Article-60 Eco. Env. & Cons. 20 (3) : 2014; pp. (1-13) Copyright@ EM International ISSN 0971–765X Role of environmental accounting in enterprises Hamid Saremi1 and Behrad Moein Nezhad2 1 Department of Accounting, Quchan Branch, Islamic Azad University Quchan, Iran Department of Accounting, Quchan Branch Islamic Azad University, Quchan Branch, Iran 2 (Received 15 June, 2014; accepted 9 July, 2014) ABSTRACT Environmental accounting is an important tool for understanding the role played by the Natural environment in the economy. Environmental accounts provide data which highlight both the contribution of natural resources to economic well-being and the costs imposed by pollution or resource degradation. Enterprises, which are important subjects of economical activities, play major roles in economical activities. Therefore, clear incorporation of the objective called environmental conservation in each business activity becomes a powerful motive force for the structural transformation of this economic society. It is important for people, regions, and administrations involved in enterprises to correctly. Evaluate such attempts by the enterprises and be able to prepare the system that can support the attempts for the entire society. The term environmental accounting is frequently used within the accounting and environmental management literatures. Environmental accounting is a broader term that relates to the provision of environmental-performancerelated information to stakeholders both within, and outside, an organization. In this paper environment accounting, its position, costing, role, applications and necessities has been discussed. Key words : Environment Accounting, Costing, Environmental Protection, Disclosure, National Accounts, Environmental expenditures Introduction Environment Accounting provides information that helps to management of organization in matters of evaluation, performance, control and decision making and reporting. In the beginning of creating the enterprises were not inclined to reveal the environment damages in their financial statements but by laps of time and increase in determents the enterprises became perforce to observe these issues. Environmental expenses identification relevant to products of an enterprise or organization for management’ correct decision making is very important. Making use of environment accounting has been more aspect in issues such as costing, investment analysis, and strategic management decisions. Many enterprises today are faced with environmental *Corresponding author’s email: hadi_sarem@yahoo.com problems and they are looking for a suitable method for information disclosure and reporting for all people so the necessity of using of environment accounting is as effort for environment protection. (Nasirzadeh Farzaneh, 2008) Environmental accounting is an inclusive field of accounting. It provides reports for both internal use, generating environmental information to help make management decisions on pricing, controlling overhead and capital budgeting, and external use, disclosing environmental information of interest to the public and to the financial community. Internal use is better termed environmental accounting (Bartolomeo et al., 2000). Due to ever increasing population and available natural resource limitation, today the matter of protecting of environment has been propounded as one of most important 2 problems of human community with systematic perception the matter of environment protection needs an environment management system that performs as important part of management information systems in integrate form along with other accounting information system. The management can undertake important role in helping to environment protection against polluting manufacturing companies in addition to find out the how to record the spent expenditures in accounts or how they can be disclosure. These are the matters that accounting with proceeding to them shall provide a suitable policy and information to management. In present age due to some environmental limitations particularly in global business and narrowing the competition area all are agree with the matter that the managers of business enterprises are under increasing pressure that not only reduce the operational expenses but should minimize the effects of environment obtained of their operational activities this pressure exertion is exercising from groups like shareholders, Government, mass media, consumers, investors and other organizations, environment accounting will mobilize the organization into the instrument that review in traditional accounting and rectify it in manner that could processing the information related to environment expenses and report in suitable way and provide to the managers. Environmental Accounting systems is based on changing thought of classic accounting and its completion, in this regard the expenses issuing of pollution and its removal be calculated as function of services or product beside of profit and expense resulting of themselves. The Environmental accounting can creates connection link between environmental managers and accountants and encourage both the groups that by working together move to a side that the financial as well as environmental performance improve in future. Enterprises, which are important subjects of economical activities, play major roles in economical activities. Therefore, clear incorporation of the objective called environmental conservation in each business activity becomes a powerful motive force for the structural transformation of this economic society. It is important for people, regions, and administrations involved in enterprises to correctly evaluate such attempts by the enterprises and be able to prepare the system that can support the attempts for the entire society. Eco. Env. & Cons. 20 (3) : 2014 Environmental accounting is one of the frameworks for quantitatively evaluating the attempts for environmental conservation by