.
Pollution Prevention
Educational Resource Compendium:
Accounting
NATIONAL POLLUTION PREVENTION CENTER FOB HIGHER EDUCATION
University of Michigan, Dana Building
: 430 East University Ave.
Ann Arbor, Ml 48109-1115
313-764-1412 FAX: 313-936-2195 E-u/uu nppcOurriich.edu
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CCopyrigte 1995 ty the Regents of the University of Michigan.
Educators may freely reproduce these materials for non-commercial educational purposes.
Original produced on Hammermill Unity DP, a 50% post-consumer/50% pre-consumer
recycled paper made from de-inked old newspapers and magazines. .
The NPPC gratefully acknowledges the support of3M Corporation, which partially funded the development of this compendium.
Published by:
The National Pollution Prevention Center
for Higher Education
University of Michigan, Dana Building
430 East University Ave.
Ann Arbor, MI 48109-1115
Phone: 313-764-1412
Fax: 313-936-2195
* E-mail; nppcOumich.edu
That mission of the NPPC? is to promote sustainable development
by educating students, faculty, and professionals about pollution
prevention; create educational materials; provide tools and
strategies for addressing relevant environmental problems; and
establish a national network of pollution prevention educators.
In addition to developing educational materials and conducting
research, the NPPC also offers an Internship program, profes-
sional education and training, and conferences.
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Please take a moment to offer your comments and communicate
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October 1994
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Pollution Prevention
in Accounting
NATIONAL POLLUTION PREVENTION CENTER FOR HI6H6R EDUCATION
Table of Contents
Explanation of Contents
Introductory Materials
. D Overview of Environmental Problems
n Pollution Prevention Concepts and Principles
n Introduction to the Accounting Compendium
Pollution Prevention in Accounting Resource List
D Educational Tools '
D Reference Materials
NPPC Resources
D Annotated Bibliography
D Course Syllabi
D Case Study: "Waste Measurement at 3M" [In progress.]
D Case Study: "Ozone-Depleting Chemicals:
Taxes and Decisions for a Manufacturer"
D Problem Set: "Overhead Allocation for
Pollution Prevention"
National Pollution Prevention Center for Higher Education University of Michigan
Dana Building, 430 East University. Ann Arbor Ml 48109-1115
Phone: 313.764.1412 Fax: 313.936.2195 E-mail: nppcOumlch.edu
May be reproduced
freely for non-commercial
educational purposes.
October 1994
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Explanation of Compendium Contents
Introductory Materials
D Overview of Environmental Problems. This 50-page paper high-
lights major areas of environmental concern: energy use, global
change, resource depletion, land use and development, waste, air
quality, water quality and quantity, ecological health, and human
health. It includes definitions of concepts and terms, current data
and research findings on the state of the environment, tables,
figures, and guidance on obtaining additional information.
This document is designed to assist faculty members from all
disciplines in preparing course materials and lectures. For faculty
(and students) who may not have extensive knowledge of environ-
mental issues, it provides background information; for people
already familiar with environmental problems, it is a convenient,
concise source of current data. The document is formatted so that
individual topic areas can be easily reproduced for distribution to
students; all figures and tables are provided in a full-page format
suitable for overhead projection.
D Pollution Prevention Concepts and Principles. This 15-page paper
introduces the concepts, terminology, objectives, and scope of pollu-
tion prevention. It discusses how government and the private sector
are currently perceiving and implementing pollution prevention
and describes the barriers and benefits encountered in implementing
pollution prevention activities.
D Pollution Prevention in Accounting. This introduction includes .
a brief history of environmental accounting, reviews the literature,
and identifies current trends and issues. It covers key principles,
defines relevant terms, and describes how companies are implement-
ing environmental accounting. It also refers to various components
of this compendium.
Pollution Prevention in Accounting Resource List. This is a list of all
relevant^ resources known to the NPPC, including the materials that we
produce and/or distribute. NPPC has strived to make this list as compre-
hensive as possiblewe welcome suggestions on what to include.
O Educational Tools. Lists four annotated bibliographies, eight case
studies, four problem sets, and four course syllabi.
D Reference Materials. Lists 35 books and reports, 75 articles, three
software programs, one audiotape, nine organizations, one direc-
tory, and 11 faculty involved in pollution prevention education.
October 1994
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NPPC Resources
D Annotated Bibliography. Describes three bibliographies,
three books and reports, and 39 articles.
D Course Syllabi A collection of syllabi from university
courses involving pollution prevention and accounting.
Professors include: :
- Mark A. Cohen (Vanderbilt University)
- Christopher Stinson (University of Texas)
- Donald E. Stone (University of Massachusetts)
- Mark A. White (University of Virginia)
D Case Study: "Waste Measurement at 3M." [In progress.]
D Case Study: "Replacing Ozone-Depleting Chemicals: Taxes
and Decisions for a Manufacturer." Asks the student, playing
the role of a firm's financial analyst, to analyze options and make
recommendations about what to do with current inventory of
ozone-depleting chemicals. Includes discussion questions,
teaching note, and financial tables.*
D Problem Set: "Overhead Allocation forPollutidn Prevention."
A 30-minute exam question that addresses the proper allocation
of environmental costs to products, includes solution.
October 1994
5
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Pollution Prevention
in Accounting
NATIONAL POU.UT1ON PREVENTION CENTER FOR HIGHER EDUCATION
Accounting Syllabi
Related to Pollution Prevention
Management of Environmental Issues
Mark Cohen, Vanderbilt University
Environmental Accounting
Christopher Stinson, University of Texas
Seminar on Environmental Accounting
Donald E. Stone, University of Massachusetts
Waste Reduction, Treatment, and Disposal
Mark White, University of Virginia
National Pollution Prevention Center for Higher Education i« University of Michigan
Dana Building, 430 East University, Ann Arbor Ml 48109-1115
Phone: 313.764.1412 Fax: 313.936.2195 E-mail: nppceumich.edu
May be reproduced
freely for non-commercial
educational purposes.
Pollution Prevention Syllabi 1
August 1994.
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Original produced on Hammennill Unity DP,
a 50% post-consumer/50% pre-consumer recycled paper
made from de-inked old newspapers and magazines.
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Pollution Prevention
in Accounting
NATIONAL POLLUTION PREVENTION CENTER FOR HIGHER EDUCATION'
Management of Environmental Issues
Mark Cohen
Management 5596, Spring 1993
Owen Graduate School of Management
Vanderbilt University
National Pollution Prevention Center for Higher Education-University of Michigan Syllab us. Cohen
Dana Building, 430 East University, Ann Arbor MI48109-1115 . , ' Augusnsw
Phone: 313.764.1412* Fax: 31.3.936.2195 'E-mail: nppc@umich.edu - . ' ' . ,
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Owen Graduate School of Management
VANDERBILT UNIVERSITY
Management 5596 Professor Mark Cohen
Spring 1993 319 Management Hall
MW 11:10-12:30, room 216 Phone: (615) 322-6814
Office Hours: Monday 2:00-3:00 PM or by appointment
.' ' ' - - " ' ' ''.''
/ Management of Environmental Issues
COURSE OUTLINE AND SYLLABUS
GOALS OF THE COURSE;
When the first Earth ; Day celebration was held in 1970,
environmentalists were viewed by most business and government
leaders as a fringe group in society. Business leaders were
almost unanimous in fighting against these "extremist" views.
Management of most firms ignored environmental concerns. Aside
from hiring an environmental compliance staff (generally
engineers who dealt with the construction and maintenance of
pollution control equipment), the only other "environmental
management" issue might be lobbying Congress or EPA in favor of
less stringent laws or regulations.
Today> the world is vastly different. 80% of the U.S.
public claims to be an "environmentalist." Managers at major
corporations are now beginning to integrate environmental
considerations into literally every functional area of their
organization. Some are adopting environmental quality as major
components of their strategic plans and corporate cultures.
Despite a growing need for "environmental literacy," few business
schools offer courses dealing specifically with environmental
issues. "Management of Environmental Issues" is an attempt to
fill this gap at Owen. :
The course will begin with an overview of the "state of the
environment," and a brief look at the historical growth of the
environmental movement, current public attitudes and likely
future trends. We will then review some of the theoretical
models of public policy, including both positive and normative
theories. This section will include such issues as interest
group politics, cost-benefit analysis, property rights and market
approaches to solving environmental problems. We will also spend
some time examining the current state of environmental law and
enforcement issues. Following that introduction, we will examine
topical environmental issues such as air pollution, wetlands,
waste disposal, global warming, deforestation, etc. In each
instance, the course will be designed to provide students with:
(1) a basic technical /scientific understanding of the issue-
and the nature of any scientific controversy
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(2) the public policy issues, such as the social costs and
benefits of alternative policies, and the distribution
of costs and benefits
(3) the political issues, such as interest group and media
behavior
(4) strategic management concerns
Environmental issues now touch virtually every functional
area of the firm. We will spend some time exploring the
implications of environmental concerns on each functional area of
the firm. For example: Finance: emission offsets & marketable
permits (e.g. Chicago Board of Trade auction of pollution
credits), green investing; Marketing: green marketing;
Accounting: environmental auditing, SEC disclosure requirements;
Operations: environmental TQM and product design issues; HRM:
Community and worker "Right-to-Know" laws; Law Department:
criminal liability of corporate officers; Strategic Management:
new product development and marketing issues; International: free
trade issues, international treaties and negotiations.
This course will not attempt to indoctrinate students from
either the right or the left. Instead, we will hear from bath.
sjLsles. - including readings from such favorite environmentalists
as our new Vice-President elect as well as from some very serious
scientists who would be more inclined to agree with Bush's
characterization of Al Gore as "Ozone Man." My goal for this
course is to help you understand both sides of these very complex
issues, so that you can deal with future business-related
environmental issues from an informed and rational perspective.
COURSE REQUIREMENTS: }
The course will be a combination of lectures, cases, videos
and guest speakers. An extensive reading list follows, and a
Class Pack is available for purchase through the Bookstore. A
few readingsars also on reserve at the Cven library. One
textbook (Rogene A. Buchholz, Principles of Environmental
Management, 1993) has also .been assigned.
A major part of the class grade is devoted to participation.
Students are expected to come to each class having read the
assigned material. Discussion questions will often be handed out
in the prior class in order to facilitate reading and subsequent
class discussions. Students may be called upon to discuss the
readings.
Several short writing assignments will be given throughout
the semester. Examples of the type of assignments to be required
include: (1) brief summaries or analyses of assigned readings,
(2) preparation of an "op-ed" piece suitable for publication in
the Wall Street Journal, and (3) short in-class quizzes on the
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readings. In most cases, these assignments will be done in
groups of 3-5 students.
Finally, students will be expected to prepare a research
paper on a topic of their choice. Students may choose to work
individually or in a group. I will also consider approving
requests to conduct field projects (either firm-specific or
consumer-oriented marketing projects) that are related to this
course. All projects, topics and groups must be approved in.
advance by the instructor no later than 5:00 PM, Wednesday,
February 3, 1992. Reports on completed project and/or papers are
due no later than 5:00 PM, Friday, April 23, 1992.
The paper will constitute 50% of the class grade. The
remaining 50% will be equally divided,up between class
participation and other short written assignments.
READING LIST AND COURSE OUTLINE
I. INTRODUCTION TO COURSE
"Life in the Balance,11 (film, shown in class)
I. A. ENVIRONMENTAL CHALLENGES: AN OVERVIEW
Buchholz, chapters 1&2
Sandra Postel, "Denial in the Decisive Decade," in Lester R.
Brown, et al., State of the World 1992.
George Reisman, "The Toxicity of Environmentalism," in Jay
H. Lehr, ed. Rational Readings on Environmental
Concerns f 1992. [on reserve in library]
'. , " *
t/Al Gore, "Dysfunctional Civilization," in Earth in the
Balance, 1992, pp. 216-37.
John R. Lott, Jr., "Goring the U.S. Economy," Regulation!
Summer 1992. vol. 15, no. 3, pp. 76-80.
"Rio Raised Environmental Commitiuent in-United States, New
Survey Finds," Daily Report for Executives. August 6.
1992, p. 152.
I. B. CAN CAPITALISTS BE ENVIRONMENTALISTS?
Buchholz, chapter 3 .
Barry Commoner, "Can Capitalists be Environmentalists?"
Business and Society Review. Fall 1990, p. 31-5. [on
reserve in library]
Richard L. Stroup and Jane S. Shaw, "The Free Market and the
Environment," The Public Interest, no. 97, Fall 1989,
i pp. 30-43. !
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Stephan Schmidheiny , "The Business of Sustainable
Development, "Chapter 1 in Changing Cg^rgq? & Global
Business Perspective on Development and the
Environment f 1992, pp. 1-13.
also, "Declaration of the Business Council for
Sustainable Development" and "Preface"
J.A. Savage and J.M. Ma jot, "Industry Preaches Green But is
Fair From Clean f" Business an.4 Spclr^ty Review. Fall
1992, no. 83, pp. 39-42.
II. BUSINESS AND ENVIRONMENTAL INSTITUTIONS IN THE U.S.
II. A. ENVIRONMENTAL MOVEMENT: PAST, PRESENT AND FUTURE
Buchholz, Chapter 4, pp. 102-10
Margaret E. Kriz, "Shades of Green," National Journal. July
28, 1990, p. 18-26.
Rose Gutfeld, "Eight of 10 Americans Are Environmentalists,
At Least So They Say," Wall street Journal. Aug. 2,
1991, p. Al. .
Rose Gutfeld, "Environmental Group Doesn't Always Lick 'Em;
It Can Join 'Em and Succeed," Wall Street Journal. Aug.
20, 1992, p. Bl.
Bill Gifford, "Merchandise the Planet: The National Wildlife
Federation Profits by Nature," Washington Times. April
24, 1992.
Richard L. stroup, "The Market - Conservation's Best
Friend," Wall Street Journal. April 19, 1990, p. A14.
""Protest Group Charges EOF With Corruption for Agreeing to
. Work with GM, Other Companies," Environment Reporter.
August 14, 1992, vol. 23, no. 16, p. 1206.
Jo Ann Kwong, "In Whose Interest?" reprinted in Lehr,
Rational Readings on Environmental Concerns f 1992 p.
277-289. [on reserve in library]
Stevenson Swanson, "For Poor, Pollution Just One More
Hazard,** Chicago Tribune. June 29, 1992, p. 1. [on
reserve in library]
II. B. MEDIA COVERAGE OF ENVIRONMENTAL ISSUES
Guest Speaker, Mike Haggerty, Reporter and Visiting Fellow,
Freedom Forum
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"American Forest Resource Alliance Releases Opinion Poll
Results on Northern Spotted Owl Issue/' October 29,
1991, PR Newswire.S -?
Patrick J. Michaels, "Following the Sheep Over the Edge,"
The Plain Dealer. Aug. 10, 1992.
Jane s. Shaw, "Is Environmental Press Coverage Biased,"
Liberty. vol. 4; no. 1, September 1990.
Morton Mintz, "A Reporter Looks Back in Anger: Why the Media
Cover Up Corporate Crime," The Progressive. Dec. 1991.
Dorothy Nelkin, "Risk Reporting and the Management of ,
Industrial Crises," Journal of Management Studies. July
1988, pp. 34.1-51. [on reserve in library]
II. CBUSINESS RESPONSE TO ENVIRONMENTAL ISSUES
. >
Jill Abramson, "Big Oil May Have Misfired In Heavy Lobbying
Drive." Wall Street Journal. May 25, 1990, p. A6»
/ Joann s. Lublin, "'Green' Executives Find Their Mission
V Isn't a Natural Part of Corporate Culture." Wall Street
Journalr March 5, 1991, p. Bl.
Stephen E. Clark, "How to Survive in the Environmental
Jungle," Institutional Investor. December 1990, pp. 89-
91.
John H. Sheridan, "Environmental Issues Sap Executive Time,"
Industry Week. March 16, 1992, pp. 44, 48.
Eric Morgenthaler, "A.. Florida Utility Wins Naturalists'
Praise For Guarding Wildlife," Wall Street Journal. May
7, 1987, p. Al.
Art Kleiner, "The Three Faces of Dow Chemical," Garbagef
July 1991 pp. ??. (reprinted in Business and Society
- Review) pp. 28-35. [on reserve in library]
II. D. GLOBAL WARMING: SCIENCE OR POLITICS?
"Fear of Frying" - Guest Speaker, Cliff Russell, VIPPS
"Future Conditional:;Global Climate Change," (film)
Buchholz, chapter 5. >
Douglas Cogan, "Has Global Warming Begun?" in The Greenhouse
Gambit; Business and Investment Responses to Climate
Change, 1992, pp. 5-22. [on reserve in library]
15
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Al Gore, "Buddha's Breath," in Earth in the Balance. 1992,
pp. 81-98.
Richard S. Lindzen, "Global Warming: The Origin and Nature
of the Alleged Scientific Consensus," Regulation.
Spring 1992, pp. 87-98.
' ' ' ;'" ' ,r' , ;? : . i
Stephen H. Schneider, "Letter to the Editor," Regulation.
Summer 1992, p. 2-3.
Richard S. Lindzen, "Reply," Regulationr Summer 1992, p. 3-5
S. Fred Singer, "Warming Theories Need Warning Label," The
Bulletin of the Atomic Scientists, June 1992, pp. 34-9.
Peter H. Morrisette and Andrew J. Plantinga, "The Global
Warming Issue: Viewpoints of Different Countries,"
Resources, Spring 1991, pp. 2-6.
Pierre R. Crosson and Norman J. Rosenberg, "Adapting to
Climate Change," Resourcesf Spring 1991, pp. 17-20.
III. PUBLIC POLICY ANALYSIS OF ENVIRONMENTAL ISSUES
III. A. POSITIVE THEORIES OF ENVIRONMENTAL REGULATION
Buchholz, chapter 4, pp. 78-102.
Richard L. Stroup and John A. Baden, "Resource Management in
a Bureaucratic Setting," Chapter 4 in Natural
Resources; Bureaucratic Myths and Environmental
Managementf 1983, pp. 39-51. [on reserve in library]
i, ., , ' .' ': ',-'.,'; . . '' , ' : \ '.; ;'..'j
Maureen L. Cropper, William N. Evans and Paul R. Portney,
"An Analysis of EPA Pesticide Regulation," Resources,
Winter 1991, pp. 7-10.
see Buchholz, pp. 231-50 for background on Pesticides
Michael T. Maloney and Robert E. McCormick, "A Positive
Theory of Environmental Quality Regulation," Journal of
Law and Economicsf April 1982, vol. 25, pp. 99-123.
B. P. Pashigian, "Environmental Regulation: Whose Self-
interests are being Protected?" Economic Inquiry, 1985,
vol. 23, pp. 551-84.
,1, , , ' . I
III. B. ECONOMIC EFFICIENCY & POLICY OPTIONS FOR PROTECTING THE
ENVIRONMENT
David Friedman, "How to Think About Pollution," Libertyr
January 1992, pp. 55-9.
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Robert N. Stavins, "Harnessing Market Forces to Protect the
Environment," Environmentf January 1989, vol. 31, no.
1, pp. 5-7, 28-35. !'
, Office of Technology Assessment, "Policy Options and the
(/ Challenge of Green Design," Chapter 6 in Green Products
by Design. 1992, pp. 79-109
Marshall J. Breger, et al., "Providing Economic Incentives
in Environmental Regulation," Yale Journal on
Regulation. vol. 8, 1991, pp. 463-88. [on reserve in
library] ;
Rose Gutfeld and Bob Davis, "Program of Pollution-Reduction
Credits To Include Various Options for Business," Wall
Street Journal. March 16, 1992, p. A9A.
Jeffrey Taylor and Rose Gutfeld, "CBOT Selected to Run
Auction for Polluters," Wall Street Journal^ Sept. 25,
1992, p. Cl.
Fred L. Smith and Kathy H. Kushner, "Good Fences Make Good
Neighborhoods," National Review. April 1, 1990, pp. 31-
3,59.
Peter Brimelow and Leslie Spencer, "You Can't Get There from
Here." .Forbesf July 6, 1992, p. 59-64.
Peter Brimelow and Leslie Spencer, "Should We Abolish the
EPA?" Forbes. Sept 14, 1992, p. 432.
III. C. COST BENEFIT ANALYSIS & THE VALUE OF ENVIRONMENTAL
AMENITIES
. Tom Tietenberg, "Regulating the Market: Information and
Uncertainty," Chapter 4 in Environmental and Natural
Resource Economics,, 1988, pp. 64-89.
Donald H. Ros^nthal and Robert H. Nelson, "Why Existence
Value Should Not Be Used in Cost-Benefit Analysis,"
Journal of Policy Analysis and Management, 1992, vol.
11, no. l, pp. 116-22.
Raymond J. Kopp, "Why Existence Value Should Be Used in
Cost-Benefit Analysis," Journal of Policy Analysis and
Management. 1992, vol. 11, no. 1, pp. 123r30.
Albert L. Nichols and Richard J. Zeckhauser, "The Perils of
Prudence: How Conservative Risk Assessments Distort
Regulation," Regulation. November/December 1986, pp.
13-24.
I -7.
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Albert L. Nichols, "Comparing Risk Standards: The
Superiority of a Benefit-Cost Approach," Regulation.
Fall 1991, pp. 85-94.
Maureen L. Cropper and Paul R. Portney, "Discounting Human
Lives," Resources. Summer 1992, no 108, pp. 1-4.
Bob Davis, "What Price Safety? Risk Analysis Measures Need
for Regulation, But It's No Science," Wall Street
Journalr Aug. 6, 1992, p. Al.
Al Gore, "Eco-nomics: Truth or Consequences,",in Earth in
the Balance (New York: Houghton Mifflin, 1992), pp.
182-96.
III. D. RISK PERCEPTION, NIMBY AND PUBLIC POLICY
Michael Gough, "Environmental Exposures and Cancer Risks,"
Resources, Winter 1990, pp. 9-12.
/ Richard Morgenstern and Stuart Sessions, "Weighing
^ Environmental Risks: Which are the Largest Problems EPA
Might Tackle? Which are the Smallest?" Environment f
vol. 30, no. 6, pp. 15-17, 34-39.
David Stipp, "EPA, Public Differ Over Major Risks," Wall
Street Journal, Oct. 1, 1990, p. Bl.
' ''I"', ' I ',,,,,' J'
HBS Case #9-390-085: Oxford Energy
Thomas jf. Lippman, "At Connecticut Plant, Tires to Burn New
Tracks in Energy Production," Washington Post, July 21,
1991, p. A3.
IV. ENFORCEMENT OF ENVIRONMENTAL LAWS
Guest Speaker, Larry Lavender, Administrative Assistant to
Congressman Spencer Bachus (R-Alabama)
"The Heat's On: Environmental Law Compliance in the 1990's"
(film, shown in class)
John F. Seymour, "Civil and Criminal Liability of Corporate
Officers Under Federal Environmental Laws," Environment
Reporter, June 9, 1989, vol. 20. no. 6, p. 337-48.,
Dan A. Bailey, "The Director As Polluter," Directors and
Boards. summer 1991, pp. 40-42. [on reserve in library]
John D. Fognani, "Environmental Laws Complex, But Compliance
Is Crucial," Oil and Gas Journal,. Oct. 19, 1992, p. 67-
72.
8 '
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Michael S. Greve, "Private Enforcement, Private Rewards: How
Environmental Citizen Suits Became an Entitlement
Program/1 in Michael S. Greve and Fred L. Smith, Jr.
(eds.) Environmental Politics: Public Costs. Private
Rewards, 1992, pp. 106-127.
V
V. CASE STUDIES IN ENVIRONMENTAL REGULATION
Toxic Release Inventory; Guest Speakers: ,
Jim Tramel, TN Environmental Council (tentative)
Ed Thackston, Professor of Civil & Environmental Engineering
and Public Policy, Vanderbilt (tentative) :
V. A. AIR POLLUTION
> , - -
Buchholz, chapter 6
Robert W. Hahn, "The Politics and Religion of Clean Air,"
Regulation,. Winter 1990, pp. 21-30.
S. Fred Singer, "My Adventures in the Ozone Layer,!1 National
Review, June 30, 1989, pp. 34-8.
Leslie Roberts, "Learning from an Acid Rain Program,"
Science, March 15, 1991, vol. 251, pp. 1302-5.
David Wessel, "Cost .ys. Benefits: Analysis Gets Soft," Wall
Street Journal, April 4, 1990, p. A17.
Leslie Spencer, "Not Invented Here," Forbes. October 12,
1992, pp. 44-5.
V, B. WASTE DISPOSAL
Buchholz, chapter 9, pp. 271-85.
Buchholz, chapter 12, pp. 374-87.
Lynn Scarlett, "Integrated Waste Management: Rethinking
Solid Waste Problems and Policy Options," Policy
Insight, No. 128, May 1991 (Reason Foundation).
V. C. HAZARDOUS WASTES AND SUPERFUND
Buchholz, chapter 9, pp. 286-305. ,
Marc K. Landy and Mary Hague, "The Coalition for Waste:
Private Interests and Superfund," in Michael S. Greve
and Fred L. Smith, Jr. (eds.) Environmental Politics:
Public Costs. Private Rewards. 1992, pp. 67-87.
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Peter Hong, "The Toxic Mess Called Superfund," Business
Week. May 11, 1992, p. 32-4.
Dennis R. Connolly, "Superfund Whacks the Banks," Wall
Street Journalf Aug. 28, 1990, p. A10.
Stephen Kleege, "ABA Conference to Focus on Cleanup-
Liability Issuer". American Bankerr May 12, 1992, p. 10.
James Bovard, "Some Waste Cleanup Rules Are a Waste of
Resources," Wall Street Journal. Feb 14, 1989, p. A14.
Robert Tomsho, "Big Corporations Hit By Superfund Cases Find
Way to Share Bill," Wall Street Journal. April 2, 1991,
p. Al.
Don J. DeBenedictis, "How Superfund Money is Spent," A£&
Journal, Sept. 1992, p. 30.
V, D. WETLANDS
Buchholz, chapter 11
H. Jane Lehman, "A Changing Tide on Wetlands Decisions,1*
Washington Post. January 18, 1992, p. El.
' ,
"Many Businesses Say Wetlands are Overregulated,"
Philadelphia Business Journal. March 30, 1992, p. 1,
"EPA's Most Wanted," Wall Street Journal, Nov. .18, 1992, p.
A16.
VI. MANAGING ENVIRONMENTAL ISSUES
Guest Speaker: Gary Minck, Senior Manager of Environmental
Affairs, Northern Telecom
VI. A. CRISIS MANAGEMENT: OIL SPILL CASE
HBS CASE: Exxon Valdez
John R. Hall, "Managing in Crisis," Owen Manager, Spring
1992, vol. 13, no. 2, pp. 10-13.
