Assignment writers in Sri LankaIntroduction

Introduction to the Work Based Project

This project attempts to apply and implement ‘Environmental Management Accounting (EMA)’ to enhance ‘Financial Performance’ of an organization focusing on a manufacturing firm in an increasingly competitive context.The motivation of this project proposal is to identify key link between ‘EMA’ and ‘Financial Performance’ of an organization, with reference to a manufacturing firm in Sri Lanka and to propose the application and the implementation of the project.

“Environmental Management can be identified as a new trend of management accounting, where most of the entities adopt this method to improve their performance and achieve sustainability” (Schaltegger, Burrit & Peterson, 2003).However it’s emphasized, most of the business perspectives, adopt this method to improve their performance and achieve sustainability (Schaltegger, Burrit & Peterson, 2003). In accordance to the existing literature it’s found to be that environmental issues can impact an organisation either as an opportunity or as a threat (Roome, 1992; Gupta, 1995).

The project is objected therefore structured to seek relevant answers to above via presenting theoretical review and subsequently presenting empirical study of applicability of EMA to the selected manufacturing firm within a competitive context in Sri Lanka.

Introduction to the Business Organization

Buddhi Batiks is an ethical fashion business, where the batik craft is practiced by women, some of whom have been with the workshop since the company’s inception in 1970, and are considered the life blood of the business. The batik workshop, located in the village of Koswadiya on the north-western coast of Sri Lanka, in turn plays an integral role in the economy of the village. In addition, the workshop has no age discrimination, with artisans ranging in age from 18 to 65. The current workshop manager joined in 1970 as a worker; she is now 63 years old. The workshop allows flexible hours for our older artisans, and values their experience and skill in training the younger artisans.

Batik is a craft that combines the illustrative skills of an artist with a wax-resist dyeing technique applied to natural fabrics like cotton, silk, and linen. Buddhi Batiks is a leading proponent of this craft in the tropical island of Sri Lanka, and is noted for infusing contemporary design into a very traditional craft.

Each piece that is produced at Buddhi Batiks is hand-painted in wax by these talented artisans, and hand-dyed by experienced dye masters in a seemingly unlimited variety of colors, ranging from the most vibrant of hues to the subtlest, softest pastels and creams. The piece is then boiled and sun dried, and the process repeated over for every additional color. Each piece is therefore a unique product of several artisans’ tender care; each piece is a unique work of batik art.

Confirmation of employer/organization agreement for your project

03rd May 2016

‘Buddhi Batiks’
32 Ward Place
Colombo 7, Sri Lanka
Tel: (94) 11 2689488

Dear Sir/Madam

Letter for granting permission to use Buddhi Batik’s Organizations’ context for the Project on application and implementation of EMA

I am an undergraduate at Asian e University. I am in the process of preparing a project report as a work based strategic business project and am seeking permission to include the following material in my project report.

  1. Firms financial details
  2. Internal and External Business Process
  3. Private Profiles
  4. Strategic analysis reports

Please let me know if there is a fee for using this work in this manner.

Please indicate your approval of this request by signing the letter where indicated below and returning it to me as soon as possible using the self-addressed envelope. Your signing of this letter will also confirm that you own the copyright to the above-described material.

Very truly yours,

Name:

Position: Undergraduate

Contact No:

For copyright owner use:

 

PERMISSION GRANTED FOR THE USE REQUESTED ABOVE:

429350651023217210516.png By: Darshi Keerthisena

Title: Chief Executive Officer

Date: 10th May 2016

Identification of the Business Mentor

Buddhi Keerthisena is currently Chairman of the National Crafts Council and is still passionate about working to improve the batik industry and helping empower rural women throughout the country. He has been in the batik industry for 45 years now and during that time he has seen great changes. His philosophy has always been to create a good quality product so that customers have confidence in what they buy from them. We have to be honest to them and use good quality products.

Starting out with batik as a hobby, Buddhi’s batik creations soon became popular not only in Sri Lanka but in other countries and he found that his hobby was gradually transformed into a full time career. He held his first overseas exhibition in 1974 and since then has held over a hundred fashion shows and exhibitions in countries such as Sweden, Denmark, Finland, Norway, Italy, Austria, the UK, USA, Seychelles, Singapore, Malaysia, Japan and France, earning valuable foreign exchange for the country in the process.

When interest in batik declined in the 70′s it was Buddhi who made it fashionable to wear batik and got the many tourists visiting the country interested in visiting batik workshops and buying batiks.

The Project Objectives

Most of the entities are concerned about improving their ‘Environmental Management’ practices (Walley, 1994) to reduce the cost and wastages (Allen, 1992; Schmidheiny, 1992). According to the existing Environmental Management literature it is understood that environmental issues can affect the operations of the organisation either as an opportunity or a threat (Roome, 1992; Gupta, 1995). Hence, in this proposal an effort has been taken to recognize, primarily how the concept of ‘Environment Management Accounting’ has been exploited in Buddhi Batiks manufacturing firm in a competitive perspective andhow it is been applied and implemented in here.

 

The manufacturing firms within a competitive context have been relatively neglected, a gap that this empirical study attempts to fulfill. The Environmental Accounting Practices over Traditional Accounting Practices within a competitive context leaves the firms with numerous challenges and questions such as ‘What does it refers to as ‘Environment Management Accounting’ in an organization of a competitive context?’, ‘ How the ‘Environment Management Accounting’ practices can be used as a management control mechanism on organizations financial performance?’, ‘What are the most relevant environmental cost drivers?’, ‘What are the key challenges of adopting the concept of ‘EMA’ for an entity based in a competitive context?’.

Therefore the motive of this project is to emphasize the importance of adopting ‘EMA’ to a competitive context with reference to Buddhi Batiks manufacturing firm in Sri Lanka.

In order to explore the link between Environmental Accounting concept and financial performance of a company and how this is applied in to the organizational context, the following key project questions will be considered.

  • What is the justified definition for ‘Environment Management Accounting’ for an entity with a competitive perspective?’
  • How can the ‘Environment Management Accounting’ practices be used practically as a management control mechanism on organizations financial performance in Buddhi Batiks
  • What are the most relevant environmental cost drivers?
  • What are the key challenges of adopting the concept of ‘EMA’ for Buddhi Batiks based in a competitive context?

Thus the proposed study aims to discover the answers to these obstacles in an empirical way.

Methodology to be adopted

Philosophy of Inerpretivism will be used mainly in the project, as project complies with higher number of qualitative data (Tarauth, 2001). As Bryman and Bell (2003) and Saunders et al., (2009) portrays, Inerpretivism is simply, a socially constructed methodology with a challenge of understanding the world of the project subject while entering to the project world.

Firstly, Exploratory and qualitative methodology will be adopted since it is known to be achieving often relatively adequate score (Pearce, 1989). Semi structured interviews, in-depth interviews, questionnaires and online reports will be adopted for the purpose of data collection and for an accurate analysis of gathered feedbacks (Yin, 2003). Even though the interviews, which has the ability of answering ‘how’ and ‘why’ questions; represented as the main source(Yin, 2003; Saunders et al., 2009), other forms such as observation, financial statements, ratio analysis data will also be used for collection of data where ethical issues/ responsibility will also be considered ( i.e. ISO14001) (Yin, 2003; Saunders et al., 2009).

In order to answer the above presented project enquiries and to identify the link between ‘EMA Practices’ and a firm’s performance, it is essential to generate a clear picture of the entity’s current financial position, market position, current and future competitive strategies, goals, and objectives. By being a case study, this study extends the opportunity to gather the above data via company’s financial statements, interviews and questionnaires which will eventually lead to an accurate interpretation of the obtained data.

Throughout this project an exploratory and qualitative methodology will be used for the purpose of data collection, semi-structured interviews, in-depth interviews and questionnaires. Moreover to serve the purpose of triangulation, secondary data sources such as financial statements, ratio analysis data will also be used while adhering to project ethics as well (Yin, 2003; Saunders et al., 2009).

Due to the nature of qualitative project study, the amount of evidence tends to be higher (Carcary, M 2011). In order to organize, manage and analyze the collected data, “Nvivo” which is Computer Aided Qualitative Data Analysis Software (CAQDAS) will be utilized.

Due to the high usage of qualitative data within the study, a philosophy of Inerpretivism will be adopted. Furthermore in order to conduct the study a case study method will be used since this project is more focused on appreciation of different perspectives and applicability of concept of ‘EMA’ within a competitive context rather than accumulating facts and information towards a statistical generalization (Bryman and Bell 2003; Saunders et al., 2009).

Timeline Plan of Work

In order to gain a successful outcome through the project, a significant amount of work needs to be completed during the project period.

As the project title depicts, the project is likely to be concentrated on 3 such major areas as follows;

EMA in competitive context

Financial performance of Buddhi batiks

Relationship of ‘Environmental Management Accounting’ and ‘Financial Performance’ in Buddhi Batiks

Therefore it’s important to gather as much as information of the above areas through various sources via relevant literature and engrave a clear understanding.

The project plan of work has broken down in to several stages; each stage complies with an objective to achieve with sufficient time scales in the following format;

 

Primary ObjectiveScheduled DateEstimated Time Period (approximately)
  • Submitting the created final Project dissertation
  • Combination of all results for the final output
  • Recognition of Project Limitation, Weaknesses and Strengths
  • Application of Techniques to overcome the identified drawbacks
  • Innovating the Dissertation based on the discoveries
  • Analyzing and presentation of collected data
  • Obtaining the official acceptance from the selected manufacturing firm
  • Collection of Data and Information through internet, interviews and secondary sources
  • Project Specification Submission
June 30th
  • Gathering key literature
  • Preparation relevant objectives to answer related questions, Data analysis approaches, Legitimacy and Consistency issues

Conclusion

EMA is identified as a new functional tool in the discipline of environmental management process. Recently, increased consideration on environmental cost brought the attention of the business towards environmental as it is no longer valued as a minor cost which can be hide under general overhead pools and the use of EMA will enrich the control while saving significant amount of money..

It can be said that most companies do not know about the extent of their environmental costs and tend to underestimate them. This leads to distorted calculations of improvement options..

EMA can solve these problems. The mentioned accounting techniques are useful for EMA to identify and allocate environmental costs. In addition, there are alternative techniques to estimate environmental costs such as the ‘environmental cost decision tree’ as described by Rimer (2000).

Thus application of EMA to the Buddhi batiks has to be carefully analyzed and tailored rather than applying as generic system. The cost benefit analysis of the scope has to be conducted before applying EMA in practices. According to analysis it’s to be found that implementation of EMA practices is a transformation of business decision making process where the company realizes the important role which bright up the entity’s profitability terms.

  1. RELEVANT LITERATURE

As it is to be found through last decade of the accounting and business world, ‘Environmental Accounting Management’ has demonstrated a rapid growth as it continuously helped entities to achieve sustainability in the corporate world (Cullen & Whelan, Jasch, 2006). It has identified Environmental issues which can affect organizational operations either as an opportunity or a threat (Roome, 1992; Gupta, 1995).

The most recent literature focused on the concept of ‘EMA’ has predominately centered on the following aspects (as per project proposal)

  • What is Environmental accounting?
  • Key Roles of Environment Accounting
  • Benefits and Drawbacks of Environment Management Accounting
  • Emerge of “Environment Management Accounting” Concept
  • Academic debates – Environment Management Accounting

Curcio & Wolf (1996) highlighted the influence of ‘Environmental Accounting’ with respect to the firm value. The study conveyed that the entities that provide stake holders with quality services have the potential to enhance their ‘EMA’. Pradhan & Pattanik (2007) states that when disclosing environmental accounting information by entities, disclosure of any negative environmental information in sensitive area may affect the entities reputation and competitive position (Pradhan & Pattanik, 2007).

According to Schaltegger, Butter & Peterson (2003) companies cannot achieve their ultimate goal of business if they continue to maximize their profit at any cost, unless the entities run their business in a manner which satisfies the stakeholder.

In 1991 project of EMA by UNI was simply based on different companies over different locations with various strategies which found be of low quality and lacking of qualitative project nature.

When considering the relevant literature, most of the reviews failed to identify the financial outcomes and benefits of ‘EMA’ with reference to an accounting perspective. Hence an effort has been made to bridge the gaps between existing literatures.

Following will be a brief on what it is being to be discussed as the project and its literature reviews.

What Is EMA?

The definition of Environmental Accounting (EA) is expressed via ambiguous and loose perspective. With accordance to Environmental Protection Agency (1995), EA views as the identification, collection, measurement and allocation of environmental costs, and integration of identified environmental cost in to business decision making process and subsequent communication of the significant information to entity’s stakeholders.

Limitation in Traditional Accounting System

Concern on environmental issues along with their cost-benefit impact on the business has been increased worldwide. Hence the matter is descriptively discussed by Gray et al. (2005) as conventional practice on management via financial reports which are weighted more on the financial measures such as sales, profit etc.

IASB requires the financial statements to be prepared in favor to the parties with resource allocating decision makers in a primarily economic or financial perspective.

Materiality Concept is one of the keystones in financial accounting which denies the disclosure of environmental information as increased difficulty in quantifying the environment cost..

Entity Assumption separates the entity from its owners assuming entity has its own position, finance etc.

Advantages of Environmental Reporting

EMA particularly holds an important view for internal management initiatives with significant environmental focus, in the form of cleaner production, supply chain management, environmental sensitive product or service design, superior environmental purchasing and environmental management system.

EMA in Practice

EMA is the combination of both environmental financial and non-financial information for the purpose of management decision making process. It’s essential to identify and allocate the environmental related costs for accounting purpose (Bennet & James 2002, Frost 2000). Literature reviews various approaches to the identification of environmental costs and also it’s highlighted the environmental related costs varies from each organizational view.

Conventional costs-environmental related raw material and energy costs

Potentially wider costs- identified costs but yet recognized under general overhead costs

Image and Relationship costs- cost of preparation of environmental reports

Sustainability and EMA

Increased importance of environment led the companies to adopt environmental accounting and EMA for the survival of the business in long run and to face the competition in the business world. Sustainability is simply defined as the development that fulfils the needs of the present world without comprising the capability of future generation to meet their own necessities (Brundtland 1987).

EMA and competitive context

EMA is a relatively new tool in Sri Lanka in contrast to European context; profit maximizing organizations are in the search of increased profit even at the cost of high environmental impact. Janet and Daryl (1996) stress out there is a significant inevitability shift from stricken legislation to self-regulated, market based and environmental friendly firm phase in competitive context. But it’s noted study and practice of EMA in competitive perspective still in the infancy stage and remains competitive through the years.

EMA and Business Performance

EMA is basically move along with improved environmental performance or positive gesture towards regulators and the stakeholders (Johnstone 2009).The costs of environmental impact of the company are traditionally linked with EMA activities (Yang et al 2011, Darnall and Edward 2005).The overall success of the adoption of EMA will also depends on the effectiveness and efficiency

Limitations Associated with EMA

EMA is impeccably a valuable tool of management, thus despite the benefits the literature point out limitations EMA suffers from as well. Thus a challenge arises with absence of consistence guidance to deal with various phenomena’s which question the management accountant decision based on environmental cost.

 

  1. SELF EVALUATION

The empirical study as directing on the initial phase of implementing EMA into practice, the results did not sufficiently revealed the impact of new concept. Thus, significant number of benefits in the form of finance, brand image is to be achieved in long run. Despite the benefits, EMA would also own some of the limitations.

The study is compromised with obvious limitations which could be considered in future analysis. One of the limitations can be related to the number of interview representatives, which makes it hard to portray the every single aspect of the entity which affects the management decision making process. However management and customer perspectives participated in all interviews with no server resistance and as a result enriched data was collected for observation purpose.

Thus the study on future project in this case can be extended to consider large samples on empirical analysis figures. A corporative analysis between private and public sector will help to diversify stakeholders in decision making process. Hence additional project can be directed into areas of comprehensive study considering a number of years to draw valid conclusion regarding underlying trends, techniques, processes and results of EMA practices in competitive context.

An important avenue for future project is a study focusing on the after effects of implementation. This study is restricted to initial stage of adoption with the aim of identifying how chosen manufacturing firm adopt and interpret new management mechanism. Thus potential influence of EMA is volatile due to both external and internal economic pressure.

The results of the analyses above can be summarized in a SWOT analysis, in which strengths, weaknesses, opportunities and threats are systematically recorded. Strategic options can be determined by identifying strengths and weaknesses on the one hand and opportunities and threats on the other hand. The ultimate goal of a SWOT analysis is to gain a structured picture of the organisation in the context of its environment and to support strategic decisions. This is why the SWOT analysis is part of the final steps of the self-evaluation process: to draw conclusions and to determine new strategic directions.

Strengths

• Advanced knowledge development;

• The firm is closely involved;

• The activities have a clear effect;

• A wide and active network, both internally and externally.

Weaknesses

• Only a limited number of companies in the sector are reached;

• Too little attention for the transfer of knowledge and awareness;

• Insufficient insight into the use of resources

Opportunities

• Extra attention and resources from the government for innovation in the sector;

• New technological breakthroughs in strategically important fields;

• Opportunities of strategic alliances with European innovation programmes;

Threats

• The competitive advantage of companies in the sector is under pressure by the economic crisis;

• Changing Sri Lankan legislation for public funding

References

ACCA (2012), ‘The state of corporate reporting in Malaysia. Malaysia’, the Association of Chartered Certified Accountants.

Barnham, C.,(2012), ‘Separating methodologies?’, International Journal Of Market Project, 54, 6, pp. 736-738

Carcary, M.,(2011), ‘Evidence Analysis Using CAQDAS: Insights From a Qualitative Projecter’, Electronic Journal Of Business Project Methods, 9, 1, pp. 10-24

De Burgos-Jiménez, J., Vázquez-Brust, D., Plaza-Úbeda, J. & Dijkshoorn, J., (2013), ‘Environmental Protection and Financial Performance: An Empirical Analysis in Wales’, International Journal of Operations & Production Management, 33, 8, pp. 981-1018

Etzion, D., (2007), ‘Project on Organizations and the Natural Environment, 1992- Present: A Review’, Journal of Management, 33, 4, pp. 637-664

Mangappulige Don T N M.,(2014), Application of the concept of ‘EMA’ in relation to the Financial Performance in a competitive context; an empirical assessment over a manufacturing firm in Sri Lanka, Dissertation Proposal

Orlikowski WJ and Baroudi JJ., (1991),’ Studying information technology in Organizations: project approaches and assumptions, Information Systems Project’ 2(1), pp.1–28

Pradhan B B and Pattnaik S., (2007), “Beyond Environmental Accounting: The Triple Bottom

Line Approach”, The Accounting World, Vol. 7, No. 1, pp. 7-15.

Rivera, J., 2004. Institutional pressures and voluntary environmental behavior in developing countries: evidence from the Costa Rican hotel industry. Soc. Nat. Resour. 17, pp. 779–797.

Saunders, M., Lewis, P. & Thornhill, A., (2009), ‘Project Methods for Business Students’ (5 edn.), Essex, Prentice Hall.

Trauth Em., (2001), ‘The choice of qualitative project methods in IS. In Qualitative Project in IS: Issues and Trends’ ‘Idea Group, Hershey, PA

Walley, N. & Whitehead, B., (1994), ‘It’s Not Easy Being Green,’ Harvard Business Review, 72, 3, pp. 46-52

***

“PART 2 – PROJECT REPORT ON IMPLEMENTATION AND ASSESSMENT”

PROJECT PLAN

INTRODUCTION

“Accounting is simply one of the key functions in a business, which enables the managers to make their management decisions. Thus management accounting is a branch of accounting which primarily focuses on satisfying information needs of internal management allowing them to make effective decisions. Accounting, which is the base of a company, has grown steadily in recent years exposing the companies to new changes of various accounting elements of the business. Thus the businesses world and society gradually increased their concern on business responsibilities towards the society and environment other than traditional stakeholder perspective which influenced the organizations to think outside the box. As a result the concept of ‘Going Green’ emerged with a strategic objective to enhance the business view towards environmental accountability via environmental reporting.

Even after many companies adopting Environmental Accounting (EA) to their businesses with the motivation of reducing in cost and wastage (Allen, 1992, Schmidheiny, 1992), it’s hardly to be seen adoption of this concept in Asian competitive countries due to lack of expertise and knowledge of EMA concept and applicability of it. Hence this piece of work is motivated to identify the relationship between ‘Environmental Management Accounting’ has been exploited in an organization focusing on a manufacturing firm in a competitive context.

To date, the applicability of EMA was brought forward by academics with the criticism over traditional accounting practices (Gonzales 2005, Telle 2006, Wagner 2007, Sharmo & Vredenburg 1998, Russo et al, 1997,). Cullen et al. (2006) supported the concept of ‘Green Management Process’ by demonstrating the rapid growth of EMA in terms of sustainability in corporate world.

The shifting focus towards EMA as a new trend of accounting over traditional management accounting in competitive contexts lead us to find answers for questions such as “what is it refers to EMA in competitive context?, How to adopt the concept of EMA to a manufacturing firm in competitive context?, How the ‘Environment Management Accounting’ practices can be used as a management control mechanism on organizations financial performance?, What are the major challenges to be overcome in implementing EMA in competitive context?’

The paper is therefore structured to seek relevant answers to above via presenting theoretical review and subsequently presenting empirical study of applicability of EMA to the selected manufacturing firm Buddhi Batiks’ in enhancing the Financial Performance in a competitive pressure building context.

OBJECTIVES OF THE STUDY

“The aim of the study is to observe the application of EMA in Buddhi Batiks’ manufacturing context, while identifying its relationship with the Financial Performance of the organisation.

The objectives of the study can be categorized as follows

  • Discussion of the theoretical framework of EMA
  • Discussion of the reasons for adopting EMA in to practice
  • Asses the relationship between EMA and Financial performance of the entity
  • Exploiting the challenges of adopting EMA in competitive context

The above mention aims and objective are reached through the methods of statistical analysis of the theories in favor of EMA and through the investigation of secondary and primary data. Then the study emphasizes the finding with the limitations and recommendations to future references to the study.?

JUSTIFICATION OF THE STUDY

“The study attempts to highlight the importance of EMA via application of the concept to Buddhi Batiks’ manufacturing firm in competitive context which can be found to be an untreated research scheme. Nonetheless the research contributes towards the literature of development and application new trend of management accounting to real world.

Evaluating the above, appropriate guidance will be provided to other manufacturing firms in competitive context to implement new management accounting methods over traditional methods to gain not only long term profit but sustainability as well to the business with the influencing findings. Thus the study represent as a contribution f practical example for the theoretical perspective.”

LITERATURE REVIEW

    1. What Is Environmental Management Accounting?

The definition of Environmental Accounting (EA) is expressed via ambiguous and lose perspective. With accordance to Environmental Protection Agency (1995), EA views as the identification, collection, measurement and allocation of environmental costs, and integration of identified environmental cost in to business decision making process and subsequent communication of the significant information to entity’s stakeholders.

Considering EMA, a universal definition or boundary is hard to be found. According to IFAC, EMA is defined as “the management of environmental and economic performance through the development and implementation of appropriate environment-related accounting systems and practices

”Hence this may include reporting and auditing for some companies as well. EMA emphasized cost relation to use of energy, water and material and generation of waste and emission due to business operations. It also considers the material costs and losses of material in waste and emission which have now become some of the prominent cost drivers in most organizations.

Thus in the countries with lower enforcement of legislation framework and relatively low level labor cost, material and energy usage consumption cost clarifies as significant cost drivers (Christine Jasch et al 2010).

    1. Limitation in Traditional Accounting System

Concern on environmental issues along with their cost-benefit impact on the business has been increased worldwide. Align with the relevant literature many authors have criticized the conventional management accounting due to the failure to report social & environmental externalities (Christine Jasch 2006).

Hence the matter is descriptively discussed by Gray et al. (2005) as conventional practice on management via financial reports which are weighted more on the financial measures such as sales, profit etc.

  1. IASB requires the financial statements to be prepared in favor to the parties with resource allocating decision makers in a primarily economic or financial perspective. Which limits the access to the important but not financially affected stakeholders?
  2. Materiality Concept is one of the keystones in financial accounting which denies the disclosure of environmental information as increased difficulty in quantifying the environment cost. This emphasize the concept of materiality restrict the disclosure of environmental impact on the financial reports.
  3. Financial accounting discounts liabilities frequently that will be settled many years later. This action enhances future expenses less riskier and less significant today. Likewise the environmental impact that would be going for years will raise significant concern in future but will not be appeared in the present financial reports and decision making procedure.
    1. Advantages and Use of Environmental Reporting

EMA particularly holds an important view for internal management initiatives with significant environmental focus, in the form of cleaner production, supply chain management, environmental sensitive product or service design, superior environmental purchasing and environmental management system.

Thus the EMA information has being increasingly consumed in external reporting purpose as well. The specific use and benefits of the EMA can be organized via three boarder views; Compliance, Eco-efficiency and strategic position as illustrated below (IFAC)

  • Compliance – Cost effective drives organization with environmental regulations and self-imposed environmental policies.
  • Eco-efficiency – Continues reduction of cost and adverse environmental impact via efficient use of natural resources in internal operations and final products. Assessing the total annual return on investment in eco-efficiency activities may illustrate this contribution.
  • Strategic Position – Evaluation and adoption process of effective environmental sensitive programs ensuring entity’s long term competiveness. Reporting to stakeholders such as customers, investor and local communities, estimation of the internal costs likely to be arising with future legislation are examples for the view.

On the other hand Advantages and the purpose of relies with Environmental reporting can be capitalized through the theories explained below;

  1. Stakeholders Theory

The disclosure of the environmental impact may be relied on the persuasion of the stake holders. Either it can be the positive/managerial theory; the company follows on the stakeholders where they are categorized in accordance with the state of the important. If the powerful stakeholders of the entity demand for environmental disclosure the organisation will do as so to maintain healthy relationship.

