Accountability and Accounting Regulation: The Case of the Spanish Environmental Disclosure Standard - Essay Example

ACCOUNTABILITY AND ACCOUNTING REGULATION: THE CASE OF THE SPANISH ENVIRONMENTAL DISCLOSURE STANDARD By The of the (Tutor) The Name of the School (University) The City and State where it is located The Date Forms of Environmental Accounting Environmental accounting deals with measuring of environmental performance and set targets. It is a critical component of an organization. Under this requirement, organizations are required to give reports on the issues of environment as relates to their daily operations. The environmental accounting and reporting is not only beneficial for providing solutions to the environmental issues. In addition, it help the organizations becomes more profitable, more productive and more sustainable. By adopting the environmental accounting and reporting principles, organizations would be able to monitor their usage of environmental metrics such as waste, energy, and water. By monitoring their usage of these essential metrics, organizations are able to reduce their contribution to greenhouse gas emissions. In addition, they are able to identify and choose operational procedures which are environmental friendly. Cost saving is another essential benefit that accrue from the environmental accounting and reporting. Organizations are taking environmental accounting and reporting regulations very serious. For example in Europe, environmental accounting regulations have been put and organizations are required strictly to adhere to them to them. In Europe, a tradition has been established that requires the organizations to recognize not only an economic, but also the social role of their statutory information in which environmental accounting and reporting is part. The European Union Action Programmes on the Environment have done massive work by actively calling the enterprises to disclose details of environmental policy and activities as part of their annual accounting reports. They are also required to disclose details of their expenses on various environmental programmes both at national and international level. This body also demands the enterprise to make provisions for environmental risks and their future environmental expenses (Crowther 2000). Although the environmental accounting and reporting has not been made a statutory requirement in Europe, many members of European Union have adopted and follow it. Currently, there are many national environmental accounting regulators in Europe that are designed to address the issue of environmental accounting reporting. Spain and Denmark have been on the forefront of making these regulations. For example, the Danish Environmental Protection Act requires companies operating within Denmark to accompany their annual financial reports or statements with green reports. This green report should include directors’ report, general information, a resource consumption report and, the auditors’ opinion if audited. The same situation applies to Spain and other European countries. There four different types to providing environmental accounting reports. All these methods are important and independent. There is no one-fit-all approach when it comes to environmental accounting and reporting. Therefore, an organization should innovative and use methods that are best suited to their nature of business. Every approach is meant to provide the best accountability for the environmental issues and how the company deals with such issues. Natural resource asset account is the first approach we are going to discuss. This method of environmental accounting primarily deals with giving accounts to stock of natural resources. Under this account, the companies are expected to give details and their data on closing stocks, opening stocks, and changes to stocks. This is not about their material stock but the stock of natural resources under their control and influence. The stock of natural resources may change due to either the company’s economic activities or simply a natural process such as death birth or death of trees, etc. (Idowu and Filho 2009). Under natural resource accounts, the organization may prepare physical asset account, and or monetary account. The physical asset accounts are designed to track the physical amount of a resource under the organization’s influence and control. These accounts are particularly prepared to give indicators t the organization’s role in achieving ecological sustainability. They can be used to show how the organization’s policy changes on natural resource affects the natural environment. They are very useful reports to the managers. Organization managers use the physical asset accounts effectively to monitor the company’s natural resources. Land account is a good example of physical asset account. On the other hand, monetary asset accounts track and establish the monetary value of the organization’s national resources. Monetary asset accounts can be used together with the company’s national economic accounts in determination of the diversity of assets and the amount of the country’s wealth. These accounts are also used as indicators to show the distribution of the ownership of assets. They also indicate the vulnerability of an asset due to fluctuations in prices. This is imperative to economies that heavily depend on unprocessed goods. A forest account is a good example of monetary asset account. It tracks the value of the national forest. Pollution and material physical flow accounts. This is the second category of giving environmental accounting reports. These special types of environmental accounts are meant to provide information about the quantity of resources the organization has used. This information should be given at the industry level. In particular, pollution and material physical accounts give information the organization’s use of water, energy, and materials in their economic activities. This report