Environmental Management Accounting: Benefits, Limitations, and Role

This essay delves into the realm of environmental management accounting (EMA), examining its significance in the context of increasing environmental awareness and the imperative for sustainable business practices. It highlights the benefits of EMA, such as improved decision-making, enhanced cost allocation, and the identification of new opportunities for resource savings. Simultaneously, it acknowledges the limitations, including potential increases in costs, communication challenges between departments, and inaccuracies in cost calculations. The essay further explores the evolving role of accountants in this landscape, emphasizing the need for systematic methods to assess environmental impacts and integrate them into financial planning. The evolution of EMA, from basic cost accounting to the integration of advanced technologies for enhanced productivity and environmental protection, is also examined. The essay concludes by underscoring the crucial role of EMA in helping businesses achieve both economic and environmental sustainability, and the necessity for management accountants to embrace and implement these practices.

Running head: MANAGEMENT ACCOUNTANT
Management Accountant
Name of the Student
Name of the University
Author Note

1MANAGEMENT ACCOUNTANT
Introduction
A variety of abnormal and natural phenomena has been raised because of population
growth and steadily increasing industrial development, including acid rain, global warming, and
depletion of the ozone layer, which has result in environmental deterioration during the recent
few decades, as a result, it has aroused worldwide social attention as one of the largest threats
(Abdallah,2016). It is becoming serious for stakeholders to add environmental accounting as a
consideration. According to Amiruddin, Environmental accounting is a important aspect since it
conveys to the stakeholders of the company about the information that the environment should
be protected. It is essential for the companies to engage in environmental management
accounting for the sake of meeting the social requirements, in order to achieve environmental
sustainability, focusing on technical innovations particularly (Armstrong, 2014). This essay will
discuss that the environmental management accounting has been awarded and concerned
crucially by evaluating the benefits and limitations to the business and its stakeholders; also, it
should be concerned by management accountants as imperative.
There are two main aspects can demonstrate the environmental management accounting
has to be considered cautiously
The first one is the general awareness of environment consideration and protection,
which has been continuing increased during last decades. (Banerjee, 2014) stated that it has
generated a broad range of actual and potential accounts of organizational interactions with
physical environment and social responsibility caused by the development in the social and

2MANAGEMENT ACCOUNTANT
environmental reporting system in the environment over the last 40 years. He claimed that
“accounts of sustainability “is a possible topic which may mention by “stakeholders” during the
organizations speaks in 1990s, and it is deliberately or not drew our attention (Burns, Warren &
Oliveira, 2014). The resources in this world is finite for both environmental and financial, based
on this, environmental ‘protection and conservation’ has been seen as a necessary consideration
which generates one aim to encourage ecologically sustainable development, therefore, in order
to spend limited environmental budgets efficiently to achieve highest possible benefit for the
environment, it is obligatory for companies and governments to take it seriously conforming to
(Cokins, Cherian & Schwer, 2015).
The development of environmental awareness for the business is a gradually
advancement during the last few decades. (Deegan 2017) related that sustainability has become a
leading position for the government future construction and development, since the publication
of The Brundtland Report in 1987. After 1987, ‘sustainable development’ has been recognized as
a growing emphasis for the business which is pointed so as to meet the needs the present without
accumulatively costing the environment, economic, and society in the future. In other words, the
business owners need to meet their own needs based upon reducing the impact on the socio
economic and environmental aspects along their lifecycles. However, Nyquist (2016)(secondary
from Ensuring Sustainability: A Preliminary Study of EMA, argues that many companies rarely
disclose the ‘real’ information about the environmental issues on the reporting list in their
financial calculation systems. Those costs for the environmental care in all probability be
“hidden” under overheads (IFAC, 2015).

