Environmental Accounting
Dr. Sameh Soudy
A. Professor of Accounting &Auditing
Head of Accounting Department - Modern Academy
For Computer Science & Management Technology
2022
1
The vision and mission of the modern academy
Vision:
Modern Academy for Computer Science and Management Technology in
Maadi vision is to achieve excellence in its fields of specialization to match the
new local, regional, and international updates in the labor market.
Mission
The modern academy is committed to prepare professional graduates
specialized in the fields of Computer Science, information technology,
Management of Information Systems, Accounting, Business Administration
and Economic to provide the regional and Arab community with professional
cadres equipped with theoretical and professional bases required in the labor
market in the aforementioned fields. The academy keeps up with scientific
and technological advancements through research activities besides
participating in the surrounding community and environmental services, all
this within the frame of committed recognized and scientific recognized and
ethical values
The vision and mission of the accounting department
PROGRAM VISION
The program vision is to achieve excellence in The field of accounting to prepare a
graduate capable for competing locally, regionally and up to the international level
within educational quality frame.
PROGRAM MISSION
The Accounting program is committed to provide updated educational services that
match the standards of the quality of education, in order to prepare a distinguished
graduate having the ability to compete in the field of accounting, conduct advanced
scientific researches and provide effective services to the society and surrounding
environment.
2
Specification of environmental accounting
1- 1- Course Specifications
Academic year / Level: Fourth / 2nd
Title: Environmental accounting
Lecture: 3
Specialization: Accounting Advanced
Code: A407
Tutorial: 1
Total: 3
(Hour/week)
2 – Overall Aims By the end of this course, the student will be able to define the
of Course:
concept of environmental accounting, and to know the recent
developments and trends and contemporary issues related to
environmental accounting.
3 – Intended Learning Outcomes of Course (ILOs):
A-Knowledge
A18
and
a1 Know the types of organizations and environments in which
Understanding they operate and their impact on society.
:
A19
a2Identify accounting parameters for pollution control
equipment
A26
a3Determine methods of measuring environmental costs and how
to disclose environmental performance
B-Intellectual
Skills:
B11
b2The accounting treatment for the acquisition and dispensing of
pollution abatement equipment is carried out
B12b.2 Determine the financial impact of the acquisition and disposal of
pollution abatement equipment and of decontamination expenses on
the financial statements
B13b3 make appropriate accounting entries for the recording of natural
resource operations;
C-Professional
and Practical
Skills:
C1)
c1 Calculation of the cost of training and rehabilitation of the
handicap to work in the establishment
3
D-General and
Transferable
Skills:
4-Contents:
C2)
c2Identifies appropriate accounting constraints for natural resources
C17 )
Environmental impact assessment of the establishment
C18c3Preparing reports that measure the result of the environmental
performance of the establishment.
D1)
d1 - Ability to develop and improve performance on an ongoing basis
D10)
d2 - the ability to think creatively.
D11)
d3 - The ability to acquire the necessary skills to deal with problems
related to the environmental performance of the establishment.
No
1
2
3
5–Teaching and
Learning
Methods:
Topic
The nature of environmental accounting
The impact of the use of natural resources on
sustainable development
Measure the last period balance of natural resources
4
Measuring the impact of pollution
5
Cost of waste
6
Employment of the handicap
-
Total
Lectures:
( y )
Exercises:
( y(
Open Discussion:
( y)
E. Learning:
( … )
Web-Site searches:
( … )
Self Studies:
( … )
Case Study:
( … )
Others (list):
( … )
1- ………………
Practical training:
Presentation:
( y )
Projects:
2- ………………
6-Student Assessment Methods:
4
( … )
( … )
3- ……………………
Assessment method
B-Assessment
Schedule:
1. Assignments
2-Quizzes
3-Reports
4-Researches
5- Projects
6- Discussions
7-Presentations
9- Midterm exam
10-Practical exam
11- Final exam
C-Weighting of
Assessments:
1. Assignments
2-Quizzes
3-Reports
4-Researches
5- Projects
6- Discussions
7-Presentations
9- Midterm exam
10-Practical exam
11- Final exam
Week no.
Weeks 4 and 9
Weeks 3, 5 and 10
We ks 2 a d 11
Weeks 2 and 9
Week 12
Every week from 2 to 11
Week 7
Week 16
Marks
Total
Percentage
(%)
Assessment
method
20
20
20
0
60
100
20
0
60
100
7-List of References:
A-lecture notes.
Environmental accounting note book (Prepared by accounting department)
B- Essential books
(text books)
C- Recommended
Books
1-Atkins ,M.H& J.F.Lowe, pollution control costs in industry :An
Economic study ,oxford:pergamon press,Ltd.,1977
D- Periodicals, WebSites, etc….
world Bank ,Environmental consideration for the industrial
development sector , Washington: world Bank ,Aug.1978
5
9- Facilities and
teaching materials:
Y
1- White Board
Lecture…..Class….. Lab……
2- PC / Laptop
y
Lecture y Class….. Lab…
...
3- Printers
Lecture…..Class….. Lab……
4- Data Show
Y
Lecture…...…..Class………..
Lab…….….
5- White Board for
Presentation
Y
6- Laser Pointer
...
7- Laboratories(List)
...
8- Software Packages (list)
...
9- Supplies and raw
materials(list)
11- Others(list):
...
10- Library
Y
...
6
Introduction
The issues of caring for the environment, costs, revenues and
benefits arising from it have become prominent and extremely important
around the world because of their close relationship to human well-being
and their standard of living and progress. This led to an increase in the
need to provide appropriate knowledge data on the environment to the
internal management of organizations and to members of society, for the
purpose of addressing matters related to them in order to preserve the
green environment and assess the performance of organizations in this
field.
We address in this book chapter one accounting for Sustainable
Development, chapter two Nature of Environmental Accounting, chapter
three Measurement of environmental costs, Finally We address in this
book chapter four Disclose social and environmental performance
7
Contents
Chapter
Topic
One
Accounting for Sustainable Development
8
Two
Nature of Environmental Accounting
28
Three
Measurement of environmental costs
44
Four
Disclose social and environmental performance
98
References
129
8
Page
Chapter one
Accounting for Sustainable
Development
Sustainability accounting (also known as social accounting, social
and environmental accounting, corporate social reporting, corporate
social responsibility reporting, or non-financial reporting) was originated
about 20 years ago and is considered a subcategory of financial
accounting that focuses on the disclosure of non-financial information
about a firm's performance to external stakeholders, such as capital
holders, creditors, and other authorities. Sustainability accounting
represents the activities that have a direct impact on society,
environment,
and
economic
performance
of
an
organization.
Sustainability accounting in managerial accounting contrasts with
financial accounting in that managerial accounting is used for internal
decision making and the creation of new policies that will have an effect
on the organization’s performance at economic, ecological, and social
(known as the triple bottom line or Triple-P's; People, Planet, Profit)
level. Sustainability accounting is often used to generate value creation
within an organization
9
Sustainability accounting is a tool used by organization’s to become
more sustainable. The most known widely used measurements are the
Corporate Sustainability Reporting (CSR) and triple bottom line
accounting. These recognize the role of financial information and shows
how traditional accounting is extended by improving transparency and
accountability by reporting
As a result of triple bottom level reporting, and in order to render and
guarantee consistency in social and environmental information, the GRI
(Global Reporting Initiative) was established with the goal to provide
guidelines to organization’s reporting on sustainability. In some
countries, guidelines were developed to complement the GRI. The GRI
states that "reporting on economic, environmental and social
performance by all organizations is as routine and comparable as
financial reporting".
In order to help finance teams and accountants embed sustainability into
their accounting, The Prince of Wales set up The Prince's Accounting
for Sustainability Project (A4S) in 2004
10
Scheme of sustainable development: at the confluence of three constituent parts
Ddevelopment of sustainable accounting
The
concept
of
sustainability
accounting
has
emerged
from
developments in accounting. Broad developments in accounting have
occurred over the past forty years, although narrow developments have
occurred over the past ten years. The development reveals two distinct
lines of analysis. The first line is the philosophical debate about
accountability, if and how it contributes to sustainable development, and
which are the necessary steps towards sustainability. This approach is
based on an entirely new system of accounting designed to promote a
strategy of sustainability. The second line is the management perspective
associated with varied terms and tools towards sustainability. This could
be seen as an extension of or modification to conventional financial cost
or management accounting. To develop sustainability accounting de
novo allows a complete reappraisal of the relative significance of social,
environmental and economic benefits and risks and their interactions in
corporate accounting systems. The developments that lead to sustainable
accounting could be distinguished in several time periods in which a
11
number of trends were evident: 1971–1980, 1981–1990, 1991–1995 and
up to the present. These periods distinguish empirical studies, normative
statements, philosophical discussion, teaching programmers, literature
and regulatory frameworks.
1971–1980
By the end of the decade, a large volume of empirical work and a
number of papers referring to the building of models which foster social
accounting disclosures have been published. These early works included
subjective analysis as well as underdeveloped social and environmental
accounting literature (SEAL). Information related to the social
dimension of accounting has been mostly connected with employees or
products. Environmental matters were treated as part of a generally
undifferentiated and fairly unsophisticated social accounting movement.
Environmental damage included damage to terrain, air, water, noise,
visual and aesthetic and other forms of pollution, and solid-waste
production. Ideas about shadow prices and mapping of externalities first
arose and began to develop. Albeit the contribution of this period was
notable for extensive developments in the field of social audit, the
methodology was nearly identical with the historical financial
accounting reports. At this time neither financial accounting standards
nor regulatory frameworks had been developed to any extent. The
empirical studies and research were mainly descriptive. Although
12
several models and similar normative statements were enhanced, the
philosophical debate was not widespread.
1981–1990
The first part of the decade showed increased sophistication within the
social accounting area and the second part of the decade saw an apparent
transference of interest to environmental accounting, with increasing
signs of specialization in literature. Empirical research was more
analytical. Concerns of social disclosures have been replaced by a
concentration on environmental disclosures and regulation as an
alternative means of reducing environmental damage. Normative
statements and model building began to foster the environmental arena.
During this period, the development of teaching programmers about
social and environmental accounting issues began.
. –
Despite an increasing use of conceptual frameworks, accounting
standards, and legal provisions to reduce the degree of individual
interpretation in financial reporting, little of this accounting structure
applies to an appropriate framework of social and environmental
accounting. Less normative statement has been made, but more articles
discussing philosophical matters have been published.
13
1991–1995
This period was characterized by the almost complete domination of
environmental accounting over social accounting. There have also been
a
number
of
extensions
from
environmental
disclosures
to
environmental auditing as well as the development of framework to
guide the applications of environmental auditing, and in particular, the
development of environmental management systems. There was still
little regulatory framework affecting social and environmental
accounting disclosures and conceptual frameworks for accounting did
not extend to non-financial quantification and social or environmental
issues. The development of a clear regulatory as well as conceptual
framework grew in several countries, whereas the progress of
environmental regulation in the UK and Europe was slower than in the
United States, Canada or Australia. The progress was uneven but rapid
compared with those in the area of social accounting disclosures. During
this period, there have been several textbooks and journal articles
covering both social and environmental accounting. However, there has
been a relative lack of normative/philosophical work within accounting
during this period: environmental accounting has not been revived since
the models of the 1970s and has failed to adapt to the discussions about
the valuation of externalities. Sustainability and the discussion of the
role of management accounting in assisting with sustainable
development have become of growing interest.
14
1995 – Present
The convergence of global capital markets and the emergence of global
and regional quality control issues – culminating for the accounting
profession in the Asian financial crisis in 1997–1998 as well the Enron
Collapse in 2001 – led to a subsequent high-level focus on international
and national accounting. The accounting literature has demonstrated a
considerable increase in concern for the issues of sustainable
development and accounting. Via the exploration of what sustainability
accounting may entail, the accounting profession is likely to be involved
in re-examining accounting fundamentals in the light of the challenge of
sustainable development. Several proposals and significant statistical
work as well as a growing body of measurement on accounting for
sustainable development is being carried out in many international and
national settings. Even supra-national policy bodies like the United
Nations and the OECD have sponsored work addressing accounting for
sustainability. Up till now[when?] environmental accounting is the most
evolved form of sustainability accounting and increasingly processed in
the academic circle beginning with the work of Robert Hugh Gray in the
early 1990s, and through the release of the Sustainability Accounting
Guidelines at the World Summit on Sustainable Development in
2002. Due to the use of different frameworks and methods, much
uncertainty remains how this agenda will develop in the future. What is
certain is that there is belief that past economic development and the
15
current human (and hence business) activities are not sustainable, which
has led to questioning the current mode of development. Recent years
have seen an increasing acceptance and even enthusiasm for these new
reporting approaches. Energetic and innovative experimentation by farsighted organizations state that sustainability aspects in accounting and
reporting are crucially important, feasible and practicable as well In this
respect, the International Federation of Accountants (IFAC), whose
objective is to develop the accounting profession and harmonise its
standards, includes 167 member bodies in over 127 countries and
represents approximately over two million accountants worldwide.