  1. Legitimacy Theory

The legitimacy theory is associated with social contract. Some companies disclose their impact on the environment as a part of social contact, in other words organizations’ continuously seek their position whether they perform in the edges of the norms, believes, expectations on the society which they operates (Suchaman 1995).Literature has shown business has used exploration of the environmental impact as a shield to defend issues that affects either on their code of ethics or competence.

  1. Reputation Risk Management

The use of environmental reporting will results in gain or maintaining the legitimacy prescribed by the society. When an organisation commits higher profile of impact on the environmental many stakeholders pursue the organisation for reassurance or else terminate their engagement with organisation in future. Given that in literature few organizations tend to provide environmental information, and those who provides tend to achieve improved reputation with competitive advantage.

 

4.4. Environmental Management Accounting In Practice

EMA is the combination of both environmental financial and non-financial information for the purpose of management decision making process. It’s essential to identify and allocate the environmental related costs for accounting purpose (Bennet & James 2002, Frost 2000).

However in accordance with the US environmental protection agency (1989) environmental costs depends on the intention of the entity in using environmental related information. Hence they categorized costs as follows;

  • Conventional costs-environmental related raw material and energy costs
  • Potentially wider costs- identified costs but yet recognized under general overhead costs
  • Contingent costs- the cost likely to be incurred in the future
  • Image and Relationship costs- cost of preparation of environmental reports

EMA is an attempt to take every possible affecting environmental factors along with significant environmental cost in to account with the aiming effective decision making. Most of the environmental costs are seen to be in ledger accounts in the financial accounts but yet recognized as general overhead. And equally it’s important to allocate environmental costs in relation to the product that generates it, as this contributes towards management to identify the root of the cost.

  • Accounting for environmental costs

Management accounting techniques for the allocation and identification of the environmental costs can be identified as follows (ACCA 2012);

  1. Input/output Analysis

This technique focus upon the physical quantity of the material input and product output. If the output quantity doesn’t equal to the input the residuals will be taken into account in terms of waste. Hence it forced business to focus upon environmental costs (UNBSD 2011, Envirowise 2003)

  1. Flow cost accounting

This focuses simultaneously, not only on the material flow but also the structure of the business, in the form of cost and values. Flow cost defined material flow, material, systems, delivery period, disposal, material value and costs incurred in the process. EMA can be benifitious with this technique as it reduces quantities while increasing the ecological friendly impact of the company.

  1. ABC costing

Activity Based Costing assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of one cost drier(CIMA 2014).

Environmental cost in the form of ABC system can be distinguishes between environmental related cost and environmental driven cost. When some environmental costs are increasingly difficult to recognize among general overhead, joint environmental cost features are attributed.

Schaltegger and Muller(1989) in regard to ABC system emphasize in order to get respectable results environmental costs should be allocated as follows;

  • Volume of emission and waste
  • Toxicity of emission and waste treated
  • Increased environmental impact
  • The relative costs incurred treating negative environmental impact
  1. Life Cycle Costing

Life Cycle Cost includes the cost of an asset throughout its life cycle as cost of investment, operation, maintenance, internal and external costs. Many companies comply with life cycle assessment to evaluate environmental costs and opportunities associated with it. This bridge the gap between accounting treatment for existing internal environmental costs and recognition of external impacts (Darnall 2008).

Hence Life cycle costing helps the organisation to identify and assess the environmental impact related to projects that may not visible in present providing comprehensive view of the product (Little 2000).

Thus EMA is a widespread concept based on its scope techniques on management accounting. EMA is viewed as an application of conventional accounting which is focus upon environmental impact of companies to the society.

Bruit et.al, (2001) developed multi-dimensional framework in order to identify environmental cost along with environmental management decisions;

  • Internal vs. external
  • Physical classification vs. monetary
  • Past and future time trains
  • Short and long term
  • Type of information

Within the borders of the above framework different techniques of EMA as discussed earlier can be assigned by the business with the purpose of the information need.

4.5. Sustainability and EMA

Increased importance of environment led the companies to adopt environmental accounting and EMA for the survival of the business in long run and to face the competition in the business world.

Hence environmental reporting and social reporting significantly referred as ‘sustainability reporting’ by literature in recent times (Bhur 2007, Brammer et al 2006). Sustainability is simply defined as the development that fulfils the needs of the present world without comprising the capability of future generation to meet their own necessities (Brundtland 1987).

Here the key question is how EMA can attribute to sustainability. The answer is built up upon the triple bottom line concept. By integrating ecological cost and benefits from environmental impact into traditional financial system, target of EMA is capturing the interdependency and dynamic interrelation among the three pillars which base of the pyramid of sustainability.

Thus, the triple bottom line concept can be expressed in the following dimension;

4.6. EMA and Competitive context

EMA is a relatively new tool in Sri Lanka in contrast to European context, profit maximizing organizations’ are in the search of increased profit even at the cost of high environmental impact.

Thus the competitive context firms realize the negative impact on environment will result in adverse performance in the organisation in long run (Durairaj et al., 2002).Janet and Daryl (1996) stress out there is a significant inevitability shift from stricken legislation to self-regulated, market based and environmental friendly firm phase in competitive context.

But the study is almost 25 years old which is represents an outdated portfolio. Hedge et al., (1997) focused on the public sector and EMA in south Asian perspective. The literature argues in the context of competitive countries in prior of south Asian there is a dearth of academics views on EMA practice.

Against this background, this empirical study on Sri Lanka is a contribution to bridge the gap between EMA literatures from south Asian competitive context.

4.7. EMA and Business Performance

EMA is basically move along with improved environmental performance or positive gesture towards regulators and the stakeholders (Johnstone 2009).The costs of environmental impact of the company are traditionally linked with EMA activities (Yang et al 2011, Darnall and Edward 2005).Thus EMA can be defined as the set of internal rules and regulation focus upon the environmental protection via different tasks and processes. Contrastingly Hahn et al. (2010) argues many of the researchers strongly intense on their approach which doesn’t go align with reality and increase limitations in conceptual framework via associated with win-win business situations.

Better Environmental Management can be obtained via variety of environmental practices and each practice gives different effects on the performance and the nature of the business (Gonza´lez-Benito, 2005). Competitive advantage always might not be the result of implementation of EMA practice (Kaptein et al 2001, Margolis 2003

If these negative implications are not recognized with due, the business will have to deal with scare resources and penalized society. Hence in the literature there are two main hypotheses taken in to account when harnessing he relationship between EMA and Business Performance as follows;

  1. Positive relationship of EMA and Financial performance
  2. Negative relationship of EMA and Financial performance

On the other hand proactive as a strategy which encourages voluntary disclosure and development of the environmental activities beyond the legitimacy. These activities enhance the willingness to prevent negative impact at its basis (Guenster et al.,2011). In whole proactively strategy in EMA based upon innovation and change in the existing organizational behavior in a way which enhance the environment image, stakeholders integration, increased capabilities in innovations, efficient use of scare resources, other knowledge based characteristics which will lead the business to sustainability (Willard, 2005, Gupta, 1995; Guenster et al., 2011).

Key concern in search is how EMA is related to financial performance, however literature with the support of empirical studies found inconclusive point of views as negative positive or either non-significant movement long the relationship (Molina et al., 2009, Horyathoya 2010. Palmer et al. (1995).

Thus, concluding the arguments in favour of positive relationship towards business performance many empirical studies were to be found in support of the above statement analysing medium and long term financial performance (Hart and Ahuja 1996, King and Lenox 2001) along with resource based view. On the other hand negative or ineffective relationship is determined between EMA and financial performance in short term.

4.8. Limitations Associated with EMA

EMA is impeccably a valuable tool of management, thus despite the benefits the literature point out limitations EMA suffers from as well.

Valuation of environmental management varies from business to business based on the structure and nature of business perspective; hence it doesn’t comply with a standard accounting method. Thus a challenge arises with absence of consistence guidance to deal with various phenomena’s which question the management accountant decision based on environmental cost.

Thus academics view lack of EMA standards as the main problem with EMA in practice (UNDSD 2001). Therefore one of the main features in financial reporting system, reliability of information is questionable. Social and environmental consequences are dynamic in nature therefore organizations have to update their path of EMA along with changes which will create confusion and stress. Data collection on natural resources and impacts may base upon industrial data collection method which will reduce reliability.

Secondly narrow view of economic consequences where company priorities short term rather than long term perspectives and rejects programmes such as EMA which may cause difficulties in short term but generate profitability term in long run. Thus these companies are not interested in concentrating negative externalities cause by operations beyond the factory walls (Watchaneeporn et al., 2010). Third frame is absence of guidance on operating EMA in universal framework

BUSINESS PROJECT

An empirical study is accompanied on applicability of EMA using Buddhi Batiks’ manufacturing firm in Sri Lanka, with the aim of understanding the research objectives.

PHILOSOPHY AND APPROACH

The investigation of the study is on the basis of exploratory philosophical stance. This perspective can be presented as a doubt clearing mechanism for the users when nature of the problems get blurred (Robson 2002). As the concept of EMA is tend to be a new trend of management control which seems to be filled unfamiliar nature to competitive context, exploratory perspective try to provide fresh insights to the implementation process of the study.

RESEARCH CONTEXT AND THE PORTFOLIO OF THE SELECTED COMPANY

The study is based on the empirical findings of manufacturing firm of Batik, a company in Sri Lanka named, “Buddhi Batiks” which is run by top management for years from 1970. Since the establishment the company has opened doors for acceptable structural changes with careful observation. In the infant stage the firm was established one retail outlet in addition to manufacturing firm.

Now it’s spread in o 5 retail shops in regional borders. In mid 1990s’ company opened up to export business with china and Italy with improved quality products. In definition manufacturing firm such as ‘Buddhi Batiks’ is a centre of employment, foreign exchange and uniqueness.

The main structural changes were made during past few years with proper supervision and control of CEO and top management while relatively neglecting the view point of lower level of management hierarchy. Once the decisions are made they are distributed through the top down approach to take into action.

Thus this centralized management control system tends to make problems in practice. Due to time constrains the study will focus only manufacturing perspective and management agreed to discuss new practice of EMA within selected departments to evaluate the feasibility.

Environmental management system in the case company with accordance to current management system (approved in 2012) company recognises its responsibility outside the business. The company owns an environmental programme aiming controlling the use of natural resources and preventing extreme environmental damages. The company is focused upon long term profitability, therefore the management identifies environmental risks and impacts on their operations, financial status and set targets accordance with that. Environmental programmes initially were developed for 5 year period and expected to continue further if the results achieves the organizational objectives. Thus now the entity span two year period in achieving the set of goals.

The CEO and senior management are responsible for planning, competitive and monitoring specific environmental management programs. Thus the decision making on investment were based on NPV process were environmental cost was given significant importance.

Furthermore, the EMA programmes communicate business environmental responsibility, means of achieving and focusing continuous improvement on operations to interested groups. Thus the entity aims to minimize environmental impact on the society while keeping expenses at low as possible. The company has objective of reducing wastage and maximization the effective use of natural resources. Hence the entity operates EMA activities as follows;

The companies operates a community programme named “Ran Aswanu” (golden harvest) which uses waste for compost and give away for local farmers for harvesting which relatively increased their brand image while reducing the legal cost of adverse effect on waste disposal. Thus the company handles water management system, using used water and rain water for production process without compromising the quality.

In whole the company pays significant attention towards issues in terms of environmental protection and business perspective, EMA activities have been documented and the progress of the business via EMA is monitored thru regular basis.

Thus the management hierarchy of the company can be defined as follows;

Shareholders

lder

Director Board

Finance Department

Chief Executive Officer (CEO)

Production Department

Marketing Department

Legal

Department

HR Department

Quality Manager

Assistant quality manger

Assistant Production Manager

Team Manager

Production Manager

Assistant Production Manager

Operational Level Employees

 

 

DATA COLLECTION

3.1 Strategy of the Investigation

Case study is the main source of strategy for the investigation. One of the strength in case study is the focus on the research questions and the use of qualitative information which enrich the quality of the study (Robsn 2002). Hence case study is the best alternative when the boundaries between phenomenal and context are blurred. And case study is supported with qualitative research over quantitative research.

Hence, the empirical findings of this piece of work are the centered on participates responses via interviews. Thus interviews bare the ability of finding solution in the form of ’how’ and ‘what’ (in 2003). The interviews were aimed of collecting the participants’ attitude, knowledge and behavioral consequences of adopting the concept of EMA in to practice. Consequently interviews clear the path for deeper understanding of firm managerial process. The interviews carry out the viewpoints of CEO, Chief Operation Officer, Production, Marketing and Financial manager, three operational level employees and two key customer perspective. Hence interviews attempt to bridge the viewpoints of all intensities in management hierarchy.

3.2 Semi Structured Interviews

The foundation of data collection was based upon semi structured interviews with key persons of the management hierarchy of the company, while focusing the questions on existing management control system and view point of EMA practice. The primary data collection stage was focused on the semi structured interviews concentrating the traditional management system, structural change of the firm with adoption of EMA perspective. The Finance Manager found to be well educated on the concept of EMA and importance of engaging, being a CIMA past finalist.

Interview questions were distributed before the interviews with the aim of increased efficiency, clear explanation. The questions were presented while clarifying the doubts of the participants. Hence the data collection was based upon the financial and production and marketing managers operational level worker form each department key management persons and 2 key customers of the firm. The interviews carried out individually between the time frame of 20-40 minutes with key management persons and 20-30 minutes operational perspective and 10-15 minutes with key customers to get a clear picture of each view point and multiple interview sessions were conducted to clarify doubts.

3.3 In-depth interviews

Further, in-depth interviews were carried out distinctly with CEO, finance manager, production, and marketing manager. The purpose of the depth questionnaires’ to clarify answers for general questions allowing considerable scope of time. Each individual lased between 30-40 minutes. As the final touch responses collected from interviews were summarized and distributed to participants to further comments and corrections to achieve accurate result

3.4 Use of Secondary Data

Despite the interviews being the main data collection techniques, secondary data such as financial statements, internal accounting reports, budgeted expenses reports, annual reports, etc. ere obtained from the Buddhi. Thus secondary data seconded the findings from the interviews.

3.5 Data Transcribing

Every appointed business related figures participated in all the interviews. Thus the interviews were recorded for use and essences of the interviews were transcribed in to paper (Rothengerg 2007). Recorded interviews were taken into careful consideration to contribute research questions and understand the phenomena (Ahrens et al 2006). The organizational perspective was observed while spending few (2-3 hours) meaningful hours on organizational performance.

As interviews conducted in interviewees native language (Sinhala) significant time and effort was devoted to translate all the quotations to English. The transaction may not be purely verbatim due to limitations of transcribing words in Sinhala to English due to different shades of meaning of merging translation. However the quality of the will not be affected by the difference in language as they were conducted in broader context (Yin 2003, Sandress et al. 2009).

DATA ANALYSIS

4.1 General Findings

Being one of the leading manufacturing firm in Sri Lanka for Batik related products the company is interested in exploring new approaches to enhance the performance. However academic research shows Batik production has a tremendous impact on environment, due to high kerosene and electricity cost and combination of water consumption and use of toxic dyes (Wouters, Maes, & Germer, 1990) Textile manufacturers generate about 384,000 tons of waste each year. Much of this can be eliminated through recycling.

Through the interview process top management stood up on the basis for adopting new managerial control mechanism is to overcome the challenges in current business world. Thus the case study was driven by utilizing institutional theory, where different routines and differing effects on institutionalization affects which contributes to the organizational decision making process.

The target setting process in the business act as a significant role in decision making procedure. Target setting, simply identifies the directions and goals of the firm. Thus in the case of company, shift towards new management process, marketing and production department interpreted the importance of setting new target. However with implementation of EMA practices, centralized approach focused upon the overall strategy of the firm which can be demonstrated as an outside in process. Top management;

“To expand the market share of the company we should consider overall strategy. Hence the targets are newly set considering competition movement, market changes which are more realistic.”

For instance referencing to the experts view, environmental target setting was fond highly on the ‘profitability’ rule. To ensure environmental cost are fully observed and improve the environmental performance EMA has been introduced while eliminating traditional management drawbacks. Thus the reasons for adopting EMA can be further analyzed through following border schemes of Institutional theory to address objectives.

  • Normative perspective

Normative drivers associated with entity when implementing new rules and legitimate practices within the organisation. Thus the marketing manager holds a normative view on the concept of EMA.

“The business aims to increase the brand image via maintaining clear corporate and social responsibility policies.”

According to analysis interview concludes that environmental certificate has certain influence towards adoption of EMA activities. This certificate considered as an useful marketing mechanism to attract customers and improve brand image and loyalty in particular market. This can be counted as external factors which influence organisation decision making. On the other hand Marketing manager clears his view as follows,

“If the company wants to build up a certain brand image we should consider environmental issues frankly before we are asked, not only which are obligatory”.

The group CEO holds the view the company being a “good corporate citizen” which funded by environmental activities. Development and maintenance of EMA as its related to brand reputation. Thus the statement of CEO certifies adoption of EMA enable them to increase their brand image while improving their sales.

  • Coercive perspective

As coercive drivers focus upon the most powerful position in the organisation, In this case a broad range of stakeholders such as top management, society and customers plays an important role who dictated attempts to legitimize environmental management practices. As an example with reference to the study marketing manager stress out;

“As majority of our suppliers and customers are taken part and interested in social and environmental campaigns we have service targets to achieve in order to satisfy the powerful stakeholders perspective”.

Through deep observation, entity to be seen as socially responsible perspective in the eyes of the consumer by having eco-friendly products on the shelf have tried to implement EMA into practice. Thus according to marketing manager initial reason for implement EMA due to social pressure from the outsiders and corporate image forced the entity.

Considering the view of key customers, they interpreted their view with certain favorable consideration of EMA activities,

“Being a whole seller, my motive is to buy products at the cheapest price, thus environmental impact is not much influencing factor to me, but it’s significantly important towards retail customer perspective due to higher international demand for environmental sensitive products therefore even I motivate this green production.”

  • Mimetic perspective

Mimetic drivers based on the imitation of the entity on the successful competitors on the industry to adopt the concept at first place. Through the study and interview of the selected entity, the adoption of EMA to a certain extent was depended on the competitor’s success. Hence finance manager stated;

“Having few competitors in the industry, a success in one will ultimately affect the business. Therefore before it’s too late we must consider success strategies of the competitors”.

  • Internal factors

Financial manager specifically emphasized the company adopted EMA, as this investment can save money and decrease cost as well. Hence he highlights all environmental activities affect the company’s financial performance. Thus this direct effect on the profitability is one key factor when appropriate EMA practices were selected. According to finance department waste disposal and legal fees on environmental issues had a high impact on financial performance.

With accordance to the interview majority of managers were aware of the high probability of decreased cost and improved environmental performance.

“Obviously the selected indicators, we know how many costs we can reduce when performing EMA practices as per plan, this savings bring financial benefits”.

The CEO views environmental management and programmes generally beneficial for company as, adverse attention towards environmental can compromise future consumption of resources.

Thus concluding all the views of the analysis the ultimate motivation of adopting EMA practices go beyond “genuine environmental concern” towards “business management strategy” with the aim of increased profitability with minimized cost and improved competitive edge.

Through the observation ultimate goal of using EMA by company is to make sure that all relevant, significant costs are taken into account prior to decision making process. Well designed and implemented EMA practices will help to ensure better internal management and decision making for investment with cost savings.

Thus through the short period of implementing EMA in to practice, management holds view at EMA as significant influencing factor towards cost reduction and sustainability practice. The finance manager interpreted;

“The adoption of key practices of EMA resulted in slight impact on business performance in the form of cost reduction and quality improvement. Thus the customer satisfaction and corporate image increased in association to adoption of the concept, and we hope to achieve significant competitive advantage in long run with the end of the projected time frame”.

In whole interviews represented the view adoption of EMA affected positively to the business perspective with initial cost of implementation which is yet to be covered in the long run.

4.2 Explore the Challenges of Adopting Environmental Management Accounting within Competitive Context

Adoption of new concept is always challenging to the company. According to empirical findings competitive context faces number of challenges.

  • Communication Barriers

Effective communication is the tool of successful functional performance of an any company (Perry 2009).As discussed above the company was interested in adopting EMA to be align with current business changes and these decisions are established prior to top level management. Therefore communication of the projected plan towards lower level is essential to achieve expected targets (Leach Lopez et al., 2007).

While top level management imposed the new system, operational level employees tend to have little knowledge of the changes. .

As effective communication persuade achieving organizational goal, as demonstrate above lack of communication will result in an ineffective workforce. Therefore the company is advised to maintain reliable communication chain through the management hierarchy. Until there is factual conversation between accountants and the technical and environmental professionals in charge of physical information, development of environment performance indicators and development of environmental management strategies in general is considered as a challenging risk.

  • Environmental related cost information are hidden in overheads

There are numerous examples highlighting the environmental related costs being inadvertently hidden in the overhead costs in accounting records which making it difficult to explore the information for benefit perspective. With respect to the selected firm accounts were created using overheads which includes environmental permit fees, training costs and legal expenses. As overheads allocated back to cost centers as production volume, machine hours, inventories numbers might distributes to inaccurate way of cost allocation in relation to environmental cost.

Hence different department owns variety of goals and perspectives with respect to EMA. As different views of the management of EMA related cost responsibility; Production centre where waste is produce but doesn’t hold sufficient records on waste, Environmental management who are not responsible for waste but dispose it, and the accounting department ultimately who hide the cost effect under general overhead.

Reference to academic research organizations associated with different approaches resolving environmental cost hidden in general overheads. The common method setting up separate cost categories or cost centers associate with discrete EMA practices. The less obvious cost categories which appear in the operations can be labeled more clearly under environmental cost and traced easily. The environmental costs associated with different process and product can be clarified via using Activity Based Costing (ABC) as it determine the company to allocate cost using appropriate cost basis.

  • Lack of awareness of EMA tools

Accounting department appears to have a clear image of EMA whereas production department and operational level employees owned lesser knowledge on the concept. However employees expressed their view on the change despite of the system which they were familiar for long time.

“EMA seems to be all new business concept considering natural aspect which ignored for quite long period, regarding the new system employees expect training and explanation session where they can familiarize with the new system due to lack of knowledge and experience on the concept.”

  • Economic and Political Environment

Competitive countries expose to higher level of exposure to economic and political issues due to uncertain economic conditions. (Peyton 2012). Even before the adoption of new concept internal management process was based on variation in the economy and environment. The accounts were later adjusted with inflation changes where reports stated the deviation between budgeted and actual. Thus CEO explained how the political factors influence the individual activities in organisation.

“Although every aspect was taken into consideration political environmental influence causes problems in diversification of the direction”.

According to the experts view as above, political, cultural and economic phenomena’s which are inherent in competitive context lead as a drawback and cause implication while implementing EMA into practice.

PROJECT EVALUATION

CONCLUSION

EMA is identified as a new functional tool in the discipline of environmental management process. Recently, increased consideration on environmental cost brought the attention of the business towards environmental as it is no longer valued as a minor cost which can be hide under general overhead pools and the use of EMA will enrich the control while saving significant amount of money. It’s to be identified, modern social and environmental framework visualize the EMA as an instrument, economic tool, which enrich the business attention towards environmental perspective.

Thus application of EMA to Buddhi Batiks’ has to be carefully analyzed and tailored rather than applying as generic system. The cost benefit analysis of the scope has to be conducted before applying EMA in practices. According to analysis it’s to be found that implementation of EMA practices is a transformation of business decision making process where the company realizes the important role which bright up the entity’s profitability terms.

Taken as a whole, the study on Buddhi Batiks’ examined the win-win hypothesis of firm with good environmental performance in a manufacturing firm within competitive context. The study objectives were justified through mainly based on interview data from key personal in decision making, operational level and customer perspective. However the study focuses on the infant stage of implementing EMA in to practice. With reference to literature, even though a number of studies carried out on application of environmental reporting, no significant study was focused upon applicability of EMA in manufacturing firm in competitive context. Hence the study is an attempt to focus on the manufacturing firms in competitive context which is found to be an untreated research plot. Therefore the study documents how the application of EMA was taken into account at first place while exploring challenges of implementation, eliminates drawbacks of traditional management system and highlighting the contribution of EMA towards financial performance.

Additionally analysis try to justify the strategically and significantly impact of environmental disclosure as an essential component of improved financial performance. Continuous improvements in environmental activities are confidence to generate sales and improved incomes. Thus integrating cost into pricing is a contribution towards innovation and efficient pathway to lower cost. Thus the study does not clearly highlight this status as the company is in the initial stage of implementing EMA. Capabilities of process innovation and implementation of EMA activities moderate the competitive and cost advantage (Claver-Corte´s et al., 2007; Wagner, 2007). According to key participants of the study, new management system is acknowledged by organizational members. Conferring their view which was based on the implementation stage of EMA, they believe consequences of the new management system are more visible in the long run.

EVALUATION OF PROCESS ADOPTED AND AVENUES FOR FUTURE RESEARCH

The empirical study on Buddhi Batiks’ as directing on the initial phase of implementing EMA into practice; the results did not sufficiently reveal the impact of new concept.

Thus, significant number of benefits in the form of finance, brand image is to be achieved in long run. Despite the benefits, EMA would also own some of the limitations.

The study is compromised with obvious limitations which could be considered in future analysis. One of the limitations can be related to the number of interview representatives, which makes it hard to portray the every single aspect of the entity which affects the management decision making process.

However management and customer perspectives participated in all interviews with no server resistance and as a result enriched data was collected for observation purpose. Thus limitation associates with data collection period, the study is to be a long term perspective, although the data gathering was limited to shorter period hence it compromised the significant consequences of application of EMA and financial benefits of the company.