enterprises. For enterprises, environmental accounting is a management analysis method designed to increase the efficiency and effects of tackling environmental conservation within the enterprises. For the nation, environmental accounting is an effective information method for understanding how enterprises approach environmental conservation through a standardized framework. However, there were problems in environmental accounting due to the absence of a common framework. To overcome the problems a guideline for developing a common framework became necessary for both the provider and receiver of the information relating to environmental accounting. A specialized neutral organization was considered to be appropriate for compiling the guideline since environmental Conservation has an important social significance. Environment Definition Now days the term of environment is talk of every one, what is the real meaning of this word? Environment is one of the very complicated and lesser known words. It means all surrounded objects around us. This term as have been mentioned in ecology’s books is of a complex and intertwined phenomenon which includes the social environment, biological and physical properties. (Shah veysi Farhad, 2008). The Definition of Environmental Accounting Before turning to the analysis of environmental accounting’s benefits it is first Important to define environmental accounting itself, as well as the meaning of “better “accounting methods and data. Environmental accounting is a term with a variety of meanings. In many contexts, environmental accounting is taken to mean the identification and reporting of environment specific costs, such as liability costs or waste disposal costs. For the purposes of this analysis, a much more general definition is used. “Environmental accounting” is more than accounting for environmental benefits and costs. It is accounting for any costs and benefits that arise from changes to a firm’s products or processes, where the change also involves a change in environ- SAREMI AND NEZHAD mental impacts. As will be shown, improved accounting for non-environmental costs and benefits — input prices, consumer demand, etc. — can lead to changes in decision-making That has environmental consequences. Thus, we will de-emphasize any clear demarcation between “environmental” accounting and accounting generally. Environmental accounting information need not be the product of accountants, nor Need it be used by accountants? Instead, it is any information with either explicit or implicit financial content that is used as an input to a firm’s decisionmaking. Product designers, financial analysts, and facility managers are equally likely to be the users of environmental Accounting data. Almost any type of information collected and analyzed by firms will qualify. Examples include input prices, technical and scientific studies that relate production processes to physical outputs, and legal, marketing, and financial analyses. History and status of environmental accounting • The accounting profession is often accused of being too concerned with the numbers and not concerned enough about the more intangible aspects of a company’s operations. Environmental accounting, also called social accounting, is a type of accounting that attempts to measure both the social and environmental impacts of business decisions. (John Jones M, 2010). • Environmental accounting started receiving attention during the energy crisis in the 1970s. Although the issue was given consideration for a time, the energy crises ended and the 1980s ushered in a new era of economic prosperity. The practice of environmental accounting faded into the background before any standards for measuring economic impacts were developed. Legislation and agreement on how to account for environmental factors and what factors should be counted were difficult to come by. That time companies were faced to concept of industrial reporting environmental liabilities. The aforesaid companies were initially reluctant to disclose harm the environment in their financial statements. However, with the passage of time and increase the amount of damages, the companies were 3 forced to abide by these issues Finally the Environmental Protection and resource recovery Act in 1976 and the comprehensive responsibilities act, indemnity and liability environment act was adopted in 1980. Also in 1990, the Accounting Standards editors Board publish the journal no. (8-90) with title capitalizing the costs of environmental liabilities pollution. In this regard, it was concluded that the costs of environmental to be determined liabilities should be based on a clear plan to reduce pollution. Environmental accounting started receiving attention during the energy crisis in the 1970s. Although the issue was given consideration for a time, the energy crises ended and the 1980s ushered in a new era of economic prosperity. The practice of environmental accounting faded into the background before any standards for measuring economic impacts were developed. Legislation and agreement on how to account for environmental factors and what factors should be counted were difficult to come by. In the 1990s, a large upswing in environmental protection activism brought environmental accounting back into the consciousness of both consumers and businesses. Gradually some standards for environmental accounting were implemented by prominent accounting organizations such as the Financial Accounting Standards Board and the Accounting Standards Executive Committee of the American Institute of CPAs. Establishment of environmental accounting with regard to a similar major cultural change can be reflected differently in society. However, monetary economics has been the factor of communities’ development during the past 300 years. The reason of using Environmental accounting term is that there is an ecosystem that states a particular company, professional individuals, business, economic or