Accounting for an Environmentally Conscious Setting

Environmental performance, measurement, and management issues are becoming increasingly important to many different stakeholders such as investors, creditors, customers, employees, competitors, taxing authorities, regulators, environmental interest groups, Environmental Protection Agency, media, neighborhood communities, and general public. All these stakeholders need credible information on environment-related activities of firms to make their own decisions. At the same time, the rate of development-related natural resource consumption has outpaced nature’s regeneration rate, making such development unsustainable. A reversal of this trend requires appropriate managerial incentives at the firm level and meaningful policies at the macro level. Consequently, microlevel intra-firm environmental performance measures, environmental performance disclosures by firms, and ecological auditing have become increasingly important. This has resulted in an increasing demand for sound commonly accepted internal and external environmental accounting practices. A large part of these practices are in an early stage of development. This chapter presents the current status of environmental accounting, which includes both the accounting for financial impact of environment-related activities and nonfinancial measurement of environmental performance. It also presents new developments in accounting, which could facilitate environmental performance evaluation. Finally, it briefly addresses the current research in the area of environmental accounting, reporting, and management.