may be losing money because profits normally take a long time to really realize. Under the going concept of accounting, a business entity is assumed to continue existing indefinitely. It is therefore difficult or even imagines accurate short term profitability. The real test of profitability is surviving short run hurdles . Hence it is not surprising to see companies with high stock prices may show short run losses but the long term period is showing a rosy picture.
The simple explanation is that investors are interested in the long term health to the companies hence adoption of environmental accounting may actually provide the answer. Another possible reason why companies adopt environmental accounting is the fact the companies realizes the competition in business will always be there. A management that plans strategically may always be assumed to have the edge to outsmarting its competitors. Thus in the design of its strategies, companies want to have competitive advantage.