Thus the study on future research in this case can be extended to consider large samples on empirical analysis figures. A corporative analysis between private and public sector will help to diversify stakeholders in decision making process.

Hence additional research can be directed into areas of comprehensive study considering a number of years to draw valid conclusion regarding underlying trends, techniques, processes and results of EMA practices in competitive context.

An important avenue for future research is a study focusing on the after effects of implementation. This study is restricted to initial stage of adoption with the aim of identifying how chosen manufacturing firm adopt and interpret new management mechanism.

Thus potential influence of EMA is volatile due to both external and internal economic perspectives in competitive context.

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***

“PART 3 – SELF REVIEW AND CONTUINING DEVELOPMENTS”

  1. SELF EVALUATION

The empirical study as directing on the initial phase of implementing EMA into practice, the results did not sufficiently revealed the impact of new concept. Thus, significant number of benefits in the form of finance, brand image is to be achieved in long run. Despite the benefits, EMA would also own some of the limitations.

The study is compromised with obvious limitations which could be considered in future analysis. One of the limitations can be related to the number of interview representatives, which makes it hard to portray the every single aspect of the entity which affects the management decision making process. However management and customer perspectives participated in all interviews with no server resistance and as a result enriched data was collected for observation purpose.

Thus the study on future project in this case can be extended to consider large samples on empirical analysis figures. A corporative analysis between private and public sector will help to diversify stakeholders in decision making process. Hence additional project can be directed into areas of comprehensive study considering a number of years to draw valid conclusion regarding underlying trends, techniques, processes and results of EMA practices in competitive context.

An important avenue for future project is a study focusing on the after effects of implementation. This study is restricted to initial stage of adoption with the aim of identifying how chosen manufacturing firm adopt and interpret new management mechanism. Thus potential influence of EMA is volatile due to both external and internal economic pressure.

The results of the analyses above can be summarized in a SWOT analysis, in which strengths, weaknesses, opportunities and threats are systematically recorded. Strategic options can be determined by identifying strengths and weaknesses on the one hand and opportunities and threats on the other hand. The ultimate goal of a SWOT analysis is to gain a structured picture of the organisation in the context of its environment and to support strategic decisions. This is why the SWOT analysis is part of the final steps of the self-evaluation process: to draw conclusions and to determine new strategic directions.

Strengths

• Advanced knowledge development;

• The firm is closely involved;

• The activities have a clear effect;

• A wide and active network, both internally and externally.

Weaknesses

• Only a limited number of companies in the sector are reached;

• Too little attention for the transfer of knowledge and awareness;

• Insufficient insight into the use of resources

Opportunities

• Extra attention and resources from the government for innovation in the sector;

• New technological breakthroughs in strategically important fields;

• Opportunities of strategic alliances with European innovation programmes;

Threats

• The competitive advantage of companies in the sector is under pressure by the economic crisis;

• Changing Sri Lankan legislation for public funding

 

 

  1. FUTURE PLANS

“A successful environmental management system should have a method

for accounting for full environmental costs and should integrate private

Environmental costs into capital budgeting, cost allocation, process/

Product design and other forward-looking decisions … Most corporate

Information and decision systems do not currently support such

Proactive and prospective decision making.”

Improved environmental management accounting is seen by corporate managers and

Environmental advocates alike as a necessary complement to improved environmental

Decision-making within the private sector. Whether the goal is pollution prevention, or some broader notion of “corporate sustainability,” there is a widespread belief that sound

Environmental management accounting will help firms identify and implement financially desirable. Environmental innovations. Moreover, environmental regulation is evolving toward public Policies that rely to a much greater extent on the collection and reporting of environmental Information

.

This paper develops an economic approach to the evaluation of environmental Accounting’s benefits. Using concepts from managerial economics, finance, and organization theory, the value of improved environmental management accounting information is explored. The overall goal is the identification of priorities for improved environmental management accounting. Given the difficulties and costs associated with adopting new accounting methods and the collection and verification of data, it is desirable to identify situations in which the benefits of improved information are likely to be greatest. As will be shown, “better” information is not always

Valuable.

Analysis of corporate decision-making and the value of information to the decision-making

process is an important first step if private sector managers (and regulators) are to set

priorities for improved environmental management accounting. An expanding literature documents problematic accounting practices with the potential to bias environmental decision-making (EPA, 1995b). Frequent targets for criticism are the allocation of environmental costs to general overhead accounts, the failure to account for future contingent liabilities, and the failure to measure the impact of environmental decisions on corporate image and customer and supplier relationships. From a public policy perspective, poor environmental management accounting means that the private sector is likely to “miss” investment, procurement, and process and product design opportunities that have financial and environmental benefits.

It is widely believed that improved environmental management accounting practices, working in conjunction with the private sector’s own profit motives, will create significant environmental benefits. This perspective has in turn motivated a growing literature on financial and accounting methodologies to improve accounting practices (Moilanen and Martin, 1996; Epstein, 1996). Regulators to date have opted for a relatively “non-interventionist” approach to environmental management accounting reform. The U.S. Environmental Protection Agency, for instance, through surveys and case studies, has identified weaknesses in private sector environmental management accounting and promotes the diffusion of accounting “best practices.” This outreach- and communication-based approach may be expanded upon in the future, however.

There currently are calls from some environmental advocates for more aggressive regulatory actions in this area, such as mandated environmental management accounting. And several states have commenced experiments in this area. Pollution prevention statutes, in particular, are seen as a potential legislative vehicle for mandated environmental management accounting. Yet, despite progress in the identification of problems and the development of improved methodologies and the possibility of regulatory initiatives that feature mandated environmental accounting — the field lacks a methodology for evaluating the social and private benefits of improved environmental management accounting. Whether regulators continue to motivate EMA indirectly via outreach to the private sector or more directly via incentives such as tax breaks or mandates, private sector resources and regulatory attention should be focused on initiatives that promise the greatest benefit.

Within the private sector, one would be hard pressed to find a manager who would disagree with the proposition that more accurate, detailed information is desirable. After all, better information inarguably leads to better (i.e., more profitable) decisions. The difficulty and undoubtedly an explanation for the relatively slow pace of change within the corporate sector is that better information is always costly to acquire, maintain, and verify. Given costs and the organizational inertia that inhibit changes in accounting practice, regulators and EMA advocates should seek and advertise change where the value of better EMA is highest. Currently, firms are being told to amend their practices, and may wish to do so themselves, but are being given much less direction on the changes that are likely to be most beneficial to them.

Environmental management accounting can be considered improved if it yields information that is better in one of the following senses: First, and most intuitively, information is better if it corrects a pre-existing inaccuracy. As an example, consider the use of an input that is highly toxic. It would be inaccurate to view the cost of the input as equivalent to its bulk supply cost alone. Environmental management accounting provides better information if it attaches a cost to this input that captures the expected cost of environmental and workforce hazards.

Second, information should be thought of as better if it reduces the uncertainty surrounding some future cost or benefit. For instance, future liabilities are inherently uncertain. Information that can narrow the variance on estimates of those uncertain liabilities should be considered better information. Reduced variance is particularly valuable when decision-makers are risk-averse, since a reduction in variance alone can lead to different decisions when there is risk aversion. If decision-makers are risk neutral (basing decisions purely on the expected value of an uncertain parameter), reduced variance has no effect unless it is accompanied by a change in the parameter’s expected value.

Third, information is better if it is more highly disaggregated (more detailed). For example, data on wastes produced by individual processes or product lines is better than data on wastes created by an entire factory. For instance, accounting that assigns a wide variety of costs to overhead is problematic because of a lack of disaggregation. Disaggregation is necessary to incremental financial analysis i.e., the evaluation of investment or production opportunities based on their incremental costs and incremental contributions to revenue. Without disaggregation it is more difficult for managers to differentiate between substitutes and identify the true cost of producing a product. In turn, this inhibits optimal decision-making. The above improvements relate to the collection and application of data in decision-making. Better environmental management accounting may also relate to the use of improved managerial accounting techniques, such as adjustments for risk, discount rates, and appropriate time horizons for cash flow analysis.

In comparison to the decades-long (if not longer) process of development of financial

Accounting and conventional management accounting, EMA is a relatively new field. Thus,

Government policy efforts to promote EMA are also in the early, experimental phase for the

Most part. It is too early to draw hard and fast conclusions about what works and what does not.

In addition, the best policy approach for promoting EMA concepts will likely vary between levels of government, target audiences, and different countries. For example, a broad range of environmental costs would be relevant to companies in countries wit h strict environmental regulation and enforcement that internalizes environmental costs for companies. Companies in countries with less regulation or less effective enforcement might only be willing to recognize and account for a narrower range of environmental costs. Similarly, the effectiveness and political acceptability of direct regulation in a country would impact the policy instruments chosen to promote EMA. Nonetheless, the existing policies/programmes reviewed in the case studies in this volume do provide some preliminary lessons and suggestions about broadly promising policy pathways for the promotion of EMA concepts by government.

An organization’s decision-makers can use the physical flow information and cost information provided by EMA to make decisions that impact both the environmental and financial performance of the organization. Both private business and government organizations can benefit.

Benefits of EMA to Industry:

  • The ability to more accurately track and manage the use and flows of energy and materials, including pollution/waste volumes, types, and fate
  • The ability to more accurately identify, estimate, allocate, and manage/reduce costs, particularly environmental types of costs
  • More accurate and comprehensive information for the measurement and reporting of environmental performance, thus improving company image with stakeholders such as customers, local communities, employees, government, and finance providers

Benefits to Government of EMA Implementation by Industry:

  • The more that industry is able to justify environmental programs on the basis of financial self-interest, the lower the financial, political, and other burdens of environmental protection on government.
  • Implementation of EMA by industry should strengthen the effectiveness of existing government policies/regulations by revealing to companies the true environmental costs and benefits resulting from those policies/regulations
  • Government can use industry EMA data to estimate and report financial and environmental performance metrics for government stakeholders such as regulated industries or the industry partners in voluntary programs.
  • Industry EMA data can be used to inform government program/policy design.
  • Industry EMA data can be used for regional or national-level accounting purposes.

Benefits of Government Implementation of EMA:

  • Government EMA data can be used for environmental and other decisions within government operations, e.g., purchasing, capital budgeting, and federal facility environmental management systems.
  • Government EMA data can be used to estimate and report financial and environmental performance metrics for government operations.

References

ACCA (2012), ‘The state of corporate reporting in Malaysia. Malaysia’, the Association of Chartered Certified Accountants.

Adams, R. (2002), ‘Management accounting and the environment Sustainability and ACCA qualification’, ACCA technical Article – ACCA student Accountant.

Bai, C., Sarkis, J. (2010), Integrating sustainability into supplier selection with grey system and rough set methodologies. Int. J. Prod. Econ. 124, 1, pp. 252–264

Ball, A., Craig, R. (2010), Using neo-institutionalism to advance social and environmental management acxcounting. Crit. Perspective. Account. 21 (4), pp.283–293

the relationship between emission reduction and firm performance”, Business Strategy and the Environment, Vol. 5, pp. 30-37.

Environmental Protection Agency. 1995a. An Introduction to Environmental Accounting as

a Business Management Tool: Key Concepts and Terms, Office of Pollution Prevention

and Toxics, EPA 742-R-95-001, June.

Environmental Protection Agency. 1995b. Environmental Cost Accounting for Capital

Budgeting: A Benchmark Survey of Management Accountants, Office of Pollution

Prevention and Toxics, EPA 742-R-95-005, September.

Environmental Protection Agency. 1995c. Environmental Accounting Case Studies: Green

Accounting at AT&T, Office of Pollution Prevention and Toxics, EPA 742-R-95-003,

September.

Environmental Protection Agency. 1996. Valuing Potential Environmental Liabilities for

Managerial Decision-Making: A Review of Available Techniques, EPA 742-R-96-003,

December

Jasch C. (2003), The use of environmental management accounting (EMA) for identifying environmental costs. Journal of Cleaner Production, Vol. 11. Pp667-676

Jennings, P.D., Zandbergen, P.A. (1995), ecologically sustainable organizations: an institutional approach. Acad. Manag. Rev. 20 (4), pp. 1015–1052.

Kaptein, M. and Wempe, J. (2001), “Sustainability management. Balancing conflicting economic, environmental and social corporate responsibilities”, Journal of Corporate Citizenship, Vol. 1 No. 2, pp. 91-106.

Sarkis, J. and Cordeiro, J.J. (2001), “An empirical evaluation of environmental efficiencies and firm performance: pollution prevention versus end-of-pipe practice”, European Journal of Operational Research, Vol. 135, pp. 102-113.

Sarkis, J., Zhu, Q., Lai, K.-H. (2011). An organizational theoretic review of green supply chain management literature. Int. J. Prod. Econ. 130, pp.1–15

Trauth Em., (2001), ‘The choice of qualitative research methods in IS. In Qualitative Research in IS: Issues and Trends’ ‘Idea Group, Hershey, PA

Management on manufacturing competitiveness: an empirical study”, International Journal of Production Economics, Vol. 123 No. 1, pp. 210-220.

Yin, R., (2003), ‘Case Study Research: Design and Method’ (3 edn), London, Sage Publications

***

Executive MSc in Finance

The Work Based Strategic Business Research Project

Application of the concept of “Environmental Management Accounting” in enhancing the Financial Performance in a competitive pressure building context

Buddhi Batiks

An Empirical Assessment Over a

Manufacturing Firm in Sri Lanka

By

Krisshanthan Dharmarajah

Asia e University in Collaboration with Strategy College of Business & Marketing- Sri Lanka.

June 201

Executive MSc in Finance

The Work Based Strategic Business Research Project

Application of the concept of “Environmental Management Accounting” in enhancing the Financial Performance in a competitive pressure building context

Buddhi Batiks

An Empirical Assessment Over a

Manufacturing Firm in Sri Lanka

By

Krisshanthan Dharmarajah

This Research Project is submitted in part fulfillment of requirement of Asia e University for the program of Executive MSc in Finance

Part 01: Word Count 3,744

Part 02: Word Count 7,796

Part 03: Word Count 2,345

Total : 13,885

Supervisor’s Name: Mr. Lewie Dias

Supervisor’s Signature: …………………………………

Asia e University in Collaboration with Strategy College of Business & Marketing- Sri Lanka

ACKNOWLEDGEMENT

This research was supported by Mr. Lewie Diaz, senior lecturer at Strategy College of Business School, I would like to express my sincere gratitude him. I thank the Strategy College all lecturers who provided insight and expertise that greatly assisted the research, although they may not agree with all of the interpretations/conclusions of this research.

I thank Mr.Buddhi Keerthisena who is the Chairman of the National Crafts Council and Darshi Keerthisena, Chief Executive Officer for granting permission to conduct the research about the institution.

 

I would like to thank my office colleagues who supported me by covering my work while I was on leave for my research. I also immensely grateful to Ms.Inoka Rupasinghe, Financial Specialist, American Embassy, Colombo for her comments on an earlier version of the manuscript, although any errors are my own and should not tarnish the reputations of these esteemed persons.

CONTENTS

PART 1 – DEFINING THE PROJECT

 

  1. PROJECT PROPOSAL………………………………………………………………7

Introduction 7

Introduction to the Work Based Project

Introduction to the Business Organization

Confirmation of employer/organization agreement for your project

Identification of the Business Mentor

The Project Objectives 11

Methodology to be adopted 12

Timeline Plan of Work 13

Conclusion 15

  1. RELEVANT LITERATURE………………………………………………………16

What Is EMA?

Limitation in Traditional Accounting System

Advantages of Environmental Reporting

EMA In Practice

Sustainability and EMA

EMA and competitive context

EMA and Business Performance

Limitations Associated with EMA

  1. SELF EVALUATION…………………………………………………………….….19

References 21

PART 2 – PROJECT REPORT ON IMPLEMENTATION AND ASSESSMENT

A. PROJECT PLAN………………………………………………………………………………. ..23

1. INTRODUCTION 23

2. OBJECTIVES OF THE STUDY 24

3. JUSTIFICATION OF THE STUDY 24

4. LITERATURE REVIEW 25

4.1 What id Environmental Management Accounting?

4.2 Limitations in Traditional Accounting System

4.3 Advantages and Use of Environmental Reporting

4.4 Environmental Management Accounting in Practice

4.5 Sustainability and Environmental Management Accounting

4.6 Environmental Management Accounting and Competitive Context

4.7 Environmental Management Accounting and Financial Performance

4.8 Limitations Associated with Environmental Management Accounting

B. BUSINESSPROJECT 36

1. PHILOSOPHY AND APPROACH 36

2. RESEARCH CONTEXT 37

3. DATA COLLECTION 39

3.1 Philosophy and Approach

3.2 Research Context and the Portfolio of the Selected Company

3.3 Data Collection

3.4 Data Transcribing

4. DATA ANALYSIS 41

4.1 General Findings……………………………………………………………………

4.2 Explore the Challenges of Adopting Environmental Management Accounting within Competitive Context……………………………………………………………

C. PROJECT EVALUATION

1. CONCLUSION 47

2 EVALUATION OF PROCESS ADOPTED AND AVENUES FOR FUTURE RESEARCH 48

D. REFERENCES 49

PART 3 – SELF REVIEW AND CONTUINING DEVELOPMENTS

  1. SELF EVALUATION…………………………………………………………………53
  2. FUTURE PLANS…………………………………………………………………………55

“PART 1 – DEFINING THE PROJECT”

 

  1. PROJECT PROPOSAL

Introduction

Introduction to the Work Based Project

This project attempts to apply and implement ‘Environmental Management Accounting (EMA)’ to enhance ‘Financial Performance’ of an organization focusing on a manufacturing firm in an increasingly competitive context. The motivation of this project proposal is to identify key link between ‘EMA’ and ‘Financial Performance’ of an organization, with reference to a manufacturing firm in Sri Lanka and to propose the application and the implementation of the project.

“Environmental Management can be identified as a new trend of management accounting, where most of the entities adopt this method to improve their performance and achieve sustainability” (Schaltegger, Burrit & Peterson, 2003).However it’s emphasized, most of the business perspectives, adopt this method to improve their performance and achieve sustainability (Schaltegger, Burrit & Peterson, 2003). In accordance to the existing literature it’s found to be that environmental issues can impact an organisation either as an opportunity or as a threat (Roome, 1992; Gupta, 1995).

The project is objected therefore structured to seek relevant answers to above via presenting theoretical review and subsequently presenting empirical study of applicability of EMA to the selected manufacturing firm within a competitive context in Sri Lanka.

Introduction to the Business Organization

Buddhi Batiks is an ethical fashion business, where the batik craft is practiced by women, some of whom have been with the workshop since the company’s inception in 1970, and are considered the life blood of the business. The batik workshop, located in the village of Koswadiya on the north-western coast of Sri Lanka, in turn plays an integral role in the economy of the village. In addition, the workshop has no age discrimination, with artisans ranging in age from 18 to 65. The current workshop manager joined in 1970 as a worker; she is now 63 years old. The workshop allows flexible hours for our older artisans, and values their experience and skill in training the younger artisans.

Batik is a craft that combines the illustrative skills of an artist with a wax-resist dyeing technique applied to natural fabrics like cotton, silk, and linen. Buddhi Batiks is a leading proponent of this craft in the tropical island of Sri Lanka, and is noted for infusing contemporary design into a very traditional craft.

Each piece that is produced at Buddhi Batiks is hand-painted in wax by these talented artisans, and hand-dyed by experienced dye masters in a seemingly unlimited variety of colors, ranging from the most vibrant of hues to the subtlest, softest pastels and creams. The piece is then boiled and sun dried, and the process repeated over for every additional color. Each piece is therefore a unique product of several artisans’ tender care; each piece is a unique work of batik art.

Confirmation of employer/organization agreement for your project

03rd May 2016

‘Buddhi Batiks’
32 Ward Place
Colombo 7, Sri Lanka
Tel: (94) 11 2689488

Dear Sir/Madam

Letter for granting permission to use Buddhi Batik’s Organizations’ context for the Project on application and implementation of EMA

I am an undergraduate at Asian e University. I am in the process of preparing a project report as a work based strategic business project and am seeking permission to include the following material in my project report.

  1. Firms financial details
  2. Internal and External Business Process
  3. Private Profiles
  4. Strategic analysis reports

Please let me know if there is a fee for using this work in this manner.

Please indicate your approval of this request by signing the letter where indicated below and returning it to me as soon as possible using the self-addressed envelope. Your signing of this letter will also confirm that you own the copyright to the above-described material.

Very truly yours,

Name:

Position: Undergraduate

Contact No:

For copyright owner use:

 

PERMISSION GRANTED FOR THE USE REQUESTED ABOVE:

429350651023217210516.png By: Darshi Keerthisena

Title: Chief Executive Officer

Date: 10th May 2016

Identification of the Business Mentor

Buddhi Keerthisena is currently Chairman of the National Crafts Council and is still passionate about working to improve the batik industry and helping empower rural women throughout the country. He has been in the batik industry for 45 years now and during that time he has seen great changes. His philosophy has always been to create a good quality product so that customers have confidence in what they buy from them. We have to be honest to them and use good quality products.

Starting out with batik as a hobby, Buddhi’s batik creations soon became popular not only in Sri Lanka but in other countries and he found that his hobby was gradually transformed into a full time career. He held his first overseas exhibition in 1974 and since then has held over a hundred fashion shows and exhibitions in countries such as Sweden, Denmark, Finland, Norway, Italy, Austria, the UK, USA, Seychelles, Singapore, Malaysia, Japan and France, earning valuable foreign exchange for the country in the process.

When interest in batik declined in the 70′s it was Buddhi who made it fashionable to wear batik and got the many tourists visiting the country interested in visiting batik workshops and buying batiks.

The Project Objectives

Most of the entities are concerned about improving their ‘Environmental Management’ practices (Walley, 1994) to reduce the cost and wastages (Allen, 1992; Schmidheiny, 1992). According to the existing Environmental Management literature it is understood that environmental issues can affect the operations of the organisation either as an opportunity or a threat (Roome, 1992; Gupta, 1995). Hence, in this proposal an effort has been taken to recognize, primarily how the concept of ‘Environment Management Accounting’ has been exploited in Buddhi Batiks manufacturing firm in a competitive perspective andhow it is been applied and implemented in here.

 

The manufacturing firms within a competitive context have been relatively neglected, a gap that this empirical study attempts to fulfill. The Environmental Accounting Practices over Traditional Accounting Practices within a competitive context leaves the firms with numerous challenges and questions such as ‘What does it refers to as ‘Environment Management Accounting’ in an organization of a competitive context?’, ‘ How the ‘Environment Management Accounting’ practices can be used as a management control mechanism on organizations financial performance?’, ‘What are the most relevant environmental cost drivers?’, ‘What are the key challenges of adopting the concept of ‘EMA’ for an entity based in a competitive context?’.

Therefore the motive of this project is to emphasize the importance of adopting ‘EMA’ to a competitive context with reference to Buddhi Batiks manufacturing firm in Sri Lanka.

In order to explore the link between Environmental Accounting concept and financial performance of a company and how this is applied in to the organizational context, the following key project questions will be considered.

  • What is the justified definition for ‘Environment Management Accounting’ for an entity with a competitive perspective?’
  • How can the ‘Environment Management Accounting’ practices be used practically as a management control mechanism on organizations financial performance in Buddhi Batiks
  • What are the most relevant environmental cost drivers?
  • What are the key challenges of adopting the concept of ‘EMA’ for Buddhi Batiks based in a competitive context?

Thus the proposed study aims to discover the answers to these obstacles in an empirical way.

Methodology to be adopted

Philosophy of Inerpretivism will be used mainly in the project, as project complies with higher number of qualitative data (Tarauth, 2001). As Bryman and Bell (2003) and Saunders et al., (2009) portrays, Inerpretivism is simply, a socially constructed methodology with a challenge of understanding the world of the project subject while entering to the project world.

Firstly, Exploratory and qualitative methodology will be adopted since it is known to be achieving often relatively adequate score (Pearce, 1989). Semi structured interviews, in-depth interviews, questionnaires and online reports will be adopted for the purpose of data collection and for an accurate analysis of gathered feedbacks (Yin, 2003). Even though the interviews, which has the ability of answering ‘how’ and ‘why’ questions; represented as the main source(Yin, 2003; Saunders et al., 2009), other forms such as observation, financial statements, ratio analysis data will also be used for collection of data where ethical issues/ responsibility will also be considered ( i.e. ISO14001) (Yin, 2003; Saunders et al., 2009).

In order to answer the above presented project enquiries and to identify the link between ‘EMA Practices’ and a firm’s performance, it is essential to generate a clear picture of the entity’s current financial position, market position, current and future competitive strategies, goals, and objectives. By being a case study, this study extends the opportunity to gather the above data via company’s financial statements, interviews and questionnaires which will eventually lead to an accurate interpretation of the obtained data.

Throughout this project an exploratory and qualitative methodology will be used for the purpose of data collection, semi-structured interviews, in-depth interviews and questionnaires. Moreover to serve the purpose of triangulation, secondary data sources such as financial statements, ratio analysis data will also be used while adhering to project ethics as well (Yin, 2003; Saunders et al., 2009).

Due to the nature of qualitative project study, the amount of evidence tends to be higher (Carcary, M 2011). In order to organize, manage and analyze the collected data, “Nvivo” which is Computer Aided Qualitative Data Analysis Software (CAQDAS) will be utilized.

Due to the high usage of qualitative data within the study, a philosophy of Inerpretivism will be adopted. Furthermore in order to conduct the study a case study method will be used since this project is more focused on appreciation of different perspectives and applicability of concept of ‘EMA’ within a competitive context rather than accumulating facts and information towards a statistical generalization (Bryman and Bell 2003; Saunders et al., 2009).