VI. B. GREEN PRODUCT DESIGN: TQM
Guest Speaker, Steve Hays, Gobbell Hays Partners
J Scott McMurray, "Chemical Firms Find That It Pays to Reduce
Pollution at Source," Wall Street Journal, June 11,
1991, p. Al.
. : , 10 "
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Office of Technology Assessment, Chapters 2-4, Green
Products bv Design; Choices for a Cleaner Environment,
1992, pages 23-31, 35-46 and 53-63.
x
VI. C. GREEN MARKETING ;
"'"'.*' ' , -" ' »
Buchholz, chapter 12, pp. 388-94.
Randolph B. Smith, "Environmentalists, State Officers See
Red As Firms Rush to Market 'Green' Products," Wall
Street Journal. March 13, 1990, p. Bl.
Randolph B. Smith, "Rush to Endorse 'Environmental' Goods
Sparks Worry About Shopper Confusion," Wall Street
Journalf April 16, 1990, p. Bl.
Alecia Swasy, "P&G Gets Mixed Marks as It Promotes Green
Image but Tries, to Shield Brands," Wall Street Journal.
Aug. 26, 1991, p. Bl. .
s Federal Trade Commission, "Guides for the Use of ^
Environmental Marketing Claims," July 1992.
Jerry Taylor, "The Greening of the First Amendment,"
Regulation. Fall 1991, pp. 35-9.
VI. D. GREEN FINANCE & ACCOUNTING
/ Rajib N. Sanyal and Joao S. Neves, "The Valdez Principles:
' J . Implications for Corporate Social Responsibility,"
Journal of Business Ethics, vol. 10, 1991, pp. 883-90.
Nell Minow and Michael Deal, "The Shareholders' Green
Focus," Directors and Boards. Summer 1991, pp. 35-9.
[on reserve in library]
Donna Brown, "Let the Buyer Beware," Management Review.
June 1990, pp. 18-21^
Reed Abelson, "Messy Accounting," Forbes. Oct. 14, 1991, p.
172-3. ~
Amal Kumar Naj,. "See No Evil: Can $100 Billion Have 'No
Material Effect' On Balance Sheets?" Wall Street
Journal, May 11; 19,88, p. Al.
Halley I. Moriyama, "The Environmental Audit," Directors and
Boards. Summer 1991, pp. 21-4. [on reserve in library]
11
-------
VII. OTHER GLOBAL ENVIRONMENTAL ISSUES
VII. A. DEFORESTATION & SPECIES EXTINCTION
Buchholz, chapter 10
Robert J. Smith, "The Endangered Species Act: Saving Species
or Stopping Growth?" Regulationf Winter 1992, pp. 83-
87.
Terry L. Anderson, "Wolves in the Marketplace," Wall Street
Journal. Aug. 12, 1991, p. A10.
» ,,i ' , , " ii'1'
Roger A. Sedjo, "Preserving Biodiversity as a Resource,"
Resources. Winter 1992, pp. 26-9.
Richard C. Morais, "Save the Elephants!" Forbes. Sept. 14,
1992, pp. 338-40, 344-5.
VI. B. INTERNATIONAL TREATIES & FREE TRADE ISSUES
J
Office of Technology Assessment, "International Comparison
of Policies Affecting Green Design," Chapter 5 in Green
Products by Design. 1992, pp. 67-75.
Peter Uimonen, "Trade Policies and the Environment f" Finance
& Development. June 1992, p. 26-7.
Robert Tonsho, "Environmental Posse Fights a Lonely War-
Along the Rio Grande," Wall Street Journal, Nov. 10,
1992, p. Al.
Jonathan Ferguson and Peter Gorrie, "Trade Pact Under Fire
on Environment," Toronto Star. Nov. 4, 1992, p. A12.
Raymond J. Kopp, Paul R. Portney and Diane E. DeWitt,
"Comparing Environmental Regulation in the OECD
Countries," Resources, Fall 1990, pp. 10-13.
12
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Pollution Prevention
in Accounting
NATIONAL POLLUTION PREVENTION CENTER FOR HIGHER EDUCATION
Environmental Accounting
Christopher H. Stinson
Accounting 380K, Spring 1994
University of Texas
National Pollution Prevention Center for Higher Education University of Michigan
Dana Building, 430 East University, Ann Arbor Ml 48109-1115
Phone: 313,764.1412 Fax: 313.936.2195 E-mail: nppceumich.edu
Syllabus: Stinson
August 1994
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Bnvronmena Legislation. Risks, Liabilities ^ and Disdosure
C, External Reporting I: Reporting within the financial framework
D. External Reporting II: Non-financial reporting.
E. External "Social" Audits
and reporting for a future: Sustainability, Accountability/and
^ paradigm? js ^ sustainable development possible?
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T^ME AND PLACE;
The seminar will normally meet once a week, tentatively scheduled for Monday
evenings, 6:30 - 9:00 PM. The meeting time is negotiable and will be reestablished to
meet the needs and desires of the participants. Some field trips to local organizations are
also to be arranged, and guest speakers wilf'be invited as appropriate and available.
INSTRUCTOR:
Professor Donald E. Stone
201 -E SOM Building ,545-5685
Don Stone has been interested and concerned with environmental accounting
issues for several years, and has recently written two working papers (see partial reading
list) on environmental accounting which were presented at professional meetings over the
past two years. He has also been invited to be an Associate and Visiting Research Fellow
at the Center for Social and Environmental Accounting Research (CSEAR) at the
University of Dundee, (SCOTLAND), a post he will fill on his sabbatical leave beginning
January 1994.
TOPIC OUTLINE:
I. Introduction to the Issues
A. Business and the Environment: The Challenge for Accounting and Finance
B. Business and the Environment: Agenda, Attitudes, and Actions
C. Sustainability and Sustainable Development
D. Natural Capital: the Accounting Challenge
* , ii :!''' ' , <" , : .' '' ' ,
II. Ecological and Environmental Limitations of Traditional Accounting
III. Management Information and Accounting for Environment
A. Greening the Organization: Getting Started
B. Environmental Policy: Adoption, Establishment, and Implementation
C. Environmental Aud'rt: Assessment, Review, Management, and Attestation
D. Accounting and the control of Energy Costs
E. Accounting and controlling for the costs of waste, packaging, and recycling
F. Total Environmental Quality Management and Accounting
G. Investment, Budgeting, and Appraisal: Environment at the Heart of the
Accounting and Financial System
H. Life Cycle Analysis and Assessment
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journals covering a broad spectrum of issues and topics that are legitimately included
undef the heading, CMW^MMCMTAI AMOUNTING. There is a steadily increasing
unde the eang, .
amount of environmentally related reporting and disclosure in published corporate annual
reports and more explicit concern with such reporting taken by the accounting profession
and regulatory agencies. Even reactionary and environmentally less sens.tiye businesses
are acutely aware of the increasing environmental cost, risks and liabilities in their
activities and decision-making, while more environmentally pro-act.ve businesses^ are
seeing environmental strategy and ! performance as a source of competrt. ve advantage
and profitability. These developments have led to modification of existing accounting
practices and the creation of a variety of new techniques and practices that constitute a
substantial and growing environmental accounting practice.
The purpose of this seminar; will be to begin to explore this growing literature on
environmental accounting and to learn about some of the successful (and unsuccessful
efforts and applications in environmental accounting practice. We will pursue this goal
1 through a substantial reading program, centered around the recently published book by
Rob Gray ACCOUNTING FOR THE ENVIRONMENT, plus a number of journal articles
and other readings assembled by the instructor (see attached partial reading list) and
identified by the individual research efforts and interests of the seminar participants. We
will also make use of published annual reports, case studies, and even plant visits to
environmentally concerned organizations in the area. Indeed, one of the primary goals
of this experimental seminar is to identify and develop suitable and effective materials and
methods for learning more, about environmental accounting.
In addition to the above activities, each seminar participant will be responsible for
researching and presenting a written and oral report on some topic related to
environmental accounting. Also, we may work some case studies together which could
require written reports. No formal examinations are likely, but there will be some formal
effort to secure accountability for each participant's efforts and accomplishments for the
semester. ; '
WHO SHOULD TAKE PART IN THIS SEMINAR?
This seminar is open to graduate students and advanced undergraduate (usually
seniors) with a serious interest in and concern for environmental issues in management
It is not limited to accounting majors and may even be appropriate for non-SOM students.
The seminar will surely be enriched by a multiple disciplinary participation since the
environmental concerns and potential solutions are also clearly multi-disciplinary in nature.
Due to the accounting focus, however, it is expected that participants have at least
a basic background in financial and managerial accounting (Accounting 221 and 222 for
undergraduates, SOM 630 and 631 for graduate students) or the consent of the
instructor. ' '
Enrollment will be limited to a maximum of ten students. Participation by other
faculty is welcome.
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envacsem/2
SOM591A*
*
SEMINAR ON ENVIRONMENTAL ACCOUNTING
FALL SEMESTER 1993^^ .-J^^ f
Mondays, 6:30- 9:00 PM, SOM rm 102 Sch. No. 667925
COURSE DESCRIPTION:
Environmental accounting is concerned with the ways in which existing accounting
theory and practice fail to adequately account for the increasing environmental concerns
and crises which are attributed to the economic activities of nations, regional economies,
and organizations (especially business and commercial organizations). Equally important,
environmental accounting is also concerned with developing new and improved theory
and practices that will contribute in positive and constructive ways to developing more
ecologically sound and sustainable economic decisions and performance by governments
and organizations.
This concern for the environmental implications of economic activity and decision
making is often expressed under the term, sustainable development. Given credence
and currency first by the United Nations World Commission on Economic Development
(Brundtland) Report in 1987, and reinforced by "The Environmental Summit" in 1992,
sustainable development has been defined as "development that meets the needs of .the
present without compromising the ability of future generations to meet their own needs."
There have been many other definitions suggested, and the concept has been debated
and challenged, but I believe it represents the most compelling and challenging problem
facing this generation, and it is of paramount relevance to accounting and accountants.
There can be no meaningful definition or implementation of sustainable
development without substantial modifications to existing accounting practice and the
development of a wide range of new accounting concepts and techniques to support
efforts of governments and organizations to achieve the goals of sustainable
development.
Within the last five years, accounting for the environment has moved from being
considered the most marginal and irrelevant of topics to its present position of occupying
an increasingly central role in the deliberations of the worldwide accounting profession.
There is a large and rapidly increasing body of literature in the accounting and business
-------
-------
Pollution Prevention
in Accounting
NATO****- POtlUTION PH«VEHTl6N CENTER FOR HiqHEH EDUCATION
Seminar on Environmental Accounting
Donald E. Stone
SOM591A, Fall 1993
School of Management,
University of Massachusetts
National Pollution Prevention Center (or Higher Education University of Michigan Syllabus: Stone
Dana Building. 430 East University, Ann Arbor Ml 48109-1115 August 1994
Phont; 313.764,1412 Fax: 313.936.2195-E-mail: nppc@umich.edu .,
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27. 27 April (W) Presentation of Course Project results.
28. 2 May (M) Presentation of Course Project results.
29. 4 May (W) Presentation of Course Project results.
Wpttqn Assignment Due at 11:00 AM in class: Course Project writeup due.
Final Exam: Takehome final exam will be handed out at the end of class; this exam will be due in my office at the
end of our regularly-scheduled exam time.
11-17 May HnalExams
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Questions:
What is materials accounting (NRC 1990)? (
From an accounting systems perspective, what problems and opportunities does materials accounting creatk
24. 18 April (M) Materials accounting: life-cycle analysis,
Objective: Understand the motivation and limitations of life-cycle analysis.
Reading Assignment: ! '
Huizing, A., and H.C. Dekker. 1992. Helping to pull out planet out of the red: an environmental report of
BSO/Origin. Accounting, Organizations and Society 11 (5):449-45B.
Schmidheiny, S. 1992. Changing Course: A Global Business Perspective on Development and the
. Environment. MTT Press. Chapter 16.:
Discussion Questions:
What is life-cycle analysis? " What role can a firm's accounting staff play in undertaking life-cycle analysis?
BSO's president says the company won't repeat the exercise of extensive environmental disclosure
(reviewed by Huizing and Dekker [1992]) because much of their environmental impact is "forced" on them
by the companies from whom BSO buys products and supplies and, consequently, BSO's actual impact is
overstated. What are the implications of this perspective for future disclosures of environmental impacts in
corporate annual reports? \
25. 20 April (W) Materials accounting: Assessing environmental impacts of emissions.
Objective: Understand some of the scientific and policy issues involved in assessing the impact of emissions.
Reading Assignment:
Grimsted, B.A., S.C Schaltegger, C.H. Stinson, and C.S. Waldron. 1993. Assessing environmental
impacts of chemical emissions. Unpublished working paper.
i .
Discussion Question: '
Why might managers be interested in estimating the impact of their emissions rather than simply satisfying
themselves (e.g., via compliance audits) that they are complying with current regulatory limits?
26. 25 April (M) Materials accounting: Regulatory Requirements.
Objective: Understand the major federal requirements for materials accounting.
Reading Assignment: No reading assignment; review lecture notes after class.
Discussion Question: ! ,
How do federal requirements for materials accounting affect the design of a firm's accounting systems?
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Oster, S. 1993. Insurance for environmental hazards. Paper presented at October 27,1993 AICPA
Environmental Conference, Orlando, Florida.
* Roush, C 1993. The hurricane called Superfund. Business Week (2 August 1993), pp. 74-75.
piscussion Questions:
« What environmental issues and costs should proactive insurance-company managers be thinking about?
«If this was the industry group you chose for your 28 March written report, be prepared to discuss the main
points in your report.
21. 6 April (W) Environmental issues and chemical companies.
Objective: Understand current and future environmental issues affecting chemical companies.
Reading Assignment:
Schmidheiny, S. 1992. Changing Course: A Global Business Perspective on Development and the
Environment. MTT Press. "Du Pont" pp. 193-196, "S.C. Johnson" pp. 217-220, The Chemical
Industry" pp. 221-223, and Chapter 15.
Piscussion Questions:
What environmental issues and costs should proactive chemical managers be thinking about?
If this was the industry group you chose for your 28 March written report, be prepared to discuss the main
points in your report.
*
22. 11 April (M) Environmental issues and the oil/gas industry.
Objective: Understand current and future environmental issues affecting the oil/gas industry.
Reading Assignment: -
Amoco and U.S. Environmental Protection Agency. 1992. "Executive Summary," pp. 1-1 through 1-23 in
Amoco/USEPA Pollution Prevention Project: Project Summary. Amoco Corporation.
Schmidheiny, S. 1992. Changing Course: A Global Business Perspective on Development and the
Environment. MTT Press. "Shell" pp. 201-204, "ENT pp. 312-314
Discussion Questions:
What environmental issues and costs should proactive oil/gas managers be thinking about?
If this was the industry group you chose tor your 28 March written report, be prepared to discuss the main
! , ' I
points in your report.
23. 13 April (W) Materials accounting: Introduction.
Objective: Understand the motivation for materials accounting.
Assignment:
National Research Council. 1990. "Executive Summary," pp. 1-8 in Tracking Toxic Substances at
Industrial Facilities: Engineering Mass Balance versus Materials Accounting. National Academy Press,
Washington, D.C.
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Walker, MJ. 1992. Trust in auditing, but verify. The Environmental Forum (January/February), pp. 41-
42. . ' ..'-..'' '- : ' . /f;
' . ' ' . I?-
Welks, K. 1992. Recognize admissions,; don't excuse violations. The Environmental Forum >
(January/February), pp. 42-43. .
Discussion Questions: .
What incentive problem associated with compliance audits is described by Moore (1992)? How have the
EPA and the U.S. Department of Justice responded to this problem? Should they do more?
Written Assignment Due at lliOO AM in class:
f In the next four classes, we will review how environmental issues affect financial institutions, insurance
companies, chemical companies, and oil/gas companies. Prior to these classes, you are to choose one of
these four industry groups and you will become relatively expert in how environmental issues and costs
affect your chosen industry. Write a 2-5 page description (with references) of the major environmental
issues, potential regulatory (and other) costs, and prospective benefits affecting your chosen industry both in
the U.S. and in international markets.
19. 30 March (W) Environmental issues and financial institutions.
Objective: Understand current and future environmental issues affecting financial institutions.
Reading Assignment: . 1 .
Bank of America, 1993. "Environmental responsibility" Section 1.2 in Corporate Credit Lending Policy.
Bank of America, San Francisco.
Bank of America. 1993. Section dealing with hazardous wastes and toxic substances, Credit Policy
Manual. Bank of America, San Francisco.
Canadian Institute of Chartered Accountants. 1992. Environmental Auditing and me Role of the
. 'i . . ' . . .. :
Accounting Profession. Canadian Institute of Chartered Accountants. Toronto, Canada. Appendix 3.
Schmidheiny, S. 1992. Changing Course: A Global Business Perspective on Development and the
Environment. MTT Press. Chapters 4 and 14.
Discussion Questions:
What environmental issues and costs should proactive financial-institution managers be thinking about?
If this was the industry group you chose for your 28 March written report, be prepared to discuss the main
points in your report.
Course Project Progress Report Due: Hand in draft list of environmental costs that your project firm faces.
i ' . '
20. 4 April (M) Environmental issues and insurance companies.
Objective: Understand current and future environmental issues affecting insurance companies.
J-..'' .
Reading Assignment: ,
Canadian Institute of Chartered Accountants. 1992. Environmental Auditing and the Role of the
Accounting Profession. Canadian Institute of Chartered Accountants. Toronto, Canada. Appendix 2.
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* Although most people usually think of accountants as being responsible for audits, most tran^actiona! audits
are undertaken by environmental engineers. Environmental engineers typically limit their liability (in the
event of audit failure) to the cost of the transactional audit (Skellenger et al 1992). CPAs may have
unlimited liability if they fail to discover material mistakes in financial statements. How will this differential
liability affect auditor behavior and user confidence in the different types of audits?
17. 23 March (W) Environmental audits: Compliance audits.
Objectives:
* Understand the motivation for compliance audits.
Understand some of the problems that arise during the course of compliance audits.
Reading Assignment:
Canadian Institute of Chartered Accountants. 1992. Environmental Auditing and the Role of the Accounting
Profession. Canadian Institute of Chartered Accountants. Toronto, Canada. Chapters 3 and 6.
CH2M HilL 1993. The Role of Internal Auditors in Environmental Issues. The Institute of Internal
Auditors Research Foundation, Altamonte Springs, Florida. Chapters 3 and 4.
* Roussey, R.S. 1992. Auditing environmental liabilities. Auditing: A Journal of Practice & Theory 11:47-
57. '!: ' ' v :' '. "-'", ; ; ! ' .
Discussion Questions:
* How does a compliance audit differ from a traditional audit?
« How does an operational audit differ from compliance or transactional audits? Who bears the cost of
iniistaif«»s made in an operational audit?
What environmental issues does Roussey (1992) suggest should be considered by an independent auditor
when auditing a firm's financial statements?
18. 28 March (M) Environmental audits: Regulatory policy.
Objectives,:
Understand U.S. and international regulatory policy regarding environmental audits.
Understand some of the incentive problems created by these regulatory policies.
Reading Assignment:
Canadian Institute of Chartered Accountants. 1992. Environmental Auditing and tiie Role of the
Accounting Profession. Canadian Institute of Chartered Accountants. Toronto, Canada. Pages 15-23.
Doyle, J. 1992. Audits are their own reward. "The Environmental Forum (January/February), pp. 38-39.
Environmental Protection Agency. 1986. Environmental auditing policy statement Federal Register
51:25004-25010.
Moore, J.R. 1992. Protection will increase compliance. The Environmental Forum (January/February),
pp. 39-41.
37
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15. 9 March (W) Summary case: Accounting for environmental mitigation costs at Boeing's Everett pi?
Objectives: Review financial, managerial, and tax accounting treatment of some environmental costs.
Reading Assignment:
Lobos,L 1992. Boeing will pay fine over hazardous waste. Seattle Times (14 January 1992), p. Bl.
Soderstrom, N., and C JH. Stinson. 1994. Accounting for Government-imposed Mitigation Costs:
Expansion of Boeing's Everett Airplane Manufacturing Facility. .
Written Assignment Due at 11;00 AM in class:
Study the Boeing case materials (Soderstrom and Stinson 1994). How should Boeing account for the
mitigation costs imposed by the City of Everett? Where does Boeing have flexibility in their accounting
decision, and where do regulators or accounting standards impose binding constraints? What management
issues have to be considered with these accounting decisions? Justify your conclusions.
Discussion Questions:
Be prepared to describe and defend the recommendations you make in your write-up.
Course Project Progress Report Due:
Hand in signed letter of understanding between your group members and liaison for project firm.
14-19 March SPRING BREAK '
16. 21 March (M) Environmental audits: Due-diligence audits.
Objectives:
Understand the motivation for due-diligence audits.
Understand some of the problems that arise during the course of due-diligence audits.
Reading Assignment: :
> '
Canadian Institute of Chartered Accountants. 1992. Environmental Auditing and the Role of the
Accounting Profession. Canadian Institute of Chartered Accountants. Toronto, Canada. Chapters.
CH2MHUL 1993. The Role of Internal Auditors in Environmental Issues. The Institute of Internal
Auditors Research Foundation, Altamonte Springs, Rorida. Chapters 1 and 2. ,
Skellenger Bender Mathias Bender & Gould, P.S. 1992. Limitation of liability clauses gaining popularity
among environmental consultants. Enviroline: The Bulletin of the Association of Northwest Environmental
.Professionals (Spring 1992):4-5.
Stipp, D. 1992. Toxic chemicals have fewer places to hide. Wall Street Journal 29 April 1992, p. B1.
Discussion Questions:
* What are the different kinds of environmental audits (CICA 1992, CH2M Hill 1993)?
What is a due-diligence audit? How does a due-diligence (or "transactional") audit differ from compliance
financial-statement audits? ' ' -
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12. 28 February (M) tax accounting: Environmental taxes and environmental policy.
Qhkctive: Understand the economic motivation for using taxes as a tool for implementing environmental policy.
Reading Assignment: ,
Cairncross, F. 1992. Making polluters pay. Chapter 4, pp. 89-109 in Costing the Earth. Harvard
Business School Press, Cambridge, MA. See especially pp. 95-100.
Periis, ML. 1992. Comparing taxes and marketable allowances as policy tools for reducing pollution
emissions and energy consumption. National Tax AssociationTax Institute of America Proceedings of
the Eighty-fourth Annual Conference 7997:201-205.
Schmidheiny, S. 1992. Changing Course: A Global Business Perspective on Development and the
Environment. MIT Press. Chapter 2.
Stihson, C.H. 1993. What should an energy tax do? Northwest Environmental Journal 9:131-135.
Piscussion Questions:
* How are taxes used to implement environmental policy (Cairncross 1992, Schmidheiny 1992)?
* What are the economic effects of energy taxes (Perlis 1992, Stinson 1993)?
13. 2 March (W) Tax accounting: U.S. environmental taxes.
Objective: Understand the main federal taxes affecting environmental policy.
,» . .''':. i . '
Reading Assignment:
Yancey, T.H. 1992. Tax consequences of environmental cleanups. Pp. 241-254 in Thomas F.P. Sullivan
(ed.)The Greening of American Business. Government Institutes, Inc. Rockvffle, Maryland.
Discussion Questions:
Does the current "Superfund" tax fairly tax those who are responsible for the U.S.'s hazardous waste
problems?
How does the tax treatment of Superfund cleanup costs differ from the financial accounting treatment of
those costs?
14. 7 March (M) Tax accounting: International environmental taxes.
Objective: Begin to understand some of the tax policy options that have been implemented internationally.
Reading Assignment: No reading assignment; review lecture handout after class.
Written Assignment Due Noon 6 March:
For the country that you are assigned, identify all environmental taxes imposed by the federal government.
A summary of all reports will be distributed in class on 7 March.
Discussion Question:
Be prepared to discuss the main results in the report you prepared on your assigned country,,
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10. 21 February (M) Managerial accounting: Pollution-prevention planning.
Objectives:
Understand the motivation for "pollution prevention".
Understand how to financially evaluate pollution prevention opportunities.
Reading Assignment: ; .
Environmental Protection Agency. 1991. Pollution Prevention 1991: Progress on Reducing Industrial
Pollutants. EPA 21P-3003. Washington, D.C. Chapters land 2; skim Chapter 3.
Environmental Protection Agency. 1992. Facility Pollution Prevention Guide. Office of Research and
Development, U.S. Environmental Protection Agency, Washington, D.C. Optional: Chapters 1,6, and 8,
Environmental Protection Agency. 1992. < Total cost assessment: accelerating industrial pollution prevention
through innovative project financial analysis. Office of Pollution Prevention and Toxics, U.S.
Environmental Protection Agency, Washington, D.C. Chapter 3.
Schmidheiny, S. 1992. Changing Course: A Global Business Perspective on Development and the
Environment. MIT Press. Chapter?.
Wittman, M.R. 1991. Lightolier, Inc. July 1991 manuscript prepared for Northeast Waste Management
Officials' Association and Commonwealth of Massachusetts Office of Technology Assistance.
Discussion Questions:
, What is "pollution prevention"? Is all pollution prevented? \
What is total cost assessment (Chapter 3 in Total Cost Assessment)! Why might this be preferable to
conventional cost assessment?
Read the Lightolier case (Wittman 1991).; Critique the analysis provided by the consultant
11. 23 February (W) Managerial accounting: Regulatory requirements for pollution-prevention planning.
Objectives:. Understand the main regulatory requirements for pollution-prevention planning.
Reading Assignment:
Environmental Protection Agency. 1991. Pollution Prevention 1991: Progress on Reducing Industrial
Pollutants. EPA 21P-3003. Washington, D.C. Chapters 4 and 5, Appendices A and B.
Hamner, B., and C.H. Stinson. 1994. Managerial accounting and environmental compliance costs.
Journal of Cost Accounting, in press.
Discussion Questions: ;
What federal requirements are there for pollution prevention? -
Hamner and Stinson (1994) describe some managerial accounting practices that must be reported in some
states. What are the economic benefits of mandating certain managerial accounting practices? What are the
economic costs of these requirements? How would you decide whether the regulation's costs were worth V;
their potential benefit? :
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8. 14 February (M) Managerial accounting: Environmental compliance costs.
Qfojectives:
« Understand the main environmental compliance costs that affect businesses.
Understand costs and benefits associated with tracing these costs to their "source" process.
Reading Assignment:
Dower, R-C. 1990. Hazardous wastes. Pp. 151-194 in P.R. Portney (ed.) Public Policies for
Environmental Protection. Resources for the Future, Washington, D.C
. Hamner, B., and GH. Stinson. 1994. Managerial accounting and environmental compliance costs.