In 2004, HRH the Prince of Wales set up his Accounting for
Sustainability Project (A4S) to "help ensure that we are not battling to
meet 21st century challenges with, at best, 20th century decision-making
and reporting systems." A4S convenes leaders in the finance and
accounting communities to catalyse a fundamental shift towards resilient
business models and a sustainable economy. A4S has two global
networks – the Accounting Bodies Network (ABN) whose members
comprise approximately two thirds of the world's accountants and the
A4S CFO Leadership Network, a group of CFOs from leading
companies seeking to transform finance and accounting.
16
Dimensions of sustainability
Sustainability accounting has increased in popularity in the last couple
of decades. Many companies are adopting new methods and techniques
in their financial disclosures and are providing information about the
core activities and the impact that these have on the environment. As a
result of this, stakeholders, suppliers, and governmental institutions want
a better understanding of how companies manage their resources to
achieve their goals to accomplish sustainable development.
According to common definitions there are three key dimensions of sustainability. Every
dimension focuses on different subsets.
Environmental factors
•
•
•
•
•
•
•
Energy
Water
Greenhouse
gases
Emissions
Hazardous and
non hazardous
waste
Recycling
Packaging
Social
•
•
•
•
•
•
•
Community
investment
Working conditions
Human
rights and fair trade
Public policy
Diversity
Safety
Anticorruption
Economic
•
•
•
•
•
Accountability / Tr
ansparency
Corporate
governance
Stakeholder value
Economic
performance
Financial
performance[14]
Sustainability accounting connects the companies' strategies from a
sustainable framework by disclosing information on the three
dimensional levels (environment, economical and social). In practice,
however, it is difficult to put together policies that simultaneously
promote environmental, economic and social goals.
17
This trend has encouraged companies to not only emphasize creation of
value but also risk mitigation that are linked to the environmental and
social subset of sustainable development. This development has been
driven by multiple factors connected to:
1. Sustainability issues that materially affect a
company's creation of value, risk and
liabilities
2. The need for business to appropriately
respond to sustainable growth.
Reporting formats
The concept of sustainability accounting is being carried out in an
international setting with a vast and growing level of experience in the
measurement of sustainable development. It recognises the role of
financial information and shows how this can be extended to the social
and environmental level. Although there isn't an established framework
of reporting, the content of a company's report can be largely determined
by factors and reporting standards, guidelines, and regulations. This
trend offers companies a greater flexibility than financial statements. An
effective report delivers information aligned to the company's overall
objectives and engage with the audience in a manner that promotes the
exchange of ideas and communication.
18
Nowadays, there are several ways and mechanisms of reporting, such as
assurance statements, environmental, social and economic performance
reports, that have been noted. Some of these reports include shorter and
more concise reports. Some companies are including in their reports a
combination of hard copies and online resources as well as
downloadable PDF files. Some examples can be found at the GRI, which
is the most popular framework for companies that are looking for help
and assistance in how to create their sustainability report As the trend to
produce sustainability reports increases, so too do the guidelines and
frameworks to report on the social environmental information.
Frameworks for preparing and publishing sustainability reports
As sustainability accounting continues to develop, companies continue
to gain understanding of the scenery of reporting frameworks, standards
and guidelines that may affect the form and content of their reports.
There are several organisations that offer services to companies that
want to change their traditional financial statement disclosures for
sustainability reporting.
In most countries around the world, there are currently no governmental
requirements for companies to prepare and publish sustainability reports.
Companies that have started to adopt this new method of reporting have
faced new challenges in reporting due to the lack of experience. Failing
to report accordingly to the guidelines and frameworks provided (see
19
OECD and GRI) would lead them to potentially reduce their credibility
of published information.
The GRI, OECD and UNCSD (United Nations Commission on
Sustainable Development) are some of the main actors in developing a
policy framework that better integrates the three dimensional levels of
sustainability by decoupling economic growth from environmental
pressures.
The GRI is a multi-stakeholder organization that is committed to
developing and maintaining the "Sustainability Reporting Guidelines."
The goal is the continuous improvement of sustainability reporting, a
protocol that approaches the application levels.[16] There are three levels
of reporting: A, B and C, but these are not yet legally ratified
fundamentals and are only used to assist companies with their
sustainable reports.
On one hand, the UNCSD focuses only on the environmental dimension
of the sustainability accounting.
On the other hand, the OECD (Organization for Economic Co-operation
and Development) focuses only in two frameworks:[9]:p.2 the analytical
and accounting frameworks.
Analytical
Frameworks
for
preparing
sustainability reports
20
and
publishing
Analytical frameworks link information from different areas. Various
types of frameworks are being used nowadays depending on the purpose
of measurement. These frameworks seek to:
•
Integrate the economic, environmental and social
dimensions of sustainable development
•
Have sound foundations and to maintain key
information needed to improve sustainable
development measurements
•
Clarify relationships between different indicators
and policies
Some examples of analytical frameworks are: Pressure – State –
Response (PSR) model which is based on one of its variants, Driving
Force – Pressure – State – Impact – Response used by the European
Environment Agency (EEA), or the Driving Force – State – Response
model.
One such analytical framework is the sustainability balanced scorecard
model. Using the popular balanced scorecard framework as its basis, the
sustainability balanced scorecard model requires new data for
sustainability, which can be obtained through eco-efficiency analysis.
Eco-efficiency analysis observes the causal relationship between
economic value creation and environmental impact added through two
forms of assessment: lifecycle inventories and lifecycle impact. These
21
assessments connect the balanced scorecard to corporate environmental
accounting systems by joining different modeling processes. This
method observes the relationships between the social, environmental,
and economic dimensions.
Another analytical framework that monitors and tracks corporate
performance is the sustainability evaluation and reporting system
(SERS).
Developed by the Research Centre of Bocconi University on Risk,
Security, Occupational Health and Safety, Environment and Crisis
Management (SPACE), SERS was developed to address the challenges
faced
by
organizations
when
managing
various
stakeholder
relationships. SERS compiles various management tools (e.g. key
performance indicators, environmental reporting, and social reporting) to
create an inclusive model. SERS is composed of three modules: the
overall reporting system (which is composed of the annual report, the
social report, the environmental report, and a set of integrated
performance indicators), the integrated information system, and KPIs for
corporate sustainability. SERS is flexible, allowing it to be applied to
companies across different industries, sizes, and countries. SERS also
allows for the comprehensive monitoring of qualitative and quantitative
information to aid in overall corporate goals. For example, a metric
could compare the total value of waste generated during the year to the
value added by a process.
22
Accounting frameworks
On the other hand, the accounting frameworks seek to quantify
information in the three dimensions of sustainability accounting. The
System of National Accounts (SNA) show that measuring sustainable
development with the conventional system of financial reporting is
inadequate. The accounting structure imposes a more systematic
approach that is not too flexible in comparison to the standards and
frameworks that offer the GRI and OECD among others. Accounting for
sustainability therefore requires an extension of its standard framework.
The OECD offers two different approaches to the accounting framework
for sustainability accounting.
1. Measuring environmental-economic-social
interrelationships
2. Wealth-based approaches
Measuring environmental-economic-social
Interrelationships require a clear understanding of the relationships that
exists between the natural environment and the economy. It is not
possible without understanding the physical representation. The physical
flow accounts are helpful in showing the characteristics of production
23
and consumption activities. Some of these accounts focus on the
physical exchange between the economic system and natural
environment.
Wealth-based approaches to sustainability refer to the preservation of
stock of wealth. Sustainability is observed as the maintenance of the
capital base of a country and therefore potentially measured. A number
of environmental changes are also contained in these financial
statements that are measured during an accounting period of time.
The GRI offers advanced material to help organizations of all types to
create their accountability reports. This published material lead
organization’s through the reporting process with the main idea of
becoming more sustainable in their practices in everyday business.
Specific techniques to measure information in sustainability accounting
include
1. Inventory Approach
2. Sustainable Cost Approach
3. Resource Flow/Input-Output Approach
The Inventory Approach focuses on the different categories of natural
capital and their consumption and/or enhancement. This approach
identifies records, monitors, and then reports on these different
categories. These categories are analyzed according to specific
24
classifications, including critical, non-renewable/no substitutable, nonrenewable/substitutable, and renewable natural capital.
The Sustainable Cost Approach results in a notional amount on the
income statement that quantifies the organization's failure to "leave the
biosphere at the end of the accounting period no worse off than it was at
the beginning of the accounting period".[19] In other words, this amount
represents how much it would cost an organization to return the
biosphere to its natural state at the beginning of the accounting period.
The Resource Flow/Input-Output Approach attempts to report the
resource flows of the organization. Rather than explicitly reporting
sustainability, it focuses on resources used to provide transparency. This
approach catalogues the resources flowing into and out of the
organization to pinpoint potential areas of improvement.
Motivations and benefits for practicing sustainability accounting
There are six main motivations for practicing sustainability accounting:
1. Green washing
2. Mimicry and industry pressure
3. Legislative pressure
4. Stakeholder pressure and ensuring the
"license to operate"
5. Self-regulation, corporate responsibility and
ethical reasons
25
6. Managing the business case for sustainability
Möller and Schaltegger add that another motivation is to assist in
decision-making.[17] They state that making decisions solely based on
financial information is superficial at best. They add that there are
certain business areas that financial data cannot precisely evaluate, such
as customer satisfaction, organizational learning, and product quality.
They propose that a mix of financial and nonfinancial info can help
make well-informed decisions.
Shareholders say that they want to see more sustainability reporting
because it translates to increased corporate financial
performance.[21] This is because sustainability requires a long-term
vision, which is reflected in strategic planning. Strategic planning is
manifested in long-term visions and a wider range of responsibilities
toward its stakeholders. Companies that place emphasis on sustainability
practices have higher financial performance, as measured by profit
before taxation, return on assets, and cash flow from operations, than
their counterparts.
26
Questions and applications
Q 1: What is meant by sustainability?
Q2: Describe the concept of sustainable development and its most
important dimensions?
Q3: Explain sustainable development and mention the most important
goals?
Q4: Explain the concept of sustainable financial accounting and explain
the most important tools?
27
Chapter two
Nature of Environmental
Accounting
Environmental factors were seen as free resources, misuse and
harmful damage to the world, prompting competent international
organizations, governments and non-profit associations to stimulate
business to reduce the harmful environmental costs generated by their
activities and to try to develop environmental returns, And to disclose
the results of efforts in this regard.
However, the accounting systems focus on the economic effects of
its units by comparing the inputs of the production process and its
outputs, in order to determine the added value of these revenues and then
distributed to the elements that contributed to their achievement,
ignoring the elements of the environment that also had a role in
achieving that return or The amount of damage to the elements of the
environment, and was a result of the negligence of measuring those
effects, as well as the lack of any kind of accountability for the
consumption of environmental resources.
Some believe that accounting, rules and standards are mostly the
product of political work rather than the assumption of precise logic or
28
proven conclusions. They prepare and operate in an environment of a
political nature and fulfill the wishes and aspirations of their users in
their various factions. Therefore, the problems that may arise in
accounting applications arise from the administration's dissatisfaction.
On the treatments contained in accounting rules and standards, then the
problem is not a technical accounting problem, but a political problem
The importance of accounting for the environment and the
restoration of the environment have generated a new accounting
profession with regard to the cost of pollution. The essence of traditional
accounting is based on the cost of production and is based on the
assumption that the cost of reducing damage to the environment is only
the cost of production. The expected future environment must be borne
by future productive activities and the costs associated with the process
of repairing environmental damage resulting from activities.
The concept of environmental accounting
Which
was
defined
as
“a
method
for
measuring
and
communicating information related to the environmental activities of
businesses with environmental impact to the concerned parties and the
community in a manner that enables monitoring and assessment of
environmental performance?"
Also known as one of the accounting branches that prepare the
information with the material and monetary impact of the activities of
the establishment to the beneficiaries of the accounting information
29
systems are management, shareholders, tax authorities, creditors, EPA
and others.
The World Bank sees the need to introduce environmental
accounting into the national income accounts, or the gross domestic
product (GDP), which measures the economic activity of the society as a
whole, considering that there are costs to remove the waste from
practicing the industrial activity. The environment and the nature of
environmental costs, and to identify the basis of measurement and
analysis of environmental costs and to indicate their role in improving
the quality of accounting information.