also gives the quantity of residuals such as air emissions, solid waste, and wastewater generated by the economic activities of the organizations (Uno and Bartelmus 1998). In addition, the pollution and material physical flow accounts give detailed comparisons of pollution and material flows with other countries. This cross-boundary comparison is necessary. The report should also include the cross-boundary pollution. Although the pollution and material physical flow accounts may take several different forms, they are all meant to show the origin and destination of pollution and materials. More detailed pollution and material physical flow accounts show the process through which these inputs are transformed into pollution, products, or wastes. Time series accounts for energy use and carbon dioxide emission are god examples of pollution and material physical flow accounts. These accounts are used in tracking trends, in carbon dioxide emissions, etc (Ahmad, Serafy and Lutz 1989). The third category of environmental accounting and reporting is monetary and hybrid accounts. These accounts give data on the country’s expenditure and taxes that are meant for managing and protecting the environment. The monetary and hybrid accounts also show the contributions that have been made by the environmental services industries. Examples of these accounts include government fees collected on resource use such as levies forestry, minerals, or fisheries. There are five different types of environmental monetary and hybrid accounts. Environmental monetary and hybrid accounts are prepared to address different questions on regulations. These include the effectiveness of expenditure on environmental protection, the long run cost of environmental regulation, the impact of environmental expenditure on productivity, prices, and competitiveness (Hecht 2000). The Policy Objectives of Environmental Regulation In the modern day, there are so many social activities that negatively impacts the environment. Humans are the primary cause of various environmental issues. These human activities directly affect the natural biophysical environment. There are diverse impacts on human impacts on the natural environment. They may include issues such as impacts on biodiversity, biophysical environments, and other resources amongst others. The list of environmental issues is enormous. These environmental issues include global warming, global dimming, greenhouse gas, sea level rise, ocean acidification, urban heat islands, flooding, anoxic waters, coral bleaching, edge effect, habitat fragmentation, habitat destruction, illegal dumping, blast fishing, overfishing, bottom trawling, marine pollution, illegal logging, deforestation, resource depletion, overexploitation of natural resources, poaching, species extinction, pollinator decline, wildlife trade, wildlife disease, energy conservation, renewable energy, environmental degradation, environmental health, air quality, environmental impact of hydraulic fracturing, land and soil use, ozone depletion, water pollution, air pollution, resource depletion, consumerism, over-consumption, fishing, logging, mining, water (depletion), toxicants, waste and so on (Jasch 2008). It is mostly considered that making environmental reporting mandatory would substantially help the organizations increase their accountability for the above discussed environmental issues. Although it has not been standardized globally, the environmental accounting report idea is welcomed by many people and organizations. It is expected to put organizations on toes for providing timely report and solutions to environmental issues. Furthermore, the environmental accounting report if fully implemented will achieve stainable environmental conservation. With the much scientific evidence, it becomes apparently clear that currently human beings are living unsustainably. They are destroying the environments that primarily support their life. Therefore, for human beings to live sustainably on this earth, the environmental resources must be used at a rate that is sustainable (Freedman and Jaggi 2006). Environmental accounting and reporting have so many objectives that are related to solving the global environmental issues. From an academic perspective, one of the primary objectives of environmental accounting reports is to increase the organization’s environmental transparency and accountability. If these regulations as made mandatory as in the case of some European countries, organizations will be forced to expose how their economic activities direct impact on the natural environmental and the measures they are putting to curb the problem (Merem 2005). Another objective of environmental accounting reporting is to help determine the relationship that organizations have with the society and the natural environment. In this perspective, it helps negotiate and sell the concept of environmental conservation. This way, the environmental accounting guidelines and requirements helps the organizations to strategically seek new and energy issues of their economic activities that have a potential impact on the natural environment. Besides, it helps motivate organizations to take a leading role in environmental conservation programs. Another key objective of environmental accounting requirement is to help organizations uphold social and ethical images. This side of doing business is sometimes missing: being ethical in operations. Upholding friendly and ethical image is very necessary for any organization. Lastly, the environmental accounting and reporting requirements ensures that organizations disclose and show their commitment to upholding changes towards the global environmental issues. It also helps organizations cultivate enlighten approach towards environmental conservation (Bennett et al 2003). Environmental accounting and reporting are meant to enables organizations track their environmental data such as greenhouse gas emissions, and disposal