Finance and Accounting - Essay Example

With the tightening of the environmental regulations, the environmental protection costs of the industry like pollution reduction, regulatory reporting, monitoring and waste management have increased over the years. In the conventional management accounting method the environmental costs are allocated as general overheads expenses such that the production managers are not aware of the environmental costs and do not have any impetus to reduce the same. Environmental management accounting involves the identification, analysis, collection and use of material information and other monetary as well as environmental cost related information, for the purpose of facilitating environmental and conventional decision-making in the organization.

Unlike conventional management accounting which puts special emphasis on the identification of the environmental costs such as waste management cost, environmental management accounting assists in the decisions that have an impact on the environment. The reason for the growing prominence of environmental accounting is the fact that the environmental costs comprise of a substantial amount, more than the firm can estimate. It helps in the better management of the environmental costs, formulation of business strategies, determining accurate costs of goods and services, minimization of environmental costs etc.

The implementation of the environmental accounting rules benefits the organizations in the form of lower costs through economic use of resources; improved design of goods and processes. The minimization of the environmental impact gives an advantage over the competitors; and selection of opportunities that help in reducing the operating costs (Global Development Research Center, n.d.). Therefore environmental management accounting serves the dual purpose of improving and managing the environmental as well as the financial performance of an organization.

In contrast the conventional management accounting