Green Accounting: Concepts and Practices

Topics: Sustainability, Environmentalism, Environment Pages: 11 (3170 words) Published: October 4, 2010
Green Accounting: Concepts and Practices

Research Paper

Responsibility towards environment has become one of the most crucial areas of social responsibility. With the concept of sustainable development catching on rapidly, corporate and industrial houses across the world are increasingly incorporating the environmental element in their day-to-day business operations. They are clear in their perception that along with quality, safety of the environment too, is an important factor in making a business successful. Concern has increased for environmental degradation, which is taking place mainly in the form of pollution of various types, viz. air, water, sound, soil erosion, deforestation, etc. It spoils human health, reduces economic productivity and leads to loss of amenities. Both environment protection and economic development are matter of great concern now days. Therefore, proper balance is required between the two. For this purpose, careful assessment of benefits and costs of environmental pollution is necessary in order to find the limits of environmental degradation and the required level of development. Green Accounting (also known as Environmental Accounting / Resource Accounting / Integrated Economic and Environmental Accounting / Sustainability Accounting) is an attempt to identify and bring into light the resources utilized and costs imposed on the eco-system by the activities of corporate houses. It is a system of accounting designed to record the benefits and costs rendered by the environment to a business corporation and costs and benefits tended to the environment by the same business corporation. Thus, green accounting implies a process of economically recognizing the benefits derived by an organization from the environment and initiating remedial measures to reduce the possibility of environmental pollution through its business activities. The cost incurred on such remedial measures is known as shadow pricing, and is recorded in the green accounting system. Forms of Green Accounting

Green Accounting can be viewed in two perspective, organizational level and national level. Organizational Level Green Accounting: At organizational level, it takes place in the context of financial accounting and management accounting. a) Green Financial Accounting: involves the assessment and disclosure of environment-related financial information, i.e. evaluation and reporting of the organization’s environment related liabilities. b) Green Management Accounting: involves the assessment and use of environment related physical flow information (e.g. raw materials use and waste generation rates) and monetary information in order to assist companies in making decisions about capital investment, product/process costing, strategic planning, or other business opportunities. National Level Green Accounting: includes aggregated information from the organizations (for example- total annual expenditure on environment remediation by industry and government in the country) and information on stocks and flows, actual and potential uses, and potential value of natural resources such as forestland, clean water and mineral deposits. This paper is concentrating on organizational level green accounting. Methodology

Main steps that an organization can take to implement green accounting system: 1. Defining the boundaries of the proposed system.
2. Ascertaining what are the organization’s significant environmental impacts. 3. Determining, if at all, environmental impacts are being accounted for. 4. Defining environmental costs.

5. Determining who will be in the 'review team'.
6. Reviewing the existing accounting systems.
7. Identify environmental revenue or cost cutting opportunities that are currently being ignored. 8. Suggest changes to the existing accounting system.
9. Trial the green accounting system by way of a pilot test. Environmental / Green Audit
It refers to a...

References: IUCN, The World Conservation Union, 2009, “Environmental Accounting: What’s It All About?”
International Guidance Document, “Environmental Management Accounting”, International Federation of Accountants, August, 2005
Seetharaman, Mahamed Ismail, Saravanan, “Environmental Accounting as a Tool for Environmental Management Systems”, Journal of Applied Sciences Environment Management, 2007, Vol. 11(2), 137-145
Mehenna Yakhou and Vernon P
“Environmental Accounting: An Essential Component of Business Strategy”, Business Strategy and the Environment, 2004.
Dr. Bhabatosh Banerjee, “Corporate Environmental Accounting and Reporting”, The Chartered Accountant, April, 2006
Radhakrishan Rao, “Environmental Accounting emerges as a necessity”, Indian Express Newspapers (Bombay) Ltd., 1999.
Hutchison P.D., “Environmental Accounting: Issues, reporting and disclosure”, Journal of Applied Business Research, Vol.16, Issue 4
Julian Morris, “Sustainable Development: Promoting Progress or Perpetuating Poverty?” publisher: Profile Books, London, August, 2002.
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