of waste products, amongst other environmental data that have a direct impact on the environment. There are many other ways through which organizations benefit from the environmental accounting and reporting. For instance, it helps the organization facilities its voluntary and legislated emission reporting requirements. This accounting and reporting requirement ideally provides an organization with an insight data of its environmental campaign. This accounting report provides essential data that the organization uses to identify and manage carbon dioxide emission amongst other environmental conservation approaches. In essence, it helps the organizations identify cost reduction opportunities that can be used to handle the global environmental issues. Outcomes Mandatory Environmental Reporting If successfully implemented, the mandatory environmental accounting and reporting requirement will certainly bring real life outcomes which are beneficial to both the business community and the natural environment. There is no doubt application of environmental accounting and reporting has brought enormous benefits. The primary benefit of this mandatory accounting requirement is the identification and greater awareness of the environmental issues that it provides to stakeholders, investors, government and the general public. A greater awareness of these environmental issues often creates an opportunity to provide immediate solutions. It is not only the providing of knowledge that the world can benefit from environmental accounting requirements. Rather, it helps organizations and the people at large seek ways to improving their environmental performance. More specifically, the environmental accounting requirement is an effective tool of ensuring that the environmental issues are at the top priority of the organization’s agenda. In addition, it provides useful data that guides the decision making of financial managers and environmentalists. With this information, the companies are able to identify key areas of concerns and ones which need immediate attentions (Lehman 1996). Furthermore, this mandatory requirement can help significantly reduce or solve many of the environmental issues. This comes as a result of effective decision making at the organization’s management level. When this requirement is made mandatory, then it enforces the organizations to play their roles in the environmental conservation initiatives. Thus, the organization will have not option from avoiding the requirement to conserve the environment. In general, it guarantees a healthy environment where every person plays its not to destroy the natural environment. If there is no strict adherence to the legal requirement, companies might have tendencies of overlooking or obscuring their environment costs in the overhead. They might be tempted to repeat this with the potential savings. Only mandatory environmental accounting requirement can ensure that organizations do not follow this erroneous path of deception. This requirement thus put companies on toes to be responsible for their own environmental costs (Jasch 2008). Organizations also have opportunities to benefit greatly from the environmental accounting requirements. For instance, organizations can save the environmental costs by selling or recycling wastes and other byproducts. This can create a good stream of revenue for the company which they can use to offset other payments or invest in environmental campaigns. Furthermore, it has been established that understanding of environmental costs often promotes and enhances accurate costing. This also applies to pricing of company’s products. The organizations thus stand to benefit hugely in their costing and pricing models by adopting the mandatory environmental accounting requirements. Another advantage of enhanced costing and pricing is that your products become competitive in the market in terms of their prices. The company can establish the best prices for their products and clearly establish the costs (Freedman and Jaggi 2006). Lastly, environmental accounting helps the company gain a competitive advantage with its customers. This is because of the use and provision of products, services or form processes that are environmentally friendly. In the contemporary world, customers are looking for environmentally friendly products and services. Everyone is careful not to contribute to the environmental issues. Thus realigning your company to provide only environmentally friendly products and services will give you ample competitive advantages with your customers in the market. There are other more benefits of mandatory environmental accounting which we have not discussed here (Merem 2005). When organizations are armed with factual data, they are able to benchmark, influence, and create behavioral changes that are aimed at reducing the environmental issues. These changes may include but not limited to reduction in material use, reduction in carbon dioxide emission, reduction in water and air pollution, and reduction in sewage disposal amongst others. All these efforts will certainly help reduce the current environmental issues. Organizations therefore are able to divert their energy and resources to key environmental conservation areas that are directly in line with their operative procedures. Gaps between Policy Objectives and Outcomes Of course, there are some gaps between policy objectives and outcomes of mandatory environmental accounting and reporting requirements. This is mostly because some of the policy objectives of mandatory environmental accounting reports have not been achieved. This happens for some several different reasons.. The basis of environmental accounting is to provide an insight of interaction between different nations or regions on outstanding environmental matters. As the companies try to realize this requirement, they are faced with certain legal problems. Every country has its own legal requirements some of which are