Environmental accounting can be defined as "an integral part of
social accounting, a tool that provides users with accounting information
and decision makers with environmental cost information to provide a
complete picture of the company's performance, including data on
environmental performance as well as financial data and information"
Environmental accounting has gone through four stages:
Stage 1: The 1970s stage was descriptive using standard models
Stage 2: the 1980s and discussions on the role of accounting in
disclosing information about green activities
Stage 3: From the beginning of the 1990s to the mid-nineties, has
witnessed maturity in environmental accounting and began
environmental disclosure and the launch of the process of environmental
review
30
Stage 4: After the mid-1990s, environmental accounting is viewed as a
measure of environmental performance beyond organizational standards
The importance of environmental accounting
The trend toward environmental performance disclosure has
increased, and environmental accounting has been incorporated into the
overall framework of the accounting system as a result of the interest of
the governmental and civil society organizations and international,
professional and academic bodies in environment and sustainable
development. For the following considerations:
- The importance of the environment and the need to protect and develop
it through adopting the concept of sustainable development.
- The pressure exerted by many professional bodies and international
organizations.
- The interest of theoretical and applied studies in the environment and
accounting for them.
- The inevitability of environmental accounting under international and
domestic laws.
Environmental Accounting Objectives
Environmental accounting is a means to achieve a set of goals
that we summarize as follows:
- Preparation of data on sales and total costs aimed at preserving and
protecting the environment for each financial period, which leads to
31
follow-up company to develop these expenses from time to time and
make appropriate decisions.
- Preparation of reports on environmental expenditures to clarify the
company's commitment to the application of environmental laws and
legislation.
- Clarification of social and environmental responsibility of the company
to ensure continuity.
- Show the benefits and environmental savings allocated by the company
in each financial period.
Problems of measuring environmental performance:
We face several problems when conducting an environmental
performance measurement process:
A) The problem of identifying and limiting the environmental
activities to be measured.
B) the problem of determining the scope of measurement
C) Setting objective criteria for the accounting measurement of
environmental activities.
D) Finally, the problem of linking environmental costs with
environmental benefits.
First: Determine and limit the environmental activities to be
measured
The majority of the activities and processes related to the
environmental performance of the entity have financial and accounting
32
aspects, the effects of which are directly or indirectly reflected on the
entity's financial statements and reports, and consequently on the
decisions of the interested parties. The performance of the facility for its
environmental performance entails the performance of a range of
activities and processes related to environmental safety
A) The concept of the environment in its broad sense includes not
only the natural elements such as water, air, minerals, energy
sources, plants and animals, and man who invests and exploits
natural resources to satisfy his needs and fulfill his desires.
Rather, the environment means monitoring the material and
social resources available at a time to meet the needs and
aspirations of man.
B) Concerns for the environment in recent times due to several
reasons including:
1 - The emergence of pollution and increase significantly and
depletion resources natural environment.
2 - Limited capacity of the environment to absorb and absorb the
elements of pollution.
3. Increased environmental crises resulting from the rapid growth
of production, consequent population growth and an increasing
flow of goods and services.
4 - Environmental problems exacerbated by the dumping of waste.
33
5. Pressure of individuals and organizations of environmental
concern.
6 - Increasing interest in the environmental problems of the media
and increasing numbers of supporters of the environment day after
day
C) the manifestations of environmental pollution
Environmental pollution can have several aspects:
-
Air pollution:
-
Water pollution:
-
Soil contamination:
-Noise pollution
- Solid waste pollution
Identify the environmental activities to be measured
Prior to accounting for environmental pollution costs, the
environmental activities to be measured should be:
- Identification of environmental impacts of production processes
This phase includes qualitative and quantitative identification of the
environmental impacts of production processes, and the classification
and assessment of the environmental impact of industrial treatments in
the production cycle.
- Inventory and identification of environmental costs and revenues.
Most industrial facilities have activities that have an environmental
impact and are committed to disclose environmental performance
34
information in separate or attached reports to the entity's financial
statements.
Second: Determine the scope of measurement
The measurement is done on three levels: - Level 1: Restrict environmental activities: - Measure environmental
and social processes whose effects can be measured by a monetary scale.
- Level 2 : Quantitative information Measurement of environmental and
social processes whose effects can not be measured by a monetary scale,
and are available for measuring non-monetary quantitative measures.
- Level 3: Descriptive information constructively expresses its effects on
environmental and social processes whose effects cannot be quantified
Third: Setting objective criteria for the accounting
measurement of environmental activities
The standards can be defined as general models or guidelines that guide
and rationalize accounting practices. Accounting standards are written
statements issued by an official or a professional accounting body or
organization that addresses the organization of the appropriate method
for determining and measuring the presentation of a specific component
of the financial statements for purposes of determining results Business
and financial position data of that entity with an appropriate degree of
accuracy and objectivity. The accounting standard refers to the
accounting rules for which the accountants concerned are required to
35
support their judgments and to clarify their judgments. Generally
through:
1. Identify and measure the financial events of the establishment.
2 - Delivery of measurement results to the users of the financial
statements.
3. Identification of appropriate methods of measurement.
4. Enabling users to make the appropriate decision when adopting basic
information on the appropriate measurement standard.
There are many internationally accepted accounting standards that
have been subject to the recognition, measurement and disclosure of
environmental consequences in the financial statements. However, the
current accounting standards generally provide general and appropriate
considerations that are also applied when approving environmental
matters in the financial statements,
Fourth: linking environmental costs with environmental benefits
Environmental costs arise from the establishment of an activity that
produces waste that can be used for recycling or disposal in a manner
that does not harm the environment. To achieve this objective, the
establishment shall bear the so-called environmental costs.
A) Costs of prevention: the costs of the activities carried out by the
establishment to prevent the production of pollutants, or the waste that
causes deterioration of environmental quality, such as environmental
36
studies, evaluation and selection of suppliers, and evaluation and
selection of pollution prevention, reuse and waste management devices.
B) Costs of discovery: Costs of the activities performed to determine
whether the products, processes and systems within the facility are in
conformity with appropriate environmental standards, such as product
inspection costs and environmental audit costs, control of pollution rates
and development of environmental performance measures.
C) Costs of environmental failure: The environmental costs are divided
into and external as:
• The costs of internal failure: the environmental costs incurred within
the establishment if failure to avoid and prevent, and thus cause the
production of pollutants and wastes and their release into the
environment, and the environmental failure activities "fines and
penalties" imposed on the enterprise as a result of non-compliance with
environmental legislation and damage Environmental impact.
• Costs of external failure: the environmental costs of the activities
performed by the establishment due to the production of pollutants or
waste and the release of these pollutants and waste in the environment,
and these costs are divided into the costs of perceived failure (costs of
activities incurred by the establishment because of the production or
service of contaminants Or environmental waste, such as contaminated
soil cleaning costs), unanticipated failure costs (costs of activities
outside the establishment and incurred by outside parties such as costs
37
incurred by the community for not recognizing the real cause of
pollution and environmental damage)
The costs of environmental pollution include the following:
- Direct and indirect costs
1 - Measuring the direct burden of environmental damage and includes
the inventory of cases of diseases resulting
Pollution and the costs of treatment and expenses and compensation
for health and death cases.
A) Expenses directly spent by the establishment in the field of pollution
control. This type is determined by the hypothesis of the relationship
between these expenses and the activity for which such expenses were
allocated. On this basis, the share of each part of the plant's resources to
reduce environmental pollution All expenses incurred in the removal of
environmentally harmful waste in a particular accounting period shall be
considered as income expenses incurred on account of profits and losses
for that period.
B ) Expenses paid by the establishment to the competent official
authorities in the field of pollution control.
C) Annual depreciation premiums for pollution abatement equipment
considered to be fixed assets plus the pollution-reduction expenses
considered to be an expense; the total cost of the establishment includes
all direct costs that represent the cost of production
38
2 - Measurement of the indirect costs of environmental damage and
include the following:
A) To measure the cost of reducing the production and human capacity
of the labor component, the value of the lost productivity, divided into
three types:
- The return of the worker to work without being affected by its
productivity.
- Return of workers with low productivity.
- Referring the worker to retirement as a result of total disability.
B) In addition to indirect costs incurred on account of profits and
losses.
Environmental Control
The concern for the environment at the global level in the past
three decades has been largely reflected by the emergence of the ozone
hole and the phenomenon of global warming. Attention to the
environment The opportunities shown by environmental awareness
among consumers, competitors and legislators, as well as legal pressures,
are considered as legal entities have the capacity and authority to collect
the costs of pollution from its causes. The ISO standards, Especially for
environmental auditing Preparation of proposals and criteria for
efficiency of the environmental auditor. It has developed three
environmental auditing standards in 1996 and includes general
principles as guidelines. It consists of three parts. Part one deals with the
39
monitoring of environmental management systems, part two monitoring
compliance with environmental legislation, while the third part deals
with the monitoring of environmental statements.
The International Organization for Standardization and Metrology
(ISO) has defined environmental auditing as "a documented and
systematic process of obtaining and evaluating a manual objectively to
determine whether the activities of the organization conform to
environmental auditing standards and to report the results of this process
to the entity entrusted with the review process"
1. The American Institute of Certified Public Accountants (AICPA)
believes that environmental auditing can investigate high-risk areas of
business. It also includes a detailed assessment of all ongoing operations
in the organization, as well as compliance with applicable laws and
regulations as well as its assessment of compliance with industry
standards and management awareness. And workers to environmental
issues in the development of operational processes and environmental
benchmarks.
Through the definitions of environmental auditing, we define
environmental auditing as "designed to verify the compliance of the
organization with environmental requirements, to assess the efficiency
of its existing environmental management systems, and to assess
potential risks to the environment."
Procedures for environmental review are as follows:
40
1. An objective and periodic evaluation of the environmental
performance of the facility.
2. Verify compliance with the environmental requirements or
obligations imposed by the laws or resulting from conscious voluntary
behavior of the entity.
3. Report on environmental performance to relevant parties.
4. Examine and evaluate the actual implementation and compare it
with the standards, objectives, programs and plans, and report on the
deviations in a timely manner.
5. Its attempt to predict potential environmental hazards and
prepare for their removal or mitigation.
6. Ensure the effectiveness of the environmental management
system and whether control methods have occurred in an appropriate
manner to help detect and avoid deviations. In addition to the
publications
of
the
World
Organization
for
Environmental
Standardization (ISO 14001), the definition of environmental auditing as
"a documented review process to obtain and evaluate objective evidence
to determine whether environmental activities are consistent with flow
criteria and results
The auditor should do the following:
1- Inquire from the management about the company's compliance
with environmental laws and regulations.
41
2. Ask the management about the company's policies related to the
prevention of illegal acts.
3. Obtaining a written declaration from the Administration
regarding the absence of a possible exit from the laws requires
disclosure in the financial statements.
In some cases, the auditor may find that environmental matters
have already resulted in a non-legal action that materially affects the
financial statements in the event that such action or illegal action is not
disclosed.
1. Examine the Organization's compliance with legislation and
laws
2. Evaluate the appropriateness of the system of environmental
accounting and disclosure of environmental matters
3 - Identification of the effects of production processes and
services on the outputs of the organization - and the environment
4. Evaluation of environmental topics related to the activities of the
establishment. Effectiveness of the system of monitoring the
implementation of environmental obligations
5. The adequacy of disclosure in the entity's environmental records
and reports.
42
Questions and applications
Q 1: What are social costs?
Q2: Talk about the most important problems of measuring social return?
Q3: What are the most important indicators that can be used to measure
the social role that companies play?
Q4: What is the accounting disclosure of social performance?
Exercise 5:
The following operations took place in the Union Industrial Company:
1/1/2013 The company purchased an X-ray machine for the
company's hospital for the employees with an amount of 600.000 c and
its annual depreciation rate was 8%
On 2/1,50.000 pounds were paid for educational and health clubs.
On 4/1 , 2000 pounds for the training program for disabled workers
On 6/1, 3000 pounds were paid for a poll to be used for waste disposal
On 8/1, 5,000 pounds were paid by the inspectors for the safety of the
product
Required: Prove the above
43
Chapter three
Measurement of environmental
costs
The concept of environmental costs:
There are several definitions of environmental costs, including:
Environmental costs are those related to the protection of property
or assets.
There are those who distinguish between the environmental costs
incurred by the establishment and the environmental costs to society:
• The cost of an enterprise's environment is "the value of the physical
and human damages incurred by the enterprise during production
operations".
• The environmental cost of the surrounding community is "the value of
the burdens incurred by society on the wealth and property of the other
parties to which the enterprise is caused".
It is noted that the definition of environmental costs as the costs of
protecting assets and property, a definition that focuses on the protection
of an enterprise's assets from the adverse environmental effects of an
enterprise's activity and neglect of other aspects of environmental costs.
44
The second definition is more comprehensive, as it differentiates
between the costs incurred by the enterprise itself as a result of activities
that affect the environment and the costs to society as a result of this
activity.
Environmental costs have been defined as "the value of utility lost
as a result of diseases caused by pollution of the environment, lack of
productivity of individuals and inadequate living conditions in place".
This definition focuses on the costs of human damage to the
individual to the adverse environmental effects of the activities of the
enterprise and does not address other aspects of environmental costs.
