84907651-Environmental-Cost-Accounting.pdf - Chapter 6...

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Gale, Robert J.P. and Peter K. Stokoe (2001) ‘Environmental Cost Accounting and Business Strategy’, in Chris Madu (Ed.) Handbook of Environmentally Conscious Manufacturing(Kluwer Academic Publishers). Chapter 6 Environmental Cost Accounting and Business StrategyRobert J. P. Gale1, Peter K. Stokoe21Royal Roads University, Ecological Economics Inc. 2Ecostrategies 1.INTRODUCTION Firms need information for both financial and managerial accounting. On the financial side, information is required for a range of uses such as corporate financial planning and control, performance evaluation, and to verify credit worthiness and taxes owed. On the management side—the focus of this chapter—the emphasis is on controlling costs. The relationship between the environment and managerial accounting can be seen through the lens of cost control. This is because managerial accounting emphasizes the use of accounting information to serve “business managers in making capital investment decisions, costing determinations, process/product design decisions, performance evaluations, and a host of other forward-looking business decisions” (EPA, 1996: 28). We confine our inquiry into environmental cost accounting and business strategy to corporate environmental performance in this chapter. In doing so, we focus on accounting for internal managerial decision-making rather than accounting for reporting to external shareholders and other stakeholders. It is known that environmental costs can be substantial, from five to twenty percent of the total costs of business activities according to Ditz et al. (1995:15). Because these costs are likely to rise as pressures for environmental protection measures increase, the purpose of this chapter is to make the case that incorporating environmental costs directly into accounting
functions and business strategies can improve a business's competitive position. 2. THE EXPANDING BASE OF COST ACCOUNTING While research on social accounting and reporting is rooted in the early 1970s, the validity of corporate environmental accounting in professional practice has only been widely accepted over the last five years. By 1998, many of the major North American accounting organizations had produced at least one publication on environmental accounting. For example, the Canadian Institute of Chartered Accountants published Environmental Costs and Liabilities: Accounting and Financial Reporting Issuesin 1993, and Environmental Reporting in Canada: A Survey of 1993 Reports in 1994. In gathering literature on this emerging area of inquiry, CICA now maintains a twenty-page list of environmental accounting references on its web site.1Elsewhere, the Society of Management Accountants of Canada has produced an excellent series of guides including Tools and Techniques of Environmental Accounting for Business Decisions (1996) and Accounting for Sustainable Development: A Business Perspective (1997). Other accounting organizations have had publications prepared for them by specific experts in

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