Timeline Plan of Work

In order to gain a successful outcome through the project, a significant amount of work needs to be completed during the project period.

As the project title depicts, the project is likely to be concentrated on 3 such major areas as follows;

EMA in competitive context

Financial performance of Buddhi batiks

Relationship of ‘Environmental Management Accounting’ and ‘Financial Performance’ in Buddhi Batiks

Therefore it’s important to gather as much as information of the above areas through various sources via relevant literature and engrave a clear understanding.

The project plan of work has broken down in to several stages; each stage complies with an objective to achieve with sufficient time scales in the following format;

 

Primary ObjectiveScheduled DateEstimated Time Period (approximately)
  • Submitting the created final Project dissertation
  • Combination of all results for the final output
  • Recognition of Project Limitation, Weaknesses and Strengths
  • Application of Techniques to overcome the identified drawbacks
  • Innovating the Dissertation based on the discoveries
  • Analyzing and presentation of collected data
  • Obtaining the official acceptance from the selected manufacturing firm
  • Collection of Data and Information through internet, interviews and secondary sources
  • Project Specification Submission
June 30th
  • Gathering key literature
  • Preparation relevant objectives to answer related questions, Data analysis approaches, Legitimacy and Consistency issues

Conclusion

EMA is identified as a new functional tool in the discipline of environmental management process. Recently, increased consideration on environmental cost brought the attention of the business towards environmental as it is no longer valued as a minor cost which can be hide under general overhead pools and the use of EMA will enrich the control while saving significant amount of money..

It can be said that most companies do not know about the extent of their environmental costs and tend to underestimate them. This leads to distorted calculations of improvement options..

EMA can solve these problems. The mentioned accounting techniques are useful for EMA to identify and allocate environmental costs. In addition, there are alternative techniques to estimate environmental costs such as the ‘environmental cost decision tree’ as described by Rimer (2000).

Thus application of EMA to the Buddhi batiks has to be carefully analyzed and tailored rather than applying as generic system. The cost benefit analysis of the scope has to be conducted before applying EMA in practices. According to analysis it’s to be found that implementation of EMA practices is a transformation of business decision making process where the company realizes the important role which bright up the entity’s profitability terms.

  1. RELEVANT LITERATURE

As it is to be found through last decade of the accounting and business world, ‘Environmental Accounting Management’ has demonstrated a rapid growth as it continuously helped entities to achieve sustainability in the corporate world (Cullen & Whelan, Jasch, 2006). It has identified Environmental issues which can affect organizational operations either as an opportunity or a threat (Roome, 1992; Gupta, 1995).

The most recent literature focused on the concept of ‘EMA’ has predominately centered on the following aspects (as per project proposal)

  • What is Environmental accounting?
  • Key Roles of Environment Accounting
  • Benefits and Drawbacks of Environment Management Accounting
  • Emerge of “Environment Management Accounting” Concept
  • Academic debates – Environment Management Accounting

Curcio & Wolf (1996) highlighted the influence of ‘Environmental Accounting’ with respect to the firm value. The study conveyed that the entities that provide stake holders with quality services have the potential to enhance their ‘EMA’. Pradhan & Pattanik (2007) states that when disclosing environmental accounting information by entities, disclosure of any negative environmental information in sensitive area may affect the entities reputation and competitive position (Pradhan & Pattanik, 2007).

According to Schaltegger, Butter & Peterson (2003) companies cannot achieve their ultimate goal of business if they continue to maximize their profit at any cost, unless the entities run their business in a manner which satisfies the stakeholder.

In 1991 project of EMA by UNI was simply based on different companies over different locations with various strategies which found be of low quality and lacking of qualitative project nature.

When considering the relevant literature, most of the reviews failed to identify the financial outcomes and benefits of ‘EMA’ with reference to an accounting perspective. Hence an effort has been made to bridge the gaps between existing literatures.

Following will be a brief on what it is being to be discussed as the project and its literature reviews.

What Is EMA?

The definition of Environmental Accounting (EA) is expressed via ambiguous and loose perspective. With accordance to Environmental Protection Agency (1995), EA views as the identification, collection, measurement and allocation of environmental costs, and integration of identified environmental cost in to business decision making process and subsequent communication of the significant information to entity’s stakeholders.

Limitation in Traditional Accounting System

Concern on environmental issues along with their cost-benefit impact on the business has been increased worldwide. Hence the matter is descriptively discussed by Gray et al. (2005) as conventional practice on management via financial reports which are weighted more on the financial measures such as sales, profit etc.

IASB requires the financial statements to be prepared in favor to the parties with resource allocating decision makers in a primarily economic or financial perspective.

Materiality Concept is one of the keystones in financial accounting which denies the disclosure of environmental information as increased difficulty in quantifying the environment cost..

Entity Assumption separates the entity from its owners assuming entity has its own position, finance etc.

Advantages of Environmental Reporting

EMA particularly holds an important view for internal management initiatives with significant environmental focus, in the form of cleaner production, supply chain management, environmental sensitive product or service design, superior environmental purchasing and environmental management system.

EMA in Practice

EMA is the combination of both environmental financial and non-financial information for the purpose of management decision making process. It’s essential to identify and allocate the environmental related costs for accounting purpose (Bennet & James 2002, Frost 2000). Literature reviews various approaches to the identification of environmental costs and also it’s highlighted the environmental related costs varies from each organizational view.

Conventional costs-environmental related raw material and energy costs

Potentially wider costs- identified costs but yet recognized under general overhead costs

Image and Relationship costs- cost of preparation of environmental reports

Sustainability and EMA

Increased importance of environment led the companies to adopt environmental accounting and EMA for the survival of the business in long run and to face the competition in the business world. Sustainability is simply defined as the development that fulfils the needs of the present world without comprising the capability of future generation to meet their own necessities (Brundtland 1987).

EMA and competitive context

EMA is a relatively new tool in Sri Lanka in contrast to European context; profit maximizing organizations are in the search of increased profit even at the cost of high environmental impact. Janet and Daryl (1996) stress out there is a significant inevitability shift from stricken legislation to self-regulated, market based and environmental friendly firm phase in competitive context. But it’s noted study and practice of EMA in competitive perspective still in the infancy stage and remains competitive through the years.

EMA and Business Performance

EMA is basically move along with improved environmental performance or positive gesture towards regulators and the stakeholders (Johnstone 2009).The costs of environmental impact of the company are traditionally linked with EMA activities (Yang et al 2011, Darnall and Edward 2005).The overall success of the adoption of EMA will also depends on the effectiveness and efficiency

Limitations Associated with EMA

EMA is impeccably a valuable tool of management, thus despite the benefits the literature point out limitations EMA suffers from as well. Thus a challenge arises with absence of consistence guidance to deal with various phenomena’s which question the management accountant decision based on environmental cost.

 

  1. SELF EVALUATION

The empirical study as directing on the initial phase of implementing EMA into practice, the results did not sufficiently revealed the impact of new concept. Thus, significant number of benefits in the form of finance, brand image is to be achieved in long run. Despite the benefits, EMA would also own some of the limitations.

The study is compromised with obvious limitations which could be considered in future analysis. One of the limitations can be related to the number of interview representatives, which makes it hard to portray the every single aspect of the entity which affects the management decision making process. However management and customer perspectives participated in all interviews with no server resistance and as a result enriched data was collected for observation purpose.

Thus the study on future project in this case can be extended to consider large samples on empirical analysis figures. A corporative analysis between private and public sector will help to diversify stakeholders in decision making process. Hence additional project can be directed into areas of comprehensive study considering a number of years to draw valid conclusion regarding underlying trends, techniques, processes and results of EMA practices in competitive context.

An important avenue for future project is a study focusing on the after effects of implementation. This study is restricted to initial stage of adoption with the aim of identifying how chosen manufacturing firm adopt and interpret new management mechanism. Thus potential influence of EMA is volatile due to both external and internal economic pressure.

The results of the analyses above can be summarized in a SWOT analysis, in which strengths, weaknesses, opportunities and threats are systematically recorded. Strategic options can be determined by identifying strengths and weaknesses on the one hand and opportunities and threats on the other hand. The ultimate goal of a SWOT analysis is to gain a structured picture of the organisation in the context of its environment and to support strategic decisions. This is why the SWOT analysis is part of the final steps of the self-evaluation process: to draw conclusions and to determine new strategic directions.

Strengths

• Advanced knowledge development;

• The firm is closely involved;

• The activities have a clear effect;

• A wide and active network, both internally and externally.

Weaknesses

• Only a limited number of companies in the sector are reached;

• Too little attention for the transfer of knowledge and awareness;

• Insufficient insight into the use of resources

Opportunities

• Extra attention and resources from the government for innovation in the sector;

• New technological breakthroughs in strategically important fields;

• Opportunities of strategic alliances with European innovation programmes;

Threats

• The competitive advantage of companies in the sector is under pressure by the economic crisis;

• Changing Sri Lankan legislation for public funding

References

ACCA (2012), ‘The state of corporate reporting in Malaysia. Malaysia’, the Association of Chartered Certified Accountants.

Barnham, C.,(2012), ‘Separating methodologies?’, International Journal Of Market Project, 54, 6, pp. 736-738

Carcary, M.,(2011), ‘Evidence Analysis Using CAQDAS: Insights From a Qualitative Projecter’, Electronic Journal Of Business Project Methods, 9, 1, pp. 10-24

De Burgos-Jiménez, J., Vázquez-Brust, D., Plaza-Úbeda, J. & Dijkshoorn, J., (2013), ‘Environmental Protection and Financial Performance: An Empirical Analysis in Wales’, International Journal of Operations & Production Management, 33, 8, pp. 981-1018

Etzion, D., (2007), ‘Project on Organizations and the Natural Environment, 1992- Present: A Review’, Journal of Management, 33, 4, pp. 637-664

Mangappulige Don T N M.,(2014), Application of the concept of ‘EMA’ in relation to the Financial Performance in a competitive context; an empirical assessment over a manufacturing firm in Sri Lanka, Dissertation Proposal

Orlikowski WJ and Baroudi JJ., (1991),’ Studying information technology in Organizations: project approaches and assumptions, Information Systems Project’ 2(1), pp.1–28

Pradhan B B and Pattnaik S., (2007), “Beyond Environmental Accounting: The Triple Bottom

Line Approach”, The Accounting World, Vol. 7, No. 1, pp. 7-15.

Rivera, J., 2004. Institutional pressures and voluntary environmental behavior in developing countries: evidence from the Costa Rican hotel industry. Soc. Nat. Resour. 17, pp. 779–797.

Saunders, M., Lewis, P. & Thornhill, A., (2009), ‘Project Methods for Business Students’ (5 edn.), Essex, Prentice Hall.

Trauth Em., (2001), ‘The choice of qualitative project methods in IS. In Qualitative Project in IS: Issues and Trends’ ‘Idea Group, Hershey, PA

Walley, N. & Whitehead, B., (1994), ‘It’s Not Easy Being Green,’ Harvard Business Review, 72, 3, pp. 46-52

***

“PART 2 – PROJECT REPORT ON IMPLEMENTATION AND ASSESSMENT”

PROJECT PLAN

INTRODUCTION

“Accounting is simply one of the key functions in a business, which enables the managers to make their management decisions. Thus management accounting is a branch of accounting which primarily focuses on satisfying information needs of internal management allowing them to make effective decisions. Accounting, which is the base of a company, has grown steadily in recent years exposing the companies to new changes of various accounting elements of the business. Thus the businesses world and society gradually increased their concern on business responsibilities towards the society and environment other than traditional stakeholder perspective which influenced the organizations to think outside the box. As a result the concept of ‘Going Green’ emerged with a strategic objective to enhance the business view towards environmental accountability via environmental reporting.

Even after many companies adopting Environmental Accounting (EA) to their businesses with the motivation of reducing in cost and wastage (Allen, 1992, Schmidheiny, 1992), it’s hardly to be seen adoption of this concept in Asian competitive countries due to lack of expertise and knowledge of EMA concept and applicability of it. Hence this piece of work is motivated to identify the relationship between ‘Environmental Management Accounting’ has been exploited in an organization focusing on a manufacturing firm in a competitive context.

To date, the applicability of EMA was brought forward by academics with the criticism over traditional accounting practices (Gonzales 2005, Telle 2006, Wagner 2007, Sharmo & Vredenburg 1998, Russo et al, 1997,). Cullen et al. (2006) supported the concept of ‘Green Management Process’ by demonstrating the rapid growth of EMA in terms of sustainability in corporate world.

The shifting focus towards EMA as a new trend of accounting over traditional management accounting in competitive contexts lead us to find answers for questions such as “what is it refers to EMA in competitive context?, How to adopt the concept of EMA to a manufacturing firm in competitive context?, How the ‘Environment Management Accounting’ practices can be used as a management control mechanism on organizations financial performance?, What are the major challenges to be overcome in implementing EMA in competitive context?’

The paper is therefore structured to seek relevant answers to above via presenting theoretical review and subsequently presenting empirical study of applicability of EMA to the selected manufacturing firm Buddhi Batiks’ in enhancing the Financial Performance in a competitive pressure building context.

OBJECTIVES OF THE STUDY

“The aim of the study is to observe the application of EMA in Buddhi Batiks’ manufacturing context, while identifying its relationship with the Financial Performance of the organisation.

The objectives of the study can be categorized as follows

  • Discussion of the theoretical framework of EMA
  • Discussion of the reasons for adopting EMA in to practice
  • Asses the relationship between EMA and Financial performance of the entity
  • Exploiting the challenges of adopting EMA in competitive context

The above mention aims and objective are reached through the methods of statistical analysis of the theories in favor of EMA and through the investigation of secondary and primary data. Then the study emphasizes the finding with the limitations and recommendations to future references to the study.?

JUSTIFICATION OF THE STUDY

“The study attempts to highlight the importance of EMA via application of the concept to Buddhi Batiks’ manufacturing firm in competitive context which can be found to be an untreated research scheme. Nonetheless the research contributes towards the literature of development and application new trend of management accounting to real world.

Evaluating the above, appropriate guidance will be provided to other manufacturing firms in competitive context to implement new management accounting methods over traditional methods to gain not only long term profit but sustainability as well to the business with the influencing findings. Thus the study represent as a contribution f practical example for the theoretical perspective.”

LITERATURE REVIEW

    1. What Is Environmental Management Accounting?

The definition of Environmental Accounting (EA) is expressed via ambiguous and lose perspective. With accordance to Environmental Protection Agency (1995), EA views as the identification, collection, measurement and allocation of environmental costs, and integration of identified environmental cost in to business decision making process and subsequent communication of the significant information to entity’s stakeholders.

Considering EMA, a universal definition or boundary is hard to be found. According to IFAC, EMA is defined as “the management of environmental and economic performance through the development and implementation of appropriate environment-related accounting systems and practices

”Hence this may include reporting and auditing for some companies as well. EMA emphasized cost relation to use of energy, water and material and generation of waste and emission due to business operations. It also considers the material costs and losses of material in waste and emission which have now become some of the prominent cost drivers in most organizations.

Thus in the countries with lower enforcement of legislation framework and relatively low level labor cost, material and energy usage consumption cost clarifies as significant cost drivers (Christine Jasch et al 2010).

    1. Limitation in Traditional Accounting System

Concern on environmental issues along with their cost-benefit impact on the business has been increased worldwide. Align with the relevant literature many authors have criticized the conventional management accounting due to the failure to report social & environmental externalities (Christine Jasch 2006).

Hence the matter is descriptively discussed by Gray et al. (2005) as conventional practice on management via financial reports which are weighted more on the financial measures such as sales, profit etc.

  1. IASB requires the financial statements to be prepared in favor to the parties with resource allocating decision makers in a primarily economic or financial perspective. Which limits the access to the important but not financially affected stakeholders?
  2. Materiality Concept is one of the keystones in financial accounting which denies the disclosure of environmental information as increased difficulty in quantifying the environment cost. This emphasize the concept of materiality restrict the disclosure of environmental impact on the financial reports.
  3. Financial accounting discounts liabilities frequently that will be settled many years later. This action enhances future expenses less riskier and less significant today. Likewise the environmental impact that would be going for years will raise significant concern in future but will not be appeared in the present financial reports and decision making procedure.
    1. Advantages and Use of Environmental Reporting

EMA particularly holds an important view for internal management initiatives with significant environmental focus, in the form of cleaner production, supply chain management, environmental sensitive product or service design, superior environmental purchasing and environmental management system.

Thus the EMA information has being increasingly consumed in external reporting purpose as well. The specific use and benefits of the EMA can be organized via three boarder views; Compliance, Eco-efficiency and strategic position as illustrated below (IFAC)

  • Compliance – Cost effective drives organization with environmental regulations and self-imposed environmental policies.
  • Eco-efficiency – Continues reduction of cost and adverse environmental impact via efficient use of natural resources in internal operations and final products. Assessing the total annual return on investment in eco-efficiency activities may illustrate this contribution.
  • Strategic Position – Evaluation and adoption process of effective environmental sensitive programs ensuring entity’s long term competiveness. Reporting to stakeholders such as customers, investor and local communities, estimation of the internal costs likely to be arising with future legislation are examples for the view.

On the other hand Advantages and the purpose of relies with Environmental reporting can be capitalized through the theories explained below;

  1. Stakeholders Theory

The disclosure of the environmental impact may be relied on the persuasion of the stake holders. Either it can be the positive/managerial theory; the company follows on the stakeholders where they are categorized in accordance with the state of the important. If the powerful stakeholders of the entity demand for environmental disclosure the organisation will do as so to maintain healthy relationship.

  1. Legitimacy Theory

The legitimacy theory is associated with social contract. Some companies disclose their impact on the environment as a part of social contact, in other words organizations’ continuously seek their position whether they perform in the edges of the norms, believes, expectations on the society which they operates (Suchaman 1995).Literature has shown business has used exploration of the environmental impact as a shield to defend issues that affects either on their code of ethics or competence.

  1. Reputation Risk Management

The use of environmental reporting will results in gain or maintaining the legitimacy prescribed by the society. When an organisation commits higher profile of impact on the environmental many stakeholders pursue the organisation for reassurance or else terminate their engagement with organisation in future. Given that in literature few organizations tend to provide environmental information, and those who provides tend to achieve improved reputation with competitive advantage.

 

4.4. Environmental Management Accounting In Practice

EMA is the combination of both environmental financial and non-financial information for the purpose of management decision making process. It’s essential to identify and allocate the environmental related costs for accounting purpose (Bennet & James 2002, Frost 2000).

However in accordance with the US environmental protection agency (1989) environmental costs depends on the intention of the entity in using environmental related information. Hence they categorized costs as follows;

  • Conventional costs-environmental related raw material and energy costs
  • Potentially wider costs- identified costs but yet recognized under general overhead costs
  • Contingent costs- the cost likely to be incurred in the future
  • Image and Relationship costs- cost of preparation of environmental reports

EMA is an attempt to take every possible affecting environmental factors along with significant environmental cost in to account with the aiming effective decision making. Most of the environmental costs are seen to be in ledger accounts in the financial accounts but yet recognized as general overhead. And equally it’s important to allocate environmental costs in relation to the product that generates it, as this contributes towards management to identify the root of the cost.

  • Accounting for environmental costs

Management accounting techniques for the allocation and identification of the environmental costs can be identified as follows (ACCA 2012);

  1. Input/output Analysis

This technique focus upon the physical quantity of the material input and product output. If the output quantity doesn’t equal to the input the residuals will be taken into account in terms of waste. Hence it forced business to focus upon environmental costs (UNBSD 2011, Envirowise 2003)

  1. Flow cost accounting

This focuses simultaneously, not only on the material flow but also the structure of the business, in the form of cost and values. Flow cost defined material flow, material, systems, delivery period, disposal, material value and costs incurred in the process. EMA can be benifitious with this technique as it reduces quantities while increasing the ecological friendly impact of the company.

  1. ABC costing

Activity Based Costing assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of one cost drier(CIMA 2014).

Environmental cost in the form of ABC system can be distinguishes between environmental related cost and environmental driven cost. When some environmental costs are increasingly difficult to recognize among general overhead, joint environmental cost features are attributed.

Schaltegger and Muller(1989) in regard to ABC system emphasize in order to get respectable results environmental costs should be allocated as follows;

  • Volume of emission and waste
  • Toxicity of emission and waste treated
  • Increased environmental impact
  • The relative costs incurred treating negative environmental impact
  1. Life Cycle Costing

Life Cycle Cost includes the cost of an asset throughout its life cycle as cost of investment, operation, maintenance, internal and external costs. Many companies comply with life cycle assessment to evaluate environmental costs and opportunities associated with it. This bridge the gap between accounting treatment for existing internal environmental costs and recognition of external impacts (Darnall 2008).

Hence Life cycle costing helps the organisation to identify and assess the environmental impact related to projects that may not visible in present providing comprehensive view of the product (Little 2000).

Thus EMA is a widespread concept based on its scope techniques on management accounting. EMA is viewed as an application of conventional accounting which is focus upon environmental impact of companies to the society.

Bruit et.al, (2001) developed multi-dimensional framework in order to identify environmental cost along with environmental management decisions;

  • Internal vs. external
  • Physical classification vs. monetary
  • Past and future time trains
  • Short and long term
  • Type of information

Within the borders of the above framework different techniques of EMA as discussed earlier can be assigned by the business with the purpose of the information need.

4.5. Sustainability and EMA

Increased importance of environment led the companies to adopt environmental accounting and EMA for the survival of the business in long run and to face the competition in the business world.

Hence environmental reporting and social reporting significantly referred as ‘sustainability reporting’ by literature in recent times (Bhur 2007, Brammer et al 2006). Sustainability is simply defined as the development that fulfils the needs of the present world without comprising the capability of future generation to meet their own necessities (Brundtland 1987).

Here the key question is how EMA can attribute to sustainability. The answer is built up upon the triple bottom line concept. By integrating ecological cost and benefits from environmental impact into traditional financial system, target of EMA is capturing the interdependency and dynamic interrelation among the three pillars which base of the pyramid of sustainability.

Thus, the triple bottom line concept can be expressed in the following dimension;

4.6. EMA and Competitive context

EMA is a relatively new tool in Sri Lanka in contrast to European context, profit maximizing organizations’ are in the search of increased profit even at the cost of high environmental impact.

Thus the competitive context firms realize the negative impact on environment will result in adverse performance in the organisation in long run (Durairaj et al., 2002).Janet and Daryl (1996) stress out there is a significant inevitability shift from stricken legislation to self-regulated, market based and environmental friendly firm phase in competitive context.

But the study is almost 25 years old which is represents an outdated portfolio. Hedge et al., (1997) focused on the public sector and EMA in south Asian perspective. The literature argues in the context of competitive countries in prior of south Asian there is a dearth of academics views on EMA practice.

Against this background, this empirical study on Sri Lanka is a contribution to bridge the gap between EMA literatures from south Asian competitive context.

4.7. EMA and Business Performance

EMA is basically move along with improved environmental performance or positive gesture towards regulators and the stakeholders (Johnstone 2009).The costs of environmental impact of the company are traditionally linked with EMA activities (Yang et al 2011, Darnall and Edward 2005).Thus EMA can be defined as the set of internal rules and regulation focus upon the environmental protection via different tasks and processes. Contrastingly Hahn et al. (2010) argues many of the researchers strongly intense on their approach which doesn’t go align with reality and increase limitations in conceptual framework via associated with win-win business situations.

Better Environmental Management can be obtained via variety of environmental practices and each practice gives different effects on the performance and the nature of the business (Gonza´lez-Benito, 2005). Competitive advantage always might not be the result of implementation of EMA practice (Kaptein et al 2001, Margolis 2003

If these negative implications are not recognized with due, the business will have to deal with scare resources and penalized society. Hence in the literature there are two main hypotheses taken in to account when harnessing he relationship between EMA and Business Performance as follows;

  1. Positive relationship of EMA and Financial performance
  2. Negative relationship of EMA and Financial performance

On the other hand proactive as a strategy which encourages voluntary disclosure and development of the environmental activities beyond the legitimacy. These activities enhance the willingness to prevent negative impact at its basis (Guenster et al.,2011). In whole proactively strategy in EMA based upon innovation and change in the existing organizational behavior in a way which enhance the environment image, stakeholders integration, increased capabilities in innovations, efficient use of scare resources, other knowledge based characteristics which will lead the business to sustainability (Willard, 2005, Gupta, 1995; Guenster et al., 2011).

Key concern in search is how EMA is related to financial performance, however literature with the support of empirical studies found inconclusive point of views as negative positive or either non-significant movement long the relationship (Molina et al., 2009, Horyathoya 2010. Palmer et al. (1995).

Thus, concluding the arguments in favour of positive relationship towards business performance many empirical studies were to be found in support of the above statement analysing medium and long term financial performance (Hart and Ahuja 1996, King and Lenox 2001) along with resource based view. On the other hand negative or ineffective relationship is determined between EMA and financial performance in short term.

4.8. Limitations Associated with EMA

EMA is impeccably a valuable tool of management, thus despite the benefits the literature point out limitations EMA suffers from as well.

Valuation of environmental management varies from business to business based on the structure and nature of business perspective; hence it doesn’t comply with a standard accounting method. Thus a challenge arises with absence of consistence guidance to deal with various phenomena’s which question the management accountant decision based on environmental cost.

Thus academics view lack of EMA standards as the main problem with EMA in practice (UNDSD 2001). Therefore one of the main features in financial reporting system, reliability of information is questionable. Social and environmental consequences are dynamic in nature therefore organizations have to update their path of EMA along with changes which will create confusion and stress. Data collection on natural resources and impacts may base upon industrial data collection method which will reduce reliability.