Therefore, environmental costs can be defined as "sacrifices
(explicit and implicit) incurred by the enterprise in order to comply with
performance in accordance with the laws and legislation on the one hand
and to preserve the assets and property of the enterprise on the other.
Reasons for the emergence of environmental costs:
There are a number of reasons why these costs may arise. These costs
originate in regulations (from companies and factories) that cause
pollution to some or all of the following reasons:
A) Legal or legislative reasons:
The legal or legislative reasons result from environmental costs or
obligations resulting from the law obligating the enterprise to adjust its
conditions to reduce or reduce negative environmental impacts on the
45
environment, resulting in environmental costs incurred by the facility for
the installation of pollution control assets and equipment.
Or the environmental costs or obligations incurred by the enterprise may
result from the non-compliance of the enterprise with the environmental
laws and legislations, resulting in large compensation and fines.
B) Social and cultural reasons:
The cost of the environment is a burden on the enterprise that conflicts
with accepted accounting principles and principles.
Environmental pollution control costs are not necessarily offset by direct
economic returns. The cost of environmental pollution control as a cost
to the costs of an enterprise necessarily reduces profit, which is
considered to be a measure of the economic efficiency of the project.
However, the enterprise's environmental responsibility increases its
social and economic returns towards society.
C) Reasons for the consumer and another for firm :
One of the main causes of environmental costs is the need for the
establishment to satisfy the consumer by providing products that do not
cause environmental damage, in addition to increasing the ability of the
enterprise to compete in and penetrate markets.
The preceding causes are called the main determinants of environmental
costs and may be limited to only two determinants:
• Legislative reasons for issuing laws.
46
• Optional reasons and motivation for their community existence and
culture.
These determinants could be developed in a form that explains the
causes and activities leading to environmental costs and the purpose of
the activity and therefore classification of cost
Types of environmental costs:
Four types of environmental costs can be identified:
1. Prevention costs (protection) Prevention costs:
Is the cost of securing the workplace from polluting materials, handling
and storage of hazardous materials as well as consumer protection costs
by trying to reduce the harmful effects of the product
Is the cost of securing the workplace from polluting materials, handling
and storage of hazardous materials as well as consumer protection costs
by trying to reduce the harmful effects of the product.
Prevention costs are costs that add value added costs to the reduction of
other costs of environmental performance, thereby increasing profits and
improving the competitiveness of the enterprise.
Examples of these costs include research and development costs to
exclude or avoid the use of hazardous substances.
47
2. Assessment costs:
The costs of activities aimed at monitoring the various sources of
environmental damage, which appear when using certain standards,
especially when attention to quality and security of products and
services
to
consumers.
The
International
Organization
for
Standardization issued the ISO 14000 environmental quality standards,
Preserve the environment to avoid further costs in the future by applying
quality standards.
Examples include the costs of training employees in sound
environmental performance, the application of quality standards and the
preservation of the environment by the employees of the facility, as well
as the costs of monitoring and measuring levels of harmful emissions
(fumes, dust, gases) inside and outside the facility.
3. Control costs:
Which arise when pursuing environmental laws, legislation and
standards such as control costs associated with the shipping, handling
and storage of hazardous materials.
4. Failure costs:
Are all the sacrifices incurred by the enterprise in order to remove and
remediate the environmental damage caused by the activities of the
establishment and was unable to prevent them through environmental
performance control, and also include the costs resulting from the failure
48
of the environmental performance in the targeted image such as misuse
of resources in the industrial processes, Use the natural resources of air
and water.
Such as costs resulting from failure to follow proper storage instructions,
compensation and fines.
Failure costs are costs that do not add value added values, so whenever
they can be prevented or reduced, the lower the total costs of
environmental performance and therefore the higher the profits of the
enterprise.
There are two types of environmental costs:
1-Direct costs:
This is represented in:
• The value of raw materials and waste energy as the pollutants in some
industries (cement) are part of the raw materials and energy that entered
the production process and have a price borne by the establishment and
therefore it is considered an economic loss, where pollution (cement dust)
part of the inputs and outputs of production processes were Waste in the
form of dust and gases (loss of production).
• Costs of health damage caused by environmental pollution those cause
injury to employees.
a. Costs of treatment of workers' diseases resulting from pollution.
B. Lost production costs resulting from pollution diseases and early
retirement due to pollution diseases. These costs are the value of what
49
could have been produced by the worker who was transferred to the
pension before the age of 60.
• Costs of the direct impact on factors of production: The increase in the
extraordinary maintenance costs resulting from the short life of the
original from the rust, corrosion, weakness and stress of the electrical
connections resulting from the pollution emitted during the production
process.
a. Change in the original properties of the materials, which negatively
affect the quality of production.
B. Shortage of the original life of the asset.
C. The cost of purchasing alternative materials.
D. The cost of raw material diet from pollution.
2. Indirect costs:
It is the compensation and donations to external bodies and charities as a
result of the damage to the community to the health of the population
and impact on the scene and damage to real estate and buildings, and
low productivity of plants due to pollution.
There is another division of environmental costs:
Economic costs of protecting the internal work environment:
Which are divided into two types:
a. Direct costs: Examples include operating costs of pollution reduction
and maintenance equipment, treatment of workers due to pollution.
50
B. Indirect costs: such as compensation and fines as a result of damage
to the environment and the deterioration of the aesthetics of nature.
Social costs to protect the internal work environment:
It is divided into two types:
a. The cost of irrational use of materials and energy.
B. Cost resulting from the destruction of elements of the environment:
• Lack of productivity resulting from the environmental impacts of the
activity of the establishment.
• Costs of treatment and compensation of employees.
• Costs of days of absence as loss of production or calculated by the
daily wage paid for the number of days of absence.
• The cost of the alternative to loss of production due to the cost of sick
leave days and employee injury due to pollution.
In 1996, the United States Environmental Protection Agency (EPA)
presented a framework for determining environmental costs, divided into
four main sections:
• Section 1: Conventional costs of enterprises such as raw material costs,
wages, etc.
• Section II: Hidden Costs that Costs resulting from activities required to
comply with environmental legislation and laws.
• Section III: Potential costs of treatment and compensation for potential
environmental pollution.
51
• Section 4: Costs of an entity's relationship with the community, which
are the costs associated with the entity's direction towards improving its
image to the community, especially customers, investors and lenders.
From the above, environmental costs can be divided into four types:
1. Prevention costs
2. Assessment costs
3. Control costs
4. Failure costs
As for decisions arising from the four previous types of environmental
costs, Ansari and others rarely record environmental costs in the sections
that cause these costs.
Costs associated with environmental activities such as waste treatment,
legal costs, environmental insurance and emergency preparedness are
often found in production and auxiliary departments and are often the
result of decisions about the production or stages used, the quality of
equipment purchased and the location of the production and storage
facilities.
There are therefore three types of important decisions that result in
environmental costs:
1. Product design decisions, types of raw materials and quality of
production stages.
2. The decision to acquire capital equipment and its amendments.
3. The decision of choosing the location of the factory.
52
The foregoing points indicate the need to pay attention to the review of
these decisions and therefore to review the related environmental costs
of these decisions and report thereon.
Inputs to measure environmental costs
There are many research efforts in the field of measuring environmental
costs, the most important of which are:
1. Monetary measurement method
This approach is based on the monetary measurement of the components
of environmental costs only and the pioneers of this approach "Linowes
"and has proposed a statement (socio-economic) periodically with the
financial statements in order to provide information on the impact of the
activities of the company to the community of all parties that need, The
sections of each department relate to one of the environmental cost areas
of the establishment:
-
individuals field
- Environmental field
-
Product field
Each of the above areas includes two types of costs:
(A) the costs to be spent by the enterprise on environmental activities;
B) Costs incurred by the enterprise on the basis of social responsibility
but avoided as a result of failure to do so and to determine the net
damage. The costs that were allocated and not spent are deducted from
the costs actually incurred to reach the net damage for each area
53
Environmental costs can be divided into:
Direct environmental costs: such as medical treatment costs for
employees and community members, environmental damage, disposal of
industrial waste harmful to the environment)
indirect environmental costs: the costs of depleted natural raw
materials that are converted into products, the costs of non-productive
waste treatment "water, air, noise", costs of preventing harmful
environmental residues from the production processes or industrial
products of the entity; Reduce the damage caused by the work of the
establishment
2. Multidimensional measurement method
This trend depends on measuring the effects of the activities of the
establishment at different scales, for the difficulty of measuring some
elements of these activities in cash so this trend extends to include the
following methods:
A descriptive method of measurement: The phenomenon or activity to
be measured is described in descriptive style, thus providing information
that may benefit the establishment in making decisions, and responds to
this method that all the information it provides is often subjective
because it is based on the basis of personal assessment
Quantitative measurement method: This method is used to provide
quantitative information on the impact of environmental activities that
can not be measured in cash. The unit of measurement used varies
54
according to the nature of the activity, which requires determining the
appropriate system and the appropriate measurement units to measure
these activities. Of their measurement so as to reflect the important
characteristics of the measurement process
Accounting for environmental costs:
The activities of the entity have environmental costs and liabilities
that affect the financial statements in some way. This effect may lead to
a clear confusion between what is considered current costs and what can
be considered capital costs. To distinguish between these costs, we are
exposed to the following points:
- Current environmental costs.
- Capital environmental costs.
- Environmental costs of a previous financial period or periods.
- Future environmental costs
1. Current environmental costs:
The distinction between ongoing environmental costs and capital
environmental costs is necessary for reducing the cost of environmental
damage and risk reduction programs, because the reduction in the cost of
trade is repeated annually, while the capital cost is spent once and is
repeated only after the useful life of the control equipment and facilities
Environmental issues.
Current environmental costs have been defined as "cost items
incurred by the plant or facility against the implementation of
55
environmental protection programs for one accounting or financial
period".
Current environmental costs are defined as those costs for which
the financial year is incurred and which is directly or indirectly related to
the benefits realized during the fiscal year. Examples of such costs
include:
1. Production waste treatment costs.
2. Costs of disposal of waste and waste resulting from the activity.
3. Costs of staff training programs related to environmental fields.
4. Environmental management costs.
5. Internal audit costs and environment review in general.
6. The costs of hiring experts to help develop environmental
protection programs.
7. Costs of sampling and analysis from time to time so as not to
exceed the maximum environmental damage.
8. The necessary treatment costs for the employees of the
establishment resulting from the activity of the establishment.
The question is whether these expenses or environmental costs are
unusual items, in other words, are they costs associated with the activity
or not?
This question is answered by defining unusual items in accordance
with IAS 8, which defines extraordinary items as arising from events or
56
transactions that are not associated with the normal activities of the
entity and are not expected to occur frequently or regularly.
Consequently, environmental expenditures relating to the activity of
the establishment that are regularly repeated are considered current
expenditures on the financial year in which they occurred, of which the
examples already mentioned
It is noted that some environmental expenses can be considered
unusual items. Examples of this are the costs incurred by the facility due
to the closure of a particular operating site as a result of violation of
environmental laws, but much environmental expenditure can be
considered as normal items.
In terms of their relevance to activity, much environmental
expenditure are associated with activity and are used to classify
expenses in the income statement into operating and non-operating
expenses. However, there are some non-operating expenses such as the
currently used.
2. Capital environmental costs:
Capital environmental costs are the "set of cost items incurred by the
enterprise or project causing the environmental damage, in return for the
provision of machinery, equipment and equipment that contribute to the
reduction of pollution and the treatment of its effects for several periods
or years."
Environmental Capital Costs The following conditions must be met:
57
1. These environmental costs may result in future economic benefits.
2. These costs are recoverable from future economic benefits associated
with them.
3. Costs increase the production capacity and useful life of assets.
4. Increase costs and improve safety and efficiency.
According to the Financial Accounting Standards Board (FASB), with
respect to the costs required to address environmental pollution, they are
generally treated as expenses and can become capitalizable if they are
recoverable, provided that one of the following criteria is met:
1. Such costs may increase or prolong the period of utilization of the
asset owned by the enterprise or increase its capacity or improve its
degree of safety or efficiency. It should also improve the asset's status as
compared to its original state at the time of construction or acquisition.
2. Such costs may result in the reduction or prevention of environmental
damage, both current and potential, that may result from the future
activities of the enterprise, and should improve the asset's status relative
to its original state at the time of construction or acquisition (affected by
the environmental damage resulting from the activity) Or improve the
condition of the asset by adding parts that reduce the environmental
damage caused by its operation in order to ensure its continued
operation).
58
3. The entity has incurred those costs for the preparation and processing
of the asset currently on sale that has been affected or is affected by
environmental damage.
Examples of such capital costs are the costs of installing equipment to
reduce or prevent pollution as well as the costs of parts added to assets
for the purpose of protecting those assets from the environmental effects
of the activity of the establishment or to reduce the environmental
effects resulting from the use of that asset in the activity, Recovery of
the environmental costs of the recovery period remaining on the useful
life of the asset. Examples include the cost of installing filters and
equipment in cement plants to prevent harmful emissions, the cost of
constructing plants for treatment and reuse of water, or before
discharging them to rivers and seas.
