Open Journal of Accounting, 2013, 2, 4-7 Published Online January 2013 (
Green Accounting: Cost Measures
Krishna Moorthy, Peter Yacob
Faculty of Business Finance, University Tunku Abdul Rahman, Kampar, Perak, Malaysia
Received October 31, 2012; revised December 3, 2012; accepted December 15, 2012
In the past, environmental issues were often ignored by both, large companies and small medium enterprises. However,
accounting for the environment or the acronym “Green accounting” is receiving increased attention in the recent times.
Many companies, particularly small medium enterprises (SMEs) are now interested in being “green”, as many in vestors
place a high value on environmental responsibility. Many environmental costs can be significantly reduced or elimi-
nated as a result of business decisions, ranging from operational and housekeeping changes, to investment in greener
process technology to redesign processes or products. Industry and the green movement are tilting towards consensus
on the pivotal concept of sustainable development. Better natural resource and green accounts would provide valuable
insights into the interaction between the environment and the economy. However, implementing green accounting in
organization such as SMEs in Malaysia, results in resistance or ignored due to some reasons such as lack of awareness,
lack of ethical education, etc. This paper highlights the issues surrounding the firms green accounting in financial re-
porting. The key goal of this paper is to outline a set of green accounting measures that are to be addressed in environ-
mental management accounting system of a firm.
Keywords: Green Accounting; Environmental Accounting; Green Costs; SMEs in Malaysia
1. Introduction
Green accounting is related to environmental information
and environmental eco-auditin g systems [1] and has been
defined as ‘the identification, tracking, analysis, and re-
porting of the materials and cost information associated
with the environmental aspects of an organization [2].
Green accounting is relatively new and a developing
field. However, in Malaysia the green accoun ting is con-
sidered at an infant stage because, the implementation of
green accounting in organizations such as SMEs in Ma-
laysia, results in resistance or ignored due to some rea-
sons such as lack of awareness, lack of green and ethical
education and so on. The green accounting deals with
accounting and management issues relating to environ-
mental and social impacts, regulations and restrictions,
safety, environmentally sound, and economically viable
energy production and supply [3]. The foremost role of
green accounting is to tackle the social environmental
problems and may have impact on attaining sustainable
development and environment in any country and influ-
ences the company’s behavior in confronting social and
environmental responsibility issues.
The International Federation of Accountants discusses
green accounting as “the management of environmental
and economic performance through the development and
implementation of appropriate environment related ac-
counting systems and practices; while this may include
reporting and auditing in some companies, green ac-
counting typically may involve to the life cycle costing,
full cost accounting, benefits assessment and strategic
planning for environmental management”. Furthermore,
the United Nations Division for Sustainable Develop-
ment [4] emphasizes that green accounting systems gen-
erate information for internal decision making, where
such information can be either physical or monetary in
focus. Indeed, the United States Environment Protection
Agency deems that “an important function of green ac-
counting is to bring environmental costs to the attention
of corporate stakeholders who may be able and moti-
vated to identify ways of reducing or avoiding those
costs while at the same time improving environmental
quality”. In fact, the green accounting systems have the
dual purposes of managing and improving the financial
environmental performance of an entity. It can also con-
sider how organizational operations impact environ-
mental systems and issues [5].
In summary, it is known that businesses are formed to
deliver services or produce products in order to earn a
profit. In the 21st century, accounting goes beyond the
bottom line of black or red and it includes “green”, too.
With the growing green consumer awareness, companies
are more than ever expected to align its business strate-
gies with environmental initiatives. Environmentally
opyright © 2013 SciRes. OJAcct
conscious companies have already discovered that they
can generate business strategies to help them reduce their
carbon footprint, minimize their environmental impact,
make the best use of natural resources, become more
energy efficient, reduce costs, and exhibit social respon-
sibility all at the same time [6].
2. Literature Review
Amran and Devi [3] described that green accounting lit-
erature has paid little attention to either organizational
influences on a company’s practices or has a company’s
practices influenced its organization. Dinah Shelton [7]
described the importance of and impact on the green au-
diting system in relation to the environmental develop-
ment. She pointed out that the green auditing and ac-
counting is the same and plays critical role in promoting
the public and the environmental organizations that could
be worked based on the human rights approach. It means
that environmental education is working in line with the
human rights documents context.
On the other hand, Schultz and Williamson [8] argued
that the sustainability accounting, which is an ethic of
accountability, standardization of sustainability and fu-
ture prospects for corporate sustainability, accounting for
sustainable development may lead to sustainability con-
cept. Interestingly, Heba and Yousef [9] have discussed
about the concept and understanding on the environ-
mental accounting education. Their article explored the
concepts of green accounting and the possibility of
broadening the applicability of the environmental report-
ing concept to be utilized by governments to make busi-
nesses more responsible for their externalities. They dis-
cussed the importance of environmental accounting as
part of the accounting management, overviews the past
and the current regulatory and mandatory status of green
accounting and its relationship on the different profess-
Recognizing this, Mehenn a and Vernon [10] described
that the green accounting is an expansion path which
deals and measures with the environmental performance
and the integr ation of environmen tal policy with busin ess
policy. The business firm’s strategy includes responding
to capital and operating costs of pollution control equip-
ment. This is caused by increasing public concerns over
environmental issues, and by the recent government-led
trend to incentive-based regulation. Furthermore, they
found that the environmental component of the business
strategy, producing the required performance reports and
recognizing the multiple skills req uired to measure, com-
pile and analyze the requisite data.