Secondly narrow view of economic consequences where company priorities short term rather than long term perspectives and rejects programmes such as EMA which may cause difficulties in short term but generate profitability term in long run. Thus these companies are not interested in concentrating negative externalities cause by operations beyond the factory walls (Watchaneeporn et al., 2010). Third frame is absence of guidance on operating EMA in universal framework

BUSINESS PROJECT

An empirical study is accompanied on applicability of EMA using Buddhi Batiks’ manufacturing firm in Sri Lanka, with the aim of understanding the research objectives.

PHILOSOPHY AND APPROACH

The investigation of the study is on the basis of exploratory philosophical stance. This perspective can be presented as a doubt clearing mechanism for the users when nature of the problems get blurred (Robson 2002). As the concept of EMA is tend to be a new trend of management control which seems to be filled unfamiliar nature to competitive context, exploratory perspective try to provide fresh insights to the implementation process of the study.

RESEARCH CONTEXT AND THE PORTFOLIO OF THE SELECTED COMPANY

The study is based on the empirical findings of manufacturing firm of Batik, a company in Sri Lanka named, “Buddhi Batiks” which is run by top management for years from 1970. Since the establishment the company has opened doors for acceptable structural changes with careful observation. In the infant stage the firm was established one retail outlet in addition to manufacturing firm.

Now it’s spread in o 5 retail shops in regional borders. In mid 1990s’ company opened up to export business with china and Italy with improved quality products. In definition manufacturing firm such as ‘Buddhi Batiks’ is a centre of employment, foreign exchange and uniqueness.

The main structural changes were made during past few years with proper supervision and control of CEO and top management while relatively neglecting the view point of lower level of management hierarchy. Once the decisions are made they are distributed through the top down approach to take into action.

Thus this centralized management control system tends to make problems in practice. Due to time constrains the study will focus only manufacturing perspective and management agreed to discuss new practice of EMA within selected departments to evaluate the feasibility.

Environmental management system in the case company with accordance to current management system (approved in 2012) company recognises its responsibility outside the business. The company owns an environmental programme aiming controlling the use of natural resources and preventing extreme environmental damages. The company is focused upon long term profitability, therefore the management identifies environmental risks and impacts on their operations, financial status and set targets accordance with that. Environmental programmes initially were developed for 5 year period and expected to continue further if the results achieves the organizational objectives. Thus now the entity span two year period in achieving the set of goals.

The CEO and senior management are responsible for planning, competitive and monitoring specific environmental management programs. Thus the decision making on investment were based on NPV process were environmental cost was given significant importance.

Furthermore, the EMA programmes communicate business environmental responsibility, means of achieving and focusing continuous improvement on operations to interested groups. Thus the entity aims to minimize environmental impact on the society while keeping expenses at low as possible. The company has objective of reducing wastage and maximization the effective use of natural resources. Hence the entity operates EMA activities as follows;

The companies operates a community programme named “Ran Aswanu” (golden harvest) which uses waste for compost and give away for local farmers for harvesting which relatively increased their brand image while reducing the legal cost of adverse effect on waste disposal. Thus the company handles water management system, using used water and rain water for production process without compromising the quality.

In whole the company pays significant attention towards issues in terms of environmental protection and business perspective, EMA activities have been documented and the progress of the business via EMA is monitored thru regular basis.

Thus the management hierarchy of the company can be defined as follows;

Shareholders

lder

Director Board

Finance Department

Chief Executive Officer (CEO)

Production Department

Marketing Department

Legal

Department

HR Department

Quality Manager

Assistant quality manger

Assistant Production Manager

Team Manager

Production Manager

Assistant Production Manager

Operational Level Employees

 

 

DATA COLLECTION

3.1 Strategy of the Investigation

Case study is the main source of strategy for the investigation. One of the strength in case study is the focus on the research questions and the use of qualitative information which enrich the quality of the study (Robsn 2002). Hence case study is the best alternative when the boundaries between phenomenal and context are blurred. And case study is supported with qualitative research over quantitative research.

Hence, the empirical findings of this piece of work are the centered on participates responses via interviews. Thus interviews bare the ability of finding solution in the form of ’how’ and ‘what’ (in 2003). The interviews were aimed of collecting the participants’ attitude, knowledge and behavioral consequences of adopting the concept of EMA in to practice. Consequently interviews clear the path for deeper understanding of firm managerial process. The interviews carry out the viewpoints of CEO, Chief Operation Officer, Production, Marketing and Financial manager, three operational level employees and two key customer perspective. Hence interviews attempt to bridge the viewpoints of all intensities in management hierarchy.

3.2 Semi Structured Interviews

The foundation of data collection was based upon semi structured interviews with key persons of the management hierarchy of the company, while focusing the questions on existing management control system and view point of EMA practice. The primary data collection stage was focused on the semi structured interviews concentrating the traditional management system, structural change of the firm with adoption of EMA perspective. The Finance Manager found to be well educated on the concept of EMA and importance of engaging, being a CIMA past finalist.

Interview questions were distributed before the interviews with the aim of increased efficiency, clear explanation. The questions were presented while clarifying the doubts of the participants. Hence the data collection was based upon the financial and production and marketing managers operational level worker form each department key management persons and 2 key customers of the firm. The interviews carried out individually between the time frame of 20-40 minutes with key management persons and 20-30 minutes operational perspective and 10-15 minutes with key customers to get a clear picture of each view point and multiple interview sessions were conducted to clarify doubts.

3.3 In-depth interviews

Further, in-depth interviews were carried out distinctly with CEO, finance manager, production, and marketing manager. The purpose of the depth questionnaires’ to clarify answers for general questions allowing considerable scope of time. Each individual lased between 30-40 minutes. As the final touch responses collected from interviews were summarized and distributed to participants to further comments and corrections to achieve accurate result

3.4 Use of Secondary Data

Despite the interviews being the main data collection techniques, secondary data such as financial statements, internal accounting reports, budgeted expenses reports, annual reports, etc. ere obtained from the Buddhi. Thus secondary data seconded the findings from the interviews.

3.5 Data Transcribing

Every appointed business related figures participated in all the interviews. Thus the interviews were recorded for use and essences of the interviews were transcribed in to paper (Rothengerg 2007). Recorded interviews were taken into careful consideration to contribute research questions and understand the phenomena (Ahrens et al 2006). The organizational perspective was observed while spending few (2-3 hours) meaningful hours on organizational performance.

As interviews conducted in interviewees native language (Sinhala) significant time and effort was devoted to translate all the quotations to English. The transaction may not be purely verbatim due to limitations of transcribing words in Sinhala to English due to different shades of meaning of merging translation. However the quality of the will not be affected by the difference in language as they were conducted in broader context (Yin 2003, Sandress et al. 2009).

DATA ANALYSIS

4.1 General Findings

Being one of the leading manufacturing firm in Sri Lanka for Batik related products the company is interested in exploring new approaches to enhance the performance. However academic research shows Batik production has a tremendous impact on environment, due to high kerosene and electricity cost and combination of water consumption and use of toxic dyes (Wouters, Maes, & Germer, 1990) Textile manufacturers generate about 384,000 tons of waste each year. Much of this can be eliminated through recycling.

Through the interview process top management stood up on the basis for adopting new managerial control mechanism is to overcome the challenges in current business world. Thus the case study was driven by utilizing institutional theory, where different routines and differing effects on institutionalization affects which contributes to the organizational decision making process.

The target setting process in the business act as a significant role in decision making procedure. Target setting, simply identifies the directions and goals of the firm. Thus in the case of company, shift towards new management process, marketing and production department interpreted the importance of setting new target. However with implementation of EMA practices, centralized approach focused upon the overall strategy of the firm which can be demonstrated as an outside in process. Top management;

“To expand the market share of the company we should consider overall strategy. Hence the targets are newly set considering competition movement, market changes which are more realistic.”

For instance referencing to the experts view, environmental target setting was fond highly on the ‘profitability’ rule. To ensure environmental cost are fully observed and improve the environmental performance EMA has been introduced while eliminating traditional management drawbacks. Thus the reasons for adopting EMA can be further analyzed through following border schemes of Institutional theory to address objectives.

  • Normative perspective

Normative drivers associated with entity when implementing new rules and legitimate practices within the organisation. Thus the marketing manager holds a normative view on the concept of EMA.

“The business aims to increase the brand image via maintaining clear corporate and social responsibility policies.”

According to analysis interview concludes that environmental certificate has certain influence towards adoption of EMA activities. This certificate considered as an useful marketing mechanism to attract customers and improve brand image and loyalty in particular market. This can be counted as external factors which influence organisation decision making. On the other hand Marketing manager clears his view as follows,

“If the company wants to build up a certain brand image we should consider environmental issues frankly before we are asked, not only which are obligatory”.

The group CEO holds the view the company being a “good corporate citizen” which funded by environmental activities. Development and maintenance of EMA as its related to brand reputation. Thus the statement of CEO certifies adoption of EMA enable them to increase their brand image while improving their sales.

  • Coercive perspective

As coercive drivers focus upon the most powerful position in the organisation, In this case a broad range of stakeholders such as top management, society and customers plays an important role who dictated attempts to legitimize environmental management practices. As an example with reference to the study marketing manager stress out;

“As majority of our suppliers and customers are taken part and interested in social and environmental campaigns we have service targets to achieve in order to satisfy the powerful stakeholders perspective”.

Through deep observation, entity to be seen as socially responsible perspective in the eyes of the consumer by having eco-friendly products on the shelf have tried to implement EMA into practice. Thus according to marketing manager initial reason for implement EMA due to social pressure from the outsiders and corporate image forced the entity.

Considering the view of key customers, they interpreted their view with certain favorable consideration of EMA activities,

“Being a whole seller, my motive is to buy products at the cheapest price, thus environmental impact is not much influencing factor to me, but it’s significantly important towards retail customer perspective due to higher international demand for environmental sensitive products therefore even I motivate this green production.”

  • Mimetic perspective

Mimetic drivers based on the imitation of the entity on the successful competitors on the industry to adopt the concept at first place. Through the study and interview of the selected entity, the adoption of EMA to a certain extent was depended on the competitor’s success. Hence finance manager stated;

“Having few competitors in the industry, a success in one will ultimately affect the business. Therefore before it’s too late we must consider success strategies of the competitors”.

  • Internal factors

Financial manager specifically emphasized the company adopted EMA, as this investment can save money and decrease cost as well. Hence he highlights all environmental activities affect the company’s financial performance. Thus this direct effect on the profitability is one key factor when appropriate EMA practices were selected. According to finance department waste disposal and legal fees on environmental issues had a high impact on financial performance.

With accordance to the interview majority of managers were aware of the high probability of decreased cost and improved environmental performance.

“Obviously the selected indicators, we know how many costs we can reduce when performing EMA practices as per plan, this savings bring financial benefits”.

The CEO views environmental management and programmes generally beneficial for company as, adverse attention towards environmental can compromise future consumption of resources.

Thus concluding all the views of the analysis the ultimate motivation of adopting EMA practices go beyond “genuine environmental concern” towards “business management strategy” with the aim of increased profitability with minimized cost and improved competitive edge.

Through the observation ultimate goal of using EMA by company is to make sure that all relevant, significant costs are taken into account prior to decision making process. Well designed and implemented EMA practices will help to ensure better internal management and decision making for investment with cost savings.

Thus through the short period of implementing EMA in to practice, management holds view at EMA as significant influencing factor towards cost reduction and sustainability practice. The finance manager interpreted;

“The adoption of key practices of EMA resulted in slight impact on business performance in the form of cost reduction and quality improvement. Thus the customer satisfaction and corporate image increased in association to adoption of the concept, and we hope to achieve significant competitive advantage in long run with the end of the projected time frame”.

In whole interviews represented the view adoption of EMA affected positively to the business perspective with initial cost of implementation which is yet to be covered in the long run.

4.2 Explore the Challenges of Adopting Environmental Management Accounting within Competitive Context

Adoption of new concept is always challenging to the company. According to empirical findings competitive context faces number of challenges.

  • Communication Barriers

Effective communication is the tool of successful functional performance of an any company (Perry 2009).As discussed above the company was interested in adopting EMA to be align with current business changes and these decisions are established prior to top level management. Therefore communication of the projected plan towards lower level is essential to achieve expected targets (Leach Lopez et al., 2007).

While top level management imposed the new system, operational level employees tend to have little knowledge of the changes. .

As effective communication persuade achieving organizational goal, as demonstrate above lack of communication will result in an ineffective workforce. Therefore the company is advised to maintain reliable communication chain through the management hierarchy. Until there is factual conversation between accountants and the technical and environmental professionals in charge of physical information, development of environment performance indicators and development of environmental management strategies in general is considered as a challenging risk.

  • Environmental related cost information are hidden in overheads

There are numerous examples highlighting the environmental related costs being inadvertently hidden in the overhead costs in accounting records which making it difficult to explore the information for benefit perspective. With respect to the selected firm accounts were created using overheads which includes environmental permit fees, training costs and legal expenses. As overheads allocated back to cost centers as production volume, machine hours, inventories numbers might distributes to inaccurate way of cost allocation in relation to environmental cost.

Hence different department owns variety of goals and perspectives with respect to EMA. As different views of the management of EMA related cost responsibility; Production centre where waste is produce but doesn’t hold sufficient records on waste, Environmental management who are not responsible for waste but dispose it, and the accounting department ultimately who hide the cost effect under general overhead.

Reference to academic research organizations associated with different approaches resolving environmental cost hidden in general overheads. The common method setting up separate cost categories or cost centers associate with discrete EMA practices. The less obvious cost categories which appear in the operations can be labeled more clearly under environmental cost and traced easily. The environmental costs associated with different process and product can be clarified via using Activity Based Costing (ABC) as it determine the company to allocate cost using appropriate cost basis.

  • Lack of awareness of EMA tools

Accounting department appears to have a clear image of EMA whereas production department and operational level employees owned lesser knowledge on the concept. However employees expressed their view on the change despite of the system which they were familiar for long time.

“EMA seems to be all new business concept considering natural aspect which ignored for quite long period, regarding the new system employees expect training and explanation session where they can familiarize with the new system due to lack of knowledge and experience on the concept.”

  • Economic and Political Environment

Competitive countries expose to higher level of exposure to economic and political issues due to uncertain economic conditions. (Peyton 2012). Even before the adoption of new concept internal management process was based on variation in the economy and environment. The accounts were later adjusted with inflation changes where reports stated the deviation between budgeted and actual. Thus CEO explained how the political factors influence the individual activities in organisation.

“Although every aspect was taken into consideration political environmental influence causes problems in diversification of the direction”.

According to the experts view as above, political, cultural and economic phenomena’s which are inherent in competitive context lead as a drawback and cause implication while implementing EMA into practice.

PROJECT EVALUATION

CONCLUSION

EMA is identified as a new functional tool in the discipline of environmental management process. Recently, increased consideration on environmental cost brought the attention of the business towards environmental as it is no longer valued as a minor cost which can be hide under general overhead pools and the use of EMA will enrich the control while saving significant amount of money. It’s to be identified, modern social and environmental framework visualize the EMA as an instrument, economic tool, which enrich the business attention towards environmental perspective.

Thus application of EMA to Buddhi Batiks’ has to be carefully analyzed and tailored rather than applying as generic system. The cost benefit analysis of the scope has to be conducted before applying EMA in practices. According to analysis it’s to be found that implementation of EMA practices is a transformation of business decision making process where the company realizes the important role which bright up the entity’s profitability terms.

Taken as a whole, the study on Buddhi Batiks’ examined the win-win hypothesis of firm with good environmental performance in a manufacturing firm within competitive context. The study objectives were justified through mainly based on interview data from key personal in decision making, operational level and customer perspective. However the study focuses on the infant stage of implementing EMA in to practice. With reference to literature, even though a number of studies carried out on application of environmental reporting, no significant study was focused upon applicability of EMA in manufacturing firm in competitive context. Hence the study is an attempt to focus on the manufacturing firms in competitive context which is found to be an untreated research plot. Therefore the study documents how the application of EMA was taken into account at first place while exploring challenges of implementation, eliminates drawbacks of traditional management system and highlighting the contribution of EMA towards financial performance.

Additionally analysis try to justify the strategically and significantly impact of environmental disclosure as an essential component of improved financial performance. Continuous improvements in environmental activities are confidence to generate sales and improved incomes. Thus integrating cost into pricing is a contribution towards innovation and efficient pathway to lower cost. Thus the study does not clearly highlight this status as the company is in the initial stage of implementing EMA. Capabilities of process innovation and implementation of EMA activities moderate the competitive and cost advantage (Claver-Corte´s et al., 2007; Wagner, 2007). According to key participants of the study, new management system is acknowledged by organizational members. Conferring their view which was based on the implementation stage of EMA, they believe consequences of the new management system are more visible in the long run.

EVALUATION OF PROCESS ADOPTED AND AVENUES FOR FUTURE RESEARCH

The empirical study on Buddhi Batiks’ as directing on the initial phase of implementing EMA into practice; the results did not sufficiently reveal the impact of new concept.

Thus, significant number of benefits in the form of finance, brand image is to be achieved in long run. Despite the benefits, EMA would also own some of the limitations.

The study is compromised with obvious limitations which could be considered in future analysis. One of the limitations can be related to the number of interview representatives, which makes it hard to portray the every single aspect of the entity which affects the management decision making process.

However management and customer perspectives participated in all interviews with no server resistance and as a result enriched data was collected for observation purpose. Thus limitation associates with data collection period, the study is to be a long term perspective, although the data gathering was limited to shorter period hence it compromised the significant consequences of application of EMA and financial benefits of the company.

Thus the study on future research in this case can be extended to consider large samples on empirical analysis figures. A corporative analysis between private and public sector will help to diversify stakeholders in decision making process.

Hence additional research can be directed into areas of comprehensive study considering a number of years to draw valid conclusion regarding underlying trends, techniques, processes and results of EMA practices in competitive context.

An important avenue for future research is a study focusing on the after effects of implementation. This study is restricted to initial stage of adoption with the aim of identifying how chosen manufacturing firm adopt and interpret new management mechanism.

Thus potential influence of EMA is volatile due to both external and internal economic perspectives in competitive context.

REFERENCES

ACCA (2012), ‘The state of corporate reporting in Malaysia. Malaysia’, the Association of Chartered Certified Accountants.

Adams, R. (2002), ‘Management accounting and the environment Sustainability and ACCA qualification’, ACCA technical Article – ACCA student Accountant.

Bai, C., Sarkis, J. (2010), Integrating sustainability into supplier selection with grey system and rough set methodologies. Int. J. Prod. Econ. 124, 1, pp. 252–264

Ball, A., Craig, R. (2010), Using neo-institutionalism to advance social and environmental accounting. Crit. Perspective. Account. 21 (4), pp.283–293

Carcary, M. (2011), ‘Evidence Analysis Using CAQDAS: Insights from a Qualitative Researcher’, Electronic Journal Of Business Research Methods, 9, 1, pp. 10-24

Choubey, B, & Pattanayak., (2014), ‘Curriculum for Environmental Accounting: A Comparative Analysis of the Viewpoints of Manufacturing and Financial Service-Rendering Organizations’, IUP Journal Of Accounting Research & Audit Practices, 13, 1, pp. 62-78

Christmann, P. (2000), “Effects of ‘best practices’ of environmental management on cost advantage: the role of complementary assets”, Academy of Management Journal, Vol. 43, pp.170-189

Darnall, N. and Sides, S.S. (2008), “Assessing the performance of voluntary environmental programs: does certification matter?”, Policy Studies Journal, Vol. 36 No. 1, pp. 95-117.

Darnall, N., & Carmin, J. (2005), ‘Greener and cleaner? The signaling accuracy of U.S. voluntary environmental programs’, Policy Sciences, 38, pp. 71-90

Etzion, D., (2007), ‘Research on Organizations and the Natural Environment, 1992- Present: A Review’, Journal of Management, 33, 4, pp. 637-664

Frost, G R and Wilmshurst, T.D. (2000), ‘The adoption of environment-related management accounting: an analysis of corporate environmental sensitivity, Accounting Forum, Vol 24, No 4, pp 344-365,

Goldman, I., (1999), ‘Q Methodology As Process and Context in Inerpretivism, Communication, and Psychoanalytic.’,Psychological Record’, 49, 4, pp. 589

Gonza´ lez-Benito, J. and Gonza´ lez-Benito, O. (2005), “Environmental proclivity and business performance: an empirical analysis”, Omega, Vol. 33 No. 1, pp. 1-15.

Hahn, T., Figge, F., Pinkse, J. and Preuss, L. (2010), “Trade-offs in corporate sustainability: you can’t have your cake and eat it”, Business Strategy and the Environment, Vol. 19 No. 4, pp. 217-229.

Hart, S.L. and Ahuja, G. (1996), “Does it pay to be green? An empirical examination of the relationship between emission reduction and firm performance”, Business Strategy and the Environment, Vol. 5, pp. 30-37.

Jasch C. (2003), The use of environmental management accounting (EMA) for identifying environmental costs. Journal of Cleaner Production, Vol. 11. Pp667-676

Jennings, P.D., Zandbergen, P.A. (1995), ecologically sustainable organizations: an institutional approach. Acad. Manag. Rev. 20 (4), pp. 1015–1052.

Kaptein, M. and Wempe, J. (2001), “Sustainability management. Balancing conflicting economic, environmental and social corporate responsibilities”, Journal of Corporate Citizenship, Vol. 1 No. 2, pp. 91-106.

Kilbourne, W.E., Beckmann, S.C., Thelen, E. (2002), The role of the dominant social paradigm in environmental attitudes: a multinational examination. J. Bus. Res. 55 (3), pp. 193–204.

Lai, K.H., Wong, C.W.Y., Cheng, T.C.E., 2006. Institutional isomorphism and the adoption of information technology for supply chain management. Compute. Ind. 57 (1), pp.93–98.

Lankoski, L. (2000), “Determinants of environmental profit. An analysis of the firm-level relationship between environmental performance and economic performance”, PhD dissertation, Helsinki University of Technology, Espoo, Finland,

March, J.G., Olsen, J.P. (1989). Rediscovering institutions: the organizational basis of politics, New York. Free Press, pp 167-178

Margolis, J. and Walsh, J. (2003), “Misery loves companies: rethinking social initiatives by business”, Administrative Science Quarterly, Vol. 48, pp. 268-305

Nehrt, C. (1998), “Maintainability of first mover advantages when environmental regulations differ between countries”, Academy of Management Review, Vol. 23 No. 1, pp. 77-97.

North, D.C. (1990), Institutions, Institutional change, and Economic Performance. Cambridge University Press, Cambridge, UK

Orlikowski WJ and Baroudi JJ., (1991),’ Studying information technology in Organizations: research approaches and assumptions, Information Systems Research’ 2(1), pp.1–28

Palmer, K., Oates, W.E. and Portney, P.R. (1995), “Tightening environmental standards: the benefit-cost or the no-cost paradigm?”, Journal of Economic Perspectives, Vol. 9 No. 4, pp. 119-132.

Peattie, K. and Crane, A. (2005), “Green marketing: legend, myth, farce, or prophesy?”, Qualitative Ressearch, pp.178-270

Reinhardt, F.L. (2000), Down to Earth, Applying Business Principles to Environmental Management, Harvard Business School Press, Boston, MA.

Rivera, J., 2004. Institutional pressures and voluntary environmental behaviour in competitive countries: evidence from the Costa Rican hotel industry. Soc. Nat. Resour. 17, pp. 779–797.

Sarkis, J. and Cordeiro, J.J. (2001), “An empirical evaluation of environmental efficiencies and firm performance: pollution prevention versus end-of-pipe practice”, European Journal of Operational Research, Vol. 135, pp. 102-113.

Sarkis, J., Zhu, Q., Lai, K.-H. (2011). An organizational theoretic review of green supply chain management literature. Int. J. Prod. Econ. 130, pp.1–15

Trauth Em., (2001), ‘The choice of qualitative research methods in IS. In Qualitative Research in IS: Issues and Trends’ ‘Idea Group, Hershey, PA

Wagner, M. (2007), “Integration of environmental management with other managerial functions of the firm: empirical effects of drivers of economic performance”, Long Range Planning, Vol. 40, pp. 611-628.

Yang, C., Lin, S., Chan, Y. and Sheu, C. (2010), “Mediated effect of environmental management on manufacturing competitiveness: an empirical study”, International Journal of Production Economics, Vol. 123 No. 1, pp. 210-220.

Yin, R., (2003), ‘Case Study Research: Design and Method’ (3 edn), London, Sage Publications

***

“PART 3 – SELF REVIEW AND CONTUINING DEVELOPMENTS”

  1. SELF EVALUATION

The empirical study as directing on the initial phase of implementing EMA into practice, the results did not sufficiently revealed the impact of new concept. Thus, significant number of benefits in the form of finance, brand image is to be achieved in long run. Despite the benefits, EMA would also own some of the limitations.

The study is compromised with obvious limitations which could be considered in future analysis. One of the limitations can be related to the number of interview representatives, which makes it hard to portray the every single aspect of the entity which affects the management decision making process. However management and customer perspectives participated in all interviews with no server resistance and as a result enriched data was collected for observation purpose.

Thus the study on future project in this case can be extended to consider large samples on empirical analysis figures. A corporative analysis between private and public sector will help to diversify stakeholders in decision making process. Hence additional project can be directed into areas of comprehensive study considering a number of years to draw valid conclusion regarding underlying trends, techniques, processes and results of EMA practices in competitive context.

An important avenue for future project is a study focusing on the after effects of implementation. This study is restricted to initial stage of adoption with the aim of identifying how chosen manufacturing firm adopt and interpret new management mechanism. Thus potential influence of EMA is volatile due to both external and internal economic pressure.

