Earth in the balance sheet
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Should the cost of using the earth’s natural resources such as energy, water and raw materials), be included in the price of the goods and services we consume? Or should we continue to ignore the cost of these items until they have all depleted? Does the existing accounting model even allow for such costs to be included in the books and accounts of organisations?
Environmental Management Accounting (EMA) is a broad term used in a number of different contexts. In August 2005, the International Federation of Accountants (IFAC) published an international guidance document on EMA, defining it as the management of environmental and economic performance through the development and implementation of appropriate environment-related accounting systems and practices. While this may include reporting and auditing in some companies, environmental management accounting can involve life cycle costing, full cost accounting, benefits assessment, and strategic planning for environmental management.
To download the IFAC guidance document click here >>
Some of the elements of environmental accounting are:
- Measurement and disclosure of environment-related financial information in the context of financial accounting and reporting.
- Measurement and use of environment-related physical and monetary information in the context of Environmental Management Accounting (EMA).
- Estimation of external environmental impact and cost often referred to as Full Cost Accounting (FCA).
- Accounting for stocks and flows of natural resources in both physical and monetary terms, that is, Natural Resource Accounting (NRA).
- Aggregation and reporting of organisation-level accounting information, natural resource accounting information, and other information for national accounting purposes.
- Consideration of environment-related physical and monetary information in the broader context of sustainability accounting.
Organisations today face increasing environmental pressures. The most obvious is compliance with local environmental laws and regulations. Pressure can also arise from an organisation’s supply chain. For instance, more organisations are requiring their suppliers to comply with the Environmental Management System (EMS) standard of the International Standardisation Organisation (ISO).