From the above, it is clear that the environmental costs can be
capitalized for the establishment or acquisition of a capital asset or the
addition of part of a capital asset, if it improves the degree of safety or
efficiency or the prevention of current environmental damage or that
may result from the activities of the establishment. Remaining of the
original.
59
3. Costs relating to a previous period or periods:
Some environmental expenses are treated as past years' expense in the
event of errors or omissions in the preparation of the financial statements
for those years, in accordance with IAS 8, particularly if they are
relevant to the benefits of the activities of the entity. Examples include:
• Expenses incurred by the enterprise in accordance with the
environmental laws for the disposal of pollution that occurred to a
particular site that was sold in previous periods.
• Expenses incurred by the entity for the disposal of hazardous wastes
that have resulted from its activities in a prior period, and therefore
disposal costs can be viewed as a correction to an error in the financial
statements in the prior period.
4. Future environmental costs:
Environmental costs are divided into:
• Environmental costs related to past events or operations.
• Future environmental costs related to future events or
operations.
A) Future environmental costs related to past events or
operations:
Are environmental obligations resulting from past operations but can not
be accurately identified or reasonably determinable.
In accordance with IAS 10, if a particular value is to be paid in a future
period, as a result of an event or process in the past, it expresses an
60
obligation and is recognized in the financial statements if it is probable
and can be estimated So that the undertaking to spend future
environmental costs to remove or treat environmental damage resulting
from the activities of the enterprise is considered an environmental
obligation and must be recorded if it is likely to occur and can be
reasonably estimated, whether it is to fulfill the requirements of the
environmental laws applicable to the enterprise, Or that it is a moral
obligation to do so The following must be established on the appropriate
provision to meet those commitments configured.
B ) Environmental costs related to future events or operations:
This may result in the realization of benefits to the enterprise, as in the
case of the acquisition of an asset in the future, which is called
conditional liabilities.
There are those who deem it necessary to disclose such costs,
which may have a significant impact on the entity's financial position
and future cash flows, whether carried out in accordance with
administrative or legal undertakings. Both capital environmental costs
may be disclosed as a note to the financial statements or any place in the
entity's financial report.
Conditional
obligations
arising
from
environmental
costs
and
purification should be accounted for in accordance with the accounting
principles set out in Accounting Standard No. 5 of FASB Opinion No. 5
(1975). The assessment of future obligations under criterion 5 is a
61
complex and comprehensive issue, since these commitments are linked
to a wide range of events, possibly involving the experience of the
accountant or auditor (such as incurred obligations relating to
environmental pollution) Standard No. (5) in the context of
environmental obligations, indicative signs
of
entitlement
and
assessment of estimated liabilities, factors affecting the amount or
amount of the obligation, costs to be included in the receivable
obligation
Methods of accounting for environmental performance
Accounting measurement is an essential component of the
accounting application that has received more attention over the
centuries in which accounting has developed. The accounting process
has faced many challenges and the accountants have tried to adapt it
with the use of economists, engineers and philosophy to interpret and
implement socially desired goals through their experiences with
problems Measurement Accounting has responded to the effects left by
environmental factors by making the accounting measurement includes
multiple dimensions to serve multiple purposes go beyond the traditional
objectives of accounting output, which New targets such as accounting
seeks to achieve the provision of appropriate information for the
purposes of making decisions contribute to the improvement and wellbeing and to subdue the environmental and social effects of positive and
62
negative activities established accounting measurement of the most
important challenges facing the process of accounting
There are several definitions of measurement and mention
- Measurement is generally in the preparation of objects to express
their properties, based on natural rules are discovered either directly or
indirectly
- The measurement is the match between the characteristics or
relationships under the athlete
Definition of the American Accounting Association:
- The measurement in the preparation century is the creation of the
past, current and future establishment based on past or current
observations and under specific rules
When linking measurement to the nature of accounting objectives
developed by social objectives, which led to discrepancies in the nature
of
accounting
data
required
and
comprehensive
social
and
environmental effects required the use of different measurement
methods beyond the method of monetary measurement in financial
accounting and quantitative measurement methods in administrative
accounting to include multiple methods without relying on the method
Or measurement, which helps to provide information that reflects the
multidimensional characteristics of the objects, phenomena and effects
of the measurement as the different information is suitable for different
purposes, different measurements serve different purposes
63
Hence we say that the accountant must have a prominent role in
the preparation and delivery of social accounting data to the public,
which requires a method of social measurement suited to the nature of
these types of activities
Measuring the cost of pollution reduction assets
The assets used to reduce pollution of the environment are usually
durable assets belonging to fixed assets. Therefore, the measurement of
the cost of the elements of assets used to reduce pollution is no different
from the measurement of fixed assets, which includes two types:
First: It can be used once purchased and transferred to the place of
operation and here the cost is the price of purchase plus transportation,
insurance, preparation and others
Second: After purchasing it and transferring it to the place of
operation, it needs some necessary expenses for its operation which is
treated as part of the asset such as (construction of concrete pallets,
transport expenses, experimental expenses, and collection expenses)
If we consider the original pollution reduction as an addition to an
improvement over another fixed asset, it is considered part of the cost of
the last asset. It is not treated separately as a separate asset after the
pollution reduction assets are considered as fixed assets added to the
assets of the establishment and the replacement cost is considered.
64
Measurement of pollution reduction expenses
Expenses are defined by more than one of the following definitions:
A - Definition of the terminology committee of the American
Legal Accounting Complex in 1975, which states that (it is all the costs
incurred and deducted from the revenues of the period)
B. The definition of the US Accounting Principles Board in 1970,
which stated that "expenses are a total of a shortage of assets or the total
increase in liabilities resulting from a profit-oriented activity
After defining expenditures, we believe that to measure the
expenses of pollution reduction, it should be divided into two types:
(A) Direct expenses in pollution control such as (environmentally
sound waste removal expenses) and are accounted for as an expense
incurred on the statement of costs and social benefits for the same period
over the same period
(B) Indirect expenses in the field of pollution control such as (paid
by the establishment to the competent official authorities in the field of
pollution control)
Proposed accounting methods to address environmental pollution
costs
65
Proof of Pollution Expenses
In order to prove the expenses of pollution, it should be noted
that there are two kinds of expenses
1. Pollution reduction expenses are included under capital
expenditure, which is spent in order to obtain equipment and machinery
2- Pollution clearance expenses are included under the expenditure
of irradiation, which carries a burden on the income of the period spent,
such as sterilization and removal of production waste. In light of this,
two separate accounts must be allocated for both types:
1- Social assets - Environmental pollution control equipment
2- Social Expenditure _ Environmental Pollution Removal
Accounting treatment of pollution reduction expenses
It was noted at the beginning of the chapter that this type of expenditure
falls under the capital expenditure because it is dedicated to the purchase
or invention of equipment and machinery used in reducing pollution
They are treated as durable assets that belong to fixed assets and have
proof of entries in the journal
66
• When purchasing Equipment for pollution control
Date
Description
Amounts
Dr
Equipment for pollution control
Cr
××
Cash
××
• Proof of expenses required to operate the asset - insurance transfer.....
Date
Description
Amounts
Dr
Insurance
Cr
××
Transfer
Cash
××
• loading original transport expenses and installation ... etc
Date
Description
Amounts
Dr
Equipment for pollution control
Insurance
Cr
××
××
Transfer
67
• Depreciation is made in one of the known or fixed depreciation
methods. The restriction is as follows:
Date
Description
Amounts
Dr
Premium depreciation of pollution
Cr
××
reduction equipment
Accumulated for depreciation of
××
pollution abatement equipment
• At the end of the year, depreciation is closed in the cost and
social benefit statement
Date
Description
Amounts
Dr
costs and social benefits Statement
Premium depreciation of pollution
reduction equipment
68
Cr
××
××
• Disclosure in the financial statements shows the depreciation
premium pollution reduction equipment in the costs and social
benefits statement as follows:
Expenses
Premium depreciation of pollution
Revenue
××
reduction equipment
Social assets and depreciation are shown as follows in the budget:
Assets
Economic assets
Liabilities
××
Social assets
pollution reduction equipment
69
Provisions
Example (1)
On 1/1/2020 Suez Cement Company purchased filters to reduce the
pollution of the production from the smoke generated by the factories at
the amount of 20,000. The customs fees were paid 2.000 and the
transportation expenses 500 and the installation expenses of 1,500 were
paid in cash
The annual depreciation premium was 10%
Required: Prove the above
The solution
1. Prove the purchase process
Date
Description
Amounts
Dr
Equipment for pollution control
Cr
20.000
Cash
20.000
2-Proof of customs duties - transportation and installation
Date
Description
Amounts
Dr
customs duties
2000
500
transportation
1500
installation
70
Cr
Cash
4000
3 - Load the value of customs duties - and transportation and installation of assets
Date
Description
Amounts
Dr
Equipment for pollution control
Cr
4000
customs duties
2000
500
transportation
1500
installation
2. Proof of depreciation:
Depreciation premium = 24,000 × 10% = 2.200
Date
Description
Amounts
Dr
Premium depreciation of pollution
Cr
2400
reduction equipment
Accumulated for depreciation of
pollution abatement equipment
71
2400
• At the end of the year, depreciation is closed in the cost and
social benefit statement
Date
Description
Amounts
Dr
costs and social benefits Statement
Cr
2400
Premium depreciation of pollution
2400
reduction equipment
• Disclosure in the financial statements shows the depreciation
premium pollution reduction equipment in the costs and social
benefits statement as follows:
Expenses
Premium depreciation of pollution
Revenue
2400
reduction equipment
Social assets and depreciation are shown as follows in the budget:
Assets
Economic assets
Liabilities
××
Social assets
pollution reduction equipment
22000
72
Provisions
2400
The accounting treatment of the dispossession of social assets
A - Dispense by cash sale
Sometimes the company resorted to dispensing with its social assets and
in this case it produces losses or gains from the sale process and the
steps to calculate the gains and losses and treatment as follows
1- Calculation of gains and losses from sale
Historical value of the asset = historical cost - depreciation allowance
Depreciation premium = historical cost ÷ productive life
Depreciation allowance = Depreciation premium × Number of years of
use
Profit and loss = book value - selling value
2- Proof of sale in case of loss
Date
Description
Amounts
Dr
Accumulated for depreciation of
Cr
××
pollution reduction equipment
Loss of sale of pollution reduction
equipment
Cash
pollution reduction equipment
73
××
3 - proving the sale process when profits
Date
Description
Amounts
Dr
Accumulated for depreciation of
Cr
××
pollution reduction equipment
Cash
pollution reduction equipment
××
profit of sale of pollution reduction
equipment
4-Closing the losses
Date
Description
Amounts
Dr
Statement of costs and social benefits
Cr
××
Loss of sale of pollution reduction
××
equipment
1- Closing the profits
Date
Description
Amounts
Dr
74
Cr
profit of sale of pollution reduction
××
equipment
Statement of costs and social benefits
××
Example (2)
If we assume that in the previous example that after 3 years these filters
were sold for EL19,000 cash
Required: Prove the above
Solution
1- Calculation of gains and losses from sale
Depreciation premium = 2400
Depreciation allowance = Depreciation premium × Number of years of
use
= 2400 × 3 = 7.200
Book value of the asset = historical cost - Accumulated depreciation
= 24.000 - 7.200 = 16.800
Profit = sale value - book value
= 19,000 - 16.800 = 2.200
75
2- Proof of sale at profit
Date
Description
Amounts
Dr
Accumulated for depreciation of
pollution reduction equipment
Cash
Cr
7200
19000
pollution reduction equipment
24000
2200
profit of sale of pollution reduction
equipment
3 - Closing the profits
Date
Description
Amounts
Dr
Statement of costs and social benefits
profit of sale of pollution reduction
equipment
76
Cr
2200
2200
Example (3)
In the previous example if we assume that the sale was made for LE
15000
Required: Prove the above
Solution