market. Environmental accounting started receiving attention during the energy crisis in the 1970s. Although the issue was given consideration for a time, the energy crises ended and the 1980s ushered in a new era of economic prosperity. The practice of environmental accounting faded into the background before any standards for measuring economic impacts were developed. Legislation and agreement on how to account for environmental factors and what factors should be counted were difficult to come by. In the 1990s, a large upswing in environmental protection activism brought environmental accounting 4 Eco. Env. & Cons. 20 (3) : 2014 back into the consciousness of both consumers and businesses. Gradually some standards for environmental accounting were implemented by prominent accounting organizations such as the Financial Accounting Standards Board and the Accounting Standards Executive Committee of the American Institute of CPAs. Establishment of environmental accounting with regard to a similar major cultural change can be reflected differently in society. However, monetary economics has been the factor of communities’ development during the past 300 years. The reason of using Environmental accounting term is that there is an ecosystem that states a particular company, professional individuals, business, economic or market. Processes of development of environmental accounting in matrix point of view: 1. 1970: A descriptive approach using normal carried out patterns. 2. 1981-1990: The role of environmental accounting information in information disclosure regarding environmental activities. 3. 1991-1995: Evolution of environmental accounting in disclosure of affaires and to lunch environmental accounting. 4. 1996: Attention to role of environment accounting for environmental performance based on regulatory standards. 5. 1997: Creating a framework of environmental accounting in the preparation of accounting standards. costs that business decisions will have on the environment. For example, before choosing to close down a manufacturing plant and outsourcing the function to a foreign corporation, a business uses environmental accounting to determine the shortand long-term effects of the decision, such as unemployment in the plant’s region. Environmental accounting is often championed as a component of corporate social responsibility.( Sajadi Seyd Housin, 2008) 1. Identify environmental opportunities and straiten additional costs that are without value adding. 2. To estimate and calculate estimated environmental of enterprises expenses and including them in factory overhead costs generally. 3. To identify environmental opportunities for net profit creation. 4. Creation and maintenance of an environmental information system to improve operational management. 5. Determine future cost and yield arising from the implementation of Environmental Management Information System 6. To help design a manufacturing process of goods and services compatible to Environment. 7. To provide accurate quantitative information on volumes and economic effects to interested parties within and outside the Group 8. To provide numerical environment-related information useful for decision making by management and supervisors at the working level. Environmental Accounting Objectives Why should we do environmental accounting? To enable member States to gain a better understanding of accounting and reporting issues related to the environment; and to contribute to the harmonization of the approaches that member States are taking on environmental accounting and reporting. The purpose of environmental accounting is to monitor and evaluate the status of environmental activities in a quantitative manner as much as possible. In accordance with this purpose, continuous review of item classifications and scope of data collection, etc. will be conducted for further refinement in methodologies of environmental accounting, including the following. Verification and clarification of the criteria for determining what investment and expenses are to be increased or decreased. Environmental accounting is the practice of using traditional accounting and finance principles to calculate the Environmental costs are one of several types of costs that companies incur to produce goods and services are and subsequently environmental performance is one of important criteria in business ‘s success measurement in today’s world . (Arbab Hamid Reza, 1996). Environmental costs and its performance have attracted the attention of managers for the following reasons: 1. Most of the major environmental costs can be significantly reduced or be eliminated as a result of commercial decisions. 2. The environmental costs may be ambiguous or not considered at all. To overhead accounts. 3. Many environmental expenditure can be removed by earning money of selling useless SAREMI AND NEZHAD 4. 5. 6. 7. 5 byproducts and receive a certificate (green technology). Environmental expenditures better management can be brought developed environmental performance and major benefits for human health and on the other hand success of business. Understanding the environmental costs and performance of the production process can lead to more accurate costing and pricing, of product and can help companies to do their designs process of producing goods and services with more emphasis on environmental issues. According to the competitive aspect the goods and services that may be observed in cases of environmental can be preferred. Environmental accounting and environmental performance can support development of a company and its practical in environmental management system aspect. Variety of environmental accounting According to the U.S. Environmental Protection Agency (EPA) that provided in 1995 a broad term of environment accounting is divided into three distinct parts that centralization of each part and their users also are different: (Arasi Kzem Zadeh Nader, 2003) For multiple users who require environmental information relating to the Company there are various ways and means to accounting environment in order to fulfill these informational needs. However, there is wide agreement on the two main groups of environmental impacts related to the company: 1. Environmental effects of enterprises on cooperatives economical systems. 