Journal of Cost Accounting, in press. !
Spitzer, M. A. 1992. Calculating the benefits of pollution prevention. Pollution Engineering (September),
pp. 33-38.
Todd,R. 1992. Zero-loss environmental accounting systems. New York University working paper.
Questions:
* What arc the advantages of tracing environmental costs in the manner proposed in the articles by Todd
(1992) and Spitzer (1992)? What factors do Spitzer (1992) and Haraner and Stinson (1993) suggest have
kept companies from adopting these practices?
* Some countries currently require firms to take back and recycle their product packaging. Additionally, there
are proposals to make businesses take back and recycle (or dispose of) worn-out products. From a
managerial accounting perspective, how should these potential costs be treated? From a financial accounting
perspective, how should these contingent liabilities be treated? What do companies do currently?
9. 16 February (W) Managerial accounting: Environmental compliance costs (continued).
Objectives: Evaluate how four different firms account for environmental compliance costs.
Reading Assignment:
Stinson, CH. 1994. Cascade Cabinet. Case prepared for World Resources Institute.
Stinson, C.H. 1994. Eldec Corporation. Case prepared for World Resources institute.
\ , . .' : : , .'
Stinson, C.H. 1994. Heath Techna. Case prepared for World Resources Institute.
Stinson, C.H. 1994. Spectrum Glass. Case prepared for World Resources Institute.
Discussion Questions:
« What environmental compliance costs affect each of these four firms?
When should costs arising from environmental regulations be traced to their "source" within the company
and when should they be treated as part of general overhead? .
What similarities do you note across firms in how these costs are accounted for?
What differences do you note across firms in how these costs are accounted for?
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Johannes, L. 1993. State bank for pollution-control credits generates low interest among business. Wall
Street Journal (24 November 1993), p. T4. >,r~
Klebnikov, P. 1993. Pollution rights, wronged. Forbes (22 November 1993), p. 128. V,
Taylor, J. 1992. New rules harness power of free markets to curb air pollution. Wall Street Journal (14
April 1992), pp. Al, A9.
U.S. General Accounting Office. 1992. Water Pollution: Pollutant trading could reduce compliance costs if
uncertainties are resolved. GAO RCED-92-153, Washington, D.C
Wald,M.L. 1992. He doesn't call them dirty deals. New York Times (13 May 1992), p. C4.
Wald, M.L. 1992. Utility reports second sale of its pollution allowances. New York Times (13 May
1992), p. C4. ' "i
Discussion Questions: i
What are tradeable pollution permits (Caimcross 1992, GAO 1992), who issues them (Anonymous 1993,
Byrd and Zwirlein 1993, Johannes 1993, Taylor 1992), and how are they traded (Wald 1992)?
How should firms account for these permits under GAAP (Ewer, Nance, and Hamfin 1992)? Will additional
disclosure required by the SEC? How do regulatory bodies account for these permits (Klebnikov 1993)?
« What are the advantages and disadvantages of using pollution permits as regulatory tools (Cairncross 1992,
Klebnikov 1993)? How does accounting treatment affect the business to sell or purchase tradable permits?
. ..
7. 9 February (W) Financial accounting: International accounting requirements for environmental issues.
Objective: Begin to understand international financial accounting requirements for environmental issues.
Reading Assignment:
Anonymous. 1992. Paying for the past. Economist (29 February 1992), p. 80. _
Anonymous. 1993. Dirty legacy. Economist (18 September 1993), pp. 74-75.
Canadian Institute of Chartered Accountants. 1993. Environmental Costs and Liabilities: Accounting and
Financial Reporting Issues, Canadian Institute of Chartered Accountants. Toronto, Canada. Chapters 3,
4, 6, and 7. !
Written Assignment Due Noon 8 February:
For the country that you are assigned, identify all external. (Le., financial accounting) reporting requirements
associated with environmental accounting issues. Your analysis should include both the treatment of
remediation costs and the recognition of environmental liabilities. A summary of all reports will be
distributed in class on 9 February.
Discussion Questions:
Be prepared to discuss the main results in the report you prepared on your assigned country.
The two articles from the Economist illustrate that many countries have environmental problems. How are
remediation and regulatory costs reflected in financial statements around the world?
How do Canada's financial reporting requirements, differ from the U.S.'s?
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5. 1 February (W) Financial accounting: SEC disclosures of contingent environmental liabilities.
phjective: Understand contemporary SEC disclosure requirements regarding environmental liabilities.
Reading Assignment:
»Bertpn,T. 1993. SEC rule forces more disclosure. Watt Street Journal (13 December 1993), pp. B1.B3.
* Securities and Exchange Commission. 1989. Management'discussion and analysis of financial condition
and results of operations; certain investment company disclosures. Federal Register 54:22427-22436.
Securities and Exchange Commission. 1992. Regulation S-K. SEC, Washington, D.C.
Securities and Exchange Commission. 1993. Staff Accounting Bulletin No. 92. SEC, Washington, D.C.
Surma, J.P., and AJL Vondra. 1992. Accounting for environmental costs: a hazardous subject Journal
of Accountancy (March 1992):5l-55.
« Zuber, G.R., andC.G. Berry. 1991 Assessing environmental risk. Journal of Accountancy (March), pp.
43-48.
Discussion Questions:
Based on Zuber and Berry (1992), Surma and Vondra (1992), and the three SEC documents, what
environmental disclosures are required by the SEC? Where are these disclosures made? What is the
relationship between FASB requirements and SEC requirements?
What business decisions are likely to be influenced by current GAAP and SEC requirements for disclosure
'! ,,' '' '' ' "'i1!, , ", i
of environmental assets and liabilities?
Review the 1992 annual report for the Fortune 100 manufacturing company you were assigned. What
disclosures related to environmental issues are made in this annual report? Where in the annual report are
each of disclosures made? Which of these disclosures are required? (Hand in; not graded).
1 ' , .,i. , i ',.,,,' i" ,','', . 11
6. 7 February (M) Financial accounting: Accounting for tradeable pollution permits.
Objectives:
* Understand the economic and regulatory rational for pollution permits.
* Understand the accounting treatment of pollution permits.
Readjng Assignment:
Anonymous. 1993. Right to pollute. Economist (30 October 1993), pp. 77-78.
Byrd, J., and T. Zwirlein. 1993. Environmental protection and forward contracts: sulfur dioxide emission
allowances. Journal of Applied Corporate Finance 6(3): 109-110.
'" ' i" '',' " "- :' ' "" ' N .''!,' ' ; ' ' ' . '' ' , ' '- , ' ' '
Cairncross, F. 1992. Making polluters pay. Chapter 4, pp. 89-109 in Costing the Earth. Harvard
Business School Press, Cambridge, MA. See especially pp. 100-106.
Ewer, S.R., J.R. Nance, and S.J. Hamlin. 1992. Accounting for tomorrow's pollution controls. Journal
of Accountancy (July), pp. 69-74.
-------
Johnson, L.T. 1993. Research on environmental reporting. Accounting Horizons 7(3): 118-123.
Surma, J.P., and AA. Vondra, 1992. Accounting for environmental costs: a hazardous subject Journal ..
of Accountancy (March 1992):51-55. v-
Zuber, G.R., and C.G. Berry. 1992. Assessing environmental risk. Journal of Accountancy (March), pp.
43-48.
Discussion Questions! .
Based on Zuber and Beny (1992) and Surma and Vondra (1992), what environmental disclosures are
required under GAAP? Where are these disclosures made?
Prepare answers to the Creative Crockery case.
What is the basis of Abelson's (1991) criticism of the actual disclosures?
What recommendations does the EITF (1989-1993) make regarding me treatment of environmental costs?
What unresolved issues in financial reporting does Johnson (1993) perceive? What shortcomings in
environmental disclosures are described by Barret et aL (1991) (and by Cooper in his Minority Report)?
4. 31 January (M) Financial accounting: GAAP disclosures of contingent environmental liabilities (con't).
Objectives: Review contemporary research on the effect of unreported environmental liabilities and voluntary
t \ -
disclosures on the market value of publicly-traded corporations.
' ' ' - /' . '
Reading Assignment! ' ' t" -
* Aeppel, T. 1993. Firms reveal more details of environmental efforts but still don't tefl afl. Wall Street
Journal (13 December 1993), p. Bl.
Bailey, J. 1992. Safety-Kleen plans to take a write-off due to snafu over wastes; stock sags $3. Wall
Street Journal (6 August 1992), p. A4.
Earth, M.E., and M.F. McNichols. 1994. Estimation and market valuation of environmental liabilities
relating to Superfund sites. Unpublished working paper.
Blacconiere, W.G., and D.M. Patten. 1994. Environmental disclosures, regulatory costs, and changes in
firm value. Journal of Accounting and Economics, in press.
McMurray, S. 1992. Monsanto doubles liability provision for treating toxic waste to $245 million. Watt
Street Journal (23 March 1992), p. A7.
Discussion Questions: ! '
What factors would affect whether there is (e.g., Bailey 1992) or isn't (e.g., McMurray 1992) a change in
stock price in response to an announcement of an anticipated environmental liability?
Blacconiere and Patten (1994) find a positive market reaction to voluntary environmental disclosures.
Aeppel (1993) describes some additional voluntary disclosures. What factors encourage and discourage
voluntary (i.e., non-mandated) disclosures?
What contingent environmental liabilities do Earth and McNichols (1994) find correlate with firms'
value? What are the implications of these results for standards^setting bodies such as FASB?
Course Project Progress Report Due: Hand in list of group participants. .
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Environmental Accounting (Accounting 380K) Class Assignments
Monday, Wednesday - 11:00 AM-12:30 PM - UTC 1.118
1 '' ' " , , ' :' ,' \ '' ' '' . , ! ' . '
1. 19 January (W) Introduction to environmental accounting; overview of class.
.Objective: To provide an overview of the topics encompassed by environmental accounting.
Reading Assignment:
Schmidheiny, S.C. 1993. "The Business of Sustainable Development," Chapter 1 in Changing Course.
MTT Press, Cambridge, MA.
Stinson, C.H., and S.C. Schaltegger. 1993. Environmental accounting. Unpublished working paper.
, " .
2. 24 January (M) Financial accounting: The discovery and cleanup process at a hazardous waste site.
Objectives:
Review Federal laws affecting hazardous waste-site cleanup: RCRA, CERCLA, and SARA.
Understand process of (and associated problems with) identifying Superfund sites, establishing a cleanup
plan, conducting site cleanup, and monitoring the site after cleanup.
* Understand how hazardous-waste site cleanup costs are generated.
Review alternatives to current laws (and their potential problems).
Assignment:
bower, R.C. 1990. Hazardous wastes. Pp. 151-194 in P.R. Portney (ed.) Public Policies for
Environmental Protection. Resources for the Future, Washington, D.C.
Discussion Questions: -
* What are the major steps in an EPA-mandated cleanup of a hazardous waste site?
Y- . ', i«: " , .v' ; ;. ' ...... : - i-1 ':'.. .,::', ;.' 1 , ' , .
What are the different costs that businesses potentially face in cleaning up hazardous waste sites?
3. 26 January (W) Financial accounting: GAAP disclosures of contingent environmental liabilities.
Objectives: Understand contemporary GAAP disclosure requirements regarding environmental liabilities.
Understand probable changes in GAAP disclosure requirements regarding environmental liabilities.
Reading Assignment:
« Abelson, R. 1991. Messy accounting. Forbes, 14 October 1991, pp. 172-173.
Barrett, M.J., W.H. Beaver, W.W. Cooper, J.A. Milburn, D. Solomons, and DJP. Tweedle. 1991.
American Accounting Association Committee on Accounting and Auditing Measurement, 1989-1990.
Accounting Horizons 5(3):8 1-105.
n " ' , ;.i, ' » ' '' . , ' ' ! ' \ f
* Creative Crockery A Company Going to Pot? 1989. Deloitte & Touche.
Emerging Issues Task Force. 1989-1993. Accounting for the cost of asbestos removal, Capitalization of
costs to treat environmental contaminants, and Accounting for environmental liabilities.
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Environmental Accounting (Accounting 380K) Course Project
Monday, Wednesday - 11:00 AM-12:30 PM - UTC 1.118
v , ."/r . (;.*-
The business costs associated with environmental regulations have increased rapidly in the past 10-15 years.
Traditionally, these costs have nor been traced to specific production processes, but have been assigned to general
overhead and then allocated across all of a firm's production processes. In the past, this has been an acceptable
way of accounting for these costs because (i) the information system costs of tracking environmentaUy-related
costs were relatively high, and (U) the environmentally-related expenses were relatively low. The economic cost
of product production was not grossly distorted by this traditional allocation method.
However, these traditional cost allocation methods are less appropriate than they once were because many
environmental regulations have become more expensive, more specific, and more time-consuming to comply
with. As these compliance costs increase relative to other costs, it becomes more important in competitive
business environments to accurately assign these costs. Furthermore, many new regulatory policies are designed
to pass social costs of the environmental impacts of business activities directly to the businesses; however, if firms
aren't tracing these costs in an appropriate fashion, the regulations won't work as designed. .
Assignment: Working in groups of no more than 4 students, locate a firm that is willing to work with you
on this project Your assignment is (i) to document the environmental issues that affect this firm, fli) to describe
the costs and benefits associated with these issues, and (iii) to describe how the firm accounts for these costs. TV
environmental issues may include (but are not limited to) non-hazardous waste generation, hazardous waste
generation, recycling requirements, air pollution regulations, and water pollution regulations. In examining how
the firm accounts for these costs, you should consider (at the least) whether there are any costs that specifically
arise from particular parts of the firm's operations, how these costs are treated in the firm's cost accounting
system, and whether environmental costs affect employee compensation. Your final report should discuss how
the, observed accounting practices might be improved as well as what factors constrain the firm's ability to modify
its accounting practices.
Course Project Due Dates:
31 January: Hand in list of group participants. ,
9 Marchr Hand in signed letter of understanding between your group members and liaison for project firm.
30 March: Hand in draft list of environmental costs that your project firm faces.
27 April, 2 May, and 4 May: In-class presentation of project results (order determined randomly).
4 May: Course Project writeup due at beginning of class
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Environmental Accounting (Accounting 380K) Course Readings
Monday, Wednesday - 11:00 AM-12:30 PM - UTC 1.118
Readings for this class will be taken from two general sources: chapters in the assigned texts and individual
papers. The individual papers either are part of the reading packet for this class or will be handed out in class.
Recommended Texts: (available for purchase at the Co-op)
* Canadian Institute of Chartered Accountants. 1992. Environmental Auditing and the Role of the
Accounting Profession. Canadian Institute of Chartered Accountants. Toronto, Canada.
* Canadian Institute of Chartered Accountants. 1993. Environmental Costs and Liabilities: Accounting and
Financial Reporting Issues. Canadian Institute of Chartered Accountants. Toronto, Canada.
CH2M HTT.T, 1993. The Role of Internal Auditors in Environmental Issues. The Institute of Internal
Auditors Research Foundation
Stephan Schmidheiny. 1992. Changing Course: A Global Business Perspective on Development and the
Environment. MTT Press.
Recommended Texts: (to be handed out in class)
Environmental Protection Agency. 1991. Pollution Prevention 1991: Progress on Reducing Industrial
Pollutants. EPA 21P-3003. Washington, D.C.
Environmental Protection Agency. 1992. Facility Pollution Prevention Guide. Office of Research and
Development, U.S. Environmental Protection Agency, Washington, D.C.
Environmental Protection Agency. 1992. Total cost assessment: accelerating industiialpottution prevention
through innovative project financial analysis. Office of Pollution Prevention and Toxics, U.S.
Environmental Protection Agency, Washington, D.C.
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19 January (W)
24 January (M)
26 January (W)
31 January (M)
1 February (W)
7 February (M)
9 February (W)
14 February (M)
16 February (W)
21 February (M)
23 February (W)
28 February (M)
2 March (W)
7 March (M)
9 March (W)
14-19 March
21 March (M)
23 March (W)
28 March (M)
30March(W)
4 April (M)
6 April (W)
11 April (M)
13 April (W)
18 April (M)
20April(W)
25 April (M)
27 April (W)
2May(M)
4May(W)
11-17 May
Environmental Accounting (Accounting 380K) Lecture Schedule
Monday, Wednesdayf-11:00 AM-12:30 PM - UTC 1.118
Introduction to environmental accounting; overview of class.
Financial accounting: The discovery and cleanup process at a hazardous waste site.
Financial accounting: GAAP disclosures of contingent environmental liabilities.
Financial accounting: GAAP disclosures of contingent environmental liabilities (continued).
Financial accounting: SEC disclosures of contingent environmental liabilities.
Financial accounting: Accounting for pollution permits.
Financial accounting: International accounting requirements for environmental issues.
Managerial accounting: Environmental compliance costs.
Managerial accounting: Environmental compliance costs (continued).
Managerial accounting: Pollution-prevention planning.
Managerial accounting: Regulatory requirements for pollution-prevention planning.
Tax accounting: Environmental taxes and environmental policy.
Tax accounting: U.S. environmental taxes.
Tax accounting: International environmental taxes.
Summary case: Accounting for environmental mitigation costs at Boeing's Everett plant. I
SPRINGBREAK
Environmental audits: Due-diligence audits.
Environmental audits: Compliance audits.
Environmental audits: Regulatory policy.
Environmental issues and financial institutions.
Environmental issues and insurance companies.
Environmental issues and chemical companies.
Environmental issues and the oil/gas industry.
Materials accounting: Introduction.
Materials accounting: Life-cycle analysis.
Materials accounting: Assessing environmental impacts of emissions.
Materials accounting: Regulatory Requirements.
Presentation of student cases.
Presentation of student cases.
Presentation of student cases.
Final Exams
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Accounting 380K: Environmental Accounting
Spring 1994
Monday and Wednesday, 11:00 AM - 12:30 PM. UTC 1.118
Dr. Christopher a Stinson
Email: cstinson@utxvms.cc.utexas.edu
Office Phone: (512) 471-5318
Office: CB A 4M256
Office Hours: Monday, 1:00^4:00 PM
Businesses use accounting systems to collect and aggregate information that is used by
management, investors, lenders, and other parties. Since the National Environmental Policy Act was
passed in 1969, there has been an extremely rapid increase in the number of state and federal
environmental laws and regulations affecting businesses. This increase in laws and regulations has
affected every traditional area of accounting (Le., financial accounting for public reports, managerial
accounting for internal analysis, and tax accounting). Environmental laws and regulations have even
created a new area of substance "accounting" in the effluent monitoring reports mat many firms must
submit to regulators.
The class will review relevant laws and regulations, discuss how these impact the information
being reported by different accounting systems (e.g., managerial accounting, tax accounting, financial
accounting), and consider how business decisions are being affected by these different sources of
information. This class will also consider the impacts of environmental regulations on product costs,
the firm's incentive systems, reporting requirements, etc. An environmental accounting class offers
several potential benefits to students of environmental management (as well as to students in other
areas) including (i) the opportunity to integrate decision-making across several areas of a business
(e.g., simultaneous consideration of effects on managerial cost estimates, financial accounting results,
and tax effects of a decision), and (ii) the opportunity to analyze the effects of environmental
regulations on a business (in addition to simply understanding the underlying rules).
Course grades will be based on the following assignments:
Written assignments (4) 20% [5% each]
Course project 45%
Quality of class participation 15%
Final exam 20%
FINALGRADE 100%
,^~~.
The readings for this class will be taken from contemporary literature; they, will be available
on reserve in the library and in the course packet which you may purchase.
-------
PARTIAL READING LIST: ^ f
Gray, Rob (with Bebbington and Walters), ACCOUNTING FOR THE ENVIRONMENT.
(London: Paul Chapman Publishing Company and the Chartered Association of Certified
Accountants (ACCA), 1993). V . ^
(nte will be the principal text, available at the Textbook Annex. It contains a 26
page bibliography with over 600 entries. There is no shortage of published material,
although some of it may be hard to find at the UMASS library)
Gray, Rob., THE GREENING OF ACCOUNTANCY. ACCA, 1990.
, Stone, Donald E., "Accounting and Sustainability" 1991 «
"Management Accounting and Sustainable Development" 1993
Brown, Lester R., ed. STATE OF THE WORLD 1993. (WW Norton Co, NY,), 1993
Cairncross, Frances, COSTING THE EARTH. Harvard Business School Press, 1992.
Daly, Herman P.' and Cobb. FOR THE COMMON GOOD: Redirecting The Economy
Toward Community. Environment, and a Sustainable Future. Beacon Press, 1989.
Gallon, Gary, "Reconceptualizing Economic Development: Brown Economics vs. Green
Economics", unpublished working paper, 1993
Gladwin, Thomas, "Envisioning the Sustainable Corporation", unpublished working paper,
1992. ;
Goodland, Daly, El Serafy and von Droste, ENVIRONMENTALLY SUSTAINABLE
DEVELOPMENT: BUILDING ON BRUNDTLAND. UNESCO, 1991
Donella Meadows, et al., BEYOND THE LIMITS -:CONFRONTING GLOBAL COLLAPSE -
ENVISIONING A SUSTAINABLE FUTURE. Chelsea Green Publishing Go. 1992
ACCOUNTING. ORGANIZATIONS AND SOCIETY. Special issue on environmental
accounting, Vol. 17, No. ,5, 1992 _/ -
ENVIRONMENTAL ACCOUNTING: THE ISSUES. THE DEVELOPING SQLUT1ONS-A
Survey of Corporate America's Accounting for Environmental Costs. Price Waterhouse,
199t . , -."-.' ' ' '..' ';' ' ; ' -' -
ENVIRONMENTAL COSTS: ACCOUNTING AND DISCLOSURE-- A Price Waterhouse
Desktop Resource. Price Waterhouse, 1992 , -
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Environmental Protection Agency, 1992
Society of Management Accountants of Canada, "Accounting and the Environment", 1992
uray, \jwen <« ^ ^ i ^ u ^ JOOT
I Assets", SQ'PNTIFIC AMERICAN. June
1992
"Waiting Assets: The Need for Natural Resource Accounting",
- Jan- 199°
WCED, ptJR QOMMON FUTURE (The Brundtland fieport), 1987
Surma, J. and Vondra, J., "Accounting for Environmental Costs: A Hazardous Subject",
JOURNAL OF AnnoUNTANCY. March, 1992.
Meadows, Meadows, and Renders, nrYDMOTHF I IMITS- Confronting GkiW Collapse.
Envisioning a $u?tainable Future. 1992
Buhr, Nola "Environmental Accounting Comes of Age", The Western Business School,
University of Western Ontario Working Paper Series; No, 91-09 (1991)
Sefcik, Soderstrbm, and Stihson, "Accounting Through Green-Colored Glasses",
unpublished working paper, 1993
(The above listing is intended to be suggestive, not exhaustive).
-------
Pollution Prevention
in Accounting
NATIONAL pbU-UTiON PREVENTION CENTER FOR HIGHER EDUCATION
Seminar on Environmental Accounting
Mark A. White '
Commerce 470, Spring 1992
Mdntire School of Commerce,
University of Virginia
National Pollution Prevention Center for Higher Education University of Michigan Syllabus: White
Dana Building, 430 East University, Ann Arbor Ml 48109-1115 . ' August 1994
Phone: 313.764.1412-Fax: 313.'936.2195'E-mail: nppc@umich.edu , , ,-
-------
-------
Mclntire School of Commerce .
University of Virginia
Commerce 470
Environmental Financial Management
; Spring 1992
The Four Laws of Ecology
1. Everything is connected to everything else.
2. Everything must go somewhere.
3. Nature knows best.
4. There is no such thing as a free lunch.
: Barry Commoner
; The Closing Circle, 1971
PROFESSOR: Mark A. White
CLASS HOURS: TuesThurs ; 12:30 -1:45 PM
OFFICE HOURS: Tues Wed Thurs 10:00 r 11:30 AM, and by appointment
211 Monroe Hall
924-7365
122 Monroe Hall
COURSE OBJECTIVES:
TEXTS:
The management of environmental issues ranks as one of the leading
concerns for businesspersons in the 1990s. A growing litany of problems
(global warming, acid rain, ozone layer depletion, tropical rainforest
destruction, air and water pollution, hazardous waste disposal and
widespread species extinctions) is altering business practices throughout
the world and will continue to influence them well into the next century.
Increasingly, concerned individuals in the business sector are adding their
voices to the chorus of consumers, government regulators and
environmental activists demanding cleaner air, cleaner water, better
management of non-renewable resources and less reliance on fossil fuels.
This course wDl introduce students to a wide variety of environmental
problems and discuss solutions advanced by the business community. By
the end of this course, students should have gained a deeper
understanding of the environmental challenges facing tomorrow's
managers and be better prepared to evaluate alternative methods for
their resolution. Course pedagogy will consist of lectures, case studies,
video presentations, field trips and talks by guest speakers. Participants
are expected to take an active role in class discussions.
Costing the Earth, by Frances Cairncross (London: Business Books, 1991),
256pp. [Cairncross]
Managing Environmental Issues: A Casebook, by Rogene A. Buchholz,
Alfred A. Marcus and James E. Post (Englewood Cliffs, NJ: Prentice Hall,
1992), 286 pp. [BMP]
Design for a Livable Planet, by Jon Naar (New York: Harper and Row,
1990), 338pp. [Naar]
Ecotopia, by Ernest Callenbach (New York: Penguin, 1975), 212 pp. .
Various assigned readings on reserve in the Commerce Library
S92 Commerce.470
M. A. White
-------
GRADING POLICIES:
Grades will be assigned on a 'plus/minus' basis. The relative importance
of assignments is as follows:
Midterm Exam:
- ", .' Final' E'xam;
Paper/Presentation:
Class Participation/Assignments:
30 percent
30 percent
25 percent
15 percent
100 percent
Exams will consist of objective questions and short essays designed to test your understanding of
concepts and factual material. No make-up exams will be given. Homework assignments and/or pop
quizzes will be assigned as the need arises. Your performance on these instruments will be factored
into the class participation portion of your final grade. As one small step towards putting the
ideals of this course into practice, please submit all written assignments on previously-used paper.
The paper assignment is intended to allow you to explore a particular topic in environmental
management in greater depth. In choosing a topic, you should focus on a specific business solution.to
a specific environmental problem. For instance, you may wish to discuss the pros and cons of
degradable plastic as a solution to the growing problem of waste disposal, or the implications
resulting from widespread adoption of "vampire" machines to recycle CFCs from automobile air
conditioners. Do NOT spend a great amount of space discussing the dangers of a particular problem.