3MANAGEMENT ACCOUNTANT
According (DRURY, 2013) to it has been found in most parts that the information about
managing accounting information is for internal intention which is virtually beyond the
consideration of external use.
One option is incorporating the legally-binding with companies’ performance and
intensifying the degree of implementation regulation, which should become the main point of
carrying out process the development and implement about environmental management
accounting. There are some relevant regulations have been introduced: According to IFAC, a
business’s sustainability development acquire the sufficient details about environmental
management costs which generated from each operation parts. In 1998, the society for the
International Federation of Accountants (IFAC) has defined the environmental accounting which
means the management of the performance of the environment and economic performance so as
to develop and implement appropriate measures relating to the accounting systems. This includes
the reporting and auditing of the companies, thus it is typically involved with lifecycle costing
and the various benefits of assessment and strategic planning in this case stated from ACCA. The
US Environmental Protection Agency(EPA) refers that carrying out the full cost accounting
(FCA) is one of the most essential actions should be taken by companies. Fully implementing
FCA points out that the costs should be allocated properly with a product or product line no
matter it is direct or indirect (Ho, 2014). The Japanese Ministry of the Environment’s
environmental accounting proposes some guidelines which identify the cost categories should
include deliberations of business area claims that the significance of social reporting (CSR) and
sustainability reporting (SR) has been gradually mattering by more and more companies in
recent years. Social reporting is based on legitimacy theory, which has to correspond with
various stakeholders expectations and intending to gain the trust of stakeholders therefore obtain

4MANAGEMENT ACCOUNTANT
better support from them. However, sustainability reporting aims to place more focus on not only
meeting the stakeholders expectations, also, caring the social impacts which are coasted by the
company and considering remain or improve the company’s future generation’s ability at the
same time. In addition, sustainability reporting contains the company’s general performance in
community development, particularly inspecting in company’s operation system (Zoni,2017).
The limitations of implementing EMA
In the present business world, the companies are able to describe the process of
accounting as to identify the cost, processes and services. The conventional accounting system
plays a crucial role in the growth of the overall global business which is not applicable to the
environment costs. Thus the companies predict the indirect and general costs.EMA was a new
form which was incorporated so as to overcome the disadvantages of the traditional accounting.
The limitations are as follows:
1. It increases the interest rate as well as the fees or the environment cost. There shall be
increase in the environmental awareness and regulation which has become very stringent.
Thus companies have to spend a lot of their fund in accommodating these interests
2. There is no proper communication between the accounting and the environmental
departments, it requires much costs so as to improve the performance in the environment.
In this eco efficiency is a bridge in these interest rates (Keršulienė & Turskis, 2014).
3. If the environmental cost is hidden then the general cost center leads to the bloated
overhead cost.
4. There is no proper allocation of the environment cost which is the fixed cost

5MANAGEMENT ACCOUNTANT
5. The calculation of the volume and the cost of raw materials is inaccurate.EMA calculates
that waste is a processing cost and it includes the cost of purchasing raw materials. Thus
the actual cost is more than that of the calculated time
6. There is much relevant environmental cost incurred in the records of accounting.
Benefit of EMA
There are a lot of advantages that EMA provides. If the company implements the
environmental accounting then it is capable to provide many benefits directly as well as
indirectly.
The benefits are those which help in the decisional process which acts as a beneficiary so ax to
improve the informational support. There is a separate cost of environment which will be
improved (Krishnan, 2015).
Improving price policy
The support in the process of data reporting so as to identify the environmental costs
which supports the economic entities so as to collect the data in the environmental impact in the
internal and the external reports. The new opportunities are discovered by the analysis of
environmental cost which identifies the opportunities that is employed for making savings
through the resources. The competitive advantage is used in the proper advertising so as to
develop the environmental management accounting.
Changing Role of Accountants
In conventional cost accounting, the aggregation of environmental and non-
environmental costs in overhead accounts results that they are ‘‘hidden’’ from management.