1- Calculation of gains and losses from sale
Depreciation premium = 2400
Accumulated Depreciation = Depreciation premium × Number of years
of use
= 2400 × 3 = 7.200
Book value of the asset = historical cost - Accumulated depreciation
= 24.000 - 7.200 = 16.800
Losses = sale value - book value
= 15.000 - 16.800 = 1.800
2- Proof of sale in case of loss
Date
Description
Amounts
Dr
Accumulated for depreciation of
pollution reduction equipment
Loss of sale of pollution reduction
77
7200
1800
Cr
equipment
15000
Cash
pollution reduction equipment
24000
3- Closing the losses
Date
Description
Amounts
Dr
Statement of costs and social benefits
Cr
1800
Loss of sale of pollution reduction
1800
equipment
B) Dispensing by swap (barter)
A swap means a swap of an asset with a second asset, either to be
similar or unmatched with the payment of the difference in cash
The basis of accounting treatment is the recognition of profit and loss
and the steps to calculate gains and losses are treated as follows:
1. Calculate exchange gains and losses
Book value of the old asset = historical cost - Accumulated of for
depreciation
Depreciation premium = historical cost ÷ productive life
Accumulated of Depreciation = Depreciation premium × Number of
years of use
78
Profit and loss = value of new asset - (book value of original asset +
amount paid in cash)
2. Proof of the swap process in case of losses
Date
Description
Amounts
Dr
New social assets
Cr
××
××
Accumulated for depreciation of old
pollution reduction equipment
××
Loss of swaps pollution reduction
equipment
Old pollution reduction equipment
××
××
Cash
3 - Proof of the swap process at the profits
Date
Description
Amounts
Dr
New social assets
Cr
××
Accumulated for depreciation of old
pollution reduction equipment
79
××
××
Old pollution reduction equipment
××
××
Profit of swaps pollution reduction
equipment
Cash
4-Closing the losses
Date
Description
Amounts
Dr
Statement
costs and social benefits
Cr
××
loss of sale of pollution reduction
××
equipment
2- Closing the profits
Date
Description
Amounts
Dr
profit of sale of pollution reduction
Cr
××
equipment
Statement
of costs and social
benefits
80
××
The accounting treatment of the expenses of decontamination
It was noted at the beginning of the chapter that this type of
expenditure falls under the expenditure of the irradiated and carries a
burden on the income of the period spent in it, expenses incurred to
remove the pollution caused by economic activities in the production
processes such as expenses spent on sterilization and removal of waste
production and treatment later
The accounting restrictions are for pollution reduction expenses
• Proof of expenses
Date
Description
Amounts
Dr
Decontamination expenses
Cr
××
• Workers' wages
• Sterile materials
Cash
××
• Closing Financial Statements
Date
Description
Amounts
Dr
Statement
costs and social benefits
Decontamination expenses
81
Cr
××
××
• Workers' wages
• Sterile materials
Example (5)
If we assume that sterilization materials were purchased for
2000
and the salaries of the personnel specialized in the
maintenance and repair of pollution reduction equipment
during the year 1000
Required: Prove the above
Solution
• Proof of expenses
Date
Description
Amounts
Dr
Decontamination expenses
Cr
3000
• Workers' wages
2000
• Sterile materials
1000
Cash
3000
82
• Closing Financial Statements
Date
Description
Amounts
Dr
Statement
costs and social benefits
Cr
3000
Decontamination expenses
3000
• Workers' wages
2000
• Sterile materials
1000
Accounting for natural resources
Characterized by natural resources such as oil and gold mines and
coal fields from other long-term assets as running out of use as such
resources are non-renewable, and due to the characteristics of natural
resources, the measurement of the cost of those resources and determine
the premium depletion of things different and a source of controversy
among accountants
1. Measuring the cost of natural resources:
The accounting treatment of natural resource expenditures is different
according to the type of expenses associated with the resource, namely:
• Acquisition expenses
• Exploration expenses
83
• Construction and development expenses
• Production expenses
A) Acquisition expenses:
Natural resource expenditures are all incurred by the enterprise to
obtain the right to prospect for natural resources in the location to be
exploited
Acquisition expenses include purchase price, registration and transfer
costs. In the event that the enterprise obtains a concession to exploit the
site without its ownership, all expenses associated with obtaining this
right are considered capital expenditures, Carry on “ natural resource
account”, if the exploration efforts are successful,
If the exploration efforts are not successful “natural resource under
exploration” account will be centered. This account will be closed to the
“natural resource” account upon success of the exploration or closed in
the “income summary” account as a loss in case of exploration failure
Exploration expenses
B) Construction and development expenses
For expenditures incurred by the establishment in the exploration and
exploration of natural resources in the case of obtaining a privilege to
search and prospect for a resource, these expenses are treated in one of
the following ways
84
• To consider these expenses as expenditures incurred for the
period in which they occurred as follows
Date
Description
Amounts
Dr
Exploration expenses
Cr
××
Cash
××
At the end of the accounting period, such expenses are expensed in
income statement
Date
Description
Amounts
Dr
Income Summary
Cr
××
Exploration expenses
××
If we assume that one of the companies operating in the field of oil
extraction during the year 2020 spend 9 million pounds on exploration,
which led to the discover of Oil well Whose output was estimated of 500
thousand tons, according to this method is proven expenses exploration
as follows:
85
Date
Description
Amounts
Dr
Exploration expenses
Cr
9.000.000
Cash
9.000.000
• To consider these expenses as capital expenditures incurred at the
"natural resources ”account in the event of successful exploration
efforts, and to bear the period as expenses in case of failure of
exploration efforts as follows:
Date
Description
Amounts
Dr
Natural Resources - Resource Type
Cr
××
××
Exploration expenses
Cash
××
86
At the end of the accounting period, such expenses are expensed in
income statement
Date
Description
Amounts
Dr
Income Summary
Cr
××
Exploration expenses
××
If we assume that one of the companies operating in the field of oil
extraction, during the year 2020 spent 9 billion pounds on exploration,
including 1,000,000 pounds did not result in successful efforts;
according to this method is proven expenses exploration and exploration
as follows:
Date
Description
Amounts
Dr
Natural Resources - Oil well
Cr
8.000.000
1.000.000
Exploration expenses
Cash
9.000.000
It is noted that large companies have adopted the second method while
the third method was accepted by Small and medium companies, while
the first method did not receive sufficient acceptance
87
C) Construction and development expenses
We mean the expenses incurred by the establishment after the
confirmation of the existence of natural resource can be exploited and
the preparation of the site for the production process such as equipment
and cranes, the cost of digging wells and strengthening the aspects of
wells in addition to the cost of construction necessary, and these
expenses can be divided into two types:
1. Expenses relating to fixed assets such as equipment, machinery,
cranes and other assets required for the production process. These
expenditures are not charged to "natural resources" account but
are charged to fixed asset accounts And are Depreciated over the
course of their useful life, unless these assets are linked to a site
that cannot be deducted from it, it is Depreciated over the life of
the productive life or the lifetime of the well or mine whichever is
shorter
2 - expenses of preparation for production, such as the cost of
digging wells and strengthen (support) aspects of wells and other
expenses necessary to start production, These expenditures are
charging “natural resources” account and are depreciated on the
number of units expected to be produced
88
D) Production expenses
All expenditures incurred by the establishment to extract the natural
resource from the ground, such as wages and salaries, spare parts,
equipment and depreciation, are considered current expenditures
charging on the beneficiary period.
2. Depreciated of natural resources:
The cost to be depleted is the total cost of acquisition of the natural
resource, the cost of exploration, the cost of the fixed assets required for
the production process, less the net realizable value at the end of the
useful life of the natural resource (the amount expected to be obtained
upon disposal at the end of the useful life) Of the natural resource minus
any costs necessary to restore the status of the site to what it was when
acquired)
The production unit method is used to exhaust the natural resource.
According to this method, depreciation is calculated in two steps:
Step 1: Find the depreciation rate of the unit of the product is as
follows:
Depreciation rate per unit of product = Depreciated Cost .÷Number of
expected production units of the resource
Step 2: Find the depreciation premium as follows:
89
Depreciation premium = Number of units actually produced using the
resource × Depreciation rate from the previous step.
If there is any change in the estimates of the units, the quantities
expected to be produced or the net realizable value at the end of the
useful life of the natural resource, the Depreciation rate per unit of
product shall be recalculated and the new rate shall be used only in the
year in which the change occurs and for the following years and
not
used retroactively
if we assume that one of the specialized companies in the exploration of
gas has obtained a concession to explore one of the sites in the new
valley on 1/1/2015 compared to 10 million pounds, the exploration
expenses amounted to 50 million pounds, and estimated the value of the
disposal at the disposal of the site at the end of life Production of the
well is estimated at LE 5 million. The estimated production volume for 5
years is estimated at 100.000.000 tons of gas, as follows:
First year 20.000.000 tons
Second year 40.000.000 tons
Third year 10.000.000 tons
Fourth year 20.000.000 tons
Fifth year 10.000.000 tons
90
Required:
Calculation of Depreciation Premium according to the method of
production units
Solution
Depreciation rate per unit of product = Depreciated Cost ÷Number of
expected production units of the resource
= 100.000.000 .÷100.000.000 = 0.1 pounds
Depreciation premium = Number of units actually produced using the
resource × Depreciation rate from the previous step.
Explanation
Depreciated cost of resources
Annual Depreciation expense
5.000 + 10.000
--------
The end of the first year
15.000
20.000.000× 0.1
2.000.000
End of second year
15.000
40.000.000× 0.1
4.000.000
End of the third year
15.000
10.000.000× 0.1
1.000.000
End of the fourth year
15.000
20.000.000× 0.1
2.000.000
End of the fifth year
15.000
10.000.000× 0.1
1.000.000
Cost of acquisition + exploration
The depreciation is recorded at the end of each year by making the "
depreciation expenses "Debit “and "natural assets account "credit", as
follows:
91
Date
Description
Amounts
Dr
Depreciation Expenses of natural
Cr
2.000.000
resources
natural resources
2.000.000
Proof of depreciation at the end of the first year
Depreciation Expenses of natural
4.000.000
resources
natural resources
4.000.000
Proof of depreciation at the end of the second
year
Depreciation Expenses of natural
1.000.000
resources
natural resources
1.000.000
Proof of depreciation at the end of the third
year
Depreciation Expenses of natural
resources
92
2.000.000
natural resources
2.000.000
Proof of depreciation at the end of the fourth
year
Depreciation Expenses of natural
1.000.000
resources
natural resources
1.000.000
Proof of depreciation at the end of the fifth year
If we assume that a company for exploration for oil obtained a
concession to explore for oil in one of the sites in the Western Desert for
7.500.000 pounds and amounted of exploration expenses 1,500 thousand
pounds, including 500,000 pounds of expenses did not result in
successful efforts, and the cost of preparation for production 200,000
pounds, The estimated production volume of crude oil 4.500.000 tons is
extracted within five years, and the concession contract provides for the
restoration of the site to what was before the settlement of the state,
These expenditures were estimated at 300,000,000
Required:
Calculation of Depreciation expense if you know that the actual
production volume during the first year is 500,000 tons
93
Solution
1. Determine the Depreciation cost of resources
Cost of acquisition
7.500.000
Cost of exploration (1.500.000-500.000)
1.000.000
Cost of production
200.000
Cost of natural resource
8.700.000
Subtracted the net Selling value Can be achieved
Estimated Selling Value
0
(-) Estimated cost to reboot the site
(300.000) 300.000
Depreciation cost of resources
9.000.000
2. Determining the Depreciation rate of the production unit
Depreciation rate of the output unit = the Depreciated value of the
resource.÷ Estimated production volume
= 9.000.000 4.5 4.500.000 = 2 pounds / ton
3 - Determination of depreciation expenses
Depreciation expenses of first year = actual production during the first
year × depreciation rate of the unit
= 500.000 x 2 = 1.000.000 pounds
3. Proof of determination expense
94
Description
Amounts
Dr
Depreciation Expenses of natural
Cr
1.000.00
0
resources
natural resources
1.000.00
0
Proof of depreciation at the end of the first year
95
Questions and applications
Q: 1
Explain the accounting methods that can be used to measure the costs of
environmental pollution?
Exercise 2
Al Mahrousa for the manufacture of Ceramic purchased filters installed
on the ovens for 40.000 pounds c. The customs fees paid 4.000 and
transport expenses 1000 c and customs fees 3000 pounds paid in cash,
and the useful life of these filters 10 years,
Required: Prove the above
Exercise 2
If we assume that in the previous example that after 5 years, the
company decided to replace those filters with the type of quality, then
sold them for 30.000 cash
Required: Prove the above
Exercise 3
In the previous example, if we assume that the sale was made for 15.000
Required: Prove the above
Exercise 4
Al-Ittihad for aluminum industry purchased sewage treatment equipment
for 100,000 c cash and the production life of the equipment was 10 years.