2. The effects related to environment system. (Physical data). Monetary and physical information Environmental impacts of companies on their economic are reflected by monetary information of environment. Whereas the companies’ effects on the environment is reflected by physical information. The first category - including all environmental im- pacts on the companies’ past, present and future financial flow and is defined in money term. (Such as expenses related to producing greener products, expenses related to environmental regulations crimes. (John Jones, 2010). The second category – including all material and energy in the past, present and future respectively that effect on ecological systems. Physical information defined in terms of physical units, eg. Kg, m3, j, etc. (for example kg of materials that consumed per client, the joule of energy which is used per unit of product). National income accounting National income accounting is measurement of macroeconomic and can provide information about the quality and value of the resources consumed by a nation or ethnic group for both renewable and nonrenewable group. The term environmental accounting may be referred to this national economy area. In this field, environmental accounting is also called natural resource accounting. The word is also called the natural resource accounting. The term natural resource accounting is introduced after entering into the environmental aspects of the national accounting Non accounting principles required in the environment accounting include: (Pak Gohar Lyla ,2009) 1. Environmental Science 2. Environmental laws and regulations. 3. Financial management and Risk. 4. Policies management and control systems Environment reporting results is including pricing based on absorption costing and bio accounting. Three sets that are involved in the accounting environment : (Khosh Tinat Mohesn, 2002) 1. Top managers of Enterprises: who are founded environmental policy. 2. Environmental Management at executive levels: who Bering fulfillment environmental policy 3. Employees of Environment: are involved to major decisions for environmental control equipment. Users centralization of each section Accounting system used outside the organization outside the organization the inter-organizational National nations commercial firms commercial firms, product line income accounting Financial Accounting management accounting managers in different parts 6 The advantages of environmental accounting The main advantages of environmental accounting can be briefly stated as follows: (Shah Vysi Farhd & Selmanian Mohammed, 2007) 1. Adequate environment accounting system is supportive to achieve sustainable development that to be measure of the of the main tools extent for measurement, control and decision making. 2. The environmental costs either of current costs or capital costs will increase salient from day to day. 3. Management is needed to financial information about environmental costs. 4. Fundamental cost planning requires basic financial information. 5. Environmental costs may be hidden in overhead accounts or otherwise overlooked. 6. Beneficiaries’ need (governments, investors, lenders, banks, NGOs, etc.) to financial information on the environmental is increasing organizations. 7. Many environmental activities are quantity, have financial nature and therefore have multitude impact on costs, assets and liabilities of organizations. 8. It is obvious that each business unit has a main output and secondary that environmental pollution is amongst them. If the business do not pay expense to modulate or prevent it so third parties of society must then bear the incurred cost. 9. Authentic Resource management in a friendly attitude towards environment leads to direct benefits such as creating a higher goodwill or better image of the organization. 10. The existence of an environmental friendly attitude will create a competitive advantage for organizations. 11. For environmental costs and performance Accounting can support the development and implementation of environmental management system (EMS) and the credentials of 14000 ISO. Because of above said reasons there is this belief that the accounting should be responsible towards evaluation and disclosure of environmental performance in financial statements with their footnotes. There is no doubt that environmental performance measurement depends on the accounting system but Eco. Env. & Cons. 20 (3) : 2014 in order to do this there is need to have more information as compare with conventional accounting. Monetary approach to environmental issues is not correct in general. But economists and accountants have to make the best estimates according to conventional techniques. The Nature of the Environment Accounting There is always wrong perception by many accountants about fundamental nature of environment accounting therefore there are not environment accounting yet available which their reports be clearly accepted. (Gamini Herath, 2005) . In accounting them, each report of asset values, liabilities estimation, declared dividends, cost estimate and financial analysis of alternative investment options in a single procedure and may be true, but overall these information is not correct. And procedural rule will be different of economic, social and environmental consequences. Accounting income does not have Full meaning to the economical profit theory is earnings. So that the accounting earnings are called of the judgment accountants. So this belief came out that accounting practice is not reflect of the social context and financial statements report by enterprises is indicate to capitalist nature