Green Accounting in Bangladesh Perspective

1.1 Background of Study

In general, companies publish their annual reports which include an income statement (or profit and loss account, or statement of comprehensive income, or statement of earnings), a balance sheet (statement of financial position), and a cash flow statement (or statement of changes in financial positions) and the information provided in the foot notes in such reports in money terms. In developed countries, a significant number of companies now disclose the impact of their activities on the environment. A review of literature from Western and Asia-Pacific regions indicate a low level of environmental disclosure practices but there has been a considerable increase in the number of organizations performing environmental accounting and reporting. (Gibbon and Joshi, 1999) This information frequently takes the form of details about the firm's emissions into air, or waste to water, or details of fuel and materials used. Some reports are more detailed than others and may be descriptive or include quantitative data produced from environmental performance indicators. In Bangladesh, there is still no disclosure in the financial statements of companies in this regard. As environmental legislation is strengthened and becomes more intense, companies will be required to take a cleaner approach to production. 

Clearly, waste products are a major source of pollution. Whilst production without waste is impossible, waste products incur costs that impact on profits. Waste is also an inefficient use of resources and may be seen as an environmental cost. The environmentally responsible firm will seek to reduce waste wherever it can by introducing improved and more cost effective processing methods. 

In addition, waste creates the problem of disposal. Disposal costs place further pressures on a company's profits, but in addition they create a social cost by putting pressure on disposal sites. Environmental costs and their impact on company’s profit are disclosed by financial accounting. (Bennett & James, 1997) If a company's accounts fail to pay full consideration to the green issues affecting its business, can they actually show a true and fair view? Bob Martin investigates. It is hardly debatable that the body of literature on accounting standards, guidelines and practice around the world is immense. However, with the widespread adoption of IFRS, there is a hope that a uniform framework for environmental and sustainability accounting will emerge, which will tie information on environmental costs and benefits, and sustainability to the financial statements - beyond the box of current thinking.  Many companies are now interested in being "green," as many investors place a high value on environmental responsibility. Regulations have been developed to govern "waste management" and to ensure that corporations are environmentally conscious.” (Smith, 2003).

Corporations doing business in Bangladesh must identify how to quantify environmental costs and benefits as well as they have to develop the structure for presenting environmental costs and benefits to the stakeholders of the business.

1.2 Objective of the Study

The major objective of the present study is to evaluate the present status of the application of environmental accounting in Bangladesh. To this end the study has chosen the annual reports of different companies doing business in Bangladesh. The specific objectives of the study are: 

i.          to provide guidelines how to measure and analyze the environmental costs and benefits, 

ii.        to measure to what extent Companies in Bangladesh are complying to the rules and regulations of the authoritative bodies in Bangladesh, and 

iii.      to recommend some steps to develop environmental reporting system so that they can be friendly to the environment as well as take the fullest possible benefits of saving environment-related costs.

1.3 Methodology of the Study

In order to achieve the specific objective of the study secondary sources of data are used. These data have been collected mainly from the published annual reports of the companies. Besides, various records and documents maintained by the company, related books and journals and relevant websites were also reviewed. The collected data and information have been processed manually and report in the present form has been prepared in order to make the study more informative, analytical, and useful for the users. Apart from the review of relevant literatures, a number of telephone interviews have been made with qualified accountants practicing in Bangladesh. However, the methodology used in this study is largely qualitative and explorative.

1.4 Review of related literature

An introduction to green accounting

Irrespective of the warnings about greenhouse gas emissions, global warming, and impending ecological disaster and despite a spate of literature suggesting how education can focus accountancy’s contribution to solutions, forward progress toward changing corporate behavior has been slow. A number of suggestions have been advanced as to how ‘‘green accounting’’ may be introduced into the accounting curriculum, ranging from incorporating environmental accounting (EA) across the curriculum (Gray, Collison, French, McPhail, & Stevenson, 2001; Sefcik, Suderstrom, & Stinson, 1997), to elective courses specific to the subject (Mathews, 2001; Grinnell & Hunt, 2000), to substantial components of a theory course (Gordon, 1996, 1998). Currently, accounting students receive little or no exposure to EA issues in most institutions of higher learning around the globe (Gray et al., 2001). This article urges and provides a primer for a modest introduction to EA for undergraduate accounting students.

