Environmental management accounting

Question 1

Areas of concern, Role of a management accountant

Answer 1

Areas of concern
1. Waste of energy or materials
2. Use of finite resources
3. pollution
4. packaging disposal
5. Toxic materials

M.A plays a central role and this involves

1. Identification of costs - staff cannot make savings if they don’t know how much they are spending.
   Info system will be needed to identify these costs. some environmental costa are hidden within conventional costs e.g. waste within energy costs
2. categorisation of costs - it is useful to categorise between

• conventional costs - Energy, materials, labour. environmental costs is usually hidden within conventional costs. The amount of environmental costs hidden within conventional costs is often unknown and assumed to be a lot lower than reality suggests
• contingent costs - costs not yet incurred but can be significant. e.g. restoration or regulatory costs or fines
• Image and reputational costs - cost of PR or lost sale due to poor practices

3. Set targets for environmental costs KPI - Once we understand the costs, we can set targets and deliver some aims.
4. Budget setting
   Following from above, setting an annual budget is useful for control purposes.
5. Pricing - The price should include an allowance for environmental costs

Question 2

Accounting techniques in EMA

Answer 2

ABC
If the accountant can identify environmentally harmful drivers and the related costs, then these can be used to produce ABB and targets for environmental costs.
Having a cost per driver for harmful activity.

Flow cost accounting
waste is not costed
This involves stripping the amount that relates to waste so orgs can take better decisions.

Lifecycle costing.
all products go through lifecycle from research/concept, growth, maturity, decline
Traditional management accounting only covers growth and maturity
LCC includes Research and Decline period
Lifecycle costing suggests all phases should be controlled

Benefits
1. The full costs of a product identified earlier
2. Better control of research and decline phases - this might stifle creativity in creativity departments by exercising control over them.
3. if decline period in particular includes environmental costs, then these can be recovered in price easily provided they are estimated
4. Allows org to learn for future investments
5. It allows org to monitor performance
6. It leads to improved decision making.

Question 3

what is sustainability - Tripple bottom line model, impact on performance and PMS

Answer 3

Tripple bottom line - EES model
Performance should be considered and measured widely
1. Economic - profit, jobs & employment, Tax
2. Environment - planet - plastic waste, natural resources, land, flooding, natural beauty.
3. Social - stakeholders, people, social justice, ,mental health, fairness

Look at performance in a much wider view than just profit

what is the impact on Performance and PMS

PMS
does budgeting approach cover sustainability
how can it be measured using KPI’s or has it met KPI targets
are staff rewarded for achieving sustainability targets.

How sustainability affects performance - Financial and non financial
Financial
1. Fines prevention
2. Tax breaks on allowable cost
3. Insurance cover reduced
4. less waste
5. Better availability of finance
6. sales improvement - poorer nations might be uninterested
7. costs of any sustainability programme

Non financial
1. Reputational improvement
2. reduction in scarce resources use
3. Quality redefined to include sustainability concept
5. Attraction of more staff
6. Environmental impact reduced

Question 4

Impact of sustainability on PMS

Answer 4

CSF - Create a sustainable CSF if indeed sustainability is critical to the business
KPI - create KPI’S for the sustainability agenda, evaluate existing sustainability KPI’S

Sustainability can also be introduced into the existing PMS
All areas would be considered
consistency more likely
sustainability isn’t a second thought
cultural shift will be needed to educate staff and managers to think differently

Question 5

Exam Slide

Answer 5

Sustainability
1. Profit should not be seen ast the most important or only criteria of good performance.
2. Economic benefit extend beyond profit to include employment and taxes.
3. Environmental benefits should be measured - waste %, pollution levels etc..
4. societal benefits should be considered -community effects, equity for all
5. Sound sustainability policies can require financial investment but can increase revenue and reduce long term costs
6. Sound sustainability policies can enhance non-financial performance (quality, working environment)
7. Sustainability CSF’s will be needed for some businesses
8. Consistent KPI’S will then be needed for some businesses
9. A cultural shift may be needed to deliver sustainable improvement
10. short term pain for long term gain may be likely

EMA
1. Environmental waste takes many forms - energy, finite resources pollution
2. costs must be identified before control can be exercised
3. Many costs are hidden within conventional cost headings
4. some environmental costs may be incurred in the future these are contingent on a future event
5. Image and reputational costs can be considerable
6. ABC is useful to identify cost of waste
7. Waste can separately costed under Flow cost accounting
8. Should consider the whole lifecycle of a product to gauge its true cost and impact
9. Traditional management accounting focusses solely on the period of manufacture
10. EMA will be increasingly important in determining performance o business.