of these organizations only. Accounting control system and budgeting within organizations often reflect the distribution of power and culture in the resources distribution interprets in organization. And importantly as a increasing awareness about accounting is constructing and organizing the social realities has been created so that vital extract any organization and its defined limit and rand is in aligned and in one direction that means accounting system of every organization is reflect of extract and whole of organization. That is why organizations during their lifetime revise their accounting systems because of their success extent can be judged by their accounting system. Therefore the social dialogue about organizations and their success and effectiveness all are identifiable by accounting activities. The third matter is that current accounting is in summery form is application of traditional neoclassic economic. Therefore a part of and not all economic constraints force if the supply contract is a contract for accounting. Both interested in the property changes in term cash and include of limited assumptions of ethics and none of them ignore the social and envi- SAREMI AND NEZHAD ronmental issues of the activities in the field that do not have specified value. Based on the periphery of the necessary social and environmental accounting seeds are planted. Environmental costs the Costs that are imposed on companies due to environmental regulations are considered clearly as environmental costs. Other costs, such as costs for the improvement and renovation of environmental quality, the costs related to environmental pollution control equipment, fines and penalties due to non-compliance with environmental laws and regulations protecting the environment also certainly are considered environmental costs. Other environmental protection costs are also environmental costs. Even if these costs are not obligatory by law. There are other costs that to determine whether these costs are part of environmental costs or not is difficult. For example, should the equipment maintenance costs from beginning be considered due to less pollution of environment? (Hejazi Rezvan, 2011). Do the cost of implemented attempts to control the allowed time for raw materials and produced supplies in the storage racks and storage should be considered as environmental costs? (If these raw materials and supplies for their expiry date be rotten and discarded as waste cause environmental pollution). The success of environmental accounting does not depend to correct classification of a company’s all expenses. But the purpose of environmental accounting is to provide information to those who need information or can use this information. Some companies for classify the costs that cannot aid certainly that are they environmental costs or not, use the following ways: 1. The cost items for a specific purpose are considered as environmental cost whereas the same cost for other objective does not consider environmental cost. 2. A part of this cost or activity is considered the cost of environmental cost. 3. If enterprise determines that more than 50% of an item cost is environmental cost, it considers whole expenses as environmental cost for accounting and managerial objectives. 4. The organizations have more freedom of action about these costs and they are in the discretion of the company. They purpose to use it as a base to the accounting environment and to determine what costs should be defined and how it should be classified as an environmental cost. 7 Environmental accounting usefulness reasons Manufacturing and service companies bear various types of costs. Environmental costs are one of these expenses. Environmental performance is one of the most important factors in evaluating a company’s success. Environmental costs and performance of the companies are worthy of special attention to management due to the following reasons (Khosh Tinat Mohesn & Jafari Seydeh Mahabobeh, 2005). 1. Many environmental costs can be considerably reduced or even eliminate them with use of better business decisions making to invest in more compatible with environmentally technologies (green industry) and redesigning processes and products to Because some of these costs may not create any value added to the system or product. 2. Better management of environmental costs can also improve corporate environmental performance (by reducing pollution and protecting public health) and Bering substantial benefits to society. 3. Understanding and awareness of environmental costs and the environmental performance of products can buy correct and well priced products to improve and companies to assist in the design of environmental friendly processes and products. 4. It is proved that with respect to processes and products comply with environmental best competitive advantages for the company’s products to customers. The correct Understanding of environmental costs and the awareness environmental performance of products can improve correct and accurate costing and also pricing of products and assists enterprises in process designing and Environmental compatible products. It is proved that with respect to processes and manufacturing products comply with better environmental conditions creates competitive advantages for the company’s products to customers. Significance of environmental accounting The “environmental accounting system” that is targeted in this report indicates the following mechanism: (Behzad Latifian*1, Ayoub Jasemi2, Mohammad Bandari, 2014) Mechanism that enable enterprises to measure, analyze, and announce the cost for environmental 8 conservation in business activities and the effects quantitatively (monetary units or physical quantity units) as much as possible - effects that were achieved by the activities - for promoting the tackling of environmental conservation efficiently and effectively while maintaining the friendly relationship with the society in order