According to Jennifer Ouellette [11], chemical com-
pan ie s stand to benefit from a system of green accounting,
leading to better determination of costs and management
of resources. The traditional accounting methods used by
chemical companies often do not provide adequate in-
formation on their environmental costs. This results in
ill-informed and often costly management decisions. How-
ever, by incorporating environmental accounting proce-
dures, industrial firms, regardless of size, can increase
profits, use materials more efficiently, and protect the
In fact, Lintott [12] argued that the green accounting
evaluates a general measure of welfare that leads to
costly management decisions. Problems of monetary
valuation are likely to lead accounting procedures. In-
dustrial firms, regardless of size, can increase profits, use
correct estimation of environmental costs. Firms can also
learn more about more robust view of sustainability, are
ignored. The United Nations Handbook of National Ac-
counting, stated about the growing pressures on the en-
vironment and increasing environmental awareness that
have been generated the need to account for the manifold
interactions between all sectors of the economy and the
environment. The conventional national accounts focus
on the measurement of economic performance and
growth as reflected in market activity. It also deals with
the sustainability of growth and development, the scope
and coverage of economic accounting that needs to be
broadened to include the use of non-marketed natural
assets and losses in income generation resulting from the
depletion and degradation of natural capital [13]. The
conventional accounts do not apply the commonly used
depreciation adjustment for human-made assets to natu-
ral assets. Since sustainable development includes eco-
nomic and environmental dimensions, it is essential that
national accounts reflect the use of natural assets in addi-
tion to produced capital consumption.
The above literature review gives the required input
for the current topic. Ramanathan [14] looked at green
accounting from the premise of social contract theory
and based his argument. Green accounting requires mul-
tidisciplinary knowledge in behavioral science, engi-
neering, sociology and even biology. The fundamental
premise behind green accounting is that organizations
should internalize environmental costs. Currently these
costs are externalized, and the society bears the impact of
an organization’s adverse activities on the environment
due to the fact it is a “public good”. Internal environ-
mental accounting mechanisms such as cost accounting
attempts to trace costs of the organization’s activities on
the environment [15]. It is expected that once organiza-
tions are made accountable for these costs, they would be
compelled to minimize the potentially harmful effects of
such activities. Also, environmental accounting requires
organizations to forecast the potential environmental
impact of their activities and accordingly estimate their
contingent liabilities and create provisions for environ-
mental risks.
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3. Green Accounting Measures
The above literature review leads to the following green
accounting measures in Table 1. The next step will con-
sist of questioning the departments or functional services
grouped according to processes, and within the processes,
the specific environmental activities. A selection tech-
nique will be used, meant to reduce th e ex cessive number
of specific environmental activities, even a regrouping of
these activities into processes. Based on questionnaires
collected from the enterprise workers, the centralized
information will be analyzed by the Green Accounting
team. Based on this data, a preliminary dictionary of the
most important environment-specific activities will be
prepared. Also information will be collected about allo-
cation units of environment-specific costs which the Ac-
tivity Based Costing method can provide (environmental
cost drivers).
4. Conclusions
The green accounting is an emerging aspect of account-
ing science that will influence, in the near future. The
adoption of basic elements of green accounting will por-
tray the role of environment in the economy as well as
render easier the analysis of macroeconomic questions
Table 1. Green accounting measures.
Description Green Accounting Issues and Scope
Prevention Costs
Costs incurred to prevent air and water pollution
along with water treatment facilities and other
Costs of energy saving measures as well as costs of
global warming reduction measu res.
Costs of
Costs incurred for waste reduc tion and disposal as
well as for water conservation, rainwater usage and
other measures aimed at efficient resources usage.
Restoration Costs
Cost of environmental restorati on operations
(eliminating so il an d ground water contamination,
environmental compensation, etc.)
Management -related environmental protection costs
including environmental promotion activities and
costs associated with acquiring and maintaining ISO
14001 certification.
Social Promotion
Activities Costs
Environmental protection costs stemming from
participation in social activities such as participation
in organizations concerning with environmental
preservation etc.
Research and
Environment al protection costs for research and
Development activities and costs of environmental
solutions business activities (Green
product/environmental technology design and
development costs, environmental solutions business
costs, others) etc.
with the help of green accounting measures and thus, will
lead the economy to a viable path.
Despite the fact that the corporate environmental ex-
penses increase not on ly in importance but also in mone-
tary units, some enterprises continue to underestimate and
enter environmental costs in accounts as general expenses.
However, some companies try to connect environmental
costs with products or services but the methods of alloca-
tion cost used are inappropriate. When no proper alloca-
tion met hod is use d, the ma nager of an e nterpri se does not
receive reliable information with regard to the real costs
and profits in order to maintain or change the products
and/or processes.
Furthermore, the above situation prevents the effective
follow-up of yield of an enterprise as well as the right
pricing of products and the important activities for the
maintenance of competitiveness of an enterprise. The
green accounting still faces a number of problems, such
as, the lack of support of information, specialized per-
sonnel as well as the absence of proportional interna-
tional accounting models. In recent years, the efforts for
the growth of environmental information systems have
led to the creation of proportional systems of administra-
tion (Environmental Management Systems) which face
problems with regard to the treatment of complicated
environmental data. The new tendencies that are found in
evolution foresee a more proactive environmental plan-
ning through the recognition and the reduction of envi-
ronmental cost and consequently the improvement of
profitability of enterprises.
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