Rather, concentrate your efforts on explaining how your solution works and why you think it will
solve the problem. Look at your problem from all sides and be sensitive to Garrett Hardin's
literate, numerate and ecolate "reality filters" in crafting your arguments. Do not just hand in a
book report containing a summary of the popular press' views on your topic - take a stand and
indicate why your solution is the best solution. Of course, your paper must be prepared in a
professional manner with complete footnotes, bibliography, etc. See The MLA Handbook for Writers
of Research Papers, 3rd. Ed. (New York: Modern Language Association of America, 1988) for
recommended style sheets.
Each of you must present the gist of her or his paper to the class towards the end of the semester.
Presentations are to last 5-7 minutes,, with 3-5 minutes left for questions. This means that you must
be EXTREMELY well-organized and should rehearse your performance to ensure you do not ran over
the time limit. Yqu might consider giving a "poster talk," in which the main points of your
arguments are summarized in panels on a large poster or flip-chart. The exact forum and amount of
time devoted to each presentation may change, subject to class enrollment.
Tentative Schedule
11 ' "" ' . i, ; n" ,, , ' ; , ', ',>>, !'
Thurs 16 Jan 92 Introduction
Cairncrpss, "Introduction," pp. li-22,143-152.
' ; ' " ;.' . "/' . ' ' , ; , ', ' i ! ' '',''" "i' '; '' '! '
Cairncross, "the Questions That Count," pp. 23-36.
Russell, Dick and Owen deLong. "Can Business Save the Environment?,"
£ Magazine (November/December 1991), pp. 28-37,57.
Hardin, Garrett. "Three Filters of Reality," Chapter 3 in Filters Against
Folly (New York: Penguin Books, l985), pp. 15-25.
VIDEO "Spaceship Earth," 1990, 25 minutes
,592 Commerce 470
M. A. White
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Tues
21 Jan 92
ASSIGNMENT
Tues 23 Jan 92
VIDEO
DISCUSSION
Thurs .28 Jan 92
History of the Environmental Movement
BMP, "Changing Perspectives on the Environment," pp. 1-7.
Goldfarb, Theodore D. "The Environmental Movement/' '
Clashing Vietvs orfConlroversial Environmental Issues, 4th Ed. (Guilford, C.F:
Dushkin Publishers, 1991), pp. xii-xxi.
Gilbert, Bil. "Earth Day Plus 20, and Counting," Smithsonian (April 1990), in
Taking Sides, pp. 4-10.
Comp, T Allan, "Earth Day and Beyond/' American Forests (March/ April
1990), 'in Taking Sides, pp. 11-14.
"A Century of Concern," 1992 Information Please Environmental Almanac
(Boston: Houghtofl Mifflin, 1992), pp. 20-29.
"Famous Figures in Environmentalism"
Limited Resources
Meadows, Donella H. and Dennis L. Meadows. "A Summary of Limits to
Growth - Its Critics and Its Challenge," in "Growth and its Implications for
the Future, Part 1," hearings before the Subcommittee on Fisheries and
Wildlife Conservation and the Environment of the Committee on Merchant
Marine and Fisheries, U.S. House of Representatives, Ninety-Third Congress,
First Session, May 1, 1973. ,
Schumacher, E. F. 'The Problem of Production," Chapter 1 in Small is
Beautiful (New York: Harper and Row, 1973), pp. 13-22.
Simon, Julian L. "Life on Earth is Getting Better, Not Worse," The Futurist
(August 1983), in Taking Sides, pp. 306-311.
Keyfitz, Nathan; 'The Growing Human Population," in Managing ^
Earth: Readings from Scientific American (New York: W. H. Freeman, 1990),
pp. 61-72.
"World Population," 1990, 6 minutes
Callenbach, Ernest. Ecotopia (New York: Penguin, 1975), 212 pp.
Economics and the Environment
Cairncross, "Greening Growth," pp. 37-53.
Friedman, Milton. "The Social Responsibility of Businesses to Increase its
Profits," New York Times Magazine, 13 September 1970.
Hardin, Garrett. "The Tragedy of the Commons," Science 162:1243-1248 (1968).
Pearce, David, Anil Markandya and Edward Barbier. Blueprint for a Green.
Economy, (London: Earthscan, 1989), pp. 1-11.
Brown Lester R. "The New World Order," in State of the World 1991, edited
by Lester R. Brown et al., (New York: W. W. Norton & Company, 1991), pp.
'3-20. , " ,
S92 Commerce 470
M. A. White
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Thurs 30 Jan 92 Ethics and the Environment
Baxter, William F. People or Penguins: The Case for Optimal Pollution, (New
York: Columbia University Press, 1974), pp. 1-13.
Freeman, A. Myrick III. "The Ethical Basis of the Economic View of the
Environment," Center for the Study of Value and Social Policy, University of
Colorado at Boulder, 1983
Ed Freeman (Darden School)
Corporate Environmental Responsibility
Baron, David P. "Corporate Social Responsibility," Chapter 18 in Business
and Its Environment (Englewood Cliffs, NJ: Prentice Hall, 1991), pp. 580-603.
SPEAKER
Tues 4 Feb 92
Kleiner, Art. "What Does It Mean to Be Green?" Harvard Business Review,
July/August 1991, pp. 3&47.
Post, James E. "Managing As If the Earth Mattered," Business Horizons,
July/ August 1991, pp. 32-38.
"Universal Widgets" >
Waste Disposal
Naar, Chapter 1 ("Garbage")
Hazardous Waste .
Naar, Chapter 2 ("Bad Chemistry")
"The Rush to Bum," 1989,35 minutes
Water Pollution
Naar, Chapter 3 ("Troubled Waters")
BMP, "The Big Spill: 6il and Water Still Don't Mix," pp. 43-60.
"The Wrath of Grapes," 1987,15 minutes
Air Pollution and Acid Rain
Naar, Chapter 4 ("Air Pollution")
7 '' ' .:*'..:''. / ,- ;i'".>' '', V" :',':' ' ': ' "'- : "
Naar, Chapter 5 ("Acid Rain") .
Thurs 20 Feb 92 Deforestation and Loss of Species Diversity
! , '« i ' " i; - ,;","' "I : !,,, "i ;, i;,1 I;:1, ',! . ; " , , , ,'.'', "' '
Naar, Chapter 6 ("Deforestation")
Cairnorpss, "Making Conservation Pay," pp. 54-72.
ROLE PLAY
Thurs 6 Feb 92
Tues HFeb92
VIDEO
Thurs 13 Feb 92
CASE
VIDEO
Tues 18 Feb 92
CASE
VIDEO
S92 Commerce 470
Wilson, Edward O. "Threats to Biodiversity," in Managing Planet Earth, pp.
49-60.
BMP, "The Amazon Rain Forest," pp. 8-25.
"Our Threatened Heritage," 1988,19 minutes
4 M. A. White
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'-fc.
Tues 25 Feb 92
Global Warming
Naar, Chapter 7 ("Global Wanning")
Schneider, Stephen H. "The Changing Climate/' in Managing Planet Earth,
pp. 25-36. ,
Schneider, Stephen H. "Debating Gaia," Environment 32 (May 1990), pp. 5-9,
29-30,32.
Thurs 27 Feb 92 Depletion of the Ozone Layer
VIDEO
Tues 3 Mar 92
VIDEO
Thurs 5~Mar92
CASE
SPEAKER
Tues 10 Mar 92
Thurs 12 Mar 92
SPEAKER
Tues , 17 Mar 92
Thurs 19 Mar 92
Graedel, Thomas E, and Paul J. Cruzen. "The Changing Atmosphere," m
Managing Planet Earth, pp. 13-24.
'Trophets and Loss," 1991,49 minutes
Radiation and Nuclear Energy
Naar, Chapter 8 ("Radiation")
"Chernobyl: Chronicle of Difficult Weeks," 1991, 40 minutes
Environmental Legislation
Naar, Chapter 10 ("Environmental Law")
BMP, "The Forgotten Dumps," pp. 130-140.
Peter Glubiak (CEM Group)
MIDTERM EXAM (Take Home)
The Role, of Environmental Organizations
Naar, Chapter 11 ("Eco-Action")
Gifford, Bill. "Inside the Environmental Groups," Outside, September 1990,
pp.69-84.
Green Consumerism
Cairncross, "The Consumer: Green but Fickle," pp. 153-171.
Elkington, John, Julia Hailes and Joel Makower. The Green Consumer (New
York: Penguin Books> 1990), pp. 5-11.
"Against Green Consumerism," abstracted from Sandy Irvine's Beyond Green
Consumerism (London: Friends of the Earth, 1989), pp. 7-8,15-22; in The
Green Reader, edited by Andrew Dobson (San Francisco: Mercury House,
1991).
David Hartmann (Mclntire School of Commerce)-
Spring Break
Spring Break ,
S92 Commerce 470
5
M. A. White
S7
-------
Tues 24 Mar 92 Energy Use and Alternative Energy Sources
Caimcross, "Conserving Energy/ pp. 107-120.
Naar, Chapter 9 ("Renewable Energy")
Davis, Ged R "Energy for Planet Earth," Scientific American (September
1990), pp. 55-60,62.
Buderi, Robert et al. "Conservation Power," Business Week, 16 September
1991, pp. 86-92.
SPEAKER David Roop (VEPCO)... pending
Thurs 26 Mar 92 Waste Management and Recycling
Cairncrossv "Making Polluters Pay," pp. 93 106.
Caimcross, "Second Time Around," pp. 201-221.
Berss, Marcia, "No One Wants to Shoot Snow White," Forbes, 14 October
1991, pp. 40-42.
Bloom, Gordon F. and Scott Morton, Michael S., "Hazardous Waste is Every
Manager's Problem," Sloan Management Review, Summer 1991, pp. 75-84.
CASE BMP, "The Politics of Recycling in Rhode Island," pp. 141-156.
Tues 31 Mar 92 Green Business - Overview
Caimcross, "Here to Stay," pp. 172-182.
Cairncross, "Along the Pipe," pp. 183-192.
Zetlin, Minda. "The Greening of Corporate America," Management Review,
June 1990, pp. 10-17.
SPEAKER Bruce Smart (World Resources Institute)
Thurs 2 Apr 92 Marketing and the Environment
Caimcross, "The Problem is the Product," pp. 193-200.
Letto, Jay. "Madison Avenue Goes Green," Buzzworm, September /October
1991, pp. 25-30.
CASE BMP, "ARCO Solar, Inc./'pp. 230-246. ,
Tues 7 Apr 92 Environmental Finance - Life Cycle Analysis and Lender Liability
Hunt, Robert^'' Jere Sellers and William Franklin. "Resources and
Environmental Profile Analysis," Forthcoming in Environmental Impact
Assessment Review, Spring 1992.
Hocking, Martin B. "Paper Versus Polystyrene: A Complex Choice," Science
251:504-505 (1991).
Opheim, Teresa. "Lender Liability," Investor's Environmental Report, Summer
1991, pp.1,13-15.
S92 Commerce 470
M. A. White
-------
TVvurs 9 Apr 92 Environmental Finance r Green Investing
White, Mark A. "Effects of the 'Green' Movement on Investors," Forthcoming
in The Greening of American Business: Financial Management and
Environmental Trends (Rockville, MD: Government Institutes, 1992).
Brown, Donna. "Let the Buyer Beware," Management Review, June 1990, pp.
18-21.
von Moltke, Konrad and Paul J. DeLong. "Negotiating in the Global Arena:
Debt-for-Nature Swaps," Resolve 22,1990, pp. 1,3-10.
Environmental Protection Agency, "Proposed Acid Rain Rules: Overview,"
October 1991,4 pp.
Environmental Protection Agency, "Allowance System: Proposed Acid Rain
Rule," .October 1991, 6 pp.
Tues 14 Apr 92 Accounting for the Environment
Thurs
Tues
Thurs
Tues
CASE
16 Apr 92
21 Apr 92
23 Apr 92
28 Apr 92
SIMULATION
Gray, Robert H. "The Accountant's Task as a Friend to the Earth,"
Accountancy, June 1990, pp. 65-69. .
Wainman, Dwight. "Balancing Nature's Books," CA Magazine, March 1991,
pp. 17-21.
White, Mark A. "SEC Disclosures of Environmental Matters," Forthcoming
Greening of American Business.
BMP, "Polaroid's Toxic Use and Waste Reduction Program," pp. 193-210.
PAPERS DUE
Paper Presentations
Paper Presentations
Paper Presentations
Sustainable Development
Cairncross, "Managing Greenly," pp. 222-235.
Brown, Lester R., Flavin, Christopher and Sandra Postel. "Vision of a
Sustainable World," in The Worldwatch. Reader on Global Environmental
Issues, edited by Lester R. Brown, (New York: W. W. Norton & Company,
1991), pp. 299-315.
Posiel, Sandra and Christopher Flavin. "Reshaping the Global EC inomy," in
State of the World 1991, pp. 170-188.
"Balance of the Planet"
FINAL EXAM (Take Home)
S92 Commerce 470
M. A. White
-------
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Pollution Prevention
in Accounting
NATIONAL POLLUTION PREVENTION CENTER FOR HIGHER EDUCATION
Pollution Prevention and Accounting
PRELIMINARY DRAFTNovember ,1994
William N. Lanen .
Associate Professor of Accounting / ,
''School of Business Administration
University of Michigan ,
Introduction to the Accounting
Compendium
The accounting compendium'in pollution prevention
provides resources to those who wish to introduce
environmental topics into their accounting curricula.
It consists of several types of resources: case studies,
problem sets, course syllabi, selected readings, and an
annotated bibliography. The collection of materials
will always be incomplete and we encourage you to
send in articles, cases,, problems, and other material
you may have or to let us know about other sources
available so that this information can be included.
Introduction to the Literature1
Overview
Accounting is the discipline of providing information
to decision-makers. Traditionally, this information has
been couched in financial terms and with a fairly
narrow focus on the measu'res of interest. As environ-
mental impacts of activities gain greater attention,
whether from increasing government regulation of
production activities, consumer demand for "green"
prod ucts, or concern on the part of business about the
interaction of their activities and the environment, we
can expect additional demands being placed on the
accounting systems, both internal and external, to
provide information about the effect of a firm's
activities on the environment. The purpose of this
introduction is to discuss how environmental
activities, including pollution prevention, are related to
the accounting system and identify resources available
through the NPPC for use in courses.
For the purpose of both curricula and research,
accounting is often divided into categories. In this
introduction, I will use two: external reporting and
internal reporting. Although many of the issues
related to environmental accounting are not so easily
characterized, I make use of this division in this
discussion of the literature. I include as "external
reporting" reports that provide information to external
users, such as investors, creditors, and government
agencies (e.g., tax authorities). Because these external
users are interested in many companies, it is important
that the accounting reports be comparable, at least to
some extent. This implies that some external body be
established to set rules for reporting results so that
users have a consistent basis on which to evaluate the
results of many entities. For this reason, it is often
.convenient to think of a external reporting system as a
set of rules, or standards, which all enterprises follow.
I use the term "internal reporting" to include data
intended for decision-makers internal to the enterprise.
These data must be relevant for the decisions being
evaluated and, format reason, the techniques used in
compiling and reporting the data vary from enterprise
to enterprise; While certain practices are common,
there is no external requirement that firms produce
internal reporting data in specified ways or at specified
intervals. In other words; in an internal reporting
system there are no rules or standards that must be,
followed.
National Pollution Prevention Center for Higher Education University of Michigan
Dana Building, 430 East University, Ann Arbor Ml 48109-1115
Phone: 313.764.1412 Fax: 313.936.2195 E-mail: .nppc'@ umich.edu
May be reproduced
.freely for non-commercial
educational purposes.
Introduction 1
November 1994
-------
Classifying accounting into external and internal
components Is useful for the discussion of accounting
and the environment because it allows us to distinguish
between the required reporting of results related to
environmental actions and the use of the accounting
system to manage the business with an understanding
of the impact of these decisions have on the environment.
The discussion in this introduction is intended to
provide a general introduction to the area of account-
ing and the environment, but it is not comprehensive.
I focus, for the most part, on articles in journals
intended for professional accountants and others
interested in the application of accounting principles
to environmental issues. This is done for two reasons.
First, the intent of the compendium is to integrate
environmental issues into curricula and, in a profes-
sional school setting, discussion and illustration of
existing practice is important. Second, there is a
relative dearth of articles on environmental issues in
academic accounting journals, with some exceptions I
discuss below.2 There is also an emphasis here on
articles in U.S. periodicals simply because of availabil-
ity. I hope to lessen this geographic bias in the future.
In this section, I will discuss external reporting and
environmental issues 'and then the role of internal
accounting in environmental management, where the
emphasis is on using the accounting system to evaluate
performance and, perhaps, encourage certain activities.
The final section summarizes some current work and
opportunities in environmental accounting.
Pollution Prevention and External
Reporting
As noted above, external reporting is concerned with
reporting results to external users of financial state-
ments. I discuss four basic topics here: accounting for
environmental liabilities and pollution prevention
costs; pollution prevention and taxes; environmental
audits; and ecological accounting. All are related in
the sense that they are attempts to report to firm
outsiders the impact of environmental activities on the
firm and the firm on the environment.
ACCOUNTING FOR ENVIRONMENTAL LIABILITIES
AND POLLUTION PREVENTION COSTS
As Johnson (1993) points out, external reporting
for environmental activities involves issues of both
recognition and disclosure. As he notes, the inherent ,
uncertainties in environmental activities lead to
difficult recognition issues; often, disclosure is the
focus of environmental reporting. Legislation is the
source of some of the uncertainty associated with
environmental accounting. Since the early 1970's,
firms have been subject to various environmental laws
and regulations that held the potential for substantial
liabilities. For example, in 1976, Congress passed the
Resource Conservation and Recovery Act (RCRA),
which requires companies to monitor materials poten-
tially harmful to the environment. The Comprehensive
Environmental Response, Compensation, and Liability
Act (CERCLA), or Superfund, passed in 1980; amended
by the Superfund Amendments and Reauthorization
Act (SARA) in 1986, it imposes responsibility for toxic
site cleanup on firms.3 Thus RCRA focuses on preventing
future waste sites while CERCLA is concerned with
cleanup at existing sites.
With this legislative trend, environmental impacts of
operations became important to managers not only
for reasons of social concern but because they came
to represent very real liabilities faced by corporations.
Financial accountants have long been guided on
dealing with contingent liabilities such as these by
Financial Accounting Standards Board (FASB) State-
ment #5 (SFAS #5), Accounting for Contingencies.
SFAS #5 requires firms to recognize a liability when
a loss is both reasonably probable and estimable;
environmental liabilities often satisfy both conditions.
.Measuring and reporting liabilities associated with
environmental claims, have been the focus of much of
the, writing and analysis on accounting and the environ-
ment. This is not surprising given the magnitude of
the potential liabilities and the likelihood that these
environmental laws and regulations will, if anything,
become more stringent. Many articles this compen-
dium's Resource List, especially those from the Journal
of Accountancy, focus on the impact of environment
activities on financial reporting. In addition, Johnson
(1993) discusses many of the recognition issues facing
" FASB.''" '" .''"''
Introduction 2
November 1994
-------
A related issue that has arisen with the Clean 'Air Act
of 1990 is the accounting treatment of "certificates to
pollute." These certificates were originally issued to
electric utility generating plants authorizing the release
of a fixed amount of sulfur dioxide (SC>2) into the atmo-
sphere. These certificates may be traded or sold, and
the Chicago Board of Trade has requested permission
to open trade in these certificates. A related reporting
issue concerns whether to record the value of these
certificates at cost or market, especially when the acqui-
sition cost is zero for many firms. See the article by
Ewer, Nance, and Hamlin (1992) for a revie\y of some
the issues involved.
While the accounting for environmental liabilities may
be relatively new> the issues faced by accountants are
common to many recent concerns about unrecorded
liabilities: recognition and measurement. As technol-
ogy changes and more is learned about the'impact of
hazardous discharges on the environment, we can
expect more articles, especially in the practitioner
literature, on ways to estimate the liability.
An issue that has received much less attention is how
the financial markets assess the information on environ-
mental impacts. Because of the uncertainty and the
measurement error associated with this information, it is
unclear whether and how financial market participants
value these liabilities relative to those on the financial
statements. That is, do investors view a dollar of re-
ported environmental liabilities as the same as a dollar
of long-term debt (or a dollar of other post-employment
benefits)? One study that addresses this is by Barth and
McNichbls (1993), who find that various proxies for en-
vironmental liabilities provide incremental explanatory
power with respect to market valuation over assets and
liabilities reported on the financial statements. They also/
provide a useful discussion of disclosure requirements
and an analysis of the factors affecting clean-up costs.
POLLUTION PREVENTION AND TAXES
Related to the external reporting issues discussed in
the previous section is the matter of environmental
expenditures or liabilities arid taxes. There is a large
literature in public finance that discusses the economic
impacts of various taxes and the incentives they'
provide with respect to economic activities. See, for
. example, Barthpld (1994) for a readable review of
environmental excise taxes. This compendium in-
cludes Michael Tucker's case dealing with excise taxes
on ozone-depleting chemicals and decision-making.
While the economics literature focuses more oh the
incentive effects and incidence of such taxes, the
accounting literature in the area is more focused on the
tax treatment of environmental activities. Many of
the issues are similar to those discussed in external
reporting and, except for the differences between tax
law and generally accepted accounting principles,
many of the comments above apply to this area. Yancy
(1992) provides a thorough discussion on three issues
of importance: application of performance rules to
cleanups (i.e., have the deductibilitycriteria been met);
expense versus capitalization rules for cleanup; and
cleanup liabilities in asset acquisitions.
ENVIRONMENTAL AUDITS
Environmental auditing appears to be a relatively new
term in the literature and is not easily classified as ex- '
ternal or internal reporting. Rather, the few discussions
of it fall into two groups: a rather narrow focus on
auditing financial statement items related to environ-
mental liabilities and more common management-type
audits of existing procedures and practices. Discussions
about the former issue focus on measurability and
probability assessments while discussions about the
latter more commonly discuss environmental practices
in general, for example hazardous waste disposal prac-
tices. The monograph on environmental auditing by
the Canadian Institute of Chartered Accountants (CICA
[1992]) has a thorough discussion of the different types
of environmental audits and the issues.
ECOLOGICAL ACCOUNTING
A final topic that I have included under external
reporting is ecological accounting, which attempts to
mimic, or complement, a external reporting system
expressed in monetary terms with one expressed in
physical flows. This means that the firm would report
its impact on the environment in terms of emissions
and discharges. Instead of assessing the value-added
associated with products and processes, an ecological
accounting system attempts to measure the pollution
generated by individual products, processes, etc. My
limited reading of this area suggests that there is much
more work being done in Europe using this approach.
See Schaltegger and Stinson (1993a) for a discussion
and review of the literature in this area.
Introduction 3
November 1994
-------
Pollution Prevention and
Internal Reporting
I use the term internal reporting to describe systems
providing information to managers that allow those
managers to make better decisions. As such,, there are
no "rules" concerning how costs should be computed or
reported.4 I consider three topics in this section: prod-
uct costing, planning, and performance measurement.
POLLUTION PREVENTION
AND(PRODUCT COSTING
New approaches to manufacturing have caused
accountants to reconsider some of the methods of
, ";' ,,,; ,: Ml mil , H. ; , I :,r i;, '.I /K,I : , »i ; ; r; .,11: ; ,
product costing as applied in practice. There has been
increasing concern that traditional methods of costing
have resulted in distorted product costs that have
misled managers making product mix, pricing, and
sourcing decisions. There have been several discus-
sions about the adequacy of traditional costing and the
extent to which some of the new methods are really
"new" or appropriate for certain situations. I do not
want to focus on those issues here. Instead, I want to
discuss some of the new methods in the context of
internal reporting and the environment.
By traditional product costing, I refer to the approach
of allocating total overhead to products using rela-
tively few volume-related drivers such as direct labor.
In certain cases, this approach can be shown to lead to
distorted product costs, although whether this is true
in practice is still open to question^ The basic point,
though, is that when, say, one driver is used, there is
the potential for product costs to be distorted if the
products are diverse in some other way (e.g., requiring
mbre machine change-overs, etc.).
One approach to dealing with this problem is Activity-
Based Costing (ABC) where the manufacturing
activities are identified- The costs associated with
these activities are collected al jng with a measure of
activity. Overhead rates are tht n calculated by activity
and assigned to the products (or product categories)
based on the use of the various activities. The link to
environmental issues comes when we realize that most
environmentally related activities in manufacturing are
included in overhead costs. Examples of these costs
include depreciation on treatment equipment, environ-
mental compliance staff, and tipping (landfill) fees.
As overhead, these costs are applied to all products
manufactured in the plant, although some products
may use processes that require more treatment of air
or water discharges or generate more waste sent to a
landfill. Included in the compendium .is a simple prob-
lem that illustrates the potential information about rela-
tive product costs obscured by use of a labor-related
driver when two products have different environmental
impacts. Krueze and Newell (1994) also disicuss and
illustrate the use of ABC for environmental costs.
POLLUTION PREVENTION AND PLANNING
A fundamental economic problem associated with
incorporating environmental costs into a firm's
accounting system, whether financial or managerial,
is that many of the costs are not borne by the firm.
Responsibility for disposal of products, for example, is
almost always that of the purchaser. Therefore, firms
do not generally include in their cost calculations the
environmental costs associated with disposal (Presum-
ably, purchasers included this cost in their decisions;
the question remains whether they paid the full costs
of disposal.)
Recycling requirements have been enacted in Europe
for certain products, and managers in many U.S.
industries; such as automobile manufacturing, expect
them here. Under this approach, the manufacturer is
responsible for the product after the useful life of the
product. This has increased the interest of firms poten--
tially affected by these new regulations in "life-cycle
costing" or "life-cycle analysis." Originally a technique
used primarily by the Department of Defense (to ana-
lyze weapons systems), life-cycle costing attempts to
measure costs associated with a product through the
various stages Of its life: development, raw materials
acquisition, manufacturing, transport, use, and disposal.
The major point of life-cycle costing is that there are
. many costs incurred before or after manufacturing that
do not get charged to the product using conventional
product costing systems. Advocates of life-cycle
costing argue that all costs associated v -ith the product
be included in the analysis. Thus, in addition to the
usual material and labor costs, a life-cycle analysis will
also include costs associated with future liabilities and
disposal. See the articles by Keoleian, et al. (1993), and
Krueze and Newell (1994) for more discussion.
There are two other terms that are common in litera-
ture relating costing and the environment. These are
"full cost accounting" and "total cost assessment"
(TCA). As in life-cycle costing, these methods are
Introduction 4
November 1994
-------
designed to make managers aware of all the costs, '
including intangible costs (and benefits), associated
with different products or processes. As I read some
of the literature, it appears that full cost acc6unting is
designed to assign to products their full costs and, as
such, may be more related to product costing than
planning. TCA has more of a capital budgeting notion
and, thus, is related to planning. See White (1993) for a
discussion of TCA.