The results of the analyses above can be summarized in a SWOT analysis, in which strengths, weaknesses, opportunities and threats are systematically recorded. Strategic options can be determined by identifying strengths and weaknesses on the one hand and opportunities and threats on the other hand. The ultimate goal of a SWOT analysis is to gain a structured picture of the organisation in the context of its environment and to support strategic decisions. This is why the SWOT analysis is part of the final steps of the self-evaluation process: to draw conclusions and to determine new strategic directions.

Strengths

• Advanced knowledge development;

• The firm is closely involved;

• The activities have a clear effect;

• A wide and active network, both internally and externally.

Weaknesses

• Only a limited number of companies in the sector are reached;

• Too little attention for the transfer of knowledge and awareness;

• Insufficient insight into the use of resources

Opportunities

• Extra attention and resources from the government for innovation in the sector;

• New technological breakthroughs in strategically important fields;

• Opportunities of strategic alliances with European innovation programmes;

Threats

• The competitive advantage of companies in the sector is under pressure by the economic crisis;

• Changing Sri Lankan legislation for public funding

 

 

  1. FUTURE PLANS

“A successful environmental management system should have a method

for accounting for full environmental costs and should integrate private

Environmental costs into capital budgeting, cost allocation, process/

Product design and other forward-looking decisions … Most corporate

Information and decision systems do not currently support such

Proactive and prospective decision making.”

Improved environmental management accounting is seen by corporate managers and

Environmental advocates alike as a necessary complement to improved environmental

Decision-making within the private sector. Whether the goal is pollution prevention, or some broader notion of “corporate sustainability,” there is a widespread belief that sound

Environmental management accounting will help firms identify and implement financially desirable. Environmental innovations. Moreover, environmental regulation is evolving toward public Policies that rely to a much greater extent on the collection and reporting of environmental Information

.

This paper develops an economic approach to the evaluation of environmental Accounting’s benefits. Using concepts from managerial economics, finance, and organization theory, the value of improved environmental management accounting information is explored. The overall goal is the identification of priorities for improved environmental management accounting. Given the difficulties and costs associated with adopting new accounting methods and the collection and verification of data, it is desirable to identify situations in which the benefits of improved information are likely to be greatest. As will be shown, “better” information is not always

Valuable.

Analysis of corporate decision-making and the value of information to the decision-making

process is an important first step if private sector managers (and regulators) are to set

priorities for improved environmental management accounting. An expanding literature documents problematic accounting practices with the potential to bias environmental decision-making (EPA, 1995b). Frequent targets for criticism are the allocation of environmental costs to general overhead accounts, the failure to account for future contingent liabilities, and the failure to measure the impact of environmental decisions on corporate image and customer and supplier relationships. From a public policy perspective, poor environmental management accounting means that the private sector is likely to “miss” investment, procurement, and process and product design opportunities that have financial and environmental benefits.

It is widely believed that improved environmental management accounting practices, working in conjunction with the private sector’s own profit motives, will create significant environmental benefits. This perspective has in turn motivated a growing literature on financial and accounting methodologies to improve accounting practices (Moilanen and Martin, 1996; Epstein, 1996). Regulators to date have opted for a relatively “non-interventionist” approach to environmental management accounting reform. The U.S. Environmental Protection Agency, for instance, through surveys and case studies, has identified weaknesses in private sector environmental management accounting and promotes the diffusion of accounting “best practices.” This outreach- and communication-based approach may be expanded upon in the future, however.

There currently are calls from some environmental advocates for more aggressive regulatory actions in this area, such as mandated environmental management accounting. And several states have commenced experiments in this area. Pollution prevention statutes, in particular, are seen as a potential legislative vehicle for mandated environmental management accounting. Yet, despite progress in the identification of problems and the development of improved methodologies and the possibility of regulatory initiatives that feature mandated environmental accounting — the field lacks a methodology for evaluating the social and private benefits of improved environmental management accounting. Whether regulators continue to motivate EMA indirectly via outreach to the private sector or more directly via incentives such as tax breaks or mandates, private sector resources and regulatory attention should be focused on initiatives that promise the greatest benefit.

Within the private sector, one would be hard pressed to find a manager who would disagree with the proposition that more accurate, detailed information is desirable. After all, better information inarguably leads to better (i.e., more profitable) decisions. The difficulty and undoubtedly an explanation for the relatively slow pace of change within the corporate sector is that better information is always costly to acquire, maintain, and verify. Given costs and the organizational inertia that inhibit changes in accounting practice, regulators and EMA advocates should seek and advertise change where the value of better EMA is highest. Currently, firms are being told to amend their practices, and may wish to do so themselves, but are being given much less direction on the changes that are likely to be most beneficial to them.

Environmental management accounting can be considered improved if it yields information that is better in one of the following senses: First, and most intuitively, information is better if it corrects a pre-existing inaccuracy. As an example, consider the use of an input that is highly toxic. It would be inaccurate to view the cost of the input as equivalent to its bulk supply cost alone. Environmental management accounting provides better information if it attaches a cost to this input that captures the expected cost of environmental and workforce hazards.

Second, information should be thought of as better if it reduces the uncertainty surrounding some future cost or benefit. For instance, future liabilities are inherently uncertain. Information that can narrow the variance on estimates of those uncertain liabilities should be considered better information. Reduced variance is particularly valuable when decision-makers are risk-averse, since a reduction in variance alone can lead to different decisions when there is risk aversion. If decision-makers are risk neutral (basing decisions purely on the expected value of an uncertain parameter), reduced variance has no effect unless it is accompanied by a change in the parameter’s expected value.

Third, information is better if it is more highly disaggregated (more detailed). For example, data on wastes produced by individual processes or product lines is better than data on wastes created by an entire factory. For instance, accounting that assigns a wide variety of costs to overhead is problematic because of a lack of disaggregation. Disaggregation is necessary to incremental financial analysis i.e., the evaluation of investment or production opportunities based on their incremental costs and incremental contributions to revenue. Without disaggregation it is more difficult for managers to differentiate between substitutes and identify the true cost of producing a product. In turn, this inhibits optimal decision-making. The above improvements relate to the collection and application of data in decision-making. Better environmental management accounting may also relate to the use of improved managerial accounting techniques, such as adjustments for risk, discount rates, and appropriate time horizons for cash flow analysis.

In comparison to the decades-long (if not longer) process of development of financial

Accounting and conventional management accounting, EMA is a relatively new field. Thus,

Government policy efforts to promote EMA are also in the early, experimental phase for the

Most part. It is too early to draw hard and fast conclusions about what works and what does not.

In addition, the best policy approach for promoting EMA concepts will likely vary between levels of government, target audiences, and different countries. For example, a broad range of environmental costs would be relevant to companies in countries wit h strict environmental regulation and enforcement that internalizes environmental costs for companies. Companies in countries with less regulation or less effective enforcement might only be willing to recognize and account for a narrower range of environmental costs. Similarly, the effectiveness and political acceptability of direct regulation in a country would impact the policy instruments chosen to promote EMA. Nonetheless, the existing policies/programmes reviewed in the case studies in this volume do provide some preliminary lessons and suggestions about broadly promising policy pathways for the promotion of EMA concepts by government.

An organization’s decision-makers can use the physical flow information and cost information provided by EMA to make decisions that impact both the environmental and financial performance of the organization. Both private business and government organizations can benefit.

Benefits of EMA to Industry:

  • The ability to more accurately track and manage the use and flows of energy and materials, including pollution/waste volumes, types, and fate
  • The ability to more accurately identify, estimate, allocate, and manage/reduce costs, particularly environmental types of costs
  • More accurate and comprehensive information for the measurement and reporting of environmental performance, thus improving company image with stakeholders such as customers, local communities, employees, government, and finance providers

Benefits to Government of EMA Implementation by Industry:

  • The more that industry is able to justify environmental programs on the basis of financial self-interest, the lower the financial, political, and other burdens of environmental protection on government.
  • Implementation of EMA by industry should strengthen the effectiveness of existing government policies/regulations by revealing to companies the true environmental costs and benefits resulting from those policies/regulations
  • Government can use industry EMA data to estimate and report financial and environmental performance metrics for government stakeholders such as regulated industries or the industry partners in voluntary programs.
  • Industry EMA data can be used to inform government program/policy design.
  • Industry EMA data can be used for regional or national-level accounting purposes.

Benefits of Government Implementation of EMA:

  • Government EMA data can be used for environmental and other decisions within government operations, e.g., purchasing, capital budgeting, and federal facility environmental management systems.
  • Government EMA data can be used to estimate and report financial and environmental performance metrics for government operations.

References

ACCA (2012), ‘The state of corporate reporting in Malaysia. Malaysia’, the Association of Chartered Certified Accountants.

Adams, R. (2002), ‘Management accounting and the environment Sustainability and ACCA qualification’, ACCA technical Article – ACCA student Accountant.

Bai, C., Sarkis, J. (2010), Integrating sustainability into supplier selection with grey system and rough set methodologies. Int. J. Prod. Econ. 124, 1, pp. 252–264

Ball, A., Craig, R. (2010), Using neo-institutionalism to advance social and environmental management acxcounting. Crit. Perspective. Account. 21 (4), pp.283–293

the relationship between emission reduction and firm performance”, Business Strategy and the Environment, Vol. 5, pp. 30-37.

Environmental Protection Agency. 1995a. An Introduction to Environmental Accounting as

a Business Management Tool: Key Concepts and Terms, Office of Pollution Prevention

and Toxics, EPA 742-R-95-001, June.

Environmental Protection Agency. 1995b. Environmental Cost Accounting for Capital

Budgeting: A Benchmark Survey of Management Accountants, Office of Pollution

Prevention and Toxics, EPA 742-R-95-005, September.

Environmental Protection Agency. 1995c. Environmental Accounting Case Studies: Green

Accounting at AT&T, Office of Pollution Prevention and Toxics, EPA 742-R-95-003,

September.

Environmental Protection Agency. 1996. Valuing Potential Environmental Liabilities for

Managerial Decision-Making: A Review of Available Techniques, EPA 742-R-96-003,

December

Jasch C. (2003), The use of environmental management accounting (EMA) for identifying environmental costs. Journal of Cleaner Production, Vol. 11. Pp667-676

Jennings, P.D., Zandbergen, P.A. (1995), ecologically sustainable organizations: an institutional approach. Acad. Manag. Rev. 20 (4), pp. 1015–1052.

Kaptein, M. and Wempe, J. (2001), “Sustainability management. Balancing conflicting economic, environmental and social corporate responsibilities”, Journal of Corporate Citizenship, Vol. 1 No. 2, pp. 91-106.

Sarkis, J. and Cordeiro, J.J. (2001), “An empirical evaluation of environmental efficiencies and firm performance: pollution prevention versus end-of-pipe practice”, European Journal of Operational Research, Vol. 135, pp. 102-113.

Sarkis, J., Zhu, Q., Lai, K.-H. (2011). An organizational theoretic review of green supply chain management literature. Int. J. Prod. Econ. 130, pp.1–15

Trauth Em., (2001), ‘The choice of qualitative research methods in IS. In Qualitative Research in IS: Issues and Trends’ ‘Idea Group, Hershey, PA

Management on manufacturing competitiveness: an empirical study”, International Journal of Production Economics, Vol. 123 No. 1, pp. 210-220.

Yin, R., (2003), ‘Case Study Research: Design and Method’ (3 edn), London, Sage Publications

***

Executive MSc in Finance

The Work Based Strategic Business Research Project

Application of the concept of “Environmental Management Accounting” in enhancing the Financial Performance in a competitive pressure building context

Buddhi Batiks

An Empirical Assessment Over a

Manufacturing Firm in Sri Lanka

By

Krisshanthan Dharmarajah

Asia e University in Collaboration with Strategy College of Business & Marketing- Sri Lanka.

June 201

Executive MSc in Finance

The Work Based Strategic Business Research Project

Application of the concept of “Environmental Management Accounting” in enhancing the Financial Performance in a competitive pressure building context

Buddhi Batiks

An Empirical Assessment Over a

Manufacturing Firm in Sri Lanka

By

Krisshanthan Dharmarajah

This Research Project is submitted in part fulfillment of requirement of Asia e University for the program of Executive MSc in Finance

Part 01: Word Count 3,744

Part 02: Word Count 7,796

Part 03: Word Count 2,345

Total : 13,885

Supervisor’s Name: Mr. Lewie Dias

Supervisor’s Signature: …………………………………

Asia e University in Collaboration with Strategy College of Business & Marketing- Sri Lanka

ACKNOWLEDGEMENT

This research was supported by Mr. Lewie Diaz, senior lecturer at Strategy College of Business School, I would like to express my sincere gratitude him. I thank the Strategy College all lecturers who provided insight and expertise that greatly assisted the research, although they may not agree with all of the interpretations/conclusions of this research.

I thank Mr.Buddhi Keerthisena who is the Chairman of the National Crafts Council and Darshi Keerthisena, Chief Executive Officer for granting permission to conduct the research about the institution.

 

I would like to thank my office colleagues who supported me by covering my work while I was on leave for my research. I also immensely grateful to Ms.Inoka Rupasinghe, Financial Specialist, American Embassy, Colombo for her comments on an earlier version of the manuscript, although any errors are my own and should not tarnish the reputations of these esteemed persons.

CONTENTS

PART 1 – DEFINING THE PROJECT

 

  1. PROJECT PROPOSAL………………………………………………………………7

Introduction 7

Introduction to the Work Based Project

Introduction to the Business Organization

Confirmation of employer/organization agreement for your project

Identification of the Business Mentor

The Project Objectives 11

Methodology to be adopted 12

Timeline Plan of Work 13

Conclusion 15

  1. RELEVANT LITERATURE………………………………………………………16

What Is EMA?

Limitation in Traditional Accounting System

Advantages of Environmental Reporting

EMA In Practice

Sustainability and EMA

EMA and competitive context

EMA and Business Performance

Limitations Associated with EMA

  1. SELF EVALUATION…………………………………………………………….….19

References 21

PART 2 – PROJECT REPORT ON IMPLEMENTATION AND ASSESSMENT

A. PROJECT PLAN………………………………………………………………………………. ..23

1. INTRODUCTION 23

2. OBJECTIVES OF THE STUDY 24

3. JUSTIFICATION OF THE STUDY 24

4. LITERATURE REVIEW 25

4.1 What id Environmental Management Accounting?

4.2 Limitations in Traditional Accounting System

4.3 Advantages and Use of Environmental Reporting

4.4 Environmental Management Accounting in Practice

4.5 Sustainability and Environmental Management Accounting

4.6 Environmental Management Accounting and Competitive Context

4.7 Environmental Management Accounting and Financial Performance

4.8 Limitations Associated with Environmental Management Accounting

B. BUSINESSPROJECT 36

1. PHILOSOPHY AND APPROACH 36

2. RESEARCH CONTEXT 37

3. DATA COLLECTION 39

3.1 Philosophy and Approach

3.2 Research Context and the Portfolio of the Selected Company

3.3 Data Collection

3.4 Data Transcribing

4. DATA ANALYSIS 41

4.1 General Findings……………………………………………………………………

4.2 Explore the Challenges of Adopting Environmental Management Accounting within Competitive Context……………………………………………………………

C. PROJECT EVALUATION

1. CONCLUSION 47

2 EVALUATION OF PROCESS ADOPTED AND AVENUES FOR FUTURE RESEARCH 48

D. REFERENCES 49

PART 3 – SELF REVIEW AND CONTUINING DEVELOPMENTS

  1. SELF EVALUATION…………………………………………………………………53
  2. FUTURE PLANS…………………………………………………………………………55

“PART 1 – DEFINING THE PROJECT”

 

  1. PROJECT PROPOSAL

Introduction

Introduction to the Work Based Project

This project attempts to apply and implement ‘Environmental Management Accounting (EMA)’ to enhance ‘Financial Performance’ of an organization focusing on a manufacturing firm in an increasingly competitive context. The motivation of this project proposal is to identify key link between ‘EMA’ and ‘Financial Performance’ of an organization, with reference to a manufacturing firm in Sri Lanka and to propose the application and the implementation of the project.

“Environmental Management can be identified as a new trend of management accounting, where most of the entities adopt this method to improve their performance and achieve sustainability” (Schaltegger, Burrit & Peterson, 2003).However it’s emphasized, most of the business perspectives, adopt this method to improve their performance and achieve sustainability (Schaltegger, Burrit & Peterson, 2003). In accordance to the existing literature it’s found to be that environmental issues can impact an organisation either as an opportunity or as a threat (Roome, 1992; Gupta, 1995).

The project is objected therefore structured to seek relevant answers to above via presenting theoretical review and subsequently presenting empirical study of applicability of EMA to the selected manufacturing firm within a competitive context in Sri Lanka.

Introduction to the Business Organization

Buddhi Batiks is an ethical fashion business, where the batik craft is practiced by women, some of whom have been with the workshop since the company’s inception in 1970, and are considered the life blood of the business. The batik workshop, located in the village of Koswadiya on the north-western coast of Sri Lanka, in turn plays an integral role in the economy of the village. In addition, the workshop has no age discrimination, with artisans ranging in age from 18 to 65. The current workshop manager joined in 1970 as a worker; she is now 63 years old. The workshop allows flexible hours for our older artisans, and values their experience and skill in training the younger artisans.

Batik is a craft that combines the illustrative skills of an artist with a wax-resist dyeing technique applied to natural fabrics like cotton, silk, and linen. Buddhi Batiks is a leading proponent of this craft in the tropical island of Sri Lanka, and is noted for infusing contemporary design into a very traditional craft.

Each piece that is produced at Buddhi Batiks is hand-painted in wax by these talented artisans, and hand-dyed by experienced dye masters in a seemingly unlimited variety of colors, ranging from the most vibrant of hues to the subtlest, softest pastels and creams. The piece is then boiled and sun dried, and the process repeated over for every additional color. Each piece is therefore a unique product of several artisans’ tender care; each piece is a unique work of batik art.

Confirmation of employer/organization agreement for your project

03rd May 2016

‘Buddhi Batiks’
32 Ward Place
Colombo 7, Sri Lanka
Tel: (94) 11 2689488

Dear Sir/Madam

Letter for granting permission to use Buddhi Batik’s Organizations’ context for the Project on application and implementation of EMA

I am an undergraduate at Asian e University. I am in the process of preparing a project report as a work based strategic business project and am seeking permission to include the following material in my project report.

  1. Firms financial details
  2. Internal and External Business Process
  3. Private Profiles
  4. Strategic analysis reports

Please let me know if there is a fee for using this work in this manner.

Please indicate your approval of this request by signing the letter where indicated below and returning it to me as soon as possible using the self-addressed envelope. Your signing of this letter will also confirm that you own the copyright to the above-described material.

Very truly yours,

Name:

Position: Undergraduate

Contact No:

For copyright owner use:

 

PERMISSION GRANTED FOR THE USE REQUESTED ABOVE:

429350651023217210516.png By: Darshi Keerthisena

Title: Chief Executive Officer

Date: 10th May 2016

Identification of the Business Mentor

Buddhi Keerthisena is currently Chairman of the National Crafts Council and is still passionate about working to improve the batik industry and helping empower rural women throughout the country. He has been in the batik industry for 45 years now and during that time he has seen great changes. His philosophy has always been to create a good quality product so that customers have confidence in what they buy from them. We have to be honest to them and use good quality products.

Starting out with batik as a hobby, Buddhi’s batik creations soon became popular not only in Sri Lanka but in other countries and he found that his hobby was gradually transformed into a full time career. He held his first overseas exhibition in 1974 and since then has held over a hundred fashion shows and exhibitions in countries such as Sweden, Denmark, Finland, Norway, Italy, Austria, the UK, USA, Seychelles, Singapore, Malaysia, Japan and France, earning valuable foreign exchange for the country in the process.

When interest in batik declined in the 70′s it was Buddhi who made it fashionable to wear batik and got the many tourists visiting the country interested in visiting batik workshops and buying batiks.

The Project Objectives

Most of the entities are concerned about improving their ‘Environmental Management’ practices (Walley, 1994) to reduce the cost and wastages (Allen, 1992; Schmidheiny, 1992). According to the existing Environmental Management literature it is understood that environmental issues can affect the operations of the organisation either as an opportunity or a threat (Roome, 1992; Gupta, 1995). Hence, in this proposal an effort has been taken to recognize, primarily how the concept of ‘Environment Management Accounting’ has been exploited in Buddhi Batiks manufacturing firm in a competitive perspective andhow it is been applied and implemented in here.

 

The manufacturing firms within a competitive context have been relatively neglected, a gap that this empirical study attempts to fulfill. The Environmental Accounting Practices over Traditional Accounting Practices within a competitive context leaves the firms with numerous challenges and questions such as ‘What does it refers to as ‘Environment Management Accounting’ in an organization of a competitive context?’, ‘ How the ‘Environment Management Accounting’ practices can be used as a management control mechanism on organizations financial performance?’, ‘What are the most relevant environmental cost drivers?’, ‘What are the key challenges of adopting the concept of ‘EMA’ for an entity based in a competitive context?’.

Therefore the motive of this project is to emphasize the importance of adopting ‘EMA’ to a competitive context with reference to Buddhi Batiks manufacturing firm in Sri Lanka.

In order to explore the link between Environmental Accounting concept and financial performance of a company and how this is applied in to the organizational context, the following key project questions will be considered.

  • What is the justified definition for ‘Environment Management Accounting’ for an entity with a competitive perspective?’
  • How can the ‘Environment Management Accounting’ practices be used practically as a management control mechanism on organizations financial performance in Buddhi Batiks
  • What are the most relevant environmental cost drivers?
  • What are the key challenges of adopting the concept of ‘EMA’ for Buddhi Batiks based in a competitive context?

Thus the proposed study aims to discover the answers to these obstacles in an empirical way.

Methodology to be adopted

Philosophy of Inerpretivism will be used mainly in the project, as project complies with higher number of qualitative data (Tarauth, 2001). As Bryman and Bell (2003) and Saunders et al., (2009) portrays, Inerpretivism is simply, a socially constructed methodology with a challenge of understanding the world of the project subject while entering to the project world.

Firstly, Exploratory and qualitative methodology will be adopted since it is known to be achieving often relatively adequate score (Pearce, 1989). Semi structured interviews, in-depth interviews, questionnaires and online reports will be adopted for the purpose of data collection and for an accurate analysis of gathered feedbacks (Yin, 2003). Even though the interviews, which has the ability of answering ‘how’ and ‘why’ questions; represented as the main source(Yin, 2003; Saunders et al., 2009), other forms such as observation, financial statements, ratio analysis data will also be used for collection of data where ethical issues/ responsibility will also be considered ( i.e. ISO14001) (Yin, 2003; Saunders et al., 2009).

In order to answer the above presented project enquiries and to identify the link between ‘EMA Practices’ and a firm’s performance, it is essential to generate a clear picture of the entity’s current financial position, market position, current and future competitive strategies, goals, and objectives. By being a case study, this study extends the opportunity to gather the above data via company’s financial statements, interviews and questionnaires which will eventually lead to an accurate interpretation of the obtained data.

Throughout this project an exploratory and qualitative methodology will be used for the purpose of data collection, semi-structured interviews, in-depth interviews and questionnaires. Moreover to serve the purpose of triangulation, secondary data sources such as financial statements, ratio analysis data will also be used while adhering to project ethics as well (Yin, 2003; Saunders et al., 2009).

Due to the nature of qualitative project study, the amount of evidence tends to be higher (Carcary, M 2011). In order to organize, manage and analyze the collected data, “Nvivo” which is Computer Aided Qualitative Data Analysis Software (CAQDAS) will be utilized.

Due to the high usage of qualitative data within the study, a philosophy of Inerpretivism will be adopted. Furthermore in order to conduct the study a case study method will be used since this project is more focused on appreciation of different perspectives and applicability of concept of ‘EMA’ within a competitive context rather than accumulating facts and information towards a statistical generalization (Bryman and Bell 2003; Saunders et al., 2009).

Timeline Plan of Work

In order to gain a successful outcome through the project, a significant amount of work needs to be completed during the project period.

As the project title depicts, the project is likely to be concentrated on 3 such major areas as follows;

EMA in competitive context

Financial performance of Buddhi batiks

Relationship of ‘Environmental Management Accounting’ and ‘Financial Performance’ in Buddhi Batiks

Therefore it’s important to gather as much as information of the above areas through various sources via relevant literature and engrave a clear understanding.

The project plan of work has broken down in to several stages; each stage complies with an objective to achieve with sufficient time scales in the following format;

 

Primary ObjectiveScheduled DateEstimated Time Period (approximately)
  • Submitting the created final Project dissertation
  • Combination of all results for the final output
  • Recognition of Project Limitation, Weaknesses and Strengths
  • Application of Techniques to overcome the identified drawbacks
  • Innovating the Dissertation based on the discoveries
  • Analyzing and presentation of collected data
  • Obtaining the official acceptance from the selected manufacturing firm
  • Collection of Data and Information through internet, interviews and secondary sources
  • Project Specification Submission
June 30th
  • Gathering key literature
  • Preparation relevant objectives to answer related questions, Data analysis approaches, Legitimacy and Consistency issues

Conclusion

EMA is identified as a new functional tool in the discipline of environmental management process. Recently, increased consideration on environmental cost brought the attention of the business towards environmental as it is no longer valued as a minor cost which can be hide under general overhead pools and the use of EMA will enrich the control while saving significant amount of money..

It can be said that most companies do not know about the extent of their environmental costs and tend to underestimate them. This leads to distorted calculations of improvement options..

EMA can solve these problems. The mentioned accounting techniques are useful for EMA to identify and allocate environmental costs. In addition, there are alternative techniques to estimate environmental costs such as the ‘environmental cost decision tree’ as described by Rimer (2000).

