Abstract
This study explores the way and the extent to which listed companies in Sri Lanka manage environmental costs through their management accounting (MA) systems. Applying Mixed Method Research approach; data were collected from 42 listed companies representing five industry sectors in Sri Lanka, through a survey followed by discussions with financial executives and environmental officers of companies. Further, it reviewed National Environmental Act of Sri Lanka for legislation enacted for sampled companies. The main tools of analysis were frequency tables for quantitative data, and qualitative data were analyzed linking them with quantitative analysis and, thus providing expressive detailed interpretations for the phenomena under investigations. Findings indicate that even though all companies are bounded by legislation to take environmental management (EM) initiatives to prevent and control pollution, the MA systems of most companies have not been improved accordingly to incorporate environmental costs and related performance measures. All companies used to take EM measures by making adjustments to existing financial accounting/MA systems which were initiated mainly to facilitate regular business activities. These practices thus, demonstrate lower potential for companies in managing EM costs. Competencies of MA techniques considered differ one to another in managing EM costs, showing greater importance for traditional MA techniques like budgeting, products costing than modern MA techniques like kaizen costing, balanced scorecards. Conversely, the Plantation sector shows greater ability in managing environmental costs through their activity based costing systems implemented by all in the sector. It suggests companies to establish appropriate accounting systems and performance measures which are capable of identifying and managing environmental costs precisely. It also suggests improving awareness among all personnel including accounting staff on how to manage environmental costs through such systems ensuring legal compliances, profitability and survival of the business.
Highlights
Of late, many countries around the world give more attention to environmental concerns together with related costs, revenues and benefits
It evidences that all listed companies have been taking all essential environmental management (EM) measures in complying with environmental legislation enacted mainly through the National Environmental Act (NEA) No 47 of 1980, Sri Lanka
This study investigates competencies of management accounting (MA) systems of listed companies in handing EM issues focusing on five environmental cost categories presented by IFAC (2005) as detailed out in the section 2.2
Summary
Many countries around the world give more attention to environmental concerns together with related costs, revenues and benefits. Environmental costs lead to economic issues and societal issues that are both internal and external to the organization. In this respect, scholars contend that traditional accounting practices do not provide sufficient information in managing environmental costs (International Federation of Accountants–IFCA, 2005). Many potential environment related costs may be misplaced within the indirect costs. To fill this gap, the emerging field of Environmental Management Accounting (EMA) has been receiving increasing attention. For an organization to effectively manage the environmental pressure, and costs and benefits, it needs expertise in different areas, such as environmental, technical, accounting and finance, marketing and public relations and general management (IFAC, 2005). Accountants have a special role to play in resolving this issue because of their access to the relevant monetary data and information systems, their ability to improve or verify the quality of such information and their skills in using that information to help make sound business decisions in areas such as investment appraisal, budgeting and strategic planning (IFAC, 2005)
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