6MANAGEMENT ACCOUNTANT
Therefore, it is very important to apply a systematic method that enables to evaluate
effectiveness of proposed or implemented actions. This can improve the foundation necessary for
local communities to avoid costly environmental management failures and to meet the common
goal-to provide the scientific understanding required to measure, model, maintain and/or restore,
at different scales, the integrity and sustainability of ecosystems now and in the future
(Krumwiede & Lawson, 2017).
By identifying, assessing, and allocating environmental costs, CP investment project
development methodology developed by APINI and Nordic Environmental Finance Corporation
(NEFCO) allowed companies’ managers to identify a number of opportunities for cost-savings.
The methodology is based upon:
1. Identification of the current environmental impact of industry (including transport, energy
production units) and other economic factors most closely associated with that impact;
2. Identification of available options to improve environmental and economic performance of the
company and to restore degraded ecosystems
The structure of the methodology is as follows
1. Commitment at top management to implement cleaner production (Zarzycka, 2017).
2. Planning and organization (CP programme approval by a company’s top management;
definition of CP program me goals; development of an organizational structure for the program
me);

7MANAGEMENT ACCOUNTANT
3. Assessment (screening of company’s production processes and equipment; development of
material balances for processes and equipment; analysis and assessment of the information;
option generation; option prioritization);
4. Feasibility study of the selected options (technical evaluation; environmental evaluation;
economic evaluation);
5. Investment analysis (procurement of equipment; pay-back period; net present value; internal
rate of return; sensitivity analysis; selection of CP innovation to be implemented)(Reference 14
from : Environmental management accounting in Lithuania: exploratory study of current
practices, opportunities and strategic intents (Lambert & Pezet, 2013)
Evolution of EMA
This progress is indicated by the application of latest technologies to improve the
productivity of manufacturing companies. Companies have implemented various measures, such
as the use of modern technology in production, acquisition, reduced-cost resource utilization and
cost reduction, to improve productivity, efficiency and overall performance and to meet the
expectations of stakeholders. However, increasing the productivity and efficiency of companies
often leads to environmental destruction, such as water and air pollution and deforestation
(Lambert, 2015).
EMA Introduction
Environmental accounting is not limited to financial accounting because it includes
management accounting. Environmental management accounting (EMA) is utilized to monitor
and evaluate resource utilization efficiency and reduce the environmental impact of company

8MANAGEMENT ACCOUNTANT
operations. EMA provides improved and comprehensive approaches. The information from
EMA is used in internal organizational calculations and decision making. EMA is an internal
decision procedure that includes physical material and energy consumption, flows and final
disposal, costs, savings and revenues related to the potential environmental effects.
Environmental management accounting is the way that businesses account for the
material use and environmental costs of their business. Materials accounting is a means of
tracking material flows through a facility in order to characterize inputs and outputs for purposes
of evaluating both resource efficiency and environmental improvement opportunities.
Environmental cost accounting is how environmental costs are identified and allocated to the
material flows or other physical aspects of a firm’s operations (McNally & Tophoff, 2014).
International Federation of Accountants
Environmental and economic performance is 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
typically involves life-cycle costing, full cost accounting, benefits assessment, and strategic
planning for environmental management information in order to optimize corporate
environmental and economic performance and to achieve sustainable business.
On the one hand, the benefits of engaging with sustainability implement has been
emerged in a large amount of case studies, as stated in (Goretzki & Strauss, 2017).These case
studies generally appoint that companies may affected by losing opportunities for economic and
environmental performance improvement if they failed with recognition about environmental
management account during organization activities.