Thus application of EMA to the Buddhi batiks has to be carefully analyzed and tailored rather than applying as generic system. The cost benefit analysis of the scope has to be conducted before applying EMA in practices. According to analysis it’s to be found that implementation of EMA practices is a transformation of business decision making process where the company realizes the important role which bright up the entity’s profitability terms.

  1. RELEVANT LITERATURE

As it is to be found through last decade of the accounting and business world, ‘Environmental Accounting Management’ has demonstrated a rapid growth as it continuously helped entities to achieve sustainability in the corporate world (Cullen & Whelan, Jasch, 2006). It has identified Environmental issues which can affect organizational operations either as an opportunity or a threat (Roome, 1992; Gupta, 1995).

The most recent literature focused on the concept of ‘EMA’ has predominately centered on the following aspects (as per project proposal)

  • What is Environmental accounting?
  • Key Roles of Environment Accounting
  • Benefits and Drawbacks of Environment Management Accounting
  • Emerge of “Environment Management Accounting” Concept
  • Academic debates – Environment Management Accounting

Curcio & Wolf (1996) highlighted the influence of ‘Environmental Accounting’ with respect to the firm value. The study conveyed that the entities that provide stake holders with quality services have the potential to enhance their ‘EMA’. Pradhan & Pattanik (2007) states that when disclosing environmental accounting information by entities, disclosure of any negative environmental information in sensitive area may affect the entities reputation and competitive position (Pradhan & Pattanik, 2007).

According to Schaltegger, Butter & Peterson (2003) companies cannot achieve their ultimate goal of business if they continue to maximize their profit at any cost, unless the entities run their business in a manner which satisfies the stakeholder.

In 1991 project of EMA by UNI was simply based on different companies over different locations with various strategies which found be of low quality and lacking of qualitative project nature.

When considering the relevant literature, most of the reviews failed to identify the financial outcomes and benefits of ‘EMA’ with reference to an accounting perspective. Hence an effort has been made to bridge the gaps between existing literatures.

Following will be a brief on what it is being to be discussed as the project and its literature reviews.

What Is EMA?

The definition of Environmental Accounting (EA) is expressed via ambiguous and loose perspective. With accordance to Environmental Protection Agency (1995), EA views as the identification, collection, measurement and allocation of environmental costs, and integration of identified environmental cost in to business decision making process and subsequent communication of the significant information to entity’s stakeholders.

Limitation in Traditional Accounting System

Concern on environmental issues along with their cost-benefit impact on the business has been increased worldwide. Hence the matter is descriptively discussed by Gray et al. (2005) as conventional practice on management via financial reports which are weighted more on the financial measures such as sales, profit etc.

IASB requires the financial statements to be prepared in favor to the parties with resource allocating decision makers in a primarily economic or financial perspective.

Materiality Concept is one of the keystones in financial accounting which denies the disclosure of environmental information as increased difficulty in quantifying the environment cost..

Entity Assumption separates the entity from its owners assuming entity has its own position, finance etc.

Advantages of Environmental Reporting

EMA particularly holds an important view for internal management initiatives with significant environmental focus, in the form of cleaner production, supply chain management, environmental sensitive product or service design, superior environmental purchasing and environmental management system.

EMA in Practice

EMA is the combination of both environmental financial and non-financial information for the purpose of management decision making process. It’s essential to identify and allocate the environmental related costs for accounting purpose (Bennet & James 2002, Frost 2000). Literature reviews various approaches to the identification of environmental costs and also it’s highlighted the environmental related costs varies from each organizational view.

Conventional costs-environmental related raw material and energy costs

Potentially wider costs- identified costs but yet recognized under general overhead costs

Image and Relationship costs- cost of preparation of environmental reports

Sustainability and EMA

Increased importance of environment led the companies to adopt environmental accounting and EMA for the survival of the business in long run and to face the competition in the business world. Sustainability is simply defined as the development that fulfils the needs of the present world without comprising the capability of future generation to meet their own necessities (Brundtland 1987).

EMA and competitive context

EMA is a relatively new tool in Sri Lanka in contrast to European context; profit maximizing organizations are in the search of increased profit even at the cost of high environmental impact. Janet and Daryl (1996) stress out there is a significant inevitability shift from stricken legislation to self-regulated, market based and environmental friendly firm phase in competitive context. But it’s noted study and practice of EMA in competitive perspective still in the infancy stage and remains competitive through the years.

EMA and Business Performance

EMA is basically move along with improved environmental performance or positive gesture towards regulators and the stakeholders (Johnstone 2009).The costs of environmental impact of the company are traditionally linked with EMA activities (Yang et al 2011, Darnall and Edward 2005).The overall success of the adoption of EMA will also depends on the effectiveness and efficiency

Limitations Associated with EMA

EMA is impeccably a valuable tool of management, thus despite the benefits the literature point out limitations EMA suffers from as well. Thus a challenge arises with absence of consistence guidance to deal with various phenomena’s which question the management accountant decision based on environmental cost.

 

  1. SELF EVALUATION

The empirical study as directing on the initial phase of implementing EMA into practice, the results did not sufficiently revealed the impact of new concept. Thus, significant number of benefits in the form of finance, brand image is to be achieved in long run. Despite the benefits, EMA would also own some of the limitations.

The study is compromised with obvious limitations which could be considered in future analysis. One of the limitations can be related to the number of interview representatives, which makes it hard to portray the every single aspect of the entity which affects the management decision making process. However management and customer perspectives participated in all interviews with no server resistance and as a result enriched data was collected for observation purpose.

Thus the study on future project in this case can be extended to consider large samples on empirical analysis figures. A corporative analysis between private and public sector will help to diversify stakeholders in decision making process. Hence additional project can be directed into areas of comprehensive study considering a number of years to draw valid conclusion regarding underlying trends, techniques, processes and results of EMA practices in competitive context.

An important avenue for future project is a study focusing on the after effects of implementation. This study is restricted to initial stage of adoption with the aim of identifying how chosen manufacturing firm adopt and interpret new management mechanism. Thus potential influence of EMA is volatile due to both external and internal economic pressure.

The results of the analyses above can be summarized in a SWOT analysis, in which strengths, weaknesses, opportunities and threats are systematically recorded. Strategic options can be determined by identifying strengths and weaknesses on the one hand and opportunities and threats on the other hand. The ultimate goal of a SWOT analysis is to gain a structured picture of the organisation in the context of its environment and to support strategic decisions. This is why the SWOT analysis is part of the final steps of the self-evaluation process: to draw conclusions and to determine new strategic directions.

Strengths

• Advanced knowledge development;

• The firm is closely involved;

• The activities have a clear effect;

• A wide and active network, both internally and externally.

Weaknesses

• Only a limited number of companies in the sector are reached;

• Too little attention for the transfer of knowledge and awareness;

• Insufficient insight into the use of resources

Opportunities

• Extra attention and resources from the government for innovation in the sector;

• New technological breakthroughs in strategically important fields;

• Opportunities of strategic alliances with European innovation programmes;

Threats

• The competitive advantage of companies in the sector is under pressure by the economic crisis;

• Changing Sri Lankan legislation for public funding

References

ACCA (2012), ‘The state of corporate reporting in Malaysia. Malaysia’, the Association of Chartered Certified Accountants.

Barnham, C.,(2012), ‘Separating methodologies?’, International Journal Of Market Project, 54, 6, pp. 736-738

Carcary, M.,(2011), ‘Evidence Analysis Using CAQDAS: Insights From a Qualitative Projecter’, Electronic Journal Of Business Project Methods, 9, 1, pp. 10-24

De Burgos-Jiménez, J., Vázquez-Brust, D., Plaza-Úbeda, J. & Dijkshoorn, J., (2013), ‘Environmental Protection and Financial Performance: An Empirical Analysis in Wales’, International Journal of Operations & Production Management, 33, 8, pp. 981-1018

Etzion, D., (2007), ‘Project on Organizations and the Natural Environment, 1992- Present: A Review’, Journal of Management, 33, 4, pp. 637-664

Mangappulige Don T N M.,(2014), Application of the concept of ‘EMA’ in relation to the Financial Performance in a competitive context; an empirical assessment over a manufacturing firm in Sri Lanka, Dissertation Proposal

Orlikowski WJ and Baroudi JJ., (1991),’ Studying information technology in Organizations: project approaches and assumptions, Information Systems Project’ 2(1), pp.1–28

Pradhan B B and Pattnaik S., (2007), “Beyond Environmental Accounting: The Triple Bottom

Line Approach”, The Accounting World, Vol. 7, No. 1, pp. 7-15.

Rivera, J., 2004. Institutional pressures and voluntary environmental behavior in developing countries: evidence from the Costa Rican hotel industry. Soc. Nat. Resour. 17, pp. 779–797.

Saunders, M., Lewis, P. & Thornhill, A., (2009), ‘Project Methods for Business Students’ (5 edn.), Essex, Prentice Hall.

Trauth Em., (2001), ‘The choice of qualitative project methods in IS. In Qualitative Project in IS: Issues and Trends’ ‘Idea Group, Hershey, PA

Walley, N. & Whitehead, B., (1994), ‘It’s Not Easy Being Green,’ Harvard Business Review, 72, 3, pp. 46-52

***

“PART 2 – PROJECT REPORT ON IMPLEMENTATION AND ASSESSMENT”

PROJECT PLAN

INTRODUCTION

“Accounting is simply one of the key functions in a business, which enables the managers to make their management decisions. Thus management accounting is a branch of accounting which primarily focuses on satisfying information needs of internal management allowing them to make effective decisions. Accounting, which is the base of a company, has grown steadily in recent years exposing the companies to new changes of various accounting elements of the business. Thus the businesses world and society gradually increased their concern on business responsibilities towards the society and environment other than traditional stakeholder perspective which influenced the organizations to think outside the box. As a result the concept of ‘Going Green’ emerged with a strategic objective to enhance the business view towards environmental accountability via environmental reporting.

Even after many companies adopting Environmental Accounting (EA) to their businesses with the motivation of reducing in cost and wastage (Allen, 1992, Schmidheiny, 1992), it’s hardly to be seen adoption of this concept in Asian competitive countries due to lack of expertise and knowledge of EMA concept and applicability of it. Hence this piece of work is motivated to identify the relationship between ‘Environmental Management Accounting’ has been exploited in an organization focusing on a manufacturing firm in a competitive context.

To date, the applicability of EMA was brought forward by academics with the criticism over traditional accounting practices (Gonzales 2005, Telle 2006, Wagner 2007, Sharmo & Vredenburg 1998, Russo et al, 1997,). Cullen et al. (2006) supported the concept of ‘Green Management Process’ by demonstrating the rapid growth of EMA in terms of sustainability in corporate world.

The shifting focus towards EMA as a new trend of accounting over traditional management accounting in competitive contexts lead us to find answers for questions such as “what is it refers to EMA in competitive context?, How to adopt the concept of EMA to a manufacturing firm in competitive context?, How the ‘Environment Management Accounting’ practices can be used as a management control mechanism on organizations financial performance?, What are the major challenges to be overcome in implementing EMA in competitive context?’

The paper is therefore structured to seek relevant answers to above via presenting theoretical review and subsequently presenting empirical study of applicability of EMA to the selected manufacturing firm Buddhi Batiks’ in enhancing the Financial Performance in a competitive pressure building context.

OBJECTIVES OF THE STUDY

“The aim of the study is to observe the application of EMA in Buddhi Batiks’ manufacturing context, while identifying its relationship with the Financial Performance of the organisation.

The objectives of the study can be categorized as follows

  • Discussion of the theoretical framework of EMA
  • Discussion of the reasons for adopting EMA in to practice
  • Asses the relationship between EMA and Financial performance of the entity
  • Exploiting the challenges of adopting EMA in competitive context

The above mention aims and objective are reached through the methods of statistical analysis of the theories in favor of EMA and through the investigation of secondary and primary data. Then the study emphasizes the finding with the limitations and recommendations to future references to the study.?

JUSTIFICATION OF THE STUDY

“The study attempts to highlight the importance of EMA via application of the concept to Buddhi Batiks’ manufacturing firm in competitive context which can be found to be an untreated research scheme. Nonetheless the research contributes towards the literature of development and application new trend of management accounting to real world.

Evaluating the above, appropriate guidance will be provided to other manufacturing firms in competitive context to implement new management accounting methods over traditional methods to gain not only long term profit but sustainability as well to the business with the influencing findings. Thus the study represent as a contribution f practical example for the theoretical perspective.”

LITERATURE REVIEW

    1. What Is Environmental Management Accounting?

The definition of Environmental Accounting (EA) is expressed via ambiguous and lose perspective. With accordance to Environmental Protection Agency (1995), EA views as the identification, collection, measurement and allocation of environmental costs, and integration of identified environmental cost in to business decision making process and subsequent communication of the significant information to entity’s stakeholders.

Considering EMA, a universal definition or boundary is hard to be found. According to IFAC, EMA is defined as “the management of environmental and economic performance through the development and implementation of appropriate environment-related accounting systems and practices

”Hence this may include reporting and auditing for some companies as well. EMA emphasized cost relation to use of energy, water and material and generation of waste and emission due to business operations. It also considers the material costs and losses of material in waste and emission which have now become some of the prominent cost drivers in most organizations.

Thus in the countries with lower enforcement of legislation framework and relatively low level labor cost, material and energy usage consumption cost clarifies as significant cost drivers (Christine Jasch et al 2010).

    1. Limitation in Traditional Accounting System

Concern on environmental issues along with their cost-benefit impact on the business has been increased worldwide. Align with the relevant literature many authors have criticized the conventional management accounting due to the failure to report social & environmental externalities (Christine Jasch 2006).

Hence the matter is descriptively discussed by Gray et al. (2005) as conventional practice on management via financial reports which are weighted more on the financial measures such as sales, profit etc.

  1. IASB requires the financial statements to be prepared in favor to the parties with resource allocating decision makers in a primarily economic or financial perspective. Which limits the access to the important but not financially affected stakeholders?
  2. Materiality Concept is one of the keystones in financial accounting which denies the disclosure of environmental information as increased difficulty in quantifying the environment cost. This emphasize the concept of materiality restrict the disclosure of environmental impact on the financial reports.
  3. Financial accounting discounts liabilities frequently that will be settled many years later. This action enhances future expenses less riskier and less significant today. Likewise the environmental impact that would be going for years will raise significant concern in future but will not be appeared in the present financial reports and decision making procedure.
    1. Advantages and Use of Environmental Reporting

EMA particularly holds an important view for internal management initiatives with significant environmental focus, in the form of cleaner production, supply chain management, environmental sensitive product or service design, superior environmental purchasing and environmental management system.

Thus the EMA information has being increasingly consumed in external reporting purpose as well. The specific use and benefits of the EMA can be organized via three boarder views; Compliance, Eco-efficiency and strategic position as illustrated below (IFAC)

  • Compliance – Cost effective drives organization with environmental regulations and self-imposed environmental policies.
  • Eco-efficiency – Continues reduction of cost and adverse environmental impact via efficient use of natural resources in internal operations and final products. Assessing the total annual return on investment in eco-efficiency activities may illustrate this contribution.
  • Strategic Position – Evaluation and adoption process of effective environmental sensitive programs ensuring entity’s long term competiveness. Reporting to stakeholders such as customers, investor and local communities, estimation of the internal costs likely to be arising with future legislation are examples for the view.

On the other hand Advantages and the purpose of relies with Environmental reporting can be capitalized through the theories explained below;

  1. Stakeholders Theory

The disclosure of the environmental impact may be relied on the persuasion of the stake holders. Either it can be the positive/managerial theory; the company follows on the stakeholders where they are categorized in accordance with the state of the important. If the powerful stakeholders of the entity demand for environmental disclosure the organisation will do as so to maintain healthy relationship.

  1. Legitimacy Theory

The legitimacy theory is associated with social contract. Some companies disclose their impact on the environment as a part of social contact, in other words organizations’ continuously seek their position whether they perform in the edges of the norms, believes, expectations on the society which they operates (Suchaman 1995).Literature has shown business has used exploration of the environmental impact as a shield to defend issues that affects either on their code of ethics or competence.

  1. Reputation Risk Management

The use of environmental reporting will results in gain or maintaining the legitimacy prescribed by the society. When an organisation commits higher profile of impact on the environmental many stakeholders pursue the organisation for reassurance or else terminate their engagement with organisation in future. Given that in literature few organizations tend to provide environmental information, and those who provides tend to achieve improved reputation with competitive advantage.

 

4.4. Environmental Management Accounting In Practice

EMA is the combination of both environmental financial and non-financial information for the purpose of management decision making process. It’s essential to identify and allocate the environmental related costs for accounting purpose (Bennet & James 2002, Frost 2000).

However in accordance with the US environmental protection agency (1989) environmental costs depends on the intention of the entity in using environmental related information. Hence they categorized costs as follows;

  • Conventional costs-environmental related raw material and energy costs
  • Potentially wider costs- identified costs but yet recognized under general overhead costs
  • Contingent costs- the cost likely to be incurred in the future
  • Image and Relationship costs- cost of preparation of environmental reports

EMA is an attempt to take every possible affecting environmental factors along with significant environmental cost in to account with the aiming effective decision making. Most of the environmental costs are seen to be in ledger accounts in the financial accounts but yet recognized as general overhead. And equally it’s important to allocate environmental costs in relation to the product that generates it, as this contributes towards management to identify the root of the cost.

  • Accounting for environmental costs

Management accounting techniques for the allocation and identification of the environmental costs can be identified as follows (ACCA 2012);

  1. Input/output Analysis

This technique focus upon the physical quantity of the material input and product output. If the output quantity doesn’t equal to the input the residuals will be taken into account in terms of waste. Hence it forced business to focus upon environmental costs (UNBSD 2011, Envirowise 2003)

  1. Flow cost accounting

This focuses simultaneously, not only on the material flow but also the structure of the business, in the form of cost and values. Flow cost defined material flow, material, systems, delivery period, disposal, material value and costs incurred in the process. EMA can be benifitious with this technique as it reduces quantities while increasing the ecological friendly impact of the company.

  1. ABC costing

Activity Based Costing assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of one cost drier(CIMA 2014).

Environmental cost in the form of ABC system can be distinguishes between environmental related cost and environmental driven cost. When some environmental costs are increasingly difficult to recognize among general overhead, joint environmental cost features are attributed.

Schaltegger and Muller(1989) in regard to ABC system emphasize in order to get respectable results environmental costs should be allocated as follows;

  • Volume of emission and waste
  • Toxicity of emission and waste treated
  • Increased environmental impact
  • The relative costs incurred treating negative environmental impact
  1. Life Cycle Costing

Life Cycle Cost includes the cost of an asset throughout its life cycle as cost of investment, operation, maintenance, internal and external costs. Many companies comply with life cycle assessment to evaluate environmental costs and opportunities associated with it. This bridge the gap between accounting treatment for existing internal environmental costs and recognition of external impacts (Darnall 2008).

Hence Life cycle costing helps the organisation to identify and assess the environmental impact related to projects that may not visible in present providing comprehensive view of the product (Little 2000).

Thus EMA is a widespread concept based on its scope techniques on management accounting. EMA is viewed as an application of conventional accounting which is focus upon environmental impact of companies to the society.

Bruit et.al, (2001) developed multi-dimensional framework in order to identify environmental cost along with environmental management decisions;

  • Internal vs. external
  • Physical classification vs. monetary
  • Past and future time trains
  • Short and long term
  • Type of information

Within the borders of the above framework different techniques of EMA as discussed earlier can be assigned by the business with the purpose of the information need.

4.5. Sustainability and EMA

Increased importance of environment led the companies to adopt environmental accounting and EMA for the survival of the business in long run and to face the competition in the business world.

Hence environmental reporting and social reporting significantly referred as ‘sustainability reporting’ by literature in recent times (Bhur 2007, Brammer et al 2006). Sustainability is simply defined as the development that fulfils the needs of the present world without comprising the capability of future generation to meet their own necessities (Brundtland 1987).

Here the key question is how EMA can attribute to sustainability. The answer is built up upon the triple bottom line concept. By integrating ecological cost and benefits from environmental impact into traditional financial system, target of EMA is capturing the interdependency and dynamic interrelation among the three pillars which base of the pyramid of sustainability.

Thus, the triple bottom line concept can be expressed in the following dimension;

4.6. EMA and Competitive context

EMA is a relatively new tool in Sri Lanka in contrast to European context, profit maximizing organizations’ are in the search of increased profit even at the cost of high environmental impact.

Thus the competitive context firms realize the negative impact on environment will result in adverse performance in the organisation in long run (Durairaj et al., 2002).Janet and Daryl (1996) stress out there is a significant inevitability shift from stricken legislation to self-regulated, market based and environmental friendly firm phase in competitive context.

But the study is almost 25 years old which is represents an outdated portfolio. Hedge et al., (1997) focused on the public sector and EMA in south Asian perspective. The literature argues in the context of competitive countries in prior of south Asian there is a dearth of academics views on EMA practice.

Against this background, this empirical study on Sri Lanka is a contribution to bridge the gap between EMA literatures from south Asian competitive context.

4.7. EMA and Business Performance

EMA is basically move along with improved environmental performance or positive gesture towards regulators and the stakeholders (Johnstone 2009).The costs of environmental impact of the company are traditionally linked with EMA activities (Yang et al 2011, Darnall and Edward 2005).Thus EMA can be defined as the set of internal rules and regulation focus upon the environmental protection via different tasks and processes. Contrastingly Hahn et al. (2010) argues many of the researchers strongly intense on their approach which doesn’t go align with reality and increase limitations in conceptual framework via associated with win-win business situations.

Better Environmental Management can be obtained via variety of environmental practices and each practice gives different effects on the performance and the nature of the business (Gonza´lez-Benito, 2005). Competitive advantage always might not be the result of implementation of EMA practice (Kaptein et al 2001, Margolis 2003

If these negative implications are not recognized with due, the business will have to deal with scare resources and penalized society. Hence in the literature there are two main hypotheses taken in to account when harnessing he relationship between EMA and Business Performance as follows;

  1. Positive relationship of EMA and Financial performance
  2. Negative relationship of EMA and Financial performance

On the other hand proactive as a strategy which encourages voluntary disclosure and development of the environmental activities beyond the legitimacy. These activities enhance the willingness to prevent negative impact at its basis (Guenster et al.,2011). In whole proactively strategy in EMA based upon innovation and change in the existing organizational behavior in a way which enhance the environment image, stakeholders integration, increased capabilities in innovations, efficient use of scare resources, other knowledge based characteristics which will lead the business to sustainability (Willard, 2005, Gupta, 1995; Guenster et al., 2011).

Key concern in search is how EMA is related to financial performance, however literature with the support of empirical studies found inconclusive point of views as negative positive or either non-significant movement long the relationship (Molina et al., 2009, Horyathoya 2010. Palmer et al. (1995).

Thus, concluding the arguments in favour of positive relationship towards business performance many empirical studies were to be found in support of the above statement analysing medium and long term financial performance (Hart and Ahuja 1996, King and Lenox 2001) along with resource based view. On the other hand negative or ineffective relationship is determined between EMA and financial performance in short term.

4.8. Limitations Associated with EMA

EMA is impeccably a valuable tool of management, thus despite the benefits the literature point out limitations EMA suffers from as well.

Valuation of environmental management varies from business to business based on the structure and nature of business perspective; hence it doesn’t comply with a standard accounting method. Thus a challenge arises with absence of consistence guidance to deal with various phenomena’s which question the management accountant decision based on environmental cost.

Thus academics view lack of EMA standards as the main problem with EMA in practice (UNDSD 2001). Therefore one of the main features in financial reporting system, reliability of information is questionable. Social and environmental consequences are dynamic in nature therefore organizations have to update their path of EMA along with changes which will create confusion and stress. Data collection on natural resources and impacts may base upon industrial data collection method which will reduce reliability.

Secondly narrow view of economic consequences where company priorities short term rather than long term perspectives and rejects programmes such as EMA which may cause difficulties in short term but generate profitability term in long run. Thus these companies are not interested in concentrating negative externalities cause by operations beyond the factory walls (Watchaneeporn et al., 2010). Third frame is absence of guidance on operating EMA in universal framework

BUSINESS PROJECT

An empirical study is accompanied on applicability of EMA using Buddhi Batiks’ manufacturing firm in Sri Lanka, with the aim of understanding the research objectives.

PHILOSOPHY AND APPROACH

The investigation of the study is on the basis of exploratory philosophical stance. This perspective can be presented as a doubt clearing mechanism for the users when nature of the problems get blurred (Robson 2002). As the concept of EMA is tend to be a new trend of management control which seems to be filled unfamiliar nature to competitive context, exploratory perspective try to provide fresh insights to the implementation process of the study.

RESEARCH CONTEXT AND THE PORTFOLIO OF THE SELECTED COMPANY

The study is based on the empirical findings of manufacturing firm of Batik, a company in Sri Lanka named, “Buddhi Batiks” which is run by top management for years from 1970. Since the establishment the company has opened doors for acceptable structural changes with careful observation. In the infant stage the firm was established one retail outlet in addition to manufacturing firm.

Now it’s spread in o 5 retail shops in regional borders. In mid 1990s’ company opened up to export business with china and Italy with improved quality products. In definition manufacturing firm such as ‘Buddhi Batiks’ is a centre of employment, foreign exchange and uniqueness.

The main structural changes were made during past few years with proper supervision and control of CEO and top management while relatively neglecting the view point of lower level of management hierarchy. Once the decisions are made they are distributed through the top down approach to take into action.

Thus this centralized management control system tends to make problems in practice. Due to time constrains the study will focus only manufacturing perspective and management agreed to discuss new practice of EMA within selected departments to evaluate the feasibility.