There appear to be two distinct issues in this literature,
which I will state as normative propositions. First,
firms should assign all the costs, tangible and intan-
gible, borne by the firm and associated with a product
'to the product and-use this "full cost" in decisions
concerning this product, e.g., pricing decisions.
Advocates of this approach generally talk about the
hidden benefits to environmentally friendly products
and that with proper accounting and cost analysis,
firms will find costs decreasing as they produce
products with less environmental impact. It seems to
me that this stand would riot.be controversial, at least
in theory, and it is only an issue of the costof collecting
better information that would keep firms from taking
this approach. Arguments that many of these costs are
very uncertain and therefore should not be included
are based on external reporting considerations and are
less important in the decision-making Context of
planning and product costing.
A second proposition, and one where there is legiti-.
mate disagreement even in theory, is that firms should
consider all costs .associated with a product, including
those externalities where the existing structure of
property rights does not assign responsibility for
certain costs (e.g., health effects associated with poor
air quality related to emitted pollutants) to the firm.
Here, corporate strategy issues become paramount as
managers and shareholders determine the firm's'
position regarding environmental issues.
POLLUTION PREVENTION
AND PERFORMANCE MEASUREMENT
Many firms have begun to include environmental
performance measures in their control and' evaluation
systems. Examples include both 3M Corporation and
Dow Chemical Company. Like other performance
measurement systems", these attempt to provide
incentives to managers to include for environmental
impacts in their decision-making, either by making the
costs of the impacts explicit (e.g., through transfer
prices) or by including environmental impacts as part
of a general performance measurement program. Dow
Chemical and other firms use a transfer price for their
landfills; Bringer and Benforado (1994) discuss various
performance measurement programs at 3M. These
programs include both voluntary programs, where
employees submit suggestions on methods to reduce
environmental impacts, and corporate-wide programs
that consist of formal, periodic reporting of environ-
mental performance at the plant and division level.
The 3M case included in this compendium illustrates
. the use ;of a performance measure based on reducing
waste. Bringer and Benforado (1994) also list pollution
prevention programs in place at 25 other companies.
As with programs that focus on performance to
improve quality, performance measurement programs
to improve environmental performance face many
trade-offs including the issue of measuring environ-
mental performance. Steelman, et al. (undated) discuss
many of these issues in the context of environmental
performance measurement at Ciba-Geigy.
Summary
This overview of the literature has provided only a
brief sketch of the readings available relating environ-
mental issues to accounting. As noted in the introduc-
tion, there are many apparent selective biases. These
will be corrected as the literature search continues and
readers help us update the materials available
The interest and activity, in the area of environmental
accounting is-ihcreasing as environmental issues take
on an increasingly important role in our society. Many
projects are near completion and will be included in
future compendia. For example, several World
Resources Institute case studies on cost accounting and
the environment are scheduled to be released before
the end of 1994. These case studies should provide us
with new knowledge of how firms are addressing
environmental issues in their internal reporting
systems. We can also expect that as the magnitude of
environmental liabilities become larger, there will be
an increasing interest in the external'reporting area on
disclosure issues. As that occurs, we can expect to see
more academic studies using traditional capital market
techniques for assessing the role these liabilities play in
market valuation and the effect of different disclosure
policies. " , . '
Introduction 5
November 1994
65
-------
An indicator of the increased academic accounting
interest in the area is trie notice that a special issue of
the Journal of Accounting and Public Policy will be
published in 1995 with David Shields (University of
Houston) and Germain Boer (Vanderbilt University) as
Special Associate Editors. This issue should provide a
useful forum for a variety of analyses of accounting for
the environment.
Finally, the Office of Pollution Prevention and toxics
at the U.S. EPA's Pollution Prevention Division has a
program that brings together academics, practitioners,
and organizations to address many of the issues in the
area. For example, they sponsored a two-day work-
shop on Accounting and Capital Budgeting for Envi-
ronmental Costs in December 1993 that led to many
proposals for future research. Those interested in this
program should contact either Martin A. Spitzer or-
Holly Elwood at:
Office of Pollution Prevention and Toxics
Pollution Prevention Division (7409)
401 k Street, SW
Washington, DC 20460
(102) 260-4164
ENDNOTES
'Many of the articles listed in the compendium also review
all or part of the literature. See, for example, the working
papers by Stinson and Schaltegger (1993b) and Sefcik,
Soderstrom, and Stinson (August 1993).
2An issue that arises is the definition of what actually
constitutes "environmental accounting." For example, is a
study on the market effects of disclosures about environ-
mental liabilities environmental accounting or simply a
disclosure study applied to an environmental issue? In
this introduction, I take the more comprehensive view.
3For a useful summary of relevant legislation, see "A
Pollution Prevention Primer for Law Teachers," included
in the Business Law Compendium available from the
NPPC.
4This assumes, of course, that these costs are not going
to be used directly in the financial statements, e.g., as
measures of inventory value. In this case, the firm is
constrained to-use those methods considered generally
accepted. I classify these issues as external reporting
and the remarks in the previous section apply to this case.
, Introduction 6
November 1994
-------
REFERENCES
Barth, M. E. and M. F. McNichols (1993), "Estimation
and Market Valuation of Environmental Liabilities
Relating to Superfund Sites," Working Paper,
Harvard University.
Barthold, T. A. (1994), "Issues in the Design of
Environmental Excise Taxes," Journal of Economic
Perspectives, Winter 1994, pp. 133-151.
Bringer, R.P. and D. M. Benforado (1994), "Pollution
Prevention and Total Quality Environmental Manage-
ment," in Kolfuru, ed., pp. 165-188.
Canadian Institute of Chartered Accountants (CICA),
(1992), Environmental Auditing and the Hole of the
Accounting Profession. ,
Ewer S. R., J. R. Nance, and S. J. Hamlin (1992),
"Accounting for Tomorrow's Pollution Control,"
Journal of Accountancy, July 1992, pp. 69-74.
Jdhnson, L. Todd (1993), "Research on Environmen-
tal Reporting," Accounting Horizons, September
1993, pp. 118-123.
Keoliean, Gregory A., and Dan Menerey, "Sustain-
able Development by Design: Review of Life Cycle
Design and Related Approaches," Air and Waste
Journal, (1994) Vol. 44 pp. 644-668.
Kblluru, R. V., editor, (1994), Environmental Strate-
gies Handbook, McGraw-Hill.
Kruezl; J. G., and G. E. Newell (1994), "ABC and
Life-Cycle Costing for Environmental Expenditures,"
Management Accounting, February 1994, pp. 38-42.
Schaltegger, S. C. and C.H. Stinson (1993a),
"Ecological Accounting Systems," Working Paper,
University of Texas.
Sefcik, Si' E., N. S. Soderstrom, and C. H. Stinson
(1993), "Accounting Through Green-Colored
Glasses: Environmental Accounting as an Integrative
Teaching Tool," Working Paper, University of Wash-
ington. , ,
Steelman, B. L., P. Naish, and A. Mazzariello (un-
dated), "Improved Environmental Performance
Through Effective Measurements," Working Paper,
Ciba-Geigy, Ltd.
Stinson, C..H. and S. C. Schaltegger (1993b),
"Environmental Accounting," Working Paper, Univer-
, sity of Texas.
White, A. L. (1993), "Accounting for Pollution Preven-
tion," EPA Journal, July-September 1993, pp. 23-25.
Yancy, T. H. (1992), "Emerging Doctrines in the Tax
Treatment of Environmental Cleanup Costs," Taxes,
December 1992, pp. 948-971.
Original produced on Hammermill Unity DP,
a 50% post-consumer/50% pre-consumer recycled paper
made from de-inked old newspapers and magazines.
Published by:
The National Pollution Prevention Center
for Higher Education
University of Michigan, Dana Building
430 East University Ave. ' ,
Ann Arbor, Ml 48109-1115
Phone: 313-764-1412 ,
Fax: 313-936-2195 ;
E-mail: nppc@umich.edu
. The mission of the NPPC is-to promote sustainable development
by educating students, faculty, and professionals about pollution
prevention; create educational materials; provide tools and
strategies for addressing relevant environmental problems; and
establish a national network of pollution prevention educators.
In addition to developing educational materials and conducting
research, the NPPC also offers an internship program, profes-
sional education & training, and conferences. - .
Your Input Is Welcome!
We are very interested in your feedback on these materials.
Please take a moment to offer your comments and communicate
them to us. Also contact us'if you wish to receive a documents
list, order any of our materials, collaborate on or review NPPC
resources, or be listed in our Directory of Pollution Prevention
in Higher Education.
We Plan to Go Online
The NPPC is beginning to make its documents available over
the Internet in any of the following ways:
Anonymous FTP: ftp.snre.umich.edu '
.Gopher: gopher.snre.umich.edu
Worldwide Web: http://www.snre.umich.edu/
Please contact us if you have comments or suggestions
regarding online access to our materials. ,
Introduction 7
November 1994
-------
-------
Pollution Prevention
in Accounting
NATIONAL POLLUTION PREVENTION CENTER FOR HK3HEH EDUCATION
Pollution Prevention and
Accounting Resource List
The following Educational Tools and Reference Materials are
available to faculty who are incorporating vollution prevention con-
cepts and tools into their courses. We have attempted to make this list
as comprehensive as possible; please contact us if you can identify gaps
and assist us infilling them with quality educational materials. This
list includes resources available through the NPPC (A); the U.S. EPA
Pollution Prevention Information Clearinghouse (PPIC), Washington,
D.C., 202-260-1023 (*EBV ) and Center for Environmental Research
information, Cincinnati, Ohio, 513-569-7562 (t). An asterisk (^indi-
cates materials described in this compendium's annotated bibliography.
Additional resources are available through the U.S. EPA's Managerial
Accounting and Capital Budgeting for Environmental Costs Project
contact the PPIC for more information.
Educational Tools
Annotated Bibliographies
"Beech, Ron, Tricia Ferrell, and Jennifer Wulfstat.
Annotated Bibliography of Accounting-Related
Pollution Prevention Sources. National Pollution
Prevention Center for Higher Education, May 1994.
A guide to issues and literature in the field of cor-
porate environmental accounting. Divided into the
following sections: "Other Bibliographies," "Manage-
ment" (financial, managerial, national income, and
general accounting), "Auditing," and "General." Builds
on and complements a similar annotated bibliography
published in 1992 by the United Nations (see next
listing). & :
^-United Nations, Transnational Corporations and
Management Division. Environmental Accounting:
Current Issues, Abstracts, and Bibliography.
(E.92.II.A.23) New York: UN Publications, 1992. (*)
Can be-obtained for $15 from:
United Nations Publications
Room DC2-853 '
2 United Nations Plaza
New York, NY 10017
Phone: 212/963-8302 or 800/253-9646
Fax: 212/963-3489 :
E-mail: un_publications_at_unhq3@un.org
Institute of Management Accounting Library. "Institute
of Management Accounting / Certified Management
Accountant Program Bibliography." April 1993. (*)
Environmental Protection Agency. Environmental
Accounting Resource Listing. EPA 742-F94-004.
July 1994. (*)*EFA
Case studies
Buchholz, Rogene A., Alfred A. Marcus, and James
E. Post. Managing Environmental Issues: A Case-
book. Englewood Cliffs, NJ: Prentice Hall, 1992.
Cooper, Robin, Robert Kaplan, Lawrence Maisel;
Eileen Morrissey, and Ronald Oehm. Implementing
Activity-Based Cost Management: Moving from
Analysis to Action. Montvale, NJ: Institute of '
Management Accountants, 1992. $35. Based on real-
life examples and case studies of eight companies,
Dowling, Lisa, and Shepley Nelson. "Financial
Analysis for Tiz's Doors UV Curing Process." PPRC
Communications, Seattle. Study conducted by MBA
students at the University of Washington. To obtain
a copy, call 206/223-1151.
Kaplan, Robert S. "Maxwell Appliance Controls." ,
(Doc #: 9-192-058) Boston: Harvard Business
School, 24 October 1991. Addresses activity-based
costing with brief reference to environmental costs.
'National Pollution Prevention Center for Higher Education University of Michigan
Dana Building, 430 East University, Ann Arbor Ml 48109-1115
Phone: 313.764.1412 Fax: 313.936.2195 E-mail: nppc@umich.edu
May be reproduced
freely for non-commercial
educational purposes.
Resource List 1
October 1994
-------
"Noranda Minerals (A, B, and Note)." London,
Ontario: Western Ontario Business School, Case
and Publication Services, 1991. 52 pp. To obtain a
copy, call 519/661-3208.
Northeast Waste Management Officials' Association.
Pollution Prevention Program. Costing and Financial
Analysis of Pollution Prevention Projects. Boston:
NEWMOA, 1992. $40 ($20 non-profits). To obtain
a copy, call 617/367-8558. Case studies included
on four small MA companies.
Surma, J. P. Taking Corporate America's Environ-
mental Challenge." Price Waterhouse Review, no. 2
(1992): 11-23.
Wittman, M. E. "Lightolier, Inc." Manuscript prepared
for the Northeast Wasje Management Officials' Asso-
ciatipn and the Commonwealth of Massachusetts'
Office of Technology Assistance, 1991.
Problem Sets
Allen, David T., Nandkumar Bakshani, and Kirsten
Sinclair Rosselof (University of California at Los
Angeles). "Problem 17: The Effect of Future
Liability Costs on Return on Investment." In Pollution
Prevention: Homework & Design Problems for
Engineering Curricula. New York: American Institute
of Chernical Engineers, 1993. $35. To obtain a
copy, call 212/705-7407.
Allen, David T., Nandkumar Bakshani, and Kirsten
Sinclair Rosselot (UCLA). "Problem 18: Economic
Analysis of a Pollution Prevention Process Modifica-
tion.1' In Pollution Prevention: Homework & Design
Problems for Engineering Curricula. New York:
American Institute of Chemical Engineers, 1993.
$35^ To obtain a copy, call 212/705-7407.
i ' '"' ii'V'11'1)]' ' i ' ' "i "','' ''!'''nji'! :. ' i ,'''" ,r '!i''i ''i1' ''!,
Lanen, William. "Overhead Allocation for Pollution
Prevention." University of Michigan, 1993. 4 pp. A
30-minute exam question that addresses the proper
allocation of environmental costs to products. &
;,, ' ' ;':"",'a!, , ' 'i, ' :, '."Mil ' ;il!if '', II ,*!, ..'V!' i." ,- '
Tucker, Michael. "Ozone-Deputing Chemicals:
Taxes and Decisions for a Manufacturer." Fairiielcl
University, 1994.14pp. Asks the student,"playing
the role of a firm's financial analyst, to analyze op-
tions and make recommendations about what to do
with current inventory of ozone-depleting chemicals.
Includes discussion questions, teaching note, and
financial tables. &
Syllabi
Cohen, Mark A. Management 5596: Management
of Environmental Issues. Nashville: Vanderbilt
University, March 1993. A '-
Stinson, Christopher. Accounting 380K: Environ-
mental Accounting. Austin, TX: University of Texas,
Spring 1994. A
Stone, Donald E. SOM 591 A: Seminar on Environ-
mental Accounting. Amherst, MA: University of
Massachusetts, Fall 1993. &
' White, Mark A. Commerce 470: Environmental
Financial Management. Charlottesville, VA:
University of Virginia, Spring 1992. &
Reference Materials
Books/Reports <
Ahmad, Yusuf J., Salah El Serafy, and Ernst Lutz,
eds. Environmental Accounting for Sustainable
Development (A UNEP-World Bank Symposium).
Washington: World Bank, 1989.
American Petroleum Institute. Background Discussion
of Total Cost Accounting Within Petroleum Operations.
Washington: API. 4 pp. ABW :
American Institute for Pollution Prevention. A Primer.
for Financial Analysis of Pollution Prevention Projects.
Cincinnati: AIPP, 1992.
Business Roundtable. Environmental Cost
Accounting: Key Definitions and Terms. Washington:
Business Roundtable. 10 pp.
Cairricross, Frances. Costing the Earth: The Chalenge
for Governments, "the Opportunities for Business.
Boston: Harvard Business School Press, 1992.
Cokins, Gary, Alan Stratton, and Jack Helbling.
An ABC Manager's Primer: Straight Talk on
Activity-Based Costing. Montvale, NJ: Institute of
Management Accountants, 1993. $15.
Collins, Frank, ed. Implementing Activity-Based
Costing. New York: Executive Enterprises, 1991. $40.
Cooper, Robin, Robert Kaplan, Lawrence Maisel,
Eileen Morrissey, and Ronald Oehm. Implementing
Activity-Based Cost Management: Moving From
Analysis to Action. Montvale, NJ: Institute of
Management Accountants, 1992. $35.
Resource List 2
October 1994
-------
Enander, Richard ,T. Hazardous Waste Tracking and
Cost Accounting: A Practical "How-to" Guide land
Recordkeeping System for Generators. Coventry, R I:
Hazardous Waste Tracking & Cost Accounting, 1993.
Fagg, Brandon F., Joyce K. Smith, Keith A. Weitz,
and John L. Warren. Life-Cycle Cost Assessment
(LCCA): Preliminary Scoping Report, Environmental
Management Systems, Research Triangle Park; NIC,
October 1993. ,'"-,'
Financial Accounting Standards Board, Emerging
Issues Task Force. EITF Abstracts, Issue No. 90-8,
Capitalization of Costs to Treat Environmental
Contamination. Stamford, CT: FASB, 1990.
General Electric Corporation, Corporate Environ-
mental Programs. Financial Analysis, of Waste
Management Alternatives, 1987.
Gray.-Rob H. The Greening of Accountancy. London,
England; Certified Accounts Publications Ltd., 1990.
Gray, Rob H., Jan Bebbington, and Diane Walters.
Accounting for the Environment. Princeton, NJ:
Markus Wiener, 1993. 368pp. $40. . .'
Hall, R. M. Jr., and D. R. Case. "All About Environ-
mental Auditing."To obtain a copy, contact Federal
Publications, 1120 Twentieth St. N.W., Washington,
D.C. 20036 (phone: 202/337-7000 or 800/922-4330).
Hay, R. D., E. R. Gray, arid P. H. Smith. Business
and Society: Perspectives on Ethics and Social
Responsibility, Third Edition. Cincinnati: South-
western Publishing, 1989. ,
Johnson, H. Thomas, and Robert S. Kaplan.
Relevance Lost: The Rise and Fall of Management
Accounting. Boston: Harvard Business School
Press, 1987.
Keoleian, Greg, and Dan Menerey. Life Cycle Design
Guidance Manual: Environmental Requirements and
the Product System: chapters on life cycle account-
ing and life cycle assessment (EPA/600/R-92/226)
Cincinnati: U.S. EPA, Office of Research and Devel-
opment, Risk Reduction Engineering Laboratory,
January 1993: t(*) , ,
Management Institute for Environment and Business.
Accounting and the Environment. Washington: MEB,
1992. Collection of readings and text. 265pp. $75
($49 academic). To obtain a copy, call 202/833-6556.
Northeast Waste Management Officials' Association,
Pollution Prevention Program. Costing and Financial
Analysis of Pollution Prevention Projects. Boston:
NEWMOA, 1992. $40 ($20 for non-profits). To
obtain a copy, call 617/367-8558.
Owen, David, ed. Green Reporting: Accountancy
and the Challenge of the Nineties. London, England:
Chapman and Hall, 1992. .
Price Waterhouse. Environmental.Accounting:
The Issues, the Developing Solutions. Pittsburgh:
Price Waterhouse, 1991.
Schmidheiny, Stephen. Changing Course: A Global
Business Perspective on Development and the
Environment Cambridge, MA: MIT Press, 1992.
Spitzer, Martin A., Robert Pojasek, Francis L.
Robertaccio, and Judith Nelson. "Accounting and
Capital Budgeting for Pollution Prevention." Pre-
pared for the Engineering Foundation Conference,
Pollution PreventionMaking It Pay: Creating a
Sustainable Corporation1 for Improving Environmental
Quality. San Diego, 24-29 January 1993.
Tellus Institute. Alternative Approaches to the
Financial Evaluation of Industrial Pollution Prevention
Investments. Boston: Tellus, 1991. $45 for the full
report, $5 for just the executive summary. To obtain
a copy, call 617/266-5400.
Todd, flebecca. "Accounting for the Environment: ;
Zero-Loss Environmental Accounting Systems."
Presented at the National Academy of Engineering,
Industrial Ecology/Design for Engineering Workshop.
Woods Hole, MA, 13-17 July 1992.
United Nations. Transnational Corporations and
Management Division. Environmental Accounting:.
Current Issues, Abstracts, and Bibliography.
(E.92.II.A.23) New York: UN Publication, 1992.
U.S. Department of Energy, Federal Energy
Management Program. Energy Prices and Discount
Factors for Life-Cycle Cost Analysis 1993. (NISTIR
85-3273-7) Prepared by Barbara C. Lippiatt.
Washington: U.S. Department of Commerce, 1993.
. Federal Energy Management Program.
Life-Cycle Costing Manual for the Federal Energy
Management Program. (NBS Handbook 135)
Prepared by Rosalie T. Ruegg. Washington: U.S. .
Department of Commerce, 1987.
U.S. Environmental Protection Agency. A Primer for
Financial Analysis of Pollution Prevention Projects. .
(EPA/600/R-93-059) Cincinnati: Center for Environ-
mental Research Information, 1993. t
Resource List 3
October 1994
-------
',: /"
'-.-, Office of Policy, Planning, and Evaluation &
Office of Solid Waste. Pollution Prevention Benefits
Manual. Washington: U.S. EPA, 1989.
--. Office of Pollution Prevention and Toxics.
Total Cost Assessment: Accelerating Industrial
Pollution Prevention through Innovative Project
Financial Analysis. Prepared by Allen L. White,
Monica Becker, and James Goldstein (Tellus
Institute). Washington: U.S. EPA, 1992. «B*V
--. Office of Solicj Waste. "Economic Analysis
of Pollution Prevention Projects." Chap. 6 of Facility
Pollution Prevention Guide. (EPA 600/R-92/088)
Cincinnati: U.S. EPA, 1992. *
Washington State department of Ecology. Cost
Analysis for Pollution Prevention (R-HWTR-93-129).
Olympia, WA, 1993. 4 pp. To obtain a copy, call
206/407-6739.
Whfjman, I. L "Environmental Audits and Other
Industrial Strategies to Minimize Environmental Risk
in Industrial Business and Property Transactions in
the U.S." In Industrial Risk Management and Clean
Technology, edited by A. P.' MaJtezou, A. A. Metry,
and W. A. Irwin, 136-38. ORAC, 1990.
Articles
Abelson, Reed. "Messy Accounting." Forbes
148 (14 October 1991): 172+. (*)
Anderson, Robert. "Accounting with a Conscience."
CA Magazine 125 (February 19.92): 62+. (*)
Archibald, Ross T., and David W. Conklin. "Perched
on the Leading Edge." CA Magazine 126 (January
1993): 63+. (*)
Bebbington, Jan, and Rob Gray. "Where Have All
the Accountants Gone?" Accountancy 109 (March
1992): 28+. (*)'
Bewely, Kate. The Green Team." CA Magazine
126 (September 1993): 44+. (*)
Boivin, B., and L. Gpsselin. "Going For a Green
Audit." CA Magazine 124 (March 1991): 61-63.
Brandes, J. L. "Identifying and Recording Environ-
mental Plant Costs." Management Accounting 58
(April 1977): 27-31.
Brooks, Philip G., Laura J. Davidson, and Jodi H.
Palamides. "Environmental Compliance: You Better
Know." Occupational Hazards 55 (1993): 41-^46.
Callagn, Catherine. "Environmental Management,
Accounting, and Reporting." CA Magazine 125 (May
1992): 22+. (*)
'.,',' .'.,'..'''.. ...'.... i,
Carson, Patrick, and Julia Moulden. "Cleaning Up
Your Own Act: The Office." Total Quality Environ-
mental Management 2, no. 4 (June 1993): 453+. (*)
Chadlick, Bill, Robert W. Rouse, and John Surma.
"Perspectives on Environmental Accounting." The
CPA Journal G3 (January1993): 18-20+. (*)
Cohan, David, Kenneth R. Wapman, and Mary
McLearn. "Beyond Waste Minimization: Life-Cycle
Cost Management for Chemicals and Materials."
Pollution Prevention Review(Summer 1992): 259-275.
Cooper, Robin, and Robert S. Kaplan. "Measure
Costs Right: Make the Right Decision." Harvard
Business Review 66 (September-October 1988):
96-103.
'. . "How Cost Accounting Distorts Product
Costs." Management Accounting 70, no. 10 (1998):
20-27. (*)
.- . "Profit Priorities from Activity-Based
Accounting." Harvard Business Review 69
(May-June 1991): 130-35.
"Do It Our Way." Economist 323 (16 May 1992): 90.
Eckel, Len, Kathryn Fisher, and Grant Russell.
"Environmental Performance Measurement."
CMA Magazine 65, no. 8 (March 1992): 10+. (*)
Eckel, Leonard, and Kathryn Fisher. "Being
Accountable for the Environment." CMA Magazine
5B no.8 (January 1992): 10. (*)
Eining, Martha M., and Gail L Cook. "Will Cross
Functional Information Systems Work?" Manage-
ment Accounting 74 (February 1993): 53-57.
Ewer, Sid R., Jon R. Nance, and Sarah J. Hamlin.
'"Accounting"for Tomorrow's" Pollution Control."
Journal of Accountancy 173 (July 1992): 69+. (*)
Gibson, David. "Waste Minimization: Going to the
Source." Chemical Marketing Reporter 238 (10
December 1990): 10-11.
Giuntini, Ron, and Stephen D. Willits. "Helping Your
Company 'Go Green.'" Management Accounting 75
(February 1994): 43+. (*)
Goodfellow, J., and A. Willis. The Name of the
Game?" CA Magazine 124 (March 1991): 43-50.
Resource List 4
October 1994
-------
Gray, Rob. "The Accountant's Task as a Friendto
the Earth." Accountancy 105 (June -1990)?65-^68.
(Annotated in UN bibliography.)
"A Green Account." Economist 328 (4 September
1993): 69. (*)
Hahn, R. W., and R: N. Stavins. "Economic Incentives
for Environmental Protection: Integrating Theory
and Practice." American Economic Review 82, no, 2
(1992): 464-468. ;
Hedstrom, Gilbert S., and Roger W. Voeller. "Eval-
uating Your Environmental AuditMoving Beyond
Band-Aids in Developing Corrective Actions." Total
Quality Environmental Management (June 1993):
429+. (*)
Howarth, R. B., and R. B. Norgaard. "Environmental
Valuation Under Sustainable Development." Ameri-
can Economic Review 82, no. 2 (1992): 473-477.