The company used the straight-line method to amortize the equipment
96
After 3 years, the company carried out a work of equipment costing
20,000 c, which is amortized over 4 years
Required:
Prove the above
Exercise 5
The purchases of Helwan Cement Company from the sterilization
materials were 4000 c. The salaries of the employees specialized in the
maintenance and repair of the pollution reduction equipment during the
year 20,000
Required: Prove the above
Exercise: 6
On 1/1/2020 one of the research and exploration companies bought one
of the mines for 10 million pounds and estimated the amount of reserves
of crude in the mine about 9 million tons The company has spent 2
million pounds to prepare the mine for production, and the value of the
site after the depletion of crude half a million pounds, During the year
2020, 900,000 tons were sold, 850,000 of which were sold
Required: Prove the expenditure of depletion for the year 2020
97
Chapter four
Accounting disclosure on social and
environmental performance
Accounting Disclosure of Social Performance:
The accounting disclosure of social performance is the method by which
the organization can inform the community of its different parties about
its various activities with social implications and the financial statements
or reports attached thereto is an instrument to achieve this. Accounting
disclosure should be one of the following forms:
A. Adequate disclosure:
The financial statements, notes and additional information attached
thereto shall include all available information concerning the
Organization to avoid misleading interested parties of the Organization
and after sufficient disclosure of the most important principles of the
preparation of financial statements
B. Full disclosure:
That is to include disclosure of all available accounting information,
which means that the information is shown in large quantities, leading to
dumping users of the financial statements with information may not be
needed.
98
C. Fair Disclosure:
It is the disclosure of information in such a way as to ensure that it is
equally accessible to all beneficiaries without prejudice to any particular
party
The information to be disclosed can be classified as follows:
- Quantitative information (financial)
There are four main areas where quantitative information is presented in
the balance sheet, statement of income, statement of changes in equity
and cash flow statement. These statements are included in figures
reflecting actual or estimated amounts as a result of the financial events
of the organization, It is noted that this aspect of disclosure casts a
permanent response by the beneficiaries of the published financial
statements.
- Non-quantitative (non-financial) information:
This aspect of the accounting reports is disclosed in a descriptive manner
that would increase the user's understanding and confidence in the cash
amounts shown in the financial statements as this information is often
linked to quantitative information. Non-quantitative information is
disclosed through the main financial statements and through financial
statements Or marginal notes in addition to the management report, and
Hendrickson points out in his book that non-quantitative information is
appropriate and that disclosure is fruitful if useful in the decisionmaking process.
99
Disclosure of social responsibility
1. The concept and importance of accounting disclosure for social
responsibility costs
Burke has defined social disclosure as presenting the social activity data
of the entity in such a way as to assess the social performance of the unit.
The importance of disclosing social cost data to the entity has increased
due to the contribution of disclosure of social responsibility costs in
addressing the comparability of financial statements the inclusion of
social cost data in the financial statements contributes better to
evaluating the social performance of the enterprise.
Investors are not only limited to the economic aspect of the investment
decision, but also to other aspects such as religious, political and social.
This has resulted in the emergence of the so-called moral investor.
As well as increased public pressure on environmental and social
problems caused by enterprises, prompting governments to enact laws
and achieve some kind of supervision and impose penalties and fines on
infringing enterprises, which prompted companies to pay greater
attention to social cost data to avoid sanctions and legal proceedings
Scientific studies and attempts at practical application have
settled on one of the two methods
100
1- Method of integration:
Integrating social responsibility accounting information with
traditional financial accounting information into their general purpose
financial statements: income statement and statement of financial
position. The view method in the merge method takes one of the
following forms
A) Statement of socio-economic processes (social costs and
benefits)
It is a form similar to the traditional income statement that
represents a statement of the operational and social performance of
the enterprise. This statement is explained by the timing of the
positive and negative impact processes in the four areas of social
responsibility accounting. These are the field of the environment,
the field of human assets, the field of natural assets and the field of
the product or service. The three in terms of their effects on a
unilateral basis to positive effects and negative effects
B) Modification of the traditional financial statements
The income statement is adjusted to meet the environmental and
social responsibility requirements, , the accounting operating profit
is adjusted for the social responsibility responsibilities in its four
fields; environmental contribution, public contributions, human
assets, product or service field. These burdens can be divided into
101
compulsory burdens and optional burdens reaching the end of the
adjustments to net adjusted income.
As in the previous amendment, the traditional financial position is
modified by the impact of environmental and social contributions.
This statement aims to provide information on the assets available
for use in environmental performance and the corresponding rights
of others. The net assets are determined in each of the four areas:
environmental contributions,
2- Method of separation
Social responsibility reports in this way take one of three forms:
- Descriptive reports that describe in a narrative or narrative manner the
social activities undertaken by the entity, usually the voluntary
commitment activities of the entity, to attempt to evaluate and analyze
the costs and benefits of such activities. These reports represent the first
stage of the development of social responsibility accounting
- Reports that disclose the cost side of the effects of CSR activities
without exposure to benefit value. These reports are known as input
reports.
- Reports that disclose both the costs and benefits of CSR activities
and are known as input and output reports. It is noted that the effects of
social activities in the second and third types are presented and
expressed in the prevailing national currency unit, while the first type
depends on the method of disclosure and narrative evaluation
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3.
Multi-dimensional
environmental
and
social
performance report:
It is useful to add information that reflects the results of measuring
the overall environmental and social impacts of the establishment in the
form of figures, ratios and statistics that are often physical or biological
figures and are presented on the basis of standard standards set by
environmental scientists to be a standard of control at the levels The
actual type and size of the deviation is determined in the same way as
the natural analyzes that the doctor adopts to help him diagnose the
disease and describe the treatment. Such a report is called a
multidimensional environmental and social performance report.
As an inevitable consequence of the existence of environmental
costs and significant financial obligations incurred by enterprises due to
the environmental damage resulting from their activities, the
environmental disclosure of these costs and expected financial
obligations becomes necessary to meet the needs of users of financial
statements and reports to enable them to assess the extent to which the
entity meets its environmental obligations, The efficiency of the
operation of data by decision makers. The interest in accounting
disclosure stems from the fact that the information related to
environmental performance is of a financial and quantitative nature,
which directly affects the financial position of the enterprise. As the
103
financial statements reflect the actual and potential liabilities that result
from the entity's non-compliance with environmental protection laws.
The disclosure of obligations (including environmental liabilities)
has been included in FASB standard 5, which requires three possibilities
for applying to environmental obligations:
1. Environmental liabilities are recognized in the financial statements
if the losses are probable, and the amount of the losses can be
reasonably and reliably estimated.
2. If losses resulting from environmental damage are not probable or
cannot reasonably be measured, they should be disclosed in the
margins of the financial statements.
3. If the chance of loss is remote, in this case there is no need to
disclose it. These obligations are often the result of departing from
the laws governing the environment which the entity must measure
independently without waiting for a return to fulfill this obligation.
Environmental obligations if their occurrence is probable even if it
is difficult to estimate their amount.
The concept of environmental disclosure:
Environmental disclosure is important to all parties, whether internal or
external. Environmental disclosure is defined as "the presentation of data
and information related to the environmental activities of the entity in
the statements and periodic reports and the accompanying notes, which
facilitates the task of users of data and financial information when
104
evaluating environmental performance and rationalizing the decisionmaking."
Although environmental costs and commitments are difficult to quantify,
information is required and important, and environmental disclosure
should include the nature of the environmental policies applied by the
entity to remove or prevent environmental damage.
Motives for disclosure of environmental information
The most important motivations that may push businesses to disclose
environmental information can be identified in:
1. Provide an opportunity for the establishment to improve its image
within the community from which it operates.
2. Providing the opportunity to build better relationships between the
establishment and the different groups of society such as
government
agencies,
shareholders,
employees
of
the
establishment, customers, suppliers, financiers and pressure groups,
which are particularly influential in the countries of Western
Europe and the United States.
3. Prepare to apply environmental regulations and regulations that
will require the disclosure of environmental information and are
expected to be binding on all enterprises
4. Use disclosure as a means of informing the community as a whole
that the entity is voluntarily disclosing environmental information.
Look
105
5. Use disclosure as a way to access, and maintain an advanced
competitive position in the area of activity of the enterprise.
6. Disclosure of environmental activities helps users of information to
make planning decisions, control and performance evaluation as
well as to develop research and studies in the field of
environmental safety.
7. The satisfaction and satisfaction of consumers with the goods and
services offered by the organization in the market will help to
fulfill their responsibilities towards society and future generations
(because the use of resources and pollution of the environment can
affect future generations). In addition, it may also enhance the
accountability established for its shareholders.
Environmental data and information which should be
disclosed:
The SEC recommended some of the basic requirements for
environmental disclosure, which include disclosure of environmental
performance together with the disclosure of economic performance. The
disclosure required by the stock exchange should provide information on
the nature of the activity of the entity, environmental legislation and the
significant implications of compliance with such legislation, The actual
and estimated capital expenditures associated with this commitment, the
expected environmental commitments and the associated costs and the
impact of these costs on the financial position, liquidity and return on
106
stock, analysis of the costs of environmental pollution control in
compliance with government legislation, The costs of removal,
prevention and prevention of environmental damage. For example, these
costs may include the costs of judicial compensation and the resource
costs required to carry out environmental pollution control activities.
Examples of environmental data and information to be disclosed
include:
• Data on support and material funding required
addressing environmental damage.
• Data on physical grants from associations and
international and local environmental protection
advocates.
• Data on the tax benefits of an enterprise as a result of
reduction or exemption from taxes on assets related to
environmental activities.
• Data on the increase in profits resulting from reduced
production costs due to grants and material support as
well as increased sales due to the demand of
individuals to purchase environmentally friendly
products.
• Financial statements related to environmental costs and
commitments:
107
1. Acquisition costs of assets necessary to remove or prevent the causes
of pollution.
2. Costs of recycling, conservation or disposal of harmful waste.
3. Current and potential financial burdens resulting from violation of
environmental protection laws and regulations.
4. Description of insurance covering environmental issues that are
disclosed.
• Quantitative and technical data on the environmental
policies of the facility:
1. Plans and strategies to reduce and prevent environmental damage
resulting from the activity of the establishment.
2. Technical policy related to the use of less harmful substances and
energy substitutes.
Offer and accounting disclosure method in financial
statements:
In 1996, the AICPA established the Standard SOP 96-1 to address
environmental obligations. This standard includes guidelines for
environmental accounting, disclosure and presentation in financial
statements for environmental costs and obligations as follows:
1. Offer at the statement of income: The cost of environmental
protection is considered to be the operating expense charged to the
statement of income, as well as the increase in the value of
depreciation resulting from environmental damage to assets and
108
the depreciation of fixed environmental assets, in accordance with
the special disclosure standard (SOP 96-1) By addressing the
environmental obligations of the American Institute of Certified
Public Accountants (AICPA).
2. Offer at Financial Position: The statement includes many
environmental assets and environmental capital expenditures in
accordance with SOP 96-1. The current trend in the FASP is to
increase the recognition of environmental obligations in the budget.
In addition to the disclosure in the financial statements, there are
two types of disclosures:
• Disclosure of accounting principles to address
environmental obligations.
• Disclosure of the environmental risks arising from
environmental risks in accordance with SOP 96-1 in
the margins of the financial statements as well as
disclosure of the nature and value of the contingency
obligation, and therefore anticipating additional losses.
It is clear that there is an urgent need to disclose the environmental
costs and obligations. However, there is a difference between the
environmental disclosure requirements of the Accounting Standards
Board and the Securities Regulatory Authority, which is due to the
potential level of loss resulting from environmental damage, which led
to the complexity of the auditor's role. The auditor can resolve the
109
disclosure of potential environmental obligations in a letter of the board
of directors if it is not disclosed in the supplementary information on the
financial statements.
To address the differences and complexities of the previous, this
requires coordination between the efforts of professional organizations
and their requirements for environmental disclosure to be consistent with
the requirements of the competent bodies to protect the environment and
the needs of users of financial reports, and thus become the profession of
accounting required to expand disclosure in the financial statements with
increasing importance for the establishment as well as external parties.
The above presentation indicates the importance of disclosing the
potential environmental costs and liabilities that can be estimated in the
financial statements, disclosing the environmental losses arising from
the environmental risks in the margins of the financial statements and
the importance of the internal auditor's verification Financial Statements.
All this led to the encouragement of some scientists and
organizations to try to propose models for financial statements modified
commitments and environmental burdens, including the following:
Form (1): Descriptive or narrative disclosure
The Environmental Impact Committee for the Conduct of the
Establishment of the American Accounting Association began preparing
a model based on descriptive disclosure of the institution's efforts in
solving environmental problems. It recommended that the published
110
financial statements should contain marginal observations on these
efforts using the narrative description method to disclose:
A) The main environmental problems facing the facility.
B) Plant plans to reduce environmental problems and the timetable for
their implementation, and the planning budget for pollution control
costs.
C) The
progress
achieved
by
the
establishment
in
solving
environmental problems and the costs resulting from this effort.
D) The significant environmental impacts on the financial position of
the entity and the outcome of its operations
The model thus focuses on providing information on the problem
of environmental pollution only, making it ineffective in accurately
defining
environmental
costs
and
environmental
performance
assessment, although it is a step towards developing an appropriate cost
measurement model and the environmental performance of the facility.
Model 2: Integration of social information and
financial information
This model integrates social information and financial information
by disclosing social (including environmental) information in financial
reports, without the need for fundamental modification of the traditional
accounting system. The amendment is limited to the presentation of both
financial and social information.
