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PROJECT TOPIC AND MATERIAL ON Effects of Environmental Accounting and Reporting on Corporate Performance
The Project File Details
- Name: Effects of Environmental Accounting and Reporting on Corporate Performance
- Type: PDF and MS Word (DOC)
- Size: 79KB
- Length: 72 Pages
This study examines the Effect of environmental accounting and reporting on corporate performance. The study adopted a cross section descriptive survey research design and covers a period of ten years. Data collected were analysed using multiple regression analysis. Finding of the study shows that environmental cost accounting is vital for effective performance of a firm.it was noted in the findings that environmental accounting disclosure enable a firm to fully understand the performance state of the organization, hence, making it possible for the firm to know exactly areas to adjust the activities in order to enhance the performance of the firm. The study recommends that Any firm that aim at continuous survival, profit making and effective performance should always carryout environmental cost analysis in order to know their performance level and results obtained from Environmental disclosure of a firm should never be neglected, since it is the bedrock for knowing much more about a firm’s performance. It was also recommended that managers of firm should always implement information’s obtained from environmental cost analysis in order to know areas to improve or adjust the performance of their firm.
1.1 Background to the Study
The need for Environmental Accounting has become the concern and focus of nation’s and responsible corporate managements. It became one of the foremost issues on the agenda of nations and businesses earlier in the 1990s and the reasons for these were varied emanating from both within and outside of the firm and particularly at the global level (Okoye and Ngwakwe:2004:220-235). A lot of government enactments, laws and regulations on environmental protection have been made in several nations of the world including Nigeria. In the light of the awakening to environment protection, various laws and regulations such as the Environmental Impact Assessment Act, 1992 and the Department of Petroleum Resources (DPR) Environmental Guidelines and Standards for the Petroleum Industry in Nigeria (EGASPIN: 2002) were enacted. These require corporate managements to consider the environmental implications of all internal decisions of their managements. Also, all organizations monitored by environmental policy agencies in Nigeria are expected to demonstrate much consideration in decision making. Environmentalists agree that it could be more cost efficient and beneficial for companies to acquire pollution prevention or clean technology than those of pollution clean-up. It is also observed that in environmental regulations, there is a shift from the ‘command and control’ approach to market-driven forms in which pollution prevention alternatives are replacing pollution cleaning approach. It follows therefore, that determining the appropriate pollution prevention approach may lead to additional decisions to be taken by management. Such decisions may include selecting capital expenditures, and in the opinion of Shield, Beloff and Heller (1996:5), expenditures such ‘as markets for emissions’ allowances development, may require companies to determine whether it is more cost beneficial to buy or sell these allowances, giving the cost of avoiding the covered emissions.
Environmental issues for purpose of economic and cost accounting have also been controversial even though the topic has been identified for discussions for the past four decades. This is because common criteria for value measurement of non-marketed, non-monetized resources and impact on externalities have not been agreed.
Previously, corporate organizations have ranked business considerations based on profitability. Companies have also recognized all indirect expenditures as overheads without paying attention to the environment. Conventional accounting practice has not recognized environmental accounting for materials, water, energy and other natural resource usage.
Besides, conventional accounting has not provided for such practice and particularly for accounting for impact on externalities. According to B. Field and M. Field (2002), little was recognized of the environmental depletion and degradation to the environment until a few well-meaning people in the developed countries realized that it was no good having great corporate profits and material well-being if they come at the cost of large scale of the ecosystem by which we are nourished. It became clear that degradation, pollution and accelerated destruction of the ecosystem and the depletion of non-renewable environment biodiversity would soon become very dangerous to human existence. Field and Field,(2002) conclude that, ‘what once were localized environmental impacts, easily rectified, have now become widespread effects that may very well turn out to be irreversible.’
