Environmental Accounting - Essay Example

The primary purpose of a traditional financial statement is to provide information solely on the matters which have a material financial impact on the company. As a result, the financial accountants and financial auditors pay attention to environmental issues (typically legal or regulatory) only in cases when the latter, for example, prevent the sale of goods in stock, will make products obsolete, will require major capital expenditure to meet consent levels and so forth (Owen 2004). Such situation seriously complicates the intensively debated problem of incorporating environmental data into financial statements of UK companies.

This debate clearly suggests that the published financial statements of UK companies as they are at present may not provide an adequate means of assessing the success of the companies' activities. Increasing globalization of business environment, coupled with growing concern over environmental issues has drawn serious attention to changing the traditional accounting standards to incorporate social and environmental impact of companies' operations. Harmonization of accounting standards to allow the transportability of accounting information and smoother operation of Generally Accepted Accounting Principles (GAAP) has become the primary focal points of the new developments in accounting practice (Gray 2004).

This paper represents an attempt to analyze the concept of environmental accounting, its relationship with the basic concepts of traditional accounting and its application to the modern business framework. The range of problems associated with effective incorporation of environmental accounting principles in practice will also be identified. Although the paper relies extensively on review and analysis of the research literature instead of primary data provided by the UK, US and other companies it barely undermines its credibility.

Firstly, only highly credited scholarly sources and authors are included in the review. Secondly, the existing research provides valuable hints on such aspects of environmental accounting which might have remained unnoticed for a relatively inexperienced in this field person. The below discussion is divided into several subsections to 2. Environmental Reporting DefinedThe environmental Working Party of the European Federation of Accountants defines the objective of environmental reporting as follows: the provisions of information about the environmental impact and performance of an entity that is useful to relevant stakeholders in assessing their relationship with the reporting entity (Dixon, Mousa and Woodhead 2004).

In other words, the aim of environmental accounting is to identify use of environmental resources and all measures taken in this area and to communicate costs of an organization's actual or potential impact on the environment. These costs include the expenditures to clean up or remediate sites contaminated as a result of an organizatio