The Greening of Industrial Ecosystems (1994) / Chapter Skim
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Zero-Loss Environmental Accounting Systems
Zero-Loss Environmental Accounting Systems
Pages 191-200
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From page 191... ...
Zero-Loss Environmental Accounting Systems REBECCA TODD Few people realize that existing accounting systems are a critical barrier to internalization of environmental costs and considerations by the modern firm. Simply put, you can't manage what you never see and, with today's managerial accounting systems, managers don't see most environmental costs.
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From page 192... ...
to provide incentives to motivate the aggressive and creative development of solutions to promote current and future waste reduction and elimination. The specific immediate goal is to revise our traditional production accounting methods, which capture and apply to products the costs that occur in production but fail to capture any costs arising after the finished product leaves the shop floor.
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From page 193... ...
Most internal accounting systems, called managerial accounting systems, are capable of capturing any information that the management of a firm may regard as potentially useful. For example, it is common to find that the traditional accounting system has been extended to include such items as product volume information, qualitative personnel record data, and engineering data, as well as a boundless set of other information that managers at some time found it desirable to collect.
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From page 194... ...
The SEC has the mandate of the United States Congress to oversee disclosure of financial accounting information for use in the equity and debt securities markets. For a variety of reasons, including the pressure of competition and potential information overload by users, public disclosure of financial information is necessarily in a highly aggregated form.
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From page 195... ...
However, detailed breakdowns of manufacturing total cost are relatively rare. Common reasons given for the lack of such detailed cost information include difficulties in attributing so-called joint costs, costs that are shared by a variety of product lines, for example, heating costs for a large manufacturing facility; the expense of tracking and collecting numerous such costs on an individual product line basis; and, in some cases, the technical difficulty of measuring product-specific material flows and emissions.
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From page 196... ...
The major components of a managerial information system that includes cost accounting data collection are shown schematically in Figure 1. The first two components, standard setting and Accounting Function Responsibility Standard Engineering Setting Department Control of Operations Operations Management Management Management FIGURE 1 Management information system (including control system components)
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From page 197... ...
These reports include, but are not limited to, financial reports such as income statements, balance sheets, and cash flow information for internal as well as external dissemination, detailed cost accounting schedules for production and sales during the period, and comparisons of actual production numbers with operating budgets and forecasts. The various performance evaluation reports are then used for feedback and system modification, to control operations, improve profitability, reduce risk, take advantage of business opportunities, and reward managers who are "successful" (as measured by the performance evaluation reports)
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From page 198... ...
Companies therefore minimized some costs, that is, accounting costs, by simplifying the accounting process at the sacrifice of more detailed cost information, relying on the budgetary process to identify costs that were "excessive." Third, in the absence of accountability, no individual manager has an incentive to reduce or eliminate the cost. In the language of finance, each individual manager has a potential "put" to the firm as a whole for each cost that can be assigned to an overhead pool rather than treated as a direct cost.
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From page 199... ...
Clearly, the production manager of B has little incentive either to reduce the use of Toxic WasteB or to search for and invest in improved production technologies that will eliminate the use of the chemical. The research question for the reduction and elimination of environmental wastes thus revolves about the problem of the assignment of the costs of such wastes to the individual product managers who are in a position to control and ultimately eliminate the wastes.
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From page 200... ...
Modification of traditional accounting systems will require establishing hierarchies of all input and environmental costs based on difficulty of achievement, developing taxonomies of product-costing strategies for capturing and assigning all such costs to a responsible manager, and setting target horizons for reduction of environmental effluents. Nearly all the information required, including clean technology alternatives, will be provided by engineers.
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