The world at large has need to evaluate, assess and effect accounting reporting for raw materials, energy consumption and use of natural resources which have systematically depleted the environment. Besides, the negative impact on the biodiversity through human and industrial activities and the nations’ need to protect the environment, have made for global regulations. These regulatory environmental laws however, require only voluntary disclosure in financial statements of environmental information on industrial emissions, degradations, industrial wastages and all activities which impact negatively on the environment. As a result of the great impact on the ecology of oil and gas producing environment of the Niger Delta in Nigeria, which has caused political unrest in the area, Owolabi (2007:63) is of the opinion that the political unrest in the Niger Delta cannot be wished away until there is a policy to incorporate environmental concerns into the nation’s oil and gas industry planning, management and decision making. On environmental costs, he concludes that ‘Costs and benefits need to be properly attributed, a clear distinction made between the generation of income and the drawing down of capital assets through resource depletion or degradation.’
Notable studies in environmental accounting are the Ontario Hydro Full Cost accounting (1993) and the AT & T Green Accounting of the U.S. Environmental Protection Agency (1993). Also, the industrial green substance emissions (Carbon dioxide, Methane and Hydro fluorocarbons) and the penalties resulting from the Kyoto Protocol (December 1997) have made it a requirement for corporate organizations to take serious considerations and actions on corporate capital projects and investments.
In the light of the background of increasing environmental attention, and the fact that the oil and gas sectors having profound production impact on the environment, the study explores the effect of environmental accounting and reporting on corporate performance.
1.2 Statement of the Problem
Environmental accounting involves the process of communicating the social and environmental effects of organizations’ economic actions to particular interest group within society and to society at large. As such it involves extending the accountability of organizations (particularly companies) beyond the traditional role of providing a financial account to the owners of capital, in particular, shareholders. Such an extension is predicated upon the assumption that companies do have wider responsibilities than simply to make money for the shareholders (Grayet al, 1987). In this case it is a comprehensive approach to ensure good corporate governance that includes transparency in its social activities.
The problem is that conventional approaches of cost accounting have become inadequate since conventional accounting practices have ignored important environmental costs and activities impacting consequences on the environment. Corporate neglect and avoidance of environmental costing leave gap in financial information reporting. There is no completeness and correctness of fair view to users of financial information, such as shareholders, environmental regulatory agencies, environmentalists and potential financial investors. For example, degradation or other negative impact on the environment could affect corporate financial statement such as create actual or contingent liabilities and may have adverse impact on asset values of the company. Consequential effect on corporate organizations may result in incurring future capital expenditure and cash flows which may impinge on going concern as balance sheet secured loans may not be secure after all if land values for instance are affected by environmental factors. Also, the limited awareness of environmental costing principles and methodology has become an important issue to be addressed. If vital environmental issues and activities are not disclosed, financial statement cannot be said to reveal state of a ‘true and fair view of affairs’ and such has impact on a firm. It is important too, to note that ethical investors will only invest in ethical companies and therefore, will watch out for these ethically responsible companies. Due to this problems which has impact on corporate organization, this study will therefore, evaluate the effect of environmental accounting and reporting on corporate performance.
- Objectives of The Study
The objective of this study is to ascertain the effect of environmental accounting and reporting on corporate performance. Other specific objectives are as follows:
- To ascertain the kind of effect environmental cost have on cooperates firm profit making.
- To ascertain the extent environmental cost affects profit making of a firm.
- To determine the level the performance of a corporates firm can be affected by environmental cost.
- To identify the role of environmental cost disclosures on corporate performance.
- To investigate the level which environmental accounting and reporting enables cooperates firm to manage their resources.
1.4 Research Questions
To enable the researcher obtain relevant information from the respondent, the following research questions were designed and posed:-
- What kind of effects does environmental cost have on profit making of a cooperate firm?
- To what extent does environmental cost affect profit making of a firm?
- To what level can the performance of a corporates firm be affected by environmental cost?
- What is the role of environmental cost disclosure on corporate performance?
- To what level can environmental accounting and reporting enables corporate firms to manage their resources?