Kaplan, Robert S. "The Four-Stage Model of Cost
Systems Design." Managerial Accounting 71, no. 8
(1990): 22-26.
;. "Management Accounting for Advanced
Technological Environments." Science 245 (1991):
819-823.
Katzman, M. T. "Pollution Liability Insurance and
Catastrophic Environmental Risk." Journal of Risk
and Insurance 55, no. 1 (1988): 75-100.
Kennedy, Mitchell L. "Sustainable Manufacturing:
Staying Competitive and Protecting the Environ-
ment." Pollution Prevention Review (March 1993):
149+. (*)
Keoleian, Gregory A., Dan Menerey, and Mary Ann
Curran. "A Life Cycle Approach to Product System
Design." Pollution Prevention Review (June 1993):
293+. (*)
Krueze, Jerry G.,and Gale E. Newell, "ABC and
Life-Cycle Costing for Environmental Expenditures."
Management Accounting 75 (February 1994): 38+. (*)
Lund, Robert T. "Life-Cycle Costing: A Business and
Societal Instrument." Management Review 67', no. 4
(1978): 17-23.
Luscombe, Nelson. "When Clean Means Green."
CA Magazine 126 (June/July 1993): 3. (*)
Mclntosh, Malcolm. "Switch the Lights off, Save the
Planet." Director 45, no. 3 (October 1991): 89+, (*)
McKee, Bradford. The Best Defense Against
Pollution." Nation's Business 79, no. 11 (November
1991): 53+. (*)
Moore, J. R. "Protection Will Increase Compliance."
Environmental Forum (January/February 1992): 39-41.
f "
Morgello, Clem. "Richard Mahoney of Monsanto:
Taking the Initiative on the Environment." Institu-
tional Investor24, no. 16 (December 1990): 41+. (*)
Mullen, Rick. "Popoff: Include the Environment to
Realize the Real Cost of Products." Chemical Week
151 (28 October 1992): 59+. (*)
Nash, Jennifer, Karen Nutt, James Maxwell, and
John Ehrenfeld. "Polaroid's Environmental Account-
ing and Reporting System: Benefits and Limitations
of a TQEM Measurement Tool." Total Quality
Environmental Management (1992): 3+. (*)
Noreen, Eric. "Conditions Under Which Activity-
Based Cost Systems Provide Relevant Costs."
Journal of Management Accounting Research 3
(1991): 159-168. (*)
Paluzzi, Joseph E., and Timothy J. Greiner. "Finding
Green in Clean: Progressive Pollution Prevention at
Hyde Tools," Total Quality Environmental Manage-~
ment (March 1993): 283+. (*)
Perils, M. L. "Comparing Taxes and Marketable
Allowances as Policy Too|s for Reducing Pollution
Emissions and Energy Consumption." National Tax
AssociationTax Institute of America Proceedings
of the Eighty-Fourth Annual Conference 1991
(1992): 201-205,
Plishrier, Emily A. "Environmental Costs: Getting
the True Measure: Developing a New Accounting
Methodology." Chemical Week 153 (7-14 July
1993): 32. (*)
. Pojasek, Robert B., and L. J. Cali. "Measuring
Pollution Prevention Progress." Pollution Prevention
Review (Spring 1991): 119-130.
Popoff, Frank P., and David T. Buzzelli. "Full-Cost
Accounting." Chemical & Engineering News 71
(11 January 1993): 8-10. (*)
Prakash, Prem, and Alfred Rappaport. "Information
Inductance and its Significance for Accounting."
Accounting, Organizations and Society 2, no. 1
(1977): 29-38,
'The Price of Everything, the Value of Nothing."
The Economist 328 (31 July 1993): 63. (*)
Resource List 5
October 1994
73
-------
Priznar, F. J. Trends in Environmental Auditing."
Environmental Law Reporter20 (1990): 10179-
10183.
Rauk, Albert C., and Barbara C. Thompson. "Applying
TQ|M Practices to Pollution Prevention at AT&T's
Columbus Works Plant." Total Quality Environmental
Management 2, no. 4 (June 1993): 373+. (*)
Ross, A. J. "Accounting for Hazardous Waste."
Journal of Accountancy159, no. 32 (1985): 72-82.
Roth, Harold P., and A. Faye Borthick.'"Are You
Distorting Costs by Violating ABC Assumptions?"
Management Accounting 73, no. 5 (November 1991):
39-42. (*) , " ;' '" ' iii" ;;";; """
Roussey, Robert. "Auditing Environmental Liabilities.'"
Wording paper, Arthur Anderson, Chicago, 1991.
Schattegger, Stefan C., and Christopher H. Stinson.
"Ecological Accounting Systems and Their Impact
on Contemporary Accounting Practices." Working
paper, University of Texas at Austin, August 1993.
Securities and Exchange Commission. "Management
Discussion and Analysis of Financial Condition and
Results of Operations: Certain Investment Company
Disclosures." Federal Register 54 (1989): 22427-
22436.
Senge, Stephen V. "Accounting for the Environment:
An Analysis of the Issues." The OhioCPA Journal
(February 1993): 33+(5)
Specht, Linda. The Auditor, SAS 54 and Envi-
ronmental Violations." Journal of Accounting 174
(December 1992): 67-72.
Spitzer, Martin A. "Calculating the Benefits of
Pollution Prevention," pollution Engineering 24
(1 September 1992): 33-38.
Stinspn, Christopher H., and Stefan C. Schaitegger.
"Environmental Accounting." Working paper. Univer-
sity of Texas at Austin^ September 1993.
Surrna, John P., and_ Albert A. Vondra. "Accounting
for Environmental Costs: A Hazardous Subject."
Journal of Accountancy 173, no. 3 (1992): 51-55. (*)
llS. Environmental Protection Agency. Office
of Pollution Prevention and Toxics. "Accounting
and Insurance Projects Applications for Pollution
Prevention in Financial Professions." Design for the
Environment Fact Sheet (EPA 744F-93-002), March
1993.4B*
Walley, Dariene, Karen Blumenfeld, Nancy Kolodny,
and Nasir Ali. "Case Study: A Product Life-Cycle
Assessment of Arm & Hammer Baking Soda." Pollu-
tion Prevention Review (December 1992): 51+. (*)
"Wealth of Nature." The Economist 322 (18 January
1992):67.(*)
White, Allen L. "Accounting for Pollution Prevention:
Total Cost Assessment Enables Companies To See
True Costs And Benefits." EPA Journal 19 (July
1993): 23+. (*)
White, Allen L., and Monica Becker (Tellus Institute).
Total Cost Assessment: Revisiting the Economics
of Pollution Prevention Investment." Presented at
the conference, Pollution Prevention in the Chemical
Process Industries, Washington, 6 April 1992.
. Total Cost Assessment: Catalyzing Cor-
porate Self-interest in Pollution Prevention." New
Solutions (Winter 1992): 34-39.
White, Allen L., Monica Becker, and Deborah E.
Savage. "Environmentally Smart Accounting: Using
Total Cost Assessment to Advance Pollution Pre-
vention." Pollution Prevention Review (Summer
1993): 247-259. (*)
White, Allen L., Monica Becker, and J. Goldstein.
"Alternative Approaches to the Financial Evaluation
of industrial Pollution Prevention Investments."
Working paper prepared for the New Jersey Depart-
ment of Environmental Protection by Tellus Institute,
Boston, 1991.
Wilkinson, John. "Life Cycle Costing." Process
Engineering 67, no. 2 (1986): 42+.
Wittman, Marlene R. "Costing and Financial Analysis
of Pollution Prevention." Environmental Finance,
(Winter 91/92): 433-452.
Tusa, W. "Developing an Environmental Audit Pro- Zuber, George R.^ and Charles G. Berry. "Assessing
gram." Risk Managements? (August 1990): 24-26+.
I1' ' ' " , :,'"'!! ' ,. "'}"!' "!'::. /] '"".I'M : i! ,''.:' . i '
U,S. Environmental protection Agency. "Environmen-
tal Auditing Policy Statement." Federal Register 51
(1986): 25004-25010.
EnvironmentarRisk." Journal of Accountancy 173,
ho. 3 (1992): 43-481
Resource List 6
October 1994
-------
Software .
Electric Power Research Institute. Accounting
Software Application for Pollution Prevention. San
.Francisco: EPRI. Runs in FoxPro. To obtain a copy,
call 415/855-2487. -'.:.-.
PRECOSIS, Peer Consultants, and George Beetle
Company. User's Guide for Pollution Prevention
, Economic Assessment (PPEA), Version 1.1. Pre-
pared for the U.S. EPA, Center for Environmental
Research Information, Cincinnati, 1990.
Tellus Institute. Total Cost Assessment (P2 Finance
Software). Boston: Tellus. To obtain a copy, call
617/266-5400.
Video/Audio
Berkihiser, Elliot. Environmental Accounting: What's
the Bottom Line? .Seattle, WA: PPRC Communica-
tions, 1993.120-minute presentation on audiotape.
$10 + shipping. To obtain a copy, call 206/223-1151.
Organizations
AACE International . ! "
(Association for Total Cost Management)
(Richard A. Selg, Chair, Eny'tal Cost Corttrol Committee)
1995 ,S. Centennial Ave., Bldg. 4, Room 407
Aiken, SC 29803
Phone: 803/644r6711
Total cost management that includes capital
budgeting and managerial accounting.
American Institute of Certified Public Accountants
(John Hudson, VP, Technical Standards & Services)
1211 Avenue of the Americas ;.
New York, NY 10036-8775 ,
Phone: 212/596-6262
Convenes an environmental issues roundtable.
Global Environmental Management Initiative (GEMI)
2000 L Street N.W. "
Washington, DC 20036
Phone: 202/296-7449
Has developed an "env-accounting model" for ,
industry and prepared a broad overview of industry
needs concerning environmental accounting.
Institute of Management Accountants
(Louis Bisgay, Dir., Management Accounting Practices)
10 Paragon Drive
Montvale, NJ 07645-1760
Phone: 201/573-6215
The Management Accounting Practices Committee
has a subcommittee to deal with environmental
matters. This group cosponsored EPA's 1993
Accounting and Capital Budgeting. Workshop. The
IMA library has an extensive list of bibliographies
on areas such as activity-based costing, capital
budgeting, and environmental accounting. The
library can be reached at 201/573-6235.
Management Institute for Environment and Business
.(Matthew Arnold, President)
1220 16th St. N.W.
Washington, DC 20036
Phone: 202/833-6556
An independent, non-profit organization which
promotes environmentally conscious and competent
general management through integration of environ-
mental issues into management research, education
and practice. Its environmental education initiatives
include publication of course development modules.
Northeast Waste Management Officials' Association
(Terri Goldberg, P2 Program Manager)
85 Merrimac St.
Boston, MA 02114
Phone: 617/367-8558 .
In conjunction with the MA Office of Technical
Assistance (OTA), have developed a workshop on
costing and financial analysis of pollution preven-
tion projects. Course materials include case studies
which present local companies' financial assessment
of pollution prevention projects, and a primer on the
subject, "Total Cost Assessment: An Overview of
Concepts and Methods." :
Tellus Institute
11 Arlington St. , .
Boston, MA 02116-3411
Phone: 617/266-5400 '
Wrote the Total Cost Assessment, manual for the
EPA (by Allen White, Monica Becker, and James
' Goldstein). Has prepared accounting software and
case studies as well.
Resource List 7
October 1994
"7.5".
-------
U.S. Environmental protection Agency
Office of Pollution Prevention and Toxics
(Holly Elwood, Pollution Prevention Division)
401 M St. S.W.
Washington, DC 20460
Phone: 202/260-0575
Its Capitol Budgeting and Environmental Accounting
Project will promote ''full cost pricing'7 of products
and processes. Convened a workshop on Account-
ing and Capital Budgeting for Environmental Costs
in December 1993. Building a network of various
contingencies around the country in this area.
World Resources Institute
(Dr. Robert Repetto, Vice President)
1709 New York Avenue N.W.
Washington, DC 20006.
Phone: 202/638-6300
Launched project, Corporate Accounting for Envi- .
ronnjental Costs and Jfisks, aimed at improving the
environmental aspects of corporate cost accounting
systems. The result of this work will be a series of
case studies.
Directories
;.: '. :(!:* :'.' '. .- . i',. 't '. ':. i " \/ ,
U.S. Environmental Protection Agency, Office of
Ppllu|(on Prevention and Toxics. Directory of EPA's
Environmental Network for Managerial Accounting and
Capjtal Budgeting. (EPA 74208-94-004) May 1994.
Managerial accounting, which includes capital
budgeting, is the process of collecting, preparing
and analyzing information principally for internal
decision-making: directing management attention,
informing decisions, evaluating performance, and
determining compensation. EPA has developed
this directory to facilitate improved accounting and
capital budgeting practices. The Agency believes
that improved accounting practices will lead busi-
nesses to see more clearly the benefits of pollution
prevention. This directory lists individuals who are
involved in promoting managerial accounting and
capital budgeting tools for environmental costs. It
is organized by the following categories: academic
curriculum development, research, and technical
assistance; consultants; environmentalists; govern-
ment; industry; lending institutions; non-profit
curriculum, research, and technical assistance;
publishing; and trade associations.
Contributors to Education in Accounting
and Pollution Prevention
David Allen
UCLA Department of Chemical Engineering
5531 Spelter Hafl
Los Angeles, CA 90024-1592
310/206-0300
Teaches total cost accounting methods to engineering
students and in pollution prevention short courses
for professionals
Marc J. Epstein
Harvard University Business School
Graduate School of Business Administration
Soldiers Field
Boston, MA 02163
617/496-6359
Active in including social and environmental mea-
surements in management decisions. Includes cost
accounting and capital budgeting decisions, perfor-
mance evaluation decisions, and external reporting
decisions. His current project, with the Institute
of Management Accountants, is on identification,
measurement, reporting monitoring, and manage-
ment of environmental impacts.
Ralph Estes
American University
1735 S Street N.W.
Washington, DC 20009
202/265-6442
Is developing and refining accounting models to
incorporate environmental costs and other exter-
nalities forvuse by business management and for
external reporting.
Jonathan Karpoff
Business Administration
University of Washington (DJ-10)
Seattle, WA 98195
206/685-4954
Focusing on creating incentives for application of
functional areas (accounting, finance, and market-
ing) to pollution prevention decisions. Courses
emphasize knowledge of pollution prevention and
the need for incentives, which are vital to drive
change in business.
Resource List*8
October 1994
-------
William Lanen
Accounting Department
3209 Business Administration - ^
University of Michigan
Ann Arbor, Ml 48109-1234 -
313/763-5289
Has included environmental issues in his graduate
managerial accounting courses and developed an
exam/homework problem on the proper allocation
of environmental costs (activity-based costing).
Actively seeking to write case studies in this area.
BobPojasek :
Tu.fts University
Dept: of Civil/Environmental Engineering'
GEI, Corporate VP of Environmental Programs
1021 Main Street .
Winchester, MA 01890 .
617/721-4000 . '
His popular graduate course, Pollution Prevention,
now in its third year, will probably be offered both
semesters in trie '93-'94 school year. It examines how
a manufacturer can go about manufacturing a prod-
uct more efficiently based on a thorough process
analysis and material balance. Accounting issues
are incorporated in the course. He is past president
of the American Institute of Pollution Prevention.
David Shields
Department of Accountancy & Taxation
University of Houston ,
Houston TX 77204-6283
713/743-4831
David@ced1.cba.uh.edu
Involved in projects dealing with environmental
cost accounting in the electronics, oil and chemical
industries. Issues addressed include decision rele-
vance and incentive effects of environmental cost
accounting, total cost analysis, life cycle analysis, and
cross-border (US-Mexico) issues. Co-author of two.
cases to appear in upcoming World Resources Insti-
tute monograph on envirorurental cost accounting.
Linda Specht
Department of Business Administration ,
Trinity University
715 Stadium Drive
San Antonio, TX 78212
210/736-7348 .
Involved with issues related to auditing and environ-
mental liability disclosure. Professional education
ofCPAs. ' '{ ,
Christopher Stinson
Accounting Department (campus mail code B6400)
College of Business Administration, 4M.202
University of Texas - Austin
Austin, TX 78712-1172
512/471 -5215 or cstinson@utyvm.cc.utexas.edu
Teaches "Environmental Accounting"; directs the
MBA concentration in Natural Reosurces and Envi-
ronmental Management at the Graduate School of
Business. Research includes costs of environmental
compliance, disclosure of corporate environmental
performance, and environmental taxes. Author of
many articles on issues relating to accounting and
'- the environment.
DonaldE.Stone
School of Management
University of Massachusetts at Amherst
Amherst, MA 01003
413/545-5645
Researches/writes, develops course teaching
materials, and teaches in the area of environmental
^accounting. Willing to assist others in the develop-
ment of case materials on environmental manage-
ment accounting and capital budgeting applications.
Rebecca Todd -
Accounting Department
Stern Business School
New York University
40 West 4th St., Rm 424 >
New York, NY 10012
- 212/998-0100
Main research interests are the information content
- of accounting data and financial accounting disclo-
sures, and market valuation issues. Is participating
in "caje studies with the Worlcl Resources Institute
and a large manufacturer on the utility of activity-
and product-based environmental costing.
Resource List 9
October 1994
77
-------
Allen White
Risk Analysis Group
Tellus Institute
11 Arlington St.
Boston, MA 02116-3411
617/266-5400
Oversees pollution prevention economics program
supported by EPA, state governments, and various
private corporations. Studies how a firm's capital
budgeting process and project financial investment
practices may be altered to encourage pollution
prevention versus end-of-pipe investments. Works
witfi American Society of Testing and Materials in
developing a national standard for total cost assess-
ment. Also involved in developing corporate-wide
indicators of environmental performance. Methods,
tools, and case studies developed will be available
for educational purposes.
Original produced on Hammermill Unity DP,
a-50% post-consumer/50% pre-consumer recycled paper
made from de-inked old newspapers and magazines.
Published by:
The National Pollution Prevention Center
for Higher Edupation
University of Michigan, Dana Building
430 6ast University Ave.
Ann Arbor, Ml 48109-1115
Phone: 313-764-1412
Fax:313-936-2195
E-mail: nppc©umich.edu
The mission of the NPPC Is to promote sustainable development
by educating students, faculty, and professionals about pollution
prevention; create educational materials; provide tools and
strategies for addressing relevant environmental problems; and
establish a national network of pollution prevention educators.
In addition to developing educational materials, the NPPC also
offers an internship program, professional education & training,
and conferences.
Your Input is Welcome!
We are very interested in your feedback on these materials.
Please take a moment to offer your comments and communicate
them to us. Also contact us if you wish to receive a documents
list, order any of our materials, collaborate on or review NPPC
resources, or be listed in our Directory of Pollution Prevention
in Higher Education.
We Plan to Go Online
The NPPC is beginning to make its documents available over
the Internet in any of the following ways:
Anonymous FTP: ftp.snre.umich.edu
Gopiier: gopher.snre.umich.edu '
Worldwide Web: http://www.snre.umich.edu/
Please contact us if you have comments or suggestions
regarding online access to our materials.
Resource List* 10
October 1994
-------
Pollution Prevention
in Accounting
NATIONAL POLLUTION PREVENTION CENTER FOB HIQHER EDUCATION
Annotated Bibliography of Accounting-
Related Pollution Prevention Sources
Prepared by Jennifer Wulfstat, Ron Beech, and Tricia Ferrell
'undir the direction of William Lanen, Associate Professor of Accounting,
University of Michigan
This annotated bibliography is a guide to issues and literature in
the field of corporate environmental accounting. It is divided into
the following sections: Other Bibliographies, Management
(financial, managerial, national income, and general accounting),
Auditing, and General. This document builds on and comple-
ments a similar annotated bibliography published in 1992 by the
United Nations (see first listing below). Information on obtaining
many of the following materials appears in this compendium's
Resource List. . ,,
Other Bibliographies
United Nations. Environmental Accounting: Current
Issues, Abstracts, and Bibliographies. No.:E.92,IIA23.
A guide to the issues and literature in the field of cor-
porate environmental accounting; focuses largely on
Financial Reporting and National Accounting.
Institute of Management Accounting Library. "Institute
of Management Accounting / Certified Management
Accountant Program Bibliography." April 1993.
This is a listing of environmental accounting articles
organized alphabetically by author and focused on the
field of corporate environmental accounting. Annota-
tions of each article are not included in the listing, but
some of the articles overlap with articles in the UN
bibliography and the NPPC's bibliography^ which
are annotated. ' , . "
Environmental Protection Agency."Environmental
Accounting Resource Listing." EPA 742-F94-004.
July 1994.
Presents selected information sources within the
following categories: (1) activity-based costing;
(2) bibliographies, curricula, and definition of terms;
(3) corporate environmental accounting; (4) federal
government, military and logistics applications;
(5) financial and economic analysis of pollution pre-
vention projects; (6) national environmental accounting;
(7) pollution prevention; and (8) quality costs. The list
includes ordering information and cost (if applicable);
Most of these sources are non-EPA sources. To obtain
a listing of all documents on this topic written by the
EPA Management Accounting and Capital Budgeting
for Environmental Costs Project, contact the EPA's
Pollution Prevention Information Clearinghouse (see
this compendium's Resource List).
Management
Financial Accounting
Abelson, Reed. "Messy Accounting." Forbes 148
(14 October 1991): 172+.
A company must .disclose a liability when there exists
a "reasonable possibility" that a liability is incurred.
Then the company must "reasonably estimate" the
liability. These vague guidelines leave much room for
interpretation. Companies may therefore underestimate
their liabilities to protect their stocks. Stricter standard-
setting is needed in order to protect our environment.
The article describes many examples of corporate dis-
closure. (Also cited in the UN bibliography.)
National Pollution Prevention Center for Higher Education University of Michigan
Dana Building, 430 East University, Ann Arbor Ml 48109-1115
Phone: 313.764.1412 Fax: 313.936.2195 E-mail: nppc@umich.edu
May be reproduced
freely for non-commercial
educational purposes.
Annotated Bibliography 1
October 1994
-------
Senge, Stephen V. "Accounting for the Environment:
An Analysis of the Issues." The Ohio CPA Journal
(February 1993): 33+.
The article examines some of the issues and challenges
of accounting for the environment. For environmental
accounting to be effective, business and environmental
interests must cooperate. Current accounting methods
do not take environmental considerations into account.
Future accounting regulations will need to include
more comprehensive estimations and projections for
future activities. Social benefits and costs must be
taken into account. Changing traditional accounting
concepts presents three major challenges: reexamining
the target audience, expanding the amount of informa-
tion reported, and accounting for new activities. After
considering these challenges, accountants must re-
examine the fundamental GAAP principles. The article
presents some different proposals for reform, including
revisions for accounting and expanding the current
framework to incorporate these new concerns. Better
estimates of full-cost accounting and resource allocation
can lead to better decision-making.
Surma, John P., and Albert A. Vondra. "Accounting
for Environmental Costs: A Hazardous Subject."
Journal of Accountancy 173, no. 3 (March 1992): 51+.
This article examines how past, present, and future
environmental activities affect corporate accounting
practices. Based on a survey of U.S. corporations, only
11% had accounting policies directly addressing envi-
ronmental issues. Further, fewer than a third of these
companies had disclosed their policies in their financial
statements. Even though the FASB recognizes few
environmental issues, some statements, such as
"Accounting for Contingencies," have much potential
for environmental standards. Recording liabilities due
to hazardous waste costs vary among the companies.
Timing of recording was different due to difficult estima-
tions of costs. Also, estimation of fhe magnitude of cost
varied among the respondents. Further, companies
used different approaches to accounting for post-
remediation monitoring costs. The different methods
are described within the article. Most of the companies
surveyed included environmental costs in measuring
their net gain or loss on disposal of a site. Specific defi-
nitions are not available for environmental costs, and,
therefore, companies' accounting methods differ. The
article outlines a broad guideline for" companies to fol-
low when evaluating environmental costs. (Also cited
in the UN bibliography.)
Managerial Accounting
Carson, Patrick, and Julia Moulden. "Cleaning Up
Your Own Act: The Office." Total Quality Environ-
mental Management 2, no. 4 (June 1993): 453+.
Includes recommendations for reducing, reusing, recy-
cling, saving energy, improving the indoor environment
and adopting greener purchasing policies. Greening
your office can boost staff morale and save money.
Specific examples of savings are described.
Cooper, Robin, and Robert S. Kaplan. "How Cost
Accounting Distorts Product Costs." Management
Accounting 70, no. 10 (April 1988): 20+.
The authors researched 20 firms in order to study how
product costs get distorted. Considering mat product
costs are almost all variable cost, variation is possible.
Variability may occur due to the number of units pro-
duced or due to the cost driver used to calculated
costs. Diversity and complexity on the product line
may also distort the product cost. In order to create a
more sustainable competitive advantage for a firm,
firms must employ a more comprehensive product
costing system, including long-term variable costs of
manufacturing and marketing.
Eckel, Len, Kathryn Fisher, and Grant Russell.
"Environmental Performance Measurement."
CMA Magazine 65, no. 10 (March 1992): 10+.
Describes a framework for a System for Environmental
Performance Measurement (SEPM). A SF.PM is inte-
grated in existing accounting and reporting systems.
Assists with defining corporate policies arid objectives
for environmental issues. Examines how to achieve
an effective system. To identify environmental issues,
an audit of a firm's operations and consultation with
its stakeholders is suggested. Describes performance
measures reflecting cause-and-effect relationships using
input and output indicators. Individualized systems
are.needed to address specific environmental issues.
Eckel, Leonard, and Kathryn Fisher. "Being Account-
able for the Environment." CMA Magazine 65,No.8
(January 1992): 10.
Management accountants have a responsibility to
assist their firms with recognizing and dealing with
their impact on the environment. These responsibilities
include contributing to the development of their firm's
policies on environmental issues, promoting and sup-
porting these policies within the firm, and helping
Annotated Bibliography 2
October 1994
-------
monitor compliance with these regulations and other
environmental regulations. They must design a system
to assess financial risk resulting from environmental
matters. Other obligations .are described in .detail in the
article. It is suggested that firms report fully to stake-'
holders on all environmental efforts. Effective financial
reporting expands our traditional reporting methods.
Fagg, Brandon F., Joyce K. Smith, Keith A. Weitz,
and John L. Warren. Life-Cycle Cost Assessment
(LCCA): Preliminary Scoping Report. Environmental
Management Systems, Research Triangle Park, NC,
October 1993. '
Authors' introduction: "The purpose of this report is
to provide background on the state-of-the-art LCA and
cost assessment techniques with the objective of building
a user-based life-cycle cost assessment (LCCA) model.
The foundation for the LCCA model will be the existing
LCA framework, as developed by the U.S. EPA and the
Society of Environmental Toxicology and Chemistry
(SETAC). Working definitions for the key LCCA terms
are provided, and existing cost assessment techniques
are documented and evaluated for their applicability t6
LCCA. Terms, concepts and cost assessment techniques
... provide the basis for an LCCA workshop held in
November 1993."
Keoleian, Gregory A., and Dan Menerey. Life Cycle
Design Guidance Manual: Environmental Require-
ments and the Product System. (EPA/600/R-92/
226). Cincinnati: U.S. EPA, Office of Research and
Development, Risk Reduction Engineering Labora-
tory, January 1993.
Provides a framework for incorporating environmental
requirements into product system design; includes
chapters on life cycle assessment (LCA) and accounting.
Emphasizes that all four components of product systems
(product process, distribution, management/information)
should be integrated in design'and suggests that, when-
ever possible, design activities should encompass all
life cycle stages from raw material? acquisition through
processing, manufacturing, use/service, resource recov-
ery, and disposal of all residuals. Matrices are provided
for developing and evaluating life cycle environmental
requirements, then coordinating these with performance,
cost, legal, and cultural requirements. Strategies for
reducing product systems' environmental impacts are
listed and discussed. Introduces LCA (both inventory
and impact analysis) as a possible evaluation tool in
design while also suggesting alternative or more
streamlined methods. Appendices cover: summary of
major environmental laws, overview of environmental
impactl'and primer on decision-making models.
Keoleian, Gregory A., Dan Menerey, and Mary Ann
Curfan. "A Life Cycle Approach to Product System
Design." Pollution Prevention Review (June 1993):
2934-. . " "
(Summarizes Life Cycle Design Guidance. Manual:
Environmental Requirements and the Product System,
by Keoleian and Menerey.) .
It is important to distinguish between "Life Cycle
Assessment" (LCA) and "Life Cycle Costing." LCA is ,
a comprehensive tool to identify and evaluate the full
environmental consequences of a product system. It
is based on an inventory of material and energy inputs ;
and outputs in units of kilograms and joules. EPA and
the Society of Environmental Toxicology and Chemistry
(SETAC) have developed methodologies for conducting
an LCA.
Life cycle costing has two distinct definitions: envi-
ronmental and military/engineering. In the environ-
mental field, this has come to mean all costs associated
with a product system throughout its life cycle, from
materials acquisition to disposal. It can be analyzed
from the'perspective of at least four groups of stake-
holders: (1) suppliers, (2) manufacturers, (3) consum-
ers, and (4) society.
Traditionally, life cycle costing applied to military
and engineering means "estimating costs from acqui-
sition of a system to disposal." This does not usually
incorporate costs further upstream than purchase. ' ,
Kreuze, Jerry G., and Gale E. Newell. "ABC and
Life-Cycle Costing for Environmental Expenditures."
Management Accounting 75 (February 1994): 38+.
Activity-based costing (ABC) and life-cycle costing al- -
locate environmental expenditures to specific products.
These methods can lead to the elimination of product
costs that do not add any value to that product. Life-
cycle costs not only include production costs, but future
costs of the product as well. The article describes four
levels of environmental costs that are important in cal-
culating the full cost of a product: (1) usual capital and*
operating costs, (2) hidden regulatory costs, (3) contin-
gent liability cost, and (4) less tangible costs. All of
these costs must be considered when calculating the
product cost. The article outlines an example to show
how traditional methods produce incomplete product
costs. Life-cycle costing assists ABC in extending costs
Into the future. The combination of the two methods
will result in a more accurate product cost than tradi-
' tional methods.
Annotated Bibliography 3
October 1994
-------
Mcintosh, Malcolm. "%witch the Lights Off, Save the
Planet." Director45, ho. 3 (October 1991): 89+.
This article gives three examples of how more efficient
management objectives including environmental con-
cerns will show increased bottom line results. Peter Lane
Transport, a nationwide logistics company, employed
more efficient and environmentally responsible trans-
portation in order to save profits and gain positive rec-
ognition, Dawes Environmental Coatings, a chemical
company, created a non-toxic and therefore safer paint
which was better for the environment and the business.
These profit savings were triggered by environmental
concerns. Bptley Park Hotel also gained a competitive
edge by promoting environmental responsibility
among its employees.
McKee, Bradford. "The Best Defense Against
Pollution.* Nation's Business 79, ho. if (November
1991):53+, "* ' ' ' ^ ' '_" _' \ """.'..,'."..
Examines environmental compliance costs of small
firms. Shows how environmental management can not
only pay for itself, but can also reap some unexpected
benefits. Preventing pollution by rethinking production
is a solution to our permanent environmental manage-
ment problem. Specific examples provided.
. l|l;:; . . :j(! .' : , , . , r'.,.,j;.y .1 .;;;:,, >,; ;l;,.;ll.;., :
Morgello, Clem. "Richard Mahoney of Monsanto:
Taking the Initiative on the Environment." Institu-
tional Investor 24, no. 16 (December 1990): 41+.
Richard Mahoney, chairman and CEO of Monsanto,
discusses his environmental goals, including reducing
or eliminating pollution and waste, creating a safer
environment and protecting and cleaning up its plant
sites, As of 1990, Monsanto spent in excess of $285
million on environmental matters, mostly used for com-
pliance with governmental regulations. He does not
view this as a competitive disadvantage nationally or
internationally. He believes that being environmen-
tally friendly will give him the competitive edge
needed to be profitable and to be superior.
Mufleni Rick. "Popoff: Include the Environment to
Realize the Real Cost of Products." Chemical Week
151,(28 October 199J2):'59+'.'' '. ]''.' *"!", '. '""""''"''"'.'"
Frank Popoff, CEO and chairman of Dow Chemical,
recognizes that natural resources should be viewed as
assets and, therefore, full-cost pricing sHould-be used.
Life-cycle costing is a first step up to full-cost accounting.
He believes that full cost pricing, rather than over-
regulation and over-legislation, will be most effective
in changing companies' polluting behavior.
Nash, Jennifer, karen Nutt, James Maxwell, and
John Ehrenfeld. "Polaroid's Environmental Account-
ing and Reporting System: Benefits and Limitations .
of a TQEM Measurement Tool." Total Quality
Environmental Management (1992): 3+.
Polaroid has developed a goal to reduce its chemical
use and waste by 10 percent per unit per year during
the period 1988-1993. Polaroid has developed an Envi-
ronmental Accounting and Reporting System (EARS)
in order to measure its progress. EARS encourages
environmental improvement through accurate feedback
and employee rewards. By 1991, Polaroid had exceeded
its goal, reporting a reduction of approximately 20
percent. EARS is a Total Quality Environmental
Management (TQEM) tool. It provides incentives for
improving environmental performance and restructures
traditional thinking Polaroid did, however, have its
fair share of problems during implementation: internal
resistance, data collection and interpretation. In light
of these problems, Polaroid's new system seems to be a
success both environmentally and financially. Polaroid's
TQEM program should be used as an example for
other firms that are developing and implementing
similar programs.
rvloreen, Eric. "Conditions Under Which Activity-
Based Cost Systems Provide Relevant Costs."
Journal of Management Accounting Research 3
(September 1991): 159-168.
Author's abstract: "Activity-Based Cost systems assign
costs on the basis of multiple 'cost-drivers/ which may
,or may not be proportional to the volume of output.
This is in contrast to most traditional cost systems
which use only one allocation basis (usually direct
labor or machine hours) that is proportional to volume.
Commonly cited reasons for switching to Activity-Base
Cost systems are to more accurately estimate product
profitability for purposes of making product pricing
and drop decisions and to reduce the cost of manufac-
turing products during the design stage by providing
more accurate cost information concerning alternative
design specifications. In this paper, the conditions un-
der which Activity-Based Cost systems would provide
relevant information for just such decisions are derived.
These conditions are quite stringent and hold, among
other things, that all costs must be strictly proportional
to their 'cost drivers.'"
Annotated Bibliography 4
October 1994
-------
5T-.
Paluzzi, Joseph E., and Timothy J. Greiner. "Finding
Green in Clean: Progressive Pollution Prevention at
Hyde Tools." Total Quality Environmental Manage-
ment (March 1993): 283+.
.Hyde's environmental success resulted from its response
to a lawsuit brought by an environmental group for
not complying with the Clean Water Act. By employing
a Total Quality Management system, Hyde has reached
its goals to eliminate wastewater discharge and has also
profited significantly. TQM principles also contributed
to Hyde's Total Employee Involvement Program (TEI).
This TEI program helped improve the plant's quality,
safety, and productivity. The article highlights other
specific pollution prevention projects with significant ,
financial savings. Hyde Tools is a good example of
how -team effort and pollution prevention can pay back.
Plishner, Emily S. "Environmental Costs: Getting the
True Measure." Chemical Week 153 (7 July 1993): 32.
Nasir Ali, a consultant with Arthur Little's Center for
Environmental Assurance, believes that environmental
costs should be added to the specific products. These
costs include pollution control, waste disposal, regula-
tory compliance, wasted raw materials, future clean-ups,
and public/customer relations costs. Jerry Martin of
Dow Chemical brings up another issue: whether these
costs should be valued at their current cost or their re-
placement cost. The Society for the Promotion of Life
Cycle Assessment Development (SPOLD, located in
Brussels) has put out a source book to assist managers
with the' life cycle analysis. The SEC has issued "an
interpretive edict requiring companies to make more
of an effort" to allocate environmental costs where they
earn returns. Dow Chemical and Amoco are model
companies to show ways to earn a return on environ-
mental spending. .
Pop'off, Frank P., and David T. BuzzellL "Full-Cost
Accounting." Chemical & Engineering News 71
(11 January 1993): 8-10.
Explains the concept of full-cost accounting and how it
can be more effective than existing programs and regu-.
lations. Argues that if prices reflected the true costs of
resources and their environmental impact, then consum-
ers would select based upon impact on environment.
Proposes that full-cost accounting would make pollution
prevention more attractive and sustainable development
more likely. However, it reaches the conclusion that
the approach would take time to develop and requires-
consensus among industry, government, academia and
the environmental community.
Rauk, Albert C., and Barbara C. Thompson. "Applying
TQEM Practices to Pollution Prevention at AT&T's
Columbus Works Plant." Total Quality Environmen-
tal Management 2, no. 4 (June 1993): 373+.
Total Quality Environmental Management practices are
being applied to AT&T's Columbus Works to reduce
overall waste produced. Specific projects and sayings
are examined. TQM is a process of continuous improve-
ment, moving away from the end-of-pipe approaches.
Roth! Harold P., and A. Faye Borthick. "Are You Dis-
torting Costs By Violating ABC Assumptions?" Man-
agement Accounting 73, no. 5 (November 1991): 39+.
Accurate activity-based costing requires two things:
homogeneous cost drivers and proportional costs to
the specific activity. The article illustrates examples of
improper cost allocations to products due to not satis-
fying these assumptions. Also, the article describes
how to use computer statistic programs, such as Lotus
1-2-3, in order to evaluate the assumptions.
Walley, Darlene, Karen Blumenfeld, Nancy Kolodny,
and Nasir Ali. "Case Study: A Product Life-Cycle
Assessment of Arm & Hammer Baking Soda."
Pollution Prevention Review (December 1992): 51+.
Church & Dwight Company, Inc. used a life-cycle
analysis in order to evaluate the environmental effects
and possible improvements of their product The article
goes through the steps of the Arm & Hammer baking
soda life-cycle. The life-cycle inventory for the baking
soda consisted of the resources consumed and the pol-
lutants produced throughout each stage of the product.
These stages included: raw material acquisition and
material manufacture, product manufacture, packaging,
use and reuse, transportation, and waste management.
The results of the.analysis were broken into five cate- ,
gories: household uses, waste water, air pollution,
solid waste, and product use. As a result of this study,
Arm & Hammer baking soda is seen as environmen-
tally benign. This case should "be used as an example
to follow for other life-cycle assessments.
National Income Accounting
The Price of Everything, the Value of Nothing."
The Economist 328 (31 July 1993): §3.
Currently the national account ignores three major
" environmental issues; (1) clean air and extensive forests
should be considered part of our country's wealth,
(2) natural resources should be depreciated, and
Annotated Bibliography 5
October 1994
-------
(3) environmental loss, as well as remediation cost,
should be recognized^ However, because natural re-
soUrces do not fit the mold of our traditionarmarket-
based valuation, a uniform valuation method is difficult.
The article describes a UN handbook to assist countries
with this valuation. Environmentalists believe if natural
resouces can be valued at some economic cost, people's
behaviors would change.
"Wealth of Nature." The Economist 322 (18 January
1992): 67.
We are finally realizing that nature is not limitless
and technology cannot fix all environmental damages.
Therefore, the next step is to include value of natural
resources in the national-income accounts. Pollution
prevention spending increases GDP; however, the cost
of pollution is not considered a reduction. Robert
Repetto of the World Resources Institute believes that
natural resources depreciation should be included in
the net national product. Assigning value to the envi-
ronment, however, poses many problems worldwide.
General Accounting
*, ' " '!, » ' i , ' !,
American Institute for Pollution Prevention. A Primer
for Financial Ananlysis of Pollution Prevention
Projects. Cincinnati: AIPP, 1992.
Provides a framework for financial analysis of pollu-
tion prevention projects. Includes a case study of two
pollution prevention projects with step by step calcu-
lations. Results are evaluated and the meaning of the
results is discussed. Hidden costs, future liabilities and
intangible costs are highlighted in the analysis since
they are sometimes overlooked in financial analysis.
Four appendices cover: 1) the impact of discount rates
on projects, 2) methods used for financial comparisons,
3) the effects of income tax on analysis, 4) uncertainty
of future events in analysis.
Callagn, Catherine. "Environmental Management,
Accounting, and Reporting." CA Magazine 125
(May 1992): 22+.
Currently, environmental reporting does not have offi-
cial guidelines, established procedures, or time-tested
positions. The Environmental Management, Accounting
and Reporting interest group was created for CAs in-
terested in legal and moral issues associated with
creating and maintaining a sustainable environment.
The objective is to establish environmental manage-
ment, accounting and reporting as an area of practice.
Ewer, Sid R., Jon R. Nance, and Sarah J. Hamlin.
"Accounting for Tomorrow's Pollution Control."
Journal of Accountancy 173 (July 1992): 69+.
The Clean Air Act (CAA) of .1990 is the first step of
stricter environmental laws that will affect many indus-
tries. Accountants, therefore, should become familiar
with its provisions for similar issues that will be having
a direct impact on accountants in the future.. The CAA
has created a trading market for pollution, resulting in
unfamiliar territory for accountants regarding valuing
emission rights. This issue has sparked much confusion
in the accounting field. "Allowances" to pollute received
by a company should be recognized by accountants as
assets. However, accountants have a problem assign-
ing value to these assets because there is no market for
them, yet. Also, it is undecided if these "allowances"
should be valued at current or historical cost whether
to categorize allowances as inventory, security, or
intangible assets is still being debated. Problems asso-
ciated with accounting for "allowances" are outlined in
the article. The authors suggested using current costing
for internal planning and control and decision-making.
Giuntini, Ron, and Stephen D. Willits. "Helping Your
Company'Go Green."* Management Accounting 75
(February 1994): 43+.
Environmental Management Systems (EMSs) can help
companies avoid future environmental problems. An
EMS stresses prevention rather than clean-up. Environ-
mental audits integrated into existing management
systems can be effective in reducing environmental
problems. An EMS can add value to a corporation.
Using the Resource Conservation and Recovery Act
(RCRA) as an application example, the article empha-
sizes the need for an EMS due to potential environmen-
tal liability, unrealized cost savings, reduced insurance
rates and lost marketing advantages. A study of allo-
cating pollution cost to specific processes rather than
simply treating pollution as general overhead saves
three times more in source reduction of hazardous
material. Recommendations for firms are included.
Kennedy, Mitchell L. "Sustainable Manufacturing:
Staying Competitive and Protecting the Environment."
Pollution Prevention Re view (March 1993): 149+.
Environmental regulations have hurt individual com-
panies and in turn the competitiveness in the market
by increasing the costs of doing business. Sustainable
Manufacturing (SM), a new comprehensive business
strategy, will hopefully restore the competitiveness
and creativity of U.S. companies while complying with
Annotated Bibliography 6
October 1994'
-------
our new environmental standards. SM incorporates
environmental issues into every step of production.
Strategies such as Life Cycle Analysis (LCA^'Deslgn
for the Environment (DfE) and.Toxic Use Reduction
(TUR) are all included in SM. Employing SM into pro-
duction can lead to "improvements in product quality/
worker productivity and safety, savings in raw material
costs, reduced regulatory liabilities, increased energy
efficiency, and public relations appeal as well as a more
complete financial picture of all the costs involved/'
The article examines several phases of production
where a SM strategy could be developed. These phases
include: design and materials selection, production,
market use, and after-market disposal. The article
briefly outlines some examples of actual SM strategies in
place. Government is also moving closer to promoting
sustainable alternatives. Permit reforms, financial incen-
tives, more efficient regulations and new construction ,
practices are just a few -options already being discussed.
White, Allen L. "Accounting for Pollution Prevention:
Total Cost Assessment Enables Companies To
See True Costs And Benefits." EPA Journal 19
(July 1993): 23+. .
(Contains the same information as the next article.)
White, Allen L., Monica Becker, and Deborah E.
Savage. "Environmentally Smart Accounting: Using
Total Cost Assessment to Advance Pollution Preven-
tion." Pollution Prevention Review (Summer 1993):
247-259:
Conventional capital bugeting/fails to capture the full
range of benefits from pollution prevention projects.
Due to traditional biases and current organizational
structure, pollution prevention processes are not
widely accepted. Total Cost Assessment (TCA) is an
alternative approach to traditional methods to account
for pollution prevention projects. This type of profit-
ability analysis icludes: (1) cost inventory, (2) cost allo-
cation, (3) time horizon for profitability analysis'/ and
(4) profitability indicators. This article examines each
of these building blocks of the.TCA. TCA expands the.
cost inventory to include a wider range of costs, savings
and revenue. Full-cost accounting assists in reducing
improper cost allocation which can lead to inaccurate
profitability analyses. Long term benefits can be identi-
fied more accurately with an expanded timeframe from
the traditional two to five year analyses period. Even
though the payback method is the simplest financial
indicator, other alternative evaluation methods may be
more accurrate. These alternatives include (1) the Net
Present Value method, (2) the Internal Rate of Return
method, or (3) the Profitability Index method. The
article gives a paper mill example to assess how TCA
works in practice.
Auditing
Beyveiy, Kate. "The Green Team." CA Magazine 126
(September 1993): 44+.
This article comments on the Canadian Institute of
Chartered Accountant's research report titled, Environ-
mental Auditing and the Role of the Accounting Profession.
The typical financial statement audit needs to incorpo-
rate a wide range of environmental considerations.
Four types of services that should be included in the
environmental audit are: environmental consulting
services, site assessments, operational compliance
assessments and environmental management system
assessments. The article looks at a step-by-step method
of planning and executing an audit that includes envi-
ronmental matters. This approach helps readers to
assess where the risk of misrepresentation on the
financial statement could occur due to not reporting
environmental matters. These audits can assist with
the internal management of the company, as well as
the external financial representation.
Chadlick, Bill, Robert W. Rouse, and John Surma.
"Perspectives on Environmental Accounting."
The CPA Journal 63 (January 1993): 18-20.
The article stresses the importance of recognizing envi-
ronmental liabilities. It was estimated that America's
environmental liabilities total between two and five
percent of our GNP. The article describes how to quan-
tify some different types bf environmental.contamina-
tions and how to account for the clean up costs. The
majority of the article highlights the existing accounting
standards for environmental issues. Auditors help
' companies comply with government regulations and
assess the accuracy of their financial statements.
"A Green Account." Economist 328 (4 September x
1993):69. :
The idea of disclosing environmental information has
an initial, negative connotation for business, especially
for chemical companies. However, companies such
as Monsanto and Dow are using these environmental
audits to better the environment and their companies.
Unfortunately, voluntary environmental audits are
Annotated Bibliography 7
October 1994
-------
,- ,. ,,'!]!!! ,, '.. .:. ',; :... ',', ..:>
still not widely accepted. Deloitte Touche Tohmatsu
surveyed companies worldwide to find out the reasons
why some firms volunteer for environmental audits.
They found that in Europe and America, employees
were the main target audience, while in Japan the
individual customers were targeted.
Hedstrom, Gilbert Si, and Roger W. Voeller.
"Evaluating Your Environmental AuditMoving
Beyond Band-Aids in Developing Corrective
Actions," Total Quality Environmental Management
126 (June 1993): 429+.
Audits are used to assess environmental performance,
correct deficiencies, arid reduce overall risks in a com-
pany. Audits cannot improve environmental manage-
ment systems without correcting previous actions.
Audits must identify and correct problems within the
company. The article describes some approaches
whfch can be effective in eliminating environmental
problems. These approaches locate the major source of
the company's problems. When the source is identified,
the company can take corrective action. We need to
change our practices from incremental improvements
to redesigning and rethinking current processes.
Luscornbe, Nelson. %hen Clean Means Green."
CA Magazine (June 1993): 3.
(Summarizes Coming Clean, by Deloitte Touche
Tohmatsu International.) The idea of a "clean report"
has expanded to include environmental issues. Coming
Clean summarizes a survey conducted by Deloitte
Touche Tohmatsu International regarding corporate
environmental reporting, Much oFthe survey covers
liability and disclosure in Canada, Japan, Europe and
the U,S. This article highlights eight of the 21 "key
lessons for business" described in Coming Clean. More
companies are realizing that being environmentally
responsible can give them a competitive advantage
and increase profits.
General
Anderson, Robert. "Accounting with a Conscience."
CA Magazine 125 '(February 1992): 62+.
Provides background information on environmental
accounting, Environmental resources are not character-
istically different from the historical goods and services
incorporated in the traditional definition of "accounting."
However, because these resources, such as air and
water, were considered "free" commodities they
were not accounted for on the financial statements.
Unfortunately, we are now witnessing the need to ac-
count for these resources. We must "consider the effects
of a corporation, not just the effects on the corporation."
Environmental resources need to be evaluted based
on a cost/benefit analysis. Assigning a measure will
assist companies with environmental decisions. Zero
pollution discharge is an unrealistic goal; it is reason-
able to expect environmentally responsible corpora-
tions, however. Accountants not only need to look at
the bottom line for the best alternatives, but also need
to look at the social impacts of these alternatives.
Archibald, Ross T., and David W. Conklin. "Perched
on the Leading Edge." CA Magazine 126 (January
1993): 63+.
Discusses international pollution prevention. Canada
is the world leader in disclosing true environmental
impacts of management decisions. However, Canada's
efforts to become more environmentally responsible
leaves a fear among many companies of becoming non-
competitive in the world market. Mexico appears to
have the competitive edge because of their relaxed
regulations. However, under NAFTA, polluting
companies will no longer be able to migrate south to
Mexico. Unfortunately, cost competitiveness may still
be an unfair issue. Canada's efforts will, hopefully,
be followed by its international competitors in order
to reduce global pollution. However, this article is not
optimistic that such a following will occur. .
Bebbington, Jan, and Rob Gray. "Where Have All
the Accountants Gone?" Accountancy 109 (March
1992): 28+.
Providers background material on environmental
accounting. Increased environmental awareness and
concern have affected the accounting profession. More
and more accountants will have to become familiar
\yith environmental issues and regulations. More
cooperation between practitioners, academics and
accountants is needed to advance environmental
accounting. The Centre for Social and Environmental
Accounting Research at the University of Dundee
provides information and a means to communicate
for people interested in the subject around the world.
Gray, Rob. 'The Accountant's Task as a Friend to
the Earth." Accountancy 105, no, 1162 (June 1990):
65-68.
(Annotated in the UN bibliography.)
Annotated Bibliography 8
October 1994
-------
. Original produced on Hammermill Unity DP,"
a 50% ppst-consumer/50% pre-consumer recycled paper
made from de-inked old newspapers and magazines.
Published by:
The National Pollution Prevention Center
for Higher Education
University of Michigan, Dana Building
430 East University Ave.
Ann Arbor, Ml 48109-1115.
Phone: 313-764-1412
Fax: 313-936-2195
E-mail: iippc@umich.edu
The mission of the NPPC is to promote sustainable development
by educating students, faculty, and professionals about pollution
prevention; create educational materials; provide tools and
strategies for addressing relevant environmental problems; and
establish a national network of pollution prevention educators.
In addition to developing educational materials and conducting
research,1 the NPPC also offers an internship.program, profes-
sional education & training, and conferences.
Your Input is Welcome!
We are very interested in your feedback on these materials.
Please take a moment to offer your comments and communicate
them to us. Also contact us if you wish to receive a documents
list, order any of pur materials, collaborate on or review NPPC
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We Plan to Go Online
.The NPPC is beginning to make its documents available over
the Internet in any of the following ways:
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Worldwide Web: http://www.snre.umich.edu/
Please contact us if you have comments or suggestions
regarding online access to our materials.
" Annotated Bibliography 9
, October 1994
-------
-------
Pollution Prevention
in Accounting
NATIONAL POLLUTION PREVENTION CENTER FOR HIGHER EDUCATION
Replacing Ozone-Depleting Chemicals:
Taxes and Decisions for a Manufacturer
Michael Tucker, Associate Professor
['airfield University, t-airfield, Connecticut
National Pollution Prevention, Center for Higher Education University of Michigan
Dana Building 430 East University, Ann Arbor Ml 4'8109-1115
Phone: 313:764.1412 Fax: 313.936.2195 E-mail: nppc@umich.edu
Maybe reproduced,
freely for non-commercial
educational purposes.
epletmg Chemicals
October 1994
-------
Background on Ozone Destruction
anlChlorofluorocarbons (CFCs)
'''",'!:, " " ' ' ' ' '''"jl!' '' '| " " ' " , '''' ' ' ":; !:!;" , " ' ' ' '' !!, . '
On September 16,1987, the United States signed the
Montreal Protocols agreeing to reduce the production
of chlprofluorocarbons (CFCs) within its borders to as
little as 50% of 1986 benchmark levels by 1998. The
treaty came about following years of scientific investi-
gation into the effects of CFCs on upper atmospheric
chemistry. After much debate and considerable oppo-
sition from vested interests, it had been accepted by an
overwhelming portion of the scientific community that
CFCs were destroying large quantities of ozone in the
stratosphere. Government leaders, bowing to these
findings as well as the public's health concerns, acted
to recluce CFC production in what was the first global
ecological treaty in the history of the world.
Ozone in the upper atmosphere, chemically 6y
absorbs harmful ultraviolet (UV) radiation preventing
it from striking the surface of the earth. UV radiation
can break down DNA structure in all living things. For
humans, excessive exposure to ultraviolet radiation
has been implicated in increased incidences of skin
cancer and cataracts. Prior to the creation of the ozone
,,, , " " , i '" 'i'''*!!|ili " ' ' ' ' '' ' ''"'' i»" '" '''' ' ' ' "'' '" : ' '
layer some two billion years ago, life as we know it
was riot possible largely because of the constant
bombardment of UV radiation.
In the process of absorbing ultraviolet radiation, the O3
molecule is broken apart Replacement ozone is created
on tne surface of the earth, eventually reaching the
stratosphere. While there have undoubtedly been ,
fluctuations in ozone concentration, those fluctuations
have been within a narrow band. CFCs, discoyereci by
Thomas Midgley in 192&, were at first tHbught to be
inert gases because they did not break down in the
lower atmosphere.1 In the 1970s it was discovered that
CFCs drifted into the upper atmosphere where ultra-
violet radiation split them apart, releasing chlorine
atoms. Chlorine is a catalyst entering into a chemical
reaction with ozone, breaking the 03 molecule apart
and creating oxygen.1 Each chlorine atom can enter
into this process many times over during the course of
as many as 50 to 100 years before it falls to the surface
of the earth. The delicate balance between ozone
molecules and UV radiation was clearly in danger
of major disruption.
CFCs have been used in refrigerants, styrofoam and
many other processes including cleaning computer
chips. One of the more ubiquitous uses for CFCs in the
past was as propellants in aerosol spray cans. By 1973,
spray cans accounted for 75% of all CFC emissions in
the UiS.3 In 1978, the federal government, acknowledg-
ing the danger of CFC destruction to the ozone layer,
enacted legislation banning CFC use in aerosols.*
Ironically, in December 1987, shortly after the Montreal
Protocols were signed, a hole in the ozone layer above
Antarctica was discovered. It confirmed the worst
predictions scientists had been, making for some time.
In 1989, the Revenue Reconciliation Act put in place
taxes making the sale and use of CFCs increasingly
expensive prior to their being phased out as an incentive
to manufacturers to develop alternatives. The Clean
Air Act codified the complete phaseout of production,
with 1996 as the initial target date complying with the
1992 revision of the Montreal Protocols. Major manufac-
turers such as DuPont, sensing growing public unease,
accelerated the complete phaseout target date to 1994.
The Case at
Panazoic Chemical Company
On October 1,1990, Albert Pana, president of Panazoic
Chemical Company (PCCJ, a diversified chemical manu-
facturer, was trying to decide what to do about the tax
on Ozone Depleting Chemicals (ODCs). PCC had an
inventory of 2,000,000 pounds of the ODC Halon-1211.
According to the new tax, these substances are subject
to a tax rate dependent on an ozone-depleting factor.
The tax per pound was scheduled to increase periodi-
cally (see Table I).5 Halon has been assigned an ozone-
depleting factor of 3.0, considerably higher than the 1.0
factor given to common household refrigerants. Deter-
mining the tax due involves multiplying the ODC factor
by the tax rate and then multiplying that product by
the number of pounds in stock or quantity sold.
A grandfather clause in the tax bill allowed firms to
delay direct manufacturing taxes on goods produced
until their sale if the ODCs were mixed prior to 1/1/90.
Anticipating the new tax, PCC made large quantities of
Halon-1211 prior to 1/1/90. One decision for PCC to ,
make was whether to elect to pay the tax on its inven-
tory as of 1/1/91, or to the pay tax as the Halon is sold.
If it elected to pay a floor tax on inventory in stock as
Ozone-Depleting Chemicals
October 1994
-------
pf 1 /1 /91, PCC would also have to pay additional
floor taxes based on the incremental tax change each
January 1st multiplied by the ODC factor and S\e
number of pounds on hand.
. Panazoic currently expected to sell135,000 pounds of
Halon per month until stock ran out or a substitute
was developed at $10 per pound, substantially above
the $3 cost of manufacturing the chemical. That cost
would be expensed as each pound was sold in the
future. The only other variable cost associated with
Halon was two cents/pound/month for storage.
Albert asked Dorothy Ross, the firm's.financial analyst,
to assist him in the decision-making. '
"As you know Dorothy," said Albert, "we have two
million pounds of Halon-1211 in stock. We can elect to
pay the tax January lor pay it pound for. pound as we
sell the Halon. Of course, we know that Pacific Chemical
is working on an alternative chemical that has a 20%
probability of hitting the market by January 1,1992, a
50% chance of being out by January 1,1993 and a 75%
chance of being on the m'arket by January i, 1994. We
are virtually certain it will be out by January 1,1995.
With that sort of timetable, the ban on Halon manufac-
turing slated to go into effect in 1996 willbe moot.
Given our sales projections, we won't be manufacturing
any more of it.
t
"Once Pacific's new chemical is out, whatever Halon
we've got left will be worthless. Actually, it will be less
than worthless. We'll need to pay to dispose of it
properly. From our sales figures of the last three years,
can you give us an idea of how we should pay the tax?"
Dorothy was concerned with other factors as she left
Albert's office. Paying the lower tax rate January 1
rather than as the chemical was sold had some risks. If
Pacific brought its new product to market, PCC would
have paid the tax on goods it would no longer be able ,
to sell and would, in fact, have to pay for disposal.
Disposing of Halon today, 'f it came to that, would cost
, PCC 50 cents per pound, at least until January 1,1991.
That cost could be expected to rise by 20% per'year. ,
Partially offsetting the disposal costs would be PCC's
ability to write off the $3/pound manufacturing cost.
With few' firms making Halon and PCC. sitting on a
considerable stockpile, there was the possibility of
making windfall profits as the January 1,1996, date
approached. PCC anticipated prices would rise
sufficiently to more than cover the additional tax bur-
den, perhaps even overcoming the risk of Pacific's new
entrarft killing future sales somewhere down the road.
Dorothy believed.that PCC could institute a 25% price
hike effective January 1,1991. She expected the market
for Halon to rise steadily, perhaps at a rate of about 3%
per month after January 1,1991.
From prior conversations with Albert, Dorothy was
also aware of another option. Panazoic could sell all of
its Halon to the James Fire Fjctinguisher Company.
James had offered to pay $10 million, half the current
price per pound. The sale, as long as it was completed
prior to January 1,1991, would be exempt from ODC
taxes, although it would be subject to PCC's corporate
tax rate of 35%.
PCC uses a 12% cost of capital. For this analysis,
Dorothy intended to apply a 1% monthly discount rate.
Using monthly discounting seerhes more appropriate
due to the monthly price change in January and
expected month-to-month upward price movements .
thereafter'.
A Legal Wrinkle
Ted Siegel, PCC's chief attorney, raised an entirely
different issue with Dorothy: the possibility of all
ODC manufacturers being the target of a major class
action suit. Several studies had shown that declines
in the ozone content of the stratosphere were directly
correlated with increased cases of skin cancer. Many
of the chemicals, including Halon, would continue to
destroy ozone for tip to 100 years after being released
to the atmosphere.
"Some smart lawyer or two could get together with a
sharp financial analyst and figure out how many cases
of skin cancer were caused by each million pounds of
ODC released over the last 50 years," said Ted. "Every
company that's produced the stuff-has records of what
they sold. By targeting the handful of maji r manufac-
turers in the business, an argument could be. made that
responsible parties should pay into a fund that would
later be used to compensate victims.
"What's more, the government has already established
the ozone-depleting danger of each of these chemicals
within the tax code. Anybody selling it now is doing it
knowing its potential health risk to humans."
Ozone-Depleting Chemicals
.> October 1994
-------
While Ted was by no means certain that such a suit
would ever hold up in court, it had the potential to tie
up PCC's legal staff. Dorothy was not about to attempt
to calculate the cost of such a legal action or even to
contemplate its likelihood. However, she intended to
keep it in mind when she took a look at the financial
benefits of continuing to sell Halon versus selling
PCC's entire stock to James.
Table 1
Excise Tax Per Pound of ODC Manufactured or Sold
1990 $1.37 ,
1991 SI .37
1992 S1.67
1993 S2.65
1994 52.65 ' ^ , ^ , ^
1995- the tax increases by 45 cents each year
Endnotes
' Gribbin, John, The Hole in the Sky, 1988, Bantam Books, N.Y.
2 Firor,"John, The Changing Atmosphere: A Global Challenge, Yale
University Press, 1990.
3 Dotto, Lydia and Harold Schiff, The Ozone War, 1978, Doubleday & Co.,
Garden City, NY.
4 Gribbin, John, The Hole in the Sky, 1988, Bantam Books, N.Y.
' .?" Robs'n.' Donald T! and David Ci Green, "New Tax on Ozone-Depleting
Chemicals Has Far-Reaching Consequences," The Journal of Taxation,
May 1990, 282-285.
Guidance Questions
> . , 'i::;1ii!l! :; '' Vv - .,....:;,,,»,
1. Set up a decision tree with each of the possibilities
and financial outcomes attached to annual branches.
Determine what the joint probabilities are for
Cessation of production as of each possible date
Pacific may introduce its new chemical. Calculate
the after tax present value cash flows after storage
costs and ODC taxes (as of October 1,1990) on a
year-by-year basis Do your annual calculations two
W?ys; with and without the inclusion of disposal
costs for each year Pacific has any possibility of
bringing its new product to market. Note: ODC
excise taxes are a deductible expense. Recall also
that production costs were incurred prior to this
analysis when calculating cash flow.
2. What is the expected present value of cash flows if
all taxes are paid January 1,1991 versus ODC tax
payments as Halon is sold? In doing this calculation
be sure to take into account the joint probabilities of
Pacific's new product entering the market at various
possible dates any of which would immediately end
PCC's Halon sales. Don't forget to include disposal
Costs of Halon in stock at the time Pacific enters the
market and take a tax writeoff for leftover Halon
inventory. '' ' "
3. What is the maximum present value cash flow the
company might realize? What is the minimum
present value cash flow?
4. What cash flow will PCC realize from an immediate
sale of all Halon stock to James Fire Extinguisher
Company?
5. Discuss the possibility of a class action suit against
PCC and other ODG manufacturers.
6. Considering the results of your analysis, should
PCC sell its Halon to James Fire Extinguisher
Company for $5 million?
7. Aside from financial implications, is it ethical to
continue selling a product that is very likely
damaging the environment?
Ozone-Depleting Chemicals
October 1994
-------
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-------
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-------
TABLE.2a
After Tax Disposal Costs
(The Same in Both ODC Tax\Scenarios)
Date
12/31/91
12/31/92
12/31/93
12/31/94 .
disposal
costs
per Ib.
$0.50 .
$0.60
$0.72
$0.86
stock-
on-hand
1,475,000
1,055,000
635,000
215,000
After Tax
cost
479,375
411,450
297,180
120/744
pv cost as
of
10/1/90
465,277
354,402
227,166
81,909
TABLE 3a
PV Year-by-Year for Alternative Introductions of New
Pacific Chemical Under Pay all Taxes 1/1/91 Scenario
Earning Period
10/1/90-12
1/1/92-12/
/31/91
31/92
1/1/93-12/31/93
1/1/94-12/31/94
PVCF
as of
10/1/90
(485,975)
3,907,581
4,322,260
7,357,678
PVCF from
writeoff
if end yr
1,334,015
846,768
452,303
,135,906
Less PV
disp cost
if end yr
382,764'-
4,399,948
4,547,397
7,411,674
TABLE 4a
Joint Probability Table with Present Value Calculations
Under Differing Stop Sales Date Situations with
Payment of ODC Tax 1/1/91
Stop Date
12/31/91 :
12/31/92
12/31/93
12/31/94
Joint Pro.b
20.00%
40.00%
30.00%
10.00%
PVCF
382,764
3, .913, 973
7,969,004
15,155,541
Expected
PVCF
Prob Wtd
PVCF '
76,553
1,565,589
2,390,701
1,515,554
5,548,397
-------
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-------
TABLE 6a
PV Year-by-Year for Alternative Introductions of New Pacific
Chemical Paying Taxes as Halon Sold Scenario
Earning Period
10/1/90-12/31/91
1/1/92-12/31/92
1/1/93-12/31/93
1/1/94-12/31/94
PVCF
as of
10/1/90
3,357,554
3,538,498
4,292,083
5,976,774
PVCF from
writeoff
if end yr
1,334,015
846,768
452,303
135.906
Less PV
disp cost
if end yr
4,226,292
4,030,865
4,517,220
6,030,771
TABLE 7a
Joint Probability Table with PresentValue Calculations
Uncter 'Differing Stop Sales Date Situations
Paying Taxes as Halon Sold Scenario
Stop Date
12/31/91
12/31/92
12/31/93
12/31/94
Joint Prob
20.00%
40.00%
30.00%
10.00%
PVCF
4,226,292
7,388,418
11,413,272
17,218,905
Expected
PVCF
Prob Wtd
PVCF
845,258
2,955,367
3,423,982
1,721,891
8,946,498
-------
Teaching Note .',.'';:
Discussion of the case can begin with an overview of
current information about the destruction of the ozone
layer. The publications cited in the footnotes contain
comprehensive analyses of the history of the problem
and how it has been dealt with or avoided. A search of
a periodical or newspaper database can update this
information. / i _
The Analysis
Table la shows cash flow on a monthly basis under
the 1/1/91 tax payment scenario. Calculating the cash
flow involves using the prior cost of manufacturing
Halon as a tax shield because the cost was incurred
prior to the analysis. On the spreadsheet it is first
deducted as an expense and then added back. The
ODC floor taxes are substantial. They are calculated
as of 1/1/91 as:
3*1.37*1,895,000
In January 1992 taxes again apply with the differential
between 1/1/91 and 1/1/92 being thirty cents. The
thirty cent differential is multiplied by the ODC factor,
3.0, and the stock-on-hand at that time (1,475,000 Ibs.).
Again, in January 1993, when the tax rate goes to $2.65
per Ib. PCC incurs additional taxes on inventory. Using
a monthly discount rate will severely penalize PCC if it
elects to pay taxes on floor stock beginning 1/1/91 and
then the subsequent increases based on floor stock
because these early negative cash flows occurring
closer to the October 1,,1990 decision date are more
heavily weighted than consequent income. Taxes are
also paid on the Halon that is not subsequently sold.
Table 2a-shows the cost of disposing of the Halon on
an annually increasing basis per pound multiplied by
pounds-on-hand at the critical points in the decision
process. These calculations are the same under either
tax payment scenario.
Table 3a consists of period-by-period calculations of
the present value earnings after taxes shown in Table
la discounted at 1% per month back to the October 1,
1990 decision date. Thedifferent earning periods, 15
months for the initial period and then annually,
correspond with the possible cessation of sales of
Halon due to the introduction of Pacific's new product.
If the product is introduced on January 1st of a partic-
ular year, PCC will no longer sell Halon and will then ^
have to pay disposal costs at existing rates at mat point
in time (Table 2a). Manufacturing costs of $3 per Ib. of
stock-on-hand at the cessation of sales would be
expensed and a tax shield generated resulting in a
positive cash flow from the writeoff.
Table 4a shows the joint probabilities for each possible
annual introduction of Pacific's new chemical and the
PVCF associated with those probabilities including tax
writeoffs and disposal costs.* For example, if Pacific
introduces its new product 1/1/93, the joint probability
of this occurring is calculated as 0.8*0.5 or 40%,
corresponding to the 80% probability of Pacific not
introducing its product 1/1/92 and the 50% probability
of a 1/1/93 introduction, The PVCF is the sum of the
PVCF of <485,975>, PVCF of cashflows from 10/1/90
to 12/31/91 which in this case includes the tax on floor
stocks, plus the present value of a final year CF figure
of 4399,948 which includes PVCF over the period 1/1/92
to 12/31/92 of 3,907,581, the PV of the tax writeoff of
the Halon in stock as of 12/31/92,846,768, less the PV
after tax cost of disposal of 354,402 (from Table 2a).
The 3,913,973 PVCF (Table 4a) is the present value of
the decision to pay the taxes on inventory given that
Pacific introduces its product on 1/1/93. That value is
multiplied by the joint probability for that introduction
date, 40%. Joint probabilities are multiplied by each of
their associated PVCF outcomes and summed to arrive
at an expected PVCFof 5,548,397 for the decision to
pay taxes on floor stocks.
The analysis proceeds in a similar fashion where taxes
are paid as the Halon is sold. Earnings after taxes month-
by-month are shown in Table 5a for this scenario. Table
6a shows the same type of annual PVCF information for
the tax-as-sold case as shown in Table 3a for the floor tax
scenario. Joint probability calculations in Table 7a arrive
at a considerably higher expected PVCF of 8,946,498.
If PCC were to sell the Halon outright to James Fire
Extinguisher after tax revenues, after accounting for
the $3 per pound tax shield on already expended
" production costs, would be $7,550,000:
10,00,000*(l-.35) + 3,000,000*.35 ,
* For a good discussion and example of decision tree analysis see Brigham
& Gapenski, Financial Management Theory and Practice, Dryden, 5th
Edition, Chapter 10, specifically page 331.
Ozone-Depleting Chemicals
October 1994
-------
Paying taxes on the Halon as it is sold has the highest
present value, $1^96,498 greater than selling the Halon
today to James Fire Extinguisher. The qualitative aspect
of possible future legalactions against CFC producers
can now be brought into the decision process. If PCC
sells the Halon, paying taxes as it is sold, there may be
a possibility of it being held liable for injuries to future
litigants. The difference between these sales versus all
sales that have gone before is that they have been made
with full knowledge of consequences. The federal
government has gone so far as to codify a tax law and
the phaseout of the manufacturing of the chemical,
making PCC culpable after society has recognized
Halon as an environmental hazard.
On the other side of the issue, Halon is an effective fire
extinguisher. The continued sale of it prior to the
introduction of a substitute product could save lives.
The class can discuss whether or not this counter
balances .the long-term negative impact 2,000,000
additional pounds of Halon will have on the environ-
ment. This type of tradeoff presents a thorny and
interesting environmental and ethical issue.
Published by:
The National Pollution[Prevention Center
for'Higher Education"
Univorslty of Michigan, Dana Building
430 East University Avo,
Annftftoor. Ml 48109-1115
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E-mail: nppcOumich.edu
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Ozone-Depleting Chemicals
October 1994
-------
AL Pollution Prevention
H» in Accounting
NATIONAL POLLUTION PREVENTION CENTER FOR HIQHEH EDUCATION
Homework / Exam Problem:
Overhead Allocation for
Pollution Prevention
William Lanen, Associate Professor of Accounting
School of Business Administration, University of Michigan
National Pollution Prevention Center (or Higher Education University of Michigan Homework/Exam Problem
Dana Building, 430 East University, Ann Arbor Ml 481Q9-1115 . : August 1994
Phone- 313.764.1412 Fax: 313.936.2195 E-mail: nppc@umich.edu -
101
-------
'TV
Original produced on Hammermill Unity DP,
a 50% post-consumer/50% pre-consumer recycled paper
made from de-inked old newspapers and magazines.
-------
Homework Problem: Overhead Allocation for Pollution Prevention
Hare and Company manufactures a variety of components. Its Toledo plant specializes in two (2)
electronic components used in circuit boards. These components serve the same function and perform
equally well. The difference in the two products is the raw material. The XL-D chip is the older of the
two components and is made with a metal that requires a wash prior to assembly. Until the mid-
1970s, the wastewater was released directly into the Maumee River. In 1974, the company was ordered
to treat the wastewater before its release, and it installed relatively expensive equipment. While the
equipment is fully depreciated, annual operating expenses of $250,000 are still incurred for
wastewater treatment. . , ,
Two years ago, company scientists developed an alloy with all of the properties of the raw
materials used in XL-D that generates no wastewater. Some prototype components using the new
material were produced and tested and found to be indistinguishable from the old components in every
way relating to their fitness for use. The only difference is'that the new alloy is more expensive than
the old raw material. The Company has been test-marketing the newer version of the component,
referred to as XL-C, and is currently trying to decide its fate.
' Manufacturing of both components begins in the Production Department and is completed in the
Assembly Department. No other products are produced in the plant. The following table describes the
characteristics of the two components:
Raw Material Costs/Unit
Direct Labor Hours/Unit - Production
Direct Labor Hours/Unit - Assembly
Direct Labor Rate/Hour - (all labor)
Machine Hours/Unit - Production
Machine Hours/Unit - Assembly
Testing Hours/Unit (all in production)
Shipping Weight/Unit (pounds)
Wastewater Generated/Unit (gallons)
XL-D
100,000
$12
0.1
0.4
$20
1.6
0.4
3.0
1.0
10.0 ,
XL-C
25,000
0.1
0.4
$20
1.6
0.4
3.0
1.6
0.0
Annual overhead costs for the two, departments are:
, Production Department Assembly Department
Supervision .' ~.. - -$ 100,000 ..$240,000 '
, Material Handling ! 93,000 40,000 -
...., .....150,000..:....:.. : 0
Testing -
Wastewater Treatment.......... ....250,000 ...-0
Depreciation on Equipment ......1 400,000 100,000
Shipping...... '
7,000... ..120,000
Total
$1,000,000
$500,000
-------
Name:
The company president believes that it's foolish to continue producing two essentially equivalent
products! At the same time, the corporate image is somewhat tarnished because of a toxic dump found
af another site. The president would like to be able to point to the Toledo plant as an example of
Company R&D working to provide an environmentally friendly product. The Controller, an
accountant and, therefore, firmly grounded in reality, points out to the president that the Company's
financial position is shaky and it can't afford to produce products in any way other than the most cost-
efficient.
Required:
a. The current cost accounting system at Hare and Company charges overhead
to products based on direct labor cost using a single, plant-wide rate.
What product costs will be reported for the two products if the current allocation
system is used?
XL-D
-------
.Name: __ '.
b. The Controller recently completed an executive education course describing the
"two-stage allocation procedure:" Assume that the first stacks allocates
costs to departments and the second stage allocates costs to products.
The Controller also believes that the costs will be "more accurate" if machine hours
are used to allocate Production Department costs and labor hours are used to
allocate Assembly Department costs.
What product costs will be reported for the two products if the two-stage allocation "
process is used?
,.' , . XL-D XL-C
Explain the results found in parts a and b. Use only the remainder of this page.
-------
Name:
d. The President argues that an Activity-Based Costing (ABC) system would provide even
better costs. The Company decides to compute product costs assuming an ABC system
is implemented only "the in Production Department. Overhead in Assembly
will continue to. be allocated based on direct labor cost. The cost drivers
selected for the experiment are:
Overhead Item
Supervision
Material Handling
Testing
Wastewater Treatment
Depreciation on Equipment
Shipping
Driver
Direct Labor Hours
. Material Cost
Testing Hours
Wastewater Generated
Mactiine Hours
Weight
What product costs would be reported if this ABC system were implemented?
Assume that the production mix and costs would remain as reported above.
XL-D
XL-C
-------
Homework Problem: Overhead Allocation for Pollution Prevention
Hare and Company manufactures a variety of components. Its Toledo plant specializes in two (2)
electronic components used in circuit boards. These components serve the same function and perform
equally well. The difference in the two products is the raw material. The XL-D chip is the older of the
two: components and is made with a metal that requires a wash prior to assembly. Until the mid-
1970s, the wastewater was released directly into the Maumee River. In 1974, the company was ordered
to treat the wastewater before its release, and it installed relatively expensive equipment. While the
equipment is fully depreciated, annual operating expenses of $250,000 are still incurred for,
wastewater treatment , .
Two years ago, company scientists developed an alloy with all of the properties of the raw
materials used in XL-D that generates no wastewater. Some prototype components using the new
material were produced and tested and found to be indistinguishable from the old components in every
way relating to'their-fitness for use. The only difference is that the new alloy is more expensive than
the old raw material. The Company has been test-marketing the newer version of the component,
referred to as XL-C, and is currently trying to decide its fate.
- Manufacturing of both components begins in the Production Department and is completed in the
Assembly Department. No other products are produced in the plant. The following table describes the
characteristics of the two components:
Raw Material Costs/Unit '
Direct Labor Hours/Unit - Production
Direct Labor Hours/Unit - Assembly
Direct Labor Rate/Hour - (all labor)
Machine Hours/Unit - Production
Machine Hours/Unit - Assembly
Testing Hours/Unit (all in production)
Shipping Weight/Unit (pounds).
Wastewater Generated/Unit (gallons)
XL-D
100,000
$12
0.1
, 0.4
$20
1.6
0.4
3.0 :
1.0
10.0
XL-C
25,000
$14
0.1
0.4
$20
1.6 '
0.4
3.0.
1.6
0.0.
Annual overhead costs for the two departments are:
' , ' ' Production Department Assembly Department
Supervision .., .-., ^^- $ 100,000.,..:., $240,000
Materal Handling... - -.-. 93,000.:.v....... 40,000
. Testing. ...: ...... , ...-,' ,.-150,000; 0
Wastewater Treatment,; 250,000..., -0
Depreciation on Equipment..... 400,000........ -100-000
Total
$1,000,000
$500,000
Homework/ Exam Problem Solution 1
107
-------
,!=!
: :: " : ..... :; . : ' ".' ....... " ' \ SOLUTION
.I"'! I. i Jii'Jiiii ' ', ' if ,, 'i,i ' . " / !, ', , ' I- i ,," ' ,' ' ' '. i ' ! i
The company president believes that it's foolish to continue producing two essentially equivalent
products. At the same time, the corporate image is somewhat tarnished because of a toxic dump found
at another site. The president would like to be able to point to the Toledo plant as an example of
Company R&D working to provide an environmentally friendly product. The Controller, an
accountant and, therefore, firmly grounded in reality, points out to the president that the Company's
financial position is shaky and it can't afford to produce products in any way other than the most cost-
efficient.
Required:
The current cost accounting system at Hare and Company charges overhead
to products based on direct labor cost using a single, plant-wide rate.
What product costs will be reported for the two products if the current allocation
system is used?
,
' ''i " :.' ' . , Y. ,'XL-D ...... ' - ' ' '' XL-C
Raw Material $12.00 $14.00
Direct Labor - Prod. $2.00 $2;00
Direct Labor -Assy. 8.00 10.00 8.00 10.00
Overhead @ 120%* 12.00 12.00
Total $34.00 $36.00
*Overhead Rate = (Production Overhead + Assembly Overhead)/ Total Direct
Labor Cost
= ($1,006,