This article is in two parts – an introduction for educators and a primer on green accounting for classroom use. The educators’ introduction includes an overview of the recommendations of governmental and professional societies with respect to the inclusion of EA in accounting education. Additionally, we examine the academic research that has been done in the area of environmentalism and its relationship to education. Finally, we present the results of classroom testing of this primer. In years past, environmental issues were often ignored by both corporations and individuals. Hazardous waste and other such items were considered a necessary cost of a growing economy. Times have changed, as people now realize the effects of waste products that potentially could damage the environment. Most people now recognize that preserving clean air, water, and land is more important than lower-cost products for consumers or higher profits for business firms. Many people are willing to pay more for a product that is environmentally friendly. (Smith, 2003)

The period 1971 - 1980 heralded the beginning of environmental accounting in the guise of 'social responsibility accounting'. Social responsibility accounting sought to establish the degree of responsibility that companies should have towards stakeholders other than the firm's shareholders. During the period 1981 - 1990 the emphasis in the accounting literature shifted from 'social responsibility accounting' to 'environmental accounting', reflecting the strong interest in the latter. Research became more analytical in approach and the philosophical debate began to focus more on what kind of environmental information was appropriate for companies to disclose. 

Companies usually undertake environmental accounting for compliance reasons, and to maintain good public relations, but it has also been suggested that `going green' may reduce business costs. This view is expressed by Porter and Linde. They offer examples of firms that have reduced costs as a result of undertaking an environmental audit and changing their production processes, making them more environmentally friendly.

Another aspect of the management accountant's role is assessing the life cycle of products and identifying where environmental improvements may be made to reduce their environmental impact at every stage of life. (Bennett & James, 1998).

The best organizations are now moving beyond environmental auditing and developing environmental management accounting systems (EMAS) that seek to establish environmental costs at every stage of production. Neither is it cost free, and firms will tend to equate the marginal cost of identifying environmental costs with the marginal benefit derived from doing so. An EMAS requires that environmental costs are identified and made explicit. The arrival of Activity Based Costing systems in the 1980s has made the tracking of environmental costs easier (Kreuze & Newell, 1994). Interest is growing in modifying national income accounting systems to promote understanding of the links between economy and environment. (Hecht, 2009)

Accounting and the environment can no longer be considered mutually exclusive. The role of environmental accounting is to analyse and account the interactions between business and the environment. The purpose of environmental accounting research is to develop, suggest and analyse ways out of the environmental problems.  Environmental accounting or accounting for the environment, has been of major concern in the last twenty years and is one of the major growth areas within accounting. 

Companies have to prepare environmental accounting in a systematic and standard way to ensure a wise comparison between the environmental performance of companies Whereas profit and loss accounts and balance sheets are produced in standard formats with notes giving details of how results have been arrived at, this is clearly not the case with measures that identify the environmental performance of a company.  While green issues are hot news and public awareness of them is at an all-time high, the media tend to concentrate on climate change and carbon trading, which are often seen as beyond the scope of businesses to affect over and above the legal obligations imposed on them. The true environmental exposure is unknown in many cases merely because the company concerned hasn't taken appropriate action to quantify it. For that reason, more than any other, environmental disclosures are still absent from companies' annual accounts.

In this study, we have attempted to give an overview of the different aspects of environmental accounting and to provide suggestions and ways to implement this practice in corporations doing business in Bangladesh. 

 

1.5 Limitations of the Study

The major limitations of the study are resources constraints. First thing is that the concept is not yet practiced and a very few people has idea of this issue. More over non-availability of published data on environmental accounting was also a great limitation to this study. In addition to this, lack of specific and clear cut guidelines for environmental protection by Government of Bangladesh or other authorities.  These forced the researcher to use secondary data available in published research and articles and web sites.