1.5 Research Hypotheses
The following five (5) hypotheses are formulated to test each of the responses of the respondents to the research questions raised.
H01: There is no significant effect of environmental cost on profit making of a corporate firm.
H02: No significant relationship exists in environmental cost and the extent of profit making of a firm?
H03: There level of performance of corporate firms is not significantly affected by environmental cost.
H04: Environmental cost disclosure in a corporate firm has no significant role on the performance of a firm.
H05: Environmental accounting and reporting has no significance in a corporate firm’s resource management.
1.6 Significance of the Study
This will be of benefit to corporate firms in helping them to engage and adequately provide environmental protection agenda in their internal policies on investments and projects which impact on environment. This approach will facilitate protection of the eco-efficiency and competitiveness among corporations in all productive sectors of the economy. The study will facilitate environmental cost reporting responsiveness and disclosure to investors and environmental regulatory bodies. It will assist in efficient cost valuation of environmental remediation and compensation to affected communities particularly the Oil & Gas areas of the Niger Delta in Nigeria by corporate bodies impacting on the environment. A design and conceptual bases for environmental cost accounting and disclosure in corporate financial statement will facilitate efficient valuation of degradation in affected communities. Besides, it will also be beneficial to corporate organizations as ethical investors and the environmentally conscious general public will watch out for ethical responsible companies. This study will assure commitment of the corporate organizations in Nigeria to international agreements on environmental regulations which will in turn assure sustainable development of environment and the eco-system in Nigeria. It will further enable corporate firms to effectively manage their resources and indicate area in which they can improve in their level of performance.
1.7 Scope of the Study
The scope of the study covers the effect of environmental accounting and reporting on corporate performance. It also covers ten (10) years (2003-2012) of financial environmental accounting effect of three quoted oil and Gas Company and the effect on the performance of these corporate firms.
1.8 Definition of Terms
The following operational terminologies used in the study are defined in order to enable a clear understanding of various accounting terms used in the study.
Environmental accounting in the context of national income
This type of accounting, as used in this study refers to natural resource accounting. These entail statistics about a nation’s or regions consumption of natural resources. It also takes into account the extent, quality and valuation of natural resources which are either renewable or non-renewable.
Environmental accounting in the context of financial accounting
This refers to the preparation of financial reports to external users using international financial reporting standard (IFRS).This is financial reporting to external users conveying the impact on environment and activities impacting on eco-efficiency.
Environmental accounting as an aspect of management accounting
This was used in this study refers to how environmental accounting in aspect of accounting management helps business managers in making capital investment decisions. This entails costing determinations, process/product design decisions, performance evaluations and a host of other forward-looking business decisions. It also conveys impact on the environment.
Environmental Cost Accounting
This is a term used to refer to the addition of environmental cost information into existing cost accounting procedures and/or recognizing embedded environmental costs and allocating them to appropriate products or processes.
Full Cost Accounting
This as used in the study is a term often used to describe desirable environmental accounting practices. In management accounting ‘full costing’ means the allocation of all direct and indirect costs to a product or product line for the purposes of inventory valuation, profitability analysis and pricing decisions.
Life Cycle Assessment
This is a holistic approach to identifying the environmental consequences of a product, process, or activity through its entire life cycle and to identifying opportunities for achieving environmental improvements.
Life Cycle Cost Assessment
This is a term that highlights the costing aspect of life cycle assessment. It is regarded as a systematic process for evaluating the life cycle costs of a product, process, system, or facility by identifying environmental consequences and assigning measures of monetary value to those consequences.
Societal Costs: Are those costs impacted on the environment which results from company’s production activities. These costs do not directly affect the company’s bottom line. Societal costs are also known as external costs or externalities.
Costs allocation: refers to accounting procedures and systems for identifying, measuring and assigning costs for internal management purposes.
Capital budgeting: which is also known as Investment Analysis is the process of determining a company’s planned capital investments.