This model is based on the following principles:
111
1. Distinguish between economic costs related to the economic
function of the entity and the social costs associated
with the environmental and social activities of the entity,
namely, the amounts that the enterprise voluntarily
spends or the application of laws imposed by the State,
as well as the value of damage caused by the
establishment to society. The costs of preventing them,
or the costs of remedying them.
2. The profit and loss account is divided into two main stages:
the first stage where the net profit (economic) is
obtained, which results in the revenue of the economic
activity of the entity by the (economic) costs. The
second stage is to determine the net economic profit of
the institution by deducting the social costs from the net
economic profit.
3. The assets and liabilities of the social activities are presented
separately in each category as they relate to the type of
assets or liabilities and according to their affiliation to
the area of their social responsibility and in the same
order in which the elements of the balance sheet are
presented.
The model focuses on the social costs of the activities of the
establishment including the environmental costs and does not address
112
the benefits to society as a result of the costs of the environment. It also
considers the environmental costs as part of the social costs. This model
is easily prepared and easy to understand, Accountable.
Model (3) Adjusted Income Statement on
Environmental and Social Responsibilities:
This should be done in order to clarify the company's burdens in
the area of environmental and social responsibility. These burdens
should be classified according to the nature of the environmental and
social responsibility (compulsory or voluntary). This is useful in
identifying the extent to which the entity understands its voluntary
environmental responsibility. Competition between enterprises also
serves to identify the external involuntary burdens borne by the entity
related to its compulsory environmental responsibility, as this leads to
the recognition of the contributions of the establishment in achieving
national goals and the extent of commitment to its compulsory
responsibilities.
The aim of this statement is to demonstrate the impact of the
environmental and social contributions of the entity on net profit,
showing the impact of voluntary environmental and social contributions.
The importance of this statement appears as follows:
1. The statement is important in assessing the performance of
the establishment. Facilities that bear environmental and
social responsibility may appear to be less efficient
113
when compared to other establishments that do not bear
environmental and social responsibility because of the
additional burdens that lead to the reduction of their
profits compared to the establishment which neglects
environmental and social costs. They seem to be the
most successful enterprises for their high profitability.
2. The importance of this statement is shown to the business
establishments in Egypt, where they are required to
shoulder the burden of achieving national goals that
have a net impact on these costs.
This statement has been divided into two phases:
• Phase I: The burden of environmental and social
responsibility is mandatory and the cost incurred by
the establishment related to the environmental and
social processes required by law or government
regulations.
• Phase II: The burden of environmental and social
responsibility is limited, which is the cost incurred by
the
facility
voluntarily
costs
associated
with
environmental and social processes more than those
provided by law.
114
The net accounting profit is adjusted to the mandatory environmental
and social burdens to obtain the adjusted net profit, called the "economic
function return".
The following figure shows the profit statement adjusted for
environmental and social responsibility.
Income statement adjusted for environmental and social responsibility for the year ended
××
Net accounting profit
Add to it
First: Compulsory social responsibility burdens Area of
environmental contributions:
Cost of air pollution control.
×
Cost of liquid waste treatment.
×
The cost of improving the aesthetic appearance of the
×
environment.
××
Scope of public contributions:
Employment differentials.
×
Employment Disabilities.
×
Additional benefits and benefits for employees.
×
Differences of housing services for workers.
×
Cost of child care center.
×
Losses of Algebraic Pricing.
×
××
Human Resources Field:
Cost of training staff.
×
The cost of industrial security requirements.
×
115
××
Product Area:
Cost of control over quality standards.
×
The cost of the product use security test
×
××
Total compulsory social responsibility burdens.
×× ××
××
Second: Optional social responsibility burdens:
Environmental Contributions:
Cost of additional air pollution control
×
The cost of additional treatment for effluents.
×
The cost of additional improvements to the aesthetic
×
appearance of the environment
××
Public Sector:
×
As opposed to strengthening public service bodies and
institutions.
Cost of recreational services for residents of the region.
×
Cost of health services to residents of the area.
×
Cost of housing services.
×
Cost of transportation services.
×
Additional benefits and benefits for employees.
×
××
Human Resources Field:
Cost of educational services for employees.
×
Cost of health services for employees.
×
116
×
The cost of training is non-working.
××
Product contributions area:
Cost of additional quality controls.
×
Additional product safety testing costs.
×
××
Total voluntary social responsibility burdens.
×× ××
××
Total social responsibility burdens.
Net adjusted profit (return of economic function).
117
××
Statement of the adjusted financial position on the effects of environmental and social
contribution in / 200
Total net assets
Deducted from it
Net assets of the environmental contribution field:
Pollution control buildings and constructions.
Air pollution control devices.
Liquid waste purification rate.
Expenses to improve the aesthetic appearance of
the environment.
Industrial waste purification materials.
Total net assets of the field of environmental
contributions.
Net assets for general contributions:
Buildings and facilities of child care centers.
Residential buildings for workers.
Facilities and entertainment.
Health care facilities.
Transport and transportation.
Medical equipment and devices.
Medical supplies stock.
Total net assets of the field of general contributions.
Net assets for human resources:
Buildings and Establishments of Training Centers.
Training tools and equipment.
Inventory of personnel protection tasks.
118
Total net assets of human resources field.
Net assets of the product area:
Quality control devices.
Product safety testing devices.
Stock stickers and leaflets.
Total net assets of the product area.
Total net assets for environmental and social
activities
Total net assets of economic activities
Complex obligations
(Deducted from it)
Against the financing of assets for environmental
and social activities against the financing of assets
for economic activities.
Model (4) Statement of the adjusted financial position on the
impacts of environmental and social contributions:
The adjusted statement of financial position is prepared by restating the
components of assets and liabilities included in the statement of
financial position. The assets of the environmental and social activities
and the corresponding liabilities are shown separately from the assets
and liabilities of the economic activities, where the environmental and
social assets are classified according to the environmental and social
responsibility allocated for their use, where there is assumed a positive
relationship between the value of environmental and social assets for
119
each area of responsibility Environmental and social issues and the
environmental and social contributions that contribute to this area.
The previous model illustrates the adjusted financial position
statement of the impacts of environmental and social contributions.
This statement aims at providing information on the resources
available for use in the areas of environmental and social performance
and the corresponding rights of others. This is useful in identifying the
elements of wealth that generate environmental and social contributions
in the future, and the corresponding funds allocated by the establishment
for acquisition.
From the previous presentation, efforts are made to clarify the
environmental impact on the financial statements, which the internal
audit should understand in order to be able to cope with the economic
and social requirements and to review the validity of the disclosure of
environmental costs in the financial statements. With the consequent
disclosure of the position of the facility to preserve the environment and
comply with environmental laws and regulations.
Example (6):
The following are the data extracted from the books of Al-Sharq Steel
Company: "Value per million pounds":
1. Net profit 590 Egyptian Pound
2. Net assets 9290 Egyptian Pound
3. Cost of air pollution control operations.
120
4. Cost of liquid waste treatment 2 Egyptian Pound.
5. Cost of improving the aesthetic appearance of the
environment 3 Egyptian Pound.
6. Differences in the employment of excessive labor.
7. Employment differences of disabled 2 Egyptian Pound.
8. Additional benefits and benefits for employees 1 Egyptian
Pound.
9. Differences of housing services for workers.
10.
Cost of child care center 5 Egyptian Pound.
11.
Cost of training of personnel 1 Egyptian Pound.
12.
Cost of industrial security requirements.
13.
Cost of supervision on quality standards 3 Egyptian
Pound.
14.
Cost of product safety testing 4 Egyptian Pound.
15.
Cost of additional air pollution control operations
16.
The cost of additional treatment for liquid wastes 2
Egyptian Pound.
17.
The cost of additional improvements to the aesthetics of
the environment
18.
Against the strengthening of public service bodies and
institutions.
19.
Cost of recreational services for residents of the region.
20.
Cost of health services for the residents of the region.
121
21.
Cost of housing services 4 Egyptian Pound.
22.
Cost of transportation and communications services
Egyptian Pound
23.
Additional benefits and benefits for employees 2
Egyptian Pound.
24.
Cost of additional quality controls 5 Egyptian Pound.
Additional product safety testing costs 3 Egyptian Pound.
25.
Pollution control buildings and structures 2 Egyptian
Pound.
26.
air pollution control devices 2 pounds
27.
Liquid waste purification rate. 3 pounds
28.
Expenditures to improve the aesthetic appearance of the
environment. 2 pounds
29.
Stock of industrial waste purification materials 3
Egyptian Pound.
30.
Buildings and facilities of child care centers.
31.
Residential buildings for workers 3 Egyptian Pound.
32.
Facilities and entertainment 5 Egyptian Pound.
33.
Health care facilities 4 Egyptian Pound.
34.
Means of transport and transport 3 Egyptian Pound.
35.
Medical equipment and devices 1 Egyptian Pound.
36.
Medical supplies stock 2 Egyptian Pound.
122
37.
Buildings and facilities of training centers 1 Egyptian
Pound.
38.
Training tools and equipment 2 Egyptian Pound.
39.
Stock of personnel protection tasks 3 Egyptian Pound.
40.
Quality Control Devices 1 Egyptian Pound.
41.
Product safety testing devices 2 Egyptian Pound.
42.
Stock stickers and leaflets 1 Egyptian Pound.
Required:
1- Preparation of the adjusted income statement on the burden
of fulfilling the environmental and social responsibility for
the year ended 31/12/2014
2- Preparation of the list of financial position adjusted effects of
environmental and social contribution on 31/12/2014
123
Solution
Income statement adjusted for environmental and social
responsibility for the year ended 31/12/2014
Net accounting profit
591
Add to it
First: Compulsory social responsibility burdens Area
of environmental contributions:
Cost of air pollution control.
1
Cost of liquid waste treatment.
2
The cost of improving the aesthetic appearance of the
3
environment.
6
Scope of public contributions:
Employment differentials.
2
Employment Disabilities.
2
Additional benefits and benefits for employees.
1
Differences of housing services for workers.
4
Cost of child care center.
5
14
Human Resources Field:
Cost of training staff.
1
The cost of industrial security requirements.
2
3
Product Area:
Cost of control over quality standards.
3
The cost of the product use security test.
4
124
7
Total compulsory social responsibility burdens.
30
Second: Optional social responsibility burdens:
Environmental Contributions:
Cost of additional air pollution control
3
The cost of additional treatment for effluents.
2
The cost of additional improvements to the aesthetic
3
appearance of the environment
8
Public Sector:
As opposed to strengthening public service bodies
2
and institutions.
Cost of recreational services for residents of the
3
region.
Cost of health services to residents of the area.
4
Cost of housing services.
4
Cost of transportation services.
3
Additional benefits and benefits for employees.
2
18
Human Resources Field:
Cost of educational services for employees.
5
Cost of health services for employees.
3
The cost of training is non-working.
2
10
Product contributions area:
Cost of additional quality controls.
2
125
Additional product safety testing costs.
3
5
Total voluntary social responsibility burdens.
41
Total social responsibility burdens.
71
Net adjusted profit (return of economic function).
520
Statement of financial position adjusted for impact of social
contribution as of 31/12/2014
Total net assets
9290
Deducted from it
Net assets of the environmental contribution field:
Pollution control buildings and constructions.
9
Air pollution control devices.
6
Liquid waste purification rate.
5
Expenses to improve the aesthetic appearance of the
7
environment.
Industrial waste purification materials.
3
Total net assets of the field of environmental contributions.
30
Net assets for general contributions:
Buildings and facilities of child care centers.
2
Residential buildings for workers.
3
Facilities and entertainment.
5
Health care facilities.
4
Transport and transportation.
3
Medical equipment and devices.
1
Medical supplies stock.
2
Total net assets of the field of general contributions.
126
20
Net assets for human resources:
Buildings and Establishments of Training Centers.
1
Training tools and equipment.
2
Inventory of personnel protection tasks.
3
Total net assets of human resources field.
6
Net assets of the product area:
Quality control devices.
1
Product safety testing devices.
2
Stock stickers and leaflets.
1
Total net assets of the product area.
4
Total net assets for environmental and social activities
60
Total net assets of economic activities
9350
Complex obligations
9350
(Deducted from it)
Against the financing of assets for environmental and social
activities against the financing of assets for economic
activities.
127
60
References
1. D.C. Hague, Economic Theory and Business Behavior, the
review of Economic Studies.
2. R.L. Hall and G.H Hitch, " Price theory and Business Behavior" Oxford Economics Papers.
3. Joseph C. Kamm, Economic of Investment New York,
American Book Co.
4. Joes S. Bain, Pricing Distribution And Employment, Henry
Holt And Co.
5. George Husband, The Entity concept in Accounting Review
October.
6. Sydney S. Alexander, Income Measurement in Dynamic
Economy. Five Monograph in Business income , New York,
A.Y.A,
128