Environmental management system in the case company with accordance to current management system (approved in 2012) company recognises its responsibility outside the business. The company owns an environmental programme aiming controlling the use of natural resources and preventing extreme environmental damages. The company is focused upon long term profitability, therefore the management identifies environmental risks and impacts on their operations, financial status and set targets accordance with that. Environmental programmes initially were developed for 5 year period and expected to continue further if the results achieves the organizational objectives. Thus now the entity span two year period in achieving the set of goals.

The CEO and senior management are responsible for planning, competitive and monitoring specific environmental management programs. Thus the decision making on investment were based on NPV process were environmental cost was given significant importance.

Furthermore, the EMA programmes communicate business environmental responsibility, means of achieving and focusing continuous improvement on operations to interested groups. Thus the entity aims to minimize environmental impact on the society while keeping expenses at low as possible. The company has objective of reducing wastage and maximization the effective use of natural resources. Hence the entity operates EMA activities as follows;

The companies operates a community programme named “Ran Aswanu” (golden harvest) which uses waste for compost and give away for local farmers for harvesting which relatively increased their brand image while reducing the legal cost of adverse effect on waste disposal. Thus the company handles water management system, using used water and rain water for production process without compromising the quality.

In whole the company pays significant attention towards issues in terms of environmental protection and business perspective, EMA activities have been documented and the progress of the business via EMA is monitored thru regular basis.

Thus the management hierarchy of the company can be defined as follows;

Shareholders

lder

Director Board

Finance Department

Chief Executive Officer (CEO)

Production Department

Marketing Department

Legal

Department

HR Department

Quality Manager

Assistant quality manger

Assistant Production Manager

Team Manager

Production Manager

Assistant Production Manager

Operational Level Employees

 

 

DATA COLLECTION

3.1 Strategy of the Investigation

Case study is the main source of strategy for the investigation. One of the strength in case study is the focus on the research questions and the use of qualitative information which enrich the quality of the study (Robsn 2002). Hence case study is the best alternative when the boundaries between phenomenal and context are blurred. And case study is supported with qualitative research over quantitative research.

Hence, the empirical findings of this piece of work are the centered on participates responses via interviews. Thus interviews bare the ability of finding solution in the form of ’how’ and ‘what’ (in 2003). The interviews were aimed of collecting the participants’ attitude, knowledge and behavioral consequences of adopting the concept of EMA in to practice. Consequently interviews clear the path for deeper understanding of firm managerial process. The interviews carry out the viewpoints of CEO, Chief Operation Officer, Production, Marketing and Financial manager, three operational level employees and two key customer perspective. Hence interviews attempt to bridge the viewpoints of all intensities in management hierarchy.

3.2 Semi Structured Interviews

The foundation of data collection was based upon semi structured interviews with key persons of the management hierarchy of the company, while focusing the questions on existing management control system and view point of EMA practice. The primary data collection stage was focused on the semi structured interviews concentrating the traditional management system, structural change of the firm with adoption of EMA perspective. The Finance Manager found to be well educated on the concept of EMA and importance of engaging, being a CIMA past finalist.

Interview questions were distributed before the interviews with the aim of increased efficiency, clear explanation. The questions were presented while clarifying the doubts of the participants. Hence the data collection was based upon the financial and production and marketing managers operational level worker form each department key management persons and 2 key customers of the firm. The interviews carried out individually between the time frame of 20-40 minutes with key management persons and 20-30 minutes operational perspective and 10-15 minutes with key customers to get a clear picture of each view point and multiple interview sessions were conducted to clarify doubts.

3.3 In-depth interviews

Further, in-depth interviews were carried out distinctly with CEO, finance manager, production, and marketing manager. The purpose of the depth questionnaires’ to clarify answers for general questions allowing considerable scope of time. Each individual lased between 30-40 minutes. As the final touch responses collected from interviews were summarized and distributed to participants to further comments and corrections to achieve accurate result

3.4 Use of Secondary Data

Despite the interviews being the main data collection techniques, secondary data such as financial statements, internal accounting reports, budgeted expenses reports, annual reports, etc. ere obtained from the Buddhi. Thus secondary data seconded the findings from the interviews.

3.5 Data Transcribing

Every appointed business related figures participated in all the interviews. Thus the interviews were recorded for use and essences of the interviews were transcribed in to paper (Rothengerg 2007). Recorded interviews were taken into careful consideration to contribute research questions and understand the phenomena (Ahrens et al 2006). The organizational perspective was observed while spending few (2-3 hours) meaningful hours on organizational performance.

As interviews conducted in interviewees native language (Sinhala) significant time and effort was devoted to translate all the quotations to English. The transaction may not be purely verbatim due to limitations of transcribing words in Sinhala to English due to different shades of meaning of merging translation. However the quality of the will not be affected by the difference in language as they were conducted in broader context (Yin 2003, Sandress et al. 2009).

DATA ANALYSIS

4.1 General Findings

Being one of the leading manufacturing firm in Sri Lanka for Batik related products the company is interested in exploring new approaches to enhance the performance. However academic research shows Batik production has a tremendous impact on environment, due to high kerosene and electricity cost and combination of water consumption and use of toxic dyes (Wouters, Maes, & Germer, 1990) Textile manufacturers generate about 384,000 tons of waste each year. Much of this can be eliminated through recycling.

Through the interview process top management stood up on the basis for adopting new managerial control mechanism is to overcome the challenges in current business world. Thus the case study was driven by utilizing institutional theory, where different routines and differing effects on institutionalization affects which contributes to the organizational decision making process.

The target setting process in the business act as a significant role in decision making procedure. Target setting, simply identifies the directions and goals of the firm. Thus in the case of company, shift towards new management process, marketing and production department interpreted the importance of setting new target. However with implementation of EMA practices, centralized approach focused upon the overall strategy of the firm which can be demonstrated as an outside in process. Top management;

“To expand the market share of the company we should consider overall strategy. Hence the targets are newly set considering competition movement, market changes which are more realistic.”

For instance referencing to the experts view, environmental target setting was fond highly on the ‘profitability’ rule. To ensure environmental cost are fully observed and improve the environmental performance EMA has been introduced while eliminating traditional management drawbacks. Thus the reasons for adopting EMA can be further analyzed through following border schemes of Institutional theory to address objectives.

  • Normative perspective

Normative drivers associated with entity when implementing new rules and legitimate practices within the organisation. Thus the marketing manager holds a normative view on the concept of EMA.

“The business aims to increase the brand image via maintaining clear corporate and social responsibility policies.”

According to analysis interview concludes that environmental certificate has certain influence towards adoption of EMA activities. This certificate considered as an useful marketing mechanism to attract customers and improve brand image and loyalty in particular market. This can be counted as external factors which influence organisation decision making. On the other hand Marketing manager clears his view as follows,

“If the company wants to build up a certain brand image we should consider environmental issues frankly before we are asked, not only which are obligatory”.

The group CEO holds the view the company being a “good corporate citizen” which funded by environmental activities. Development and maintenance of EMA as its related to brand reputation. Thus the statement of CEO certifies adoption of EMA enable them to increase their brand image while improving their sales.

  • Coercive perspective

As coercive drivers focus upon the most powerful position in the organisation, In this case a broad range of stakeholders such as top management, society and customers plays an important role who dictated attempts to legitimize environmental management practices. As an example with reference to the study marketing manager stress out;

“As majority of our suppliers and customers are taken part and interested in social and environmental campaigns we have service targets to achieve in order to satisfy the powerful stakeholders perspective”.

Through deep observation, entity to be seen as socially responsible perspective in the eyes of the consumer by having eco-friendly products on the shelf have tried to implement EMA into practice. Thus according to marketing manager initial reason for implement EMA due to social pressure from the outsiders and corporate image forced the entity.

Considering the view of key customers, they interpreted their view with certain favorable consideration of EMA activities,

“Being a whole seller, my motive is to buy products at the cheapest price, thus environmental impact is not much influencing factor to me, but it’s significantly important towards retail customer perspective due to higher international demand for environmental sensitive products therefore even I motivate this green production.”

  • Mimetic perspective

Mimetic drivers based on the imitation of the entity on the successful competitors on the industry to adopt the concept at first place. Through the study and interview of the selected entity, the adoption of EMA to a certain extent was depended on the competitor’s success. Hence finance manager stated;

“Having few competitors in the industry, a success in one will ultimately affect the business. Therefore before it’s too late we must consider success strategies of the competitors”.

  • Internal factors

Financial manager specifically emphasized the company adopted EMA, as this investment can save money and decrease cost as well. Hence he highlights all environmental activities affect the company’s financial performance. Thus this direct effect on the profitability is one key factor when appropriate EMA practices were selected. According to finance department waste disposal and legal fees on environmental issues had a high impact on financial performance.

With accordance to the interview majority of managers were aware of the high probability of decreased cost and improved environmental performance.

“Obviously the selected indicators, we know how many costs we can reduce when performing EMA practices as per plan, this savings bring financial benefits”.

The CEO views environmental management and programmes generally beneficial for company as, adverse attention towards environmental can compromise future consumption of resources.

Thus concluding all the views of the analysis the ultimate motivation of adopting EMA practices go beyond “genuine environmental concern” towards “business management strategy” with the aim of increased profitability with minimized cost and improved competitive edge.

Through the observation ultimate goal of using EMA by company is to make sure that all relevant, significant costs are taken into account prior to decision making process. Well designed and implemented EMA practices will help to ensure better internal management and decision making for investment with cost savings.

Thus through the short period of implementing EMA in to practice, management holds view at EMA as significant influencing factor towards cost reduction and sustainability practice. The finance manager interpreted;

“The adoption of key practices of EMA resulted in slight impact on business performance in the form of cost reduction and quality improvement. Thus the customer satisfaction and corporate image increased in association to adoption of the concept, and we hope to achieve significant competitive advantage in long run with the end of the projected time frame”.

In whole interviews represented the view adoption of EMA affected positively to the business perspective with initial cost of implementation which is yet to be covered in the long run.

4.2 Explore the Challenges of Adopting Environmental Management Accounting within Competitive Context

Adoption of new concept is always challenging to the company. According to empirical findings competitive context faces number of challenges.

  • Communication Barriers

Effective communication is the tool of successful functional performance of an any company (Perry 2009).As discussed above the company was interested in adopting EMA to be align with current business changes and these decisions are established prior to top level management. Therefore communication of the projected plan towards lower level is essential to achieve expected targets (Leach Lopez et al., 2007).

While top level management imposed the new system, operational level employees tend to have little knowledge of the changes. .

As effective communication persuade achieving organizational goal, as demonstrate above lack of communication will result in an ineffective workforce. Therefore the company is advised to maintain reliable communication chain through the management hierarchy. Until there is factual conversation between accountants and the technical and environmental professionals in charge of physical information, development of environment performance indicators and development of environmental management strategies in general is considered as a challenging risk.

  • Environmental related cost information are hidden in overheads

There are numerous examples highlighting the environmental related costs being inadvertently hidden in the overhead costs in accounting records which making it difficult to explore the information for benefit perspective. With respect to the selected firm accounts were created using overheads which includes environmental permit fees, training costs and legal expenses. As overheads allocated back to cost centers as production volume, machine hours, inventories numbers might distributes to inaccurate way of cost allocation in relation to environmental cost.

Hence different department owns variety of goals and perspectives with respect to EMA. As different views of the management of EMA related cost responsibility; Production centre where waste is produce but doesn’t hold sufficient records on waste, Environmental management who are not responsible for waste but dispose it, and the accounting department ultimately who hide the cost effect under general overhead.

Reference to academic research organizations associated with different approaches resolving environmental cost hidden in general overheads. The common method setting up separate cost categories or cost centers associate with discrete EMA practices. The less obvious cost categories which appear in the operations can be labeled more clearly under environmental cost and traced easily. The environmental costs associated with different process and product can be clarified via using Activity Based Costing (ABC) as it determine the company to allocate cost using appropriate cost basis.

  • Lack of awareness of EMA tools

Accounting department appears to have a clear image of EMA whereas production department and operational level employees owned lesser knowledge on the concept. However employees expressed their view on the change despite of the system which they were familiar for long time.

“EMA seems to be all new business concept considering natural aspect which ignored for quite long period, regarding the new system employees expect training and explanation session where they can familiarize with the new system due to lack of knowledge and experience on the concept.”

  • Economic and Political Environment

Competitive countries expose to higher level of exposure to economic and political issues due to uncertain economic conditions. (Peyton 2012). Even before the adoption of new concept internal management process was based on variation in the economy and environment. The accounts were later adjusted with inflation changes where reports stated the deviation between budgeted and actual. Thus CEO explained how the political factors influence the individual activities in organisation.

“Although every aspect was taken into consideration political environmental influence causes problems in diversification of the direction”.

According to the experts view as above, political, cultural and economic phenomena’s which are inherent in competitive context lead as a drawback and cause implication while implementing EMA into practice.

PROJECT EVALUATION

CONCLUSION

EMA is identified as a new functional tool in the discipline of environmental management process. Recently, increased consideration on environmental cost brought the attention of the business towards environmental as it is no longer valued as a minor cost which can be hide under general overhead pools and the use of EMA will enrich the control while saving significant amount of money. It’s to be identified, modern social and environmental framework visualize the EMA as an instrument, economic tool, which enrich the business attention towards environmental perspective.

Thus application of EMA to Buddhi Batiks’ has to be carefully analyzed and tailored rather than applying as generic system. The cost benefit analysis of the scope has to be conducted before applying EMA in practices. According to analysis it’s to be found that implementation of EMA practices is a transformation of business decision making process where the company realizes the important role which bright up the entity’s profitability terms.

Taken as a whole, the study on Buddhi Batiks’ examined the win-win hypothesis of firm with good environmental performance in a manufacturing firm within competitive context. The study objectives were justified through mainly based on interview data from key personal in decision making, operational level and customer perspective. However the study focuses on the infant stage of implementing EMA in to practice. With reference to literature, even though a number of studies carried out on application of environmental reporting, no significant study was focused upon applicability of EMA in manufacturing firm in competitive context. Hence the study is an attempt to focus on the manufacturing firms in competitive context which is found to be an untreated research plot. Therefore the study documents how the application of EMA was taken into account at first place while exploring challenges of implementation, eliminates drawbacks of traditional management system and highlighting the contribution of EMA towards financial performance.

Additionally analysis try to justify the strategically and significantly impact of environmental disclosure as an essential component of improved financial performance. Continuous improvements in environmental activities are confidence to generate sales and improved incomes. Thus integrating cost into pricing is a contribution towards innovation and efficient pathway to lower cost. Thus the study does not clearly highlight this status as the company is in the initial stage of implementing EMA. Capabilities of process innovation and implementation of EMA activities moderate the competitive and cost advantage (Claver-Corte´s et al., 2007; Wagner, 2007). According to key participants of the study, new management system is acknowledged by organizational members. Conferring their view which was based on the implementation stage of EMA, they believe consequences of the new management system are more visible in the long run.

EVALUATION OF PROCESS ADOPTED AND AVENUES FOR FUTURE RESEARCH

The empirical study on Buddhi Batiks’ as directing on the initial phase of implementing EMA into practice; the results did not sufficiently reveal the impact of new concept.

Thus, significant number of benefits in the form of finance, brand image is to be achieved in long run. Despite the benefits, EMA would also own some of the limitations.

The study is compromised with obvious limitations which could be considered in future analysis. One of the limitations can be related to the number of interview representatives, which makes it hard to portray the every single aspect of the entity which affects the management decision making process.

However management and customer perspectives participated in all interviews with no server resistance and as a result enriched data was collected for observation purpose. Thus limitation associates with data collection period, the study is to be a long term perspective, although the data gathering was limited to shorter period hence it compromised the significant consequences of application of EMA and financial benefits of the company.

Thus the study on future research in this case can be extended to consider large samples on empirical analysis figures. A corporative analysis between private and public sector will help to diversify stakeholders in decision making process.

Hence additional research can be directed into areas of comprehensive study considering a number of years to draw valid conclusion regarding underlying trends, techniques, processes and results of EMA practices in competitive context.

An important avenue for future research is a study focusing on the after effects of implementation. This study is restricted to initial stage of adoption with the aim of identifying how chosen manufacturing firm adopt and interpret new management mechanism.

Thus potential influence of EMA is volatile due to both external and internal economic perspectives in competitive context.

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“PART 3 – SELF REVIEW AND CONTUINING DEVELOPMENTS”

  1. SELF EVALUATION

The empirical study as directing on the initial phase of implementing EMA into practice, the results did not sufficiently revealed the impact of new concept. Thus, significant number of benefits in the form of finance, brand image is to be achieved in long run. Despite the benefits, EMA would also own some of the limitations.

The study is compromised with obvious limitations which could be considered in future analysis. One of the limitations can be related to the number of interview representatives, which makes it hard to portray the every single aspect of the entity which affects the management decision making process. However management and customer perspectives participated in all interviews with no server resistance and as a result enriched data was collected for observation purpose.

Thus the study on future project in this case can be extended to consider large samples on empirical analysis figures. A corporative analysis between private and public sector will help to diversify stakeholders in decision making process. Hence additional project can be directed into areas of comprehensive study considering a number of years to draw valid conclusion regarding underlying trends, techniques, processes and results of EMA practices in competitive context.

An important avenue for future project is a study focusing on the after effects of implementation. This study is restricted to initial stage of adoption with the aim of identifying how chosen manufacturing firm adopt and interpret new management mechanism. Thus potential influence of EMA is volatile due to both external and internal economic pressure.

The results of the analyses above can be summarized in a SWOT analysis, in which strengths, weaknesses, opportunities and threats are systematically recorded. Strategic options can be determined by identifying strengths and weaknesses on the one hand and opportunities and threats on the other hand. The ultimate goal of a SWOT analysis is to gain a structured picture of the organisation in the context of its environment and to support strategic decisions. This is why the SWOT analysis is part of the final steps of the self-evaluation process: to draw conclusions and to determine new strategic directions.

Strengths

• Advanced knowledge development;

• The firm is closely involved;

• The activities have a clear effect;

• A wide and active network, both internally and externally.

Weaknesses

• Only a limited number of companies in the sector are reached;

• Too little attention for the transfer of knowledge and awareness;

• Insufficient insight into the use of resources

Opportunities

• Extra attention and resources from the government for innovation in the sector;

• New technological breakthroughs in strategically important fields;

• Opportunities of strategic alliances with European innovation programmes;

Threats

• The competitive advantage of companies in the sector is under pressure by the economic crisis;

• Changing Sri Lankan legislation for public funding

 

 

  1. FUTURE PLANS

“A successful environmental management system should have a method

for accounting for full environmental costs and should integrate private

Environmental costs into capital budgeting, cost allocation, process/

Product design and other forward-looking decisions … Most corporate

Information and decision systems do not currently support such

Proactive and prospective decision making.”

Improved environmental management accounting is seen by corporate managers and

Environmental advocates alike as a necessary complement to improved environmental

Decision-making within the private sector. Whether the goal is pollution prevention, or some broader notion of “corporate sustainability,” there is a widespread belief that sound

Environmental management accounting will help firms identify and implement financially desirable. Environmental innovations. Moreover, environmental regulation is evolving toward public Policies that rely to a much greater extent on the collection and reporting of environmental Information

.

This paper develops an economic approach to the evaluation of environmental Accounting’s benefits. Using concepts from managerial economics, finance, and organization theory, the value of improved environmental management accounting information is explored. The overall goal is the identification of priorities for improved environmental management accounting. Given the difficulties and costs associated with adopting new accounting methods and the collection and verification of data, it is desirable to identify situations in which the benefits of improved information are likely to be greatest. As will be shown, “better” information is not always

Valuable.

Analysis of corporate decision-making and the value of information to the decision-making

process is an important first step if private sector managers (and regulators) are to set

priorities for improved environmental management accounting. An expanding literature documents problematic accounting practices with the potential to bias environmental decision-making (EPA, 1995b). Frequent targets for criticism are the allocation of environmental costs to general overhead accounts, the failure to account for future contingent liabilities, and the failure to measure the impact of environmental decisions on corporate image and customer and supplier relationships. From a public policy perspective, poor environmental management accounting means that the private sector is likely to “miss” investment, procurement, and process and product design opportunities that have financial and environmental benefits.

It is widely believed that improved environmental management accounting practices, working in conjunction with the private sector’s own profit motives, will create significant environmental benefits. This perspective has in turn motivated a growing literature on financial and accounting methodologies to improve accounting practices (Moilanen and Martin, 1996; Epstein, 1996). Regulators to date have opted for a relatively “non-interventionist” approach to environmental management accounting reform. The U.S. Environmental Protection Agency, for instance, through surveys and case studies, has identified weaknesses in private sector environmental management accounting and promotes the diffusion of accounting “best practices.” This outreach- and communication-based approach may be expanded upon in the future, however.

There currently are calls from some environmental advocates for more aggressive regulatory actions in this area, such as mandated environmental management accounting. And several states have commenced experiments in this area. Pollution prevention statutes, in particular, are seen as a potential legislative vehicle for mandated environmental management accounting. Yet, despite progress in the identification of problems and the development of improved methodologies and the possibility of regulatory initiatives that feature mandated environmental accounting — the field lacks a methodology for evaluating the social and private benefits of improved environmental management accounting. Whether regulators continue to motivate EMA indirectly via outreach to the private sector or more directly via incentives such as tax breaks or mandates, private sector resources and regulatory attention should be focused on initiatives that promise the greatest benefit.

Within the private sector, one would be hard pressed to find a manager who would disagree with the proposition that more accurate, detailed information is desirable. After all, better information inarguably leads to better (i.e., more profitable) decisions. The difficulty and undoubtedly an explanation for the relatively slow pace of change within the corporate sector is that better information is always costly to acquire, maintain, and verify. Given costs and the organizational inertia that inhibit changes in accounting practice, regulators and EMA advocates should seek and advertise change where the value of better EMA is highest. Currently, firms are being told to amend their practices, and may wish to do so themselves, but are being given much less direction on the changes that are likely to be most beneficial to them.

Environmental management accounting can be considered improved if it yields information that is better in one of the following senses: First, and most intuitively, information is better if it corrects a pre-existing inaccuracy. As an example, consider the use of an input that is highly toxic. It would be inaccurate to view the cost of the input as equivalent to its bulk supply cost alone. Environmental management accounting provides better information if it attaches a cost to this input that captures the expected cost of environmental and workforce hazards.

Second, information should be thought of as better if it reduces the uncertainty surrounding some future cost or benefit. For instance, future liabilities are inherently uncertain. Information that can narrow the variance on estimates of those uncertain liabilities should be considered better information. Reduced variance is particularly valuable when decision-makers are risk-averse, since a reduction in variance alone can lead to different decisions when there is risk aversion. If decision-makers are risk neutral (basing decisions purely on the expected value of an uncertain parameter), reduced variance has no effect unless it is accompanied by a change in the parameter’s expected value.

Third, information is better if it is more highly disaggregated (more detailed). For example, data on wastes produced by individual processes or product lines is better than data on wastes created by an entire factory. For instance, accounting that assigns a wide variety of costs to overhead is problematic because of a lack of disaggregation. Disaggregation is necessary to incremental financial analysis i.e., the evaluation of investment or production opportunities based on their incremental costs and incremental contributions to revenue. Without disaggregation it is more difficult for managers to differentiate between substitutes and identify the true cost of producing a product. In turn, this inhibits optimal decision-making. The above improvements relate to the collection and application of data in decision-making. Better environmental management accounting may also relate to the use of improved managerial accounting techniques, such as adjustments for risk, discount rates, and appropriate time horizons for cash flow analysis.

In comparison to the decades-long (if not longer) process of development of financial

Accounting and conventional management accounting, EMA is a relatively new field. Thus,

Government policy efforts to promote EMA are also in the early, experimental phase for the

Most part. It is too early to draw hard and fast conclusions about what works and what does not.

In addition, the best policy approach for promoting EMA concepts will likely vary between levels of government, target audiences, and different countries. For example, a broad range of environmental costs would be relevant to companies in countries wit h strict environmental regulation and enforcement that internalizes environmental costs for companies. Companies in countries with less regulation or less effective enforcement might only be willing to recognize and account for a narrower range of environmental costs. Similarly, the effectiveness and political acceptability of direct regulation in a country would impact the policy instruments chosen to promote EMA. Nonetheless, the existing policies/programmes reviewed in the case studies in this volume do provide some preliminary lessons and suggestions about broadly promising policy pathways for the promotion of EMA concepts by government.

An organization’s decision-makers can use the physical flow information and cost information provided by EMA to make decisions that impact both the environmental and financial performance of the organization. Both private business and government organizations can benefit.

Benefits of EMA to Industry:

  • The ability to more accurately track and manage the use and flows of energy and materials, including pollution/waste volumes, types, and fate
  • The ability to more accurately identify, estimate, allocate, and manage/reduce costs, particularly environmental types of costs
  • More accurate and comprehensive information for the measurement and reporting of environmental performance, thus improving company image with stakeholders such as customers, local communities, employees, government, and finance providers

Benefits to Government of EMA Implementation by Industry:

  • The more that industry is able to justify environmental programs on the basis of financial self-interest, the lower the financial, political, and other burdens of environmental protection on government.
  • Implementation of EMA by industry should strengthen the effectiveness of existing government policies/regulations by revealing to companies the true environmental costs and benefits resulting from those policies/regulations
  • Government can use industry EMA data to estimate and report financial and environmental performance metrics for government stakeholders such as regulated industries or the industry partners in voluntary programs.
  • Industry EMA data can be used to inform government program/policy design.
  • Industry EMA data can be used for regional or national-level accounting purposes.

Benefits of Government Implementation of EMA:

  • Government EMA data can be used for environmental and other decisions within government operations, e.g., purchasing, capital budgeting, and federal facility environmental management systems.
  • Government EMA data can be used to estimate and report financial and environmental performance metrics for government operations.

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