9MANAGEMENT ACCOUNTANT
Accordingly, it is difficult for the managers to appoint the cost of negative externalities in
the financial management plans of organization and the decision can be misleader by even only a
small part of internalized externalities. It will enhance the difficulty of decision making for the
stakeholders at the same time, whom could be even more misleader by those ‘unexpected
internalized externalities’ if there is no actual financial effects on business (Mistry, Sharma &
Low, 2014).
Changing role of accounts
It has been called “the language of business” and the accountant in follow provides
solution areas of dealing endorsement together with monetary accounting, tax, compliance,
management accounting, auditing, economic systems, custom planning, forecasting, payroll and
more. But is the character of the accountant changing or not. And how container businesses
payment from this change. Technology, the internet, better financial records and strain software
has misused the respect accountants’ composition and brought efficiencies to accountancy
practices. The cloud income that accountants preserve pool resources and drive with clients in
unaffected time. Expectations of clients are changing (Nitzl et al., 2016). Accountancy practices
are accumulation new army to their training portfolio, and emerging new breeds of accountants
result in other skills and problem expertise to alleviate clients beyond the numbers.
Technology
In the “olden days” pre-computer, what time dinosaurs roamed the streets, accounting
was processed manually with newspaper and pencil.

10MANAGEMENT ACCOUNTANT
Cloud accounting
Cloud accounting is the most up-to-date technological revolution in accountancy.
Operational in the cloud with foodstuffs like Sage One means that numbers and software are
offered online anytime and anywhere. Partnership owners know how to protect their finances up
to rendezvous and re-examine issue act from any internet enabled device, together with PCs,
Macs, smart phones and capsule devices. The accountant-client bond becomes new joint with the
cloud enabling a real-time effective link someplace the accountant bottle impart clients with
further many insights into their corporation to advantage them screen performance, form
decisions and plan (Soon,2017).
Value-added services
Accountants are taking on opportunities to differentiate their practices and prod towards
value-added army and a file of thing skills together with HR, technology, marketing and
leadership to comfort clients beyond the numbers. The client-accountant association is a
partnership, with accountants caring about the success
Circumstances and milieu The organization has been interacting with its stakeholders since
its inception (Warren & Burns, 2017). These stakeholder relations comprise evolved over time
and the letters and notch of interaction is miscellaneous depending on the stakeholder groups
and fields of organization activity. Stakeholders are clear as organizations, associations
and parties interacting with the European Medicines help (the help or EMA hereafter),
which possess an appeal in or are influenced by the go to work of the EMA and its
partners. The dub ‘partners’ distinguishes the Agency’s operational relations in the
European dictatorial make contacts and encompasses the citizen competent authorities, the

11MANAGEMENT ACCOUNTANT
European Commission, European legislative body and other European Institutions
(Sunarni,2013). They furthermore consist of global (organisations) partners, such as, the
humanity Health Organization (WHO), US FDA, Health Canada, and Japanese narrow
establishment (MHLW and PMD)
Additionally, EMA has put in set a new operational style in conditions of the
plane of stakeholder involvement (inform, consult, consult & involve, cooperate /
participate). Addressing the ‘inform’ expression of the methodology, which is enclosed by
the EMA’s manage to transparency, is an crucial include of the Agency's operations. The
EMA publishes in a row on its exact and non-scientific operations, description of its
decisions and procedures, and organises stakeholder events. In addition, the known has the
rectify to call in rank and credentials from the charity in accordance with its set of laws on
entrance to ID and on admittance to information. ideology on stakeholder consultation
(‘consult’/’consult & involve’) are heart industrial to rationalize the Agency’s attempt and to
align it with EC enhanced adjustment Guidelines (SWD(2015) 111 final). In addition, new
convention of procedure (Vakalfotis, Ballantine & Wall, 2013).
Additionally, EMA has put in room a new functioning slant in conditions of the
flat of stakeholder involvement (inform, consult, consult & involve, cooperate / participate).
Addressing the ‘inform’ air of the methodology, which is roofed by the EMA’s get in
touch with to transparency, is an focal figure of the Agency's operations. The EMA
publishes in order on its exact and non-scientific operations, account of its decisions and
procedures, and organises stakeholder events. In addition, the municipal has the
completely to demand in order and ID from the society in accordance with its policy on
admission to credentials and on admission to information. ethics on stakeholder