not standardized. This has created a huge barrier in realizing the objective o mandatory environmental accounting (Crowther 2000). The world is still lagging behind its environmental objectives. No single country has managed to realize all these objectives. Only a few has been met but only by certain sectors of the economy. Similarly, organizations are still fighting to adopt fully and implement the mandatory environmental accounting requirements. Some of the countries that have made substantial progress include United States of America, china, Japan, and United Kingdom. Despite this gap, initiatives are still being taken to ensure that every country, region and organizations provide their environmental accounting reports. As a discipline, the environmental accounting and reporting is still underdeveloped. This discipline is still evolving. Unlike other disciplines, the environmental accounting is marked by the availability of only a few professionals. Some analysts suggest that this is the primary reason for the gap between policy objectives and outcome of environmental accounting principles. If there were enough number of professionals in this field, they would speedily fast track the policy objective and ensure the accurate and fully implementation. This would substantially reduce this gap that has existed over several decades (Idowu and Filho 2009). Environmental accounting covers diverse and very complex topics that have not been fully exhausted. Most importantly, some of these topics are still debatable. This make the study of environmental accounting more complex. Of particular interest is the valuation of natural assets such as water and clean air. This remains complicated given that these natural assets are not traded in the markets. In addition, the world has not decided on the exact valuation methods to be used for valuing natural assets like water and air. Therefore, the techniques that are currently being used still face both empirical and contextual challenges (Hecht 2000). It is expected that making environmental reporting mandatory would substantially help the organizations increase their accountability for the above discussed environmental issues. However, these environmental accounting requirements have not been standardized globally. Standardization of the environmental accounting principles is still lacking. Even today, organizations are still using different approaches when preparing their green reports. Standardization of environmental accounting reports is necessary so that every organization provides a typical green report. Furthermore, it would help making comparisons very easy and quick (Uno and Bartelmus 1998). Measures for Solving These Gaps in Policy Objectives and Outcomes As established above, there are outstanding gaps in the policy objectives and outcomes of the mandatory environmental accounting. It has been identified that only a few policy objectives have been fulfilled. Likewise, the reasons for these gaps have also been established. To realize the dream of environmental accounting, these gaps must be filled up. Some approaches are suggested here. First, the fight against environmental issues should not be left to organizations and environmentalists alone. Every person has a duty to perform. These policy objectives cannot be fully realized if the task is left to the organizations only. Let the government, private investors, environmental activist, donors, and educators actively support organizations. For many years, the fight against environmental issues has been left to environmentalists and government agencies alone. Moreover, now with the new birth of mandatory environmental accounting, everyone seems to think that it is meant for organizations only (Rubenstein, 1994). Secondly, standardization of environmental accounting guidelines is very essential. As said in the above section, currently there is no standard guideline used by every organization across the world. Therefore, the green reports provided by different organizations vary depending on the principles that they are using. Standardization of environmental accounting reports is necessary so that every organization provides a typical green report. Furthermore, it would help making comparisons very easy and quick. In addition, standardization of guidelines makes accountability becomes very easy. Also identified is the lack of enough professionals in this discipline. As a discipline, the environmental accounting and reporting is still underdeveloped. This discipline is still evolving. To solve this, many students should be encouraged to join this professional industry. In particular, the governments should help facilitate and provide environmental accounting courses at major public and private universities. Of more significance is that the overall cost of undertaking the course should be subsidized to enable more students register. This would substantially reduce this gap that has existed over several decades (Wallace, Naser and Mora, 1994). In conclusion, environmental accounting and reporting are meant to enables organizations track their environmental data such as greenhouse gas emissions, and disposal of waste products, amongst other environmental data that have direct impact on the environment. There are many other ways through which organizations benefit from the environmental accounting and reporting. For instance, it helps the organization facilities its voluntary and legislated emission reporting requirements. This accounting and reporting requirement ideally provides an organization with an insight data of its environmental campaign. This accounting report provides essential data that the organization can use to identify and manage carbon dioxide emission amongst other environmental conservation approaches. In essence, it helps the organizations identify cost reduction opportunities that can be used to handle the global environmental issues. 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