for sustainable development).” Some effects corresponding to the “environmental conservation” associated with the environmental measures by enterprises may be difficult to measure quantitatively. However, effects targeted by environmental accounting are classified into the following major categories. (1) “Environmental conservation effect” that controls or avoids the environmental impacts caused byBusiness activities (2) “Economical effect due to environmental measures” that contributes to business revenues The effect (1) is the social effect intended by the environmental measure itself and (2) can be the internal Effect that is generated associated with the effect (1). What kinds of companies are able to implement environmental accounting? Environmental accounting can be used in large and small companies in different industries and also in manufacturing or services sectors. Environmental accounting can be used in large-scale and smallscale or systematic manner based on the fundamentals needed. The selection form of environmental accounting by enterprises reflects the goals and reasons for its use. (Muller, Nicholas Z., Robert Mendelsohn, and William Nordhaus, 2011) In any company its senior management support is essential for the successful implementation of environmental accounting. Environmental accounting may cause for creating fresh look at the environmental costs, and the company’s performance and decisions in this area. Senior management Commitment in implementation of environmental accounting lead to create positive attitude and motivate in employees to accept this type of accounting. Companies to implement environmental accounting should engage operating teams together include the system designers, chemists, engineers, production managers, operators, employees, purchase department and accountants (those who probably have not worked together before). Environment ac- Eco. Env. & Cons. 20 (3) : 2014 counting is not merely a discussable in area of accounting and requres to collect information from all aforesaid groups. These individuals needs to talk with each other to achieve a common understanding on environmental accounting perspective and realizing to this vision. Cost-allotment process in environmental accounting One of the most important duties of the environmental accounting is to attract the attention of directors and shareholders of the company to environmental costs. Those who may have the ability and competence to identify ways to reduce or avoid these costs and at same time same time improve environmental quality. To do this important requires taking out some of the environmental costs from overhead accounts and allotment them to the appropriate account. Company can with allocating environmental costs to products or production processes that cause these costs because these costs lead that to managers of various departments and operational workers identify the ways to prevent pollution and reduce environmental costs and increase their benefits. (Lin Li, 2001). The other alternative is that, some of the overhead costs that can be not reflect in the cost of the product and its selling price. In both cases has been said that managers do not get correct information about the costs of production. Thus, internal accounting reports do not provide sufficient stimulus to find ways to reduce these costs. To separate environmental costs (often hidden) from overhead accounts and allocate them to products or production processes reveals these aforesaid costs stimulant for managers, engineers, production designers and others and this matter is very important because it can help the managers to target the production costs reduction and environmental costs and improve the company’s performance in this area. Cost allocation process in Environmental accounting in brief is as follows: 1. Determine the scale and appropriate framework for these costs. 2. To identify the environmental costs. 3. Specify the amount of these expenses. 4. To allocate environmental cost to processes and products. Environmental costs current costs Classification in Profit and Loss Statement SAREMI AND NEZHAD 9 1. can specific environmental costs be considered as an extraordinary item? Extraordinary items arising from transactions events and that have the following specification: (A) they are not expected to be occur in the past few years. (B) They do not arise from ordinary activities of the business entity. (C) They are not depended to management or proprietors decisions. The Important events that are associated with environmental damage and have extra features items may be accepted as extraordinary items, for example, the explosion of a nuclear reactor, which has a detrimental environmental damage, consists of the environmental loss. Do Environmental costs should be classified as operating expenses or non-operating expenses? In most cases, the environmental costs are associated with operational activities so they are considered as operational costs .Of course, there is also exception i.e. environmental costs may not be associated with operational activities, such as the cost of clearing a desolate place. Disclosed in the financial statements following table shows the classification and disclosure of environmental costs in the profit and loss statement. (Farzani Hojat Ola & Heva Ratagar Moghadam, 2011). Implementation of environmental accounting The following ten steps are more provided to achieve the suitable and profitable environment with use environmental accounting. Also, to achieve good results the transposition process should be followed. (Seyd Nejad Fahim, Seyd Reza, 2004) 1 - The first step is to identify the company’s operations environmental impact. Environmental impacts mean the material and energy that accedes into the company, flows in it and then goes out and also includes the effects of these flows. In this process, the Company should create a conceptual model and identify all input materials an energy and tracing the process of material and energy circulation and show this process in form of (Box) till goods product , services or wastage producing (or whatever in form of goods or services does not imaged of value added) it comes out from it. This input - output model that has been stated completely should be converted in to inflow diagram, which is more comprehensive along with details flow chart that shows waste occurs in which process of design, manufacturing, warehousing, distribution, office process. In addition, the company’s compliance with environmental legal responsibilities should be transparent regarding to the environmental effects of the company’s operations. Then should identify the main flows of material and energy (flow chart) and specify in form of quantity i.e., to put the appropriate and dependable values for all inputs and outputs, including goods, services or products, and wastages. Since material never be wasted unless the input values which is not detectable in value-added products certainly have Classification & disclosure of Environmental Ccosts in the Profit and Loss Statement. Requirements Or present procedure Source of Environmental costs Source Shall be disclosed separately. Amount detected may be disclosed separately. A) B) Reconstruction part of premises may be disclosed losses separately The part of future environmental expenditures related to discontinued operations may be placed in profit & loss discontinued operations In most cases, a portion of the entire will amortized disclose the amount of depreciation of capital assets Is required Requires separate disclosure of the amount of Transitional costs depreciation. It considers as transferred Profit or loss of property or total amount of removed Requires that the amount per cup of capital assets should be disclosed. C) D) E) Environmental costs Future Environmental Expenditures that are related to past events and transactions and are recognized as liabilities. Environmental Future Costs that are related to future transactions and events and a part are identified and for future The Amortization of Capital Asset Cost related to the Environment. Amortization of transitional expenses related to the environment (F) The Part of Environmental costs not depreciates will be spent when asset will be Transferred to or realizable net is obtained from book. 10 been wasted unless you have not yet used This process shows that to what extent accounting system to track non-monetary items is defective. But its results that is called (analysis of input - output) or (ecological balance) is possible to be determinant and valuable in the environment improvement. This study also provides the fundamental data that based on it the future performance of the company can be evaluated. Environmental accounting must be rooted in the understanding of material flows, energy and environmental impacts not based on financial flows, and their measurement with understanding of these process and their effects can apperceive that how environmental costs are raised .Then with recording and tracing original follows of matter and energy can create the basis for management and improving environmental performance. Profitability Improvement also will be achieved through waste reduction and better utilization of resources. 2. Environmental Costs of enterprises are identified and basic information is collected about the diversity, distribution, extent and their reason. Environmental costs may be created in all stages of the company’s value chain these costs, from research and design to manufacturing, distribution, consumption, and beyond it to the reuse and recycling and reuse. Many of these expenses are hidden in the administrative and overhead accounts. The information obtained in the study of flows of matter and energy (first phase) should be used to identify and determine the more hidden environmental costs. Environmental costs will be associated to activities linked to this process and effects. Hence it is necessary that values the importance extent of environmental costs roughly be estimated. For example we should specify that what is percentage of total environmental cost in sale? This step is very important to reduce costs and profit improvement. The expenses estimation in fewer amounts causes the importance of costs considered less than real cost. The primary benefit of this approximate estimation of total environment cost is that with identifying its amount and importance and as well as the profitability potential that resulted of environmental performance improvement can be achieved the attention of management. 1. The flows of matter and energy and non-financial data tracking and reporting for all companies to be more relevant than most non-financial criteria, the more vulnerable and understand- Eco. Env. & Cons. 20 (3) : 2014 ing, Non-systematic collection and reporting provides feedback and support workforce, The support of the people who have them and achieving a good performance is vital,. 2. Environmental costs should be tracked and reported. The cost of the second stage have been identified and recorded in the official accounting system should be followed. Environmental costs must be recorded and regularly targeted because otherwise it will be treated as trivial as not merely a past more visible. All business units are external environmental costs of their activities arises. But other agencies and the general community should bear these costs are. This track is also appropriate for prospective companies to track the value of such alarmed, for most companies internal environmental costs are so high that the proposed method is feasible for them. 3. Decision models used in the company in terms of sensitivity to environmental effects and the costs must be examined. More companies are making models of already knowing the environmental costs when the environmental and nonfinancial measure of performance budgeting and performance evaluation system is involved. For environmental purposes, it is necessary to determine the financial position of such strategic goals. 4. To allocate environmental costs to products, processes andorganizational units, better ways must be devised. Using Activity Based Costing and Activity-Based Management (ABM) significantly reduces the environmental costs and improves environmental performance. Activitybased costing and activity-based management are tools and concepts that revolutionizing management accounting and grants a new and powerful role to accounting in global advanced organization competitive. With help of these methods can connect the expenses to the activity of creating them. Environmental Reporting Since Environment Accounting also includes environmental reporting environmental performance is important from the viewpoint of users of financial reports and although benefits of these costs are not ratable to money , however it causes the distinguish creation in the profitable firm as a green industry and despite of advantages in maintaining a SAREMI AND NEZHAD competitive market among the same non-green industry will have useful and effective impact on stock prices of such firms in the stock market through social popularity creation. Therefore environmental reporting should be considered by managers of economic entities with more detailed look, especially the companies that incur large expenses in the field of environmental issues. (Mehenna Yakhou & Vernon P. Dorweiler, 2004). Units of measurement in the accounting environment Environmental accounts show how the environment contributes to the economy, the impacts that the economy has on the environment, and how society responds to environmental issues. They include natural capital accounts (oil and gas), physical accounts (fuel use, energy consumption, atmospheric emissions, material flows, and water), and monetary accounts (environmental taxes and environmental protection expenditure). For 2014, experimental natural capital accounts (land use and forestry) are also included. Environmental accounts are ‘satellite accounts’ to the main National Accounts and they are compiled in accordance with the System of Environmental Economic Accounting (SEEA), which closely follows the UN System of National Accounts (SNA). This means that they are comparable with economic indicators such as Gross Domestic Product (GDP) if green accounting be taken seriously it should not be set aside for environmental services because of the difficulty in measuring (pricing). But these services must be precisely defined, although the definition of ecosystem services of economic and methodical form is constant with definition of goods and services used in traditional income accounts. (James Boyd, 1998) Overall Buying National Accounts is calculated selling & buying of goods and services in the economy with its Wight of price to achieve a cumulative sum such as gross domestic product (GDP). These account no means alone application and type of data that is used in calculating GDP. These accounts alone are of no practical means and type of data that is used in calculating of GDP usually specifies with measurement units particulars such as products and producing services in enterprises. Therefore in the definition of environmental goods and we cannot refer to the real markets but we can get pattern of this model. If the environmental conditions during the passing time be reviewed the 11 units of measurement should be measured clearly and according to consent ecology and environment. Conclusions Many companies today are faced with environmental issues and seek appropriate ways to report and disclose information to the general public. Pollution as a major problem in today’s society, in Iran has become so intense that its capital is known as one of the most polluted cities in the world. This matter justifies the necessity of implementing environmental accounting as an attempt to protect the environment. If appropriate Environmental accounting system establish in the country accountants can be empowered arm for government relating to financial and economical control. In this regard relevant Professional associations should undertake the matter of formulate and compilation of standards and professional work particularly environment accounting standards, it is as comprehensive tool to insert environmental considerations in business decisions. Enter the internal environmental cost in accounting system helps companies to make decisions that In addition to increasing the long-term profitability also improve environmental performance and by introducing himself as the green industry to capital markets provide shareholder wealth increases causes . Adopting this type of accounting can participate the company in a good competitive position with other companies that will apply only prevalent accounting. A contextual view of the need for integration of an environmental policy with business policy, and for a multidisciplinary team, is given from a business perspective: 1. The role of accounting in supporting both corporate environmental strategy and corporate business strategy and 2. The several accounting sub-disciplines related to environmental issues. Emphasis on the multidiscipline team is to support a top-level strategy and to achieve the benefits from directing a company in an environmentally sound manner support a top-level strategy and to achieve the benefits from directing a company in an environmentally sound manner. Reference Arasi Kzem Zadeh Nader. 2003. Environment Accounting. 12 Tadbir Journal, no. 134, 14th year, Tehran, Iran Arbab Hamid Reza 1996. Natural Resources & Environement. Nie Pup., Tehran, Iran, Behzad Latifian*1, Ayoub Jasemi2, Mohammad Bandari . Environmental Accounting and sustainability Report, International Research Journal of Applied and Basic Sciences, 2014 Available online at www.irjabs.com Vol, 8 (3): 325-328 Science Explorer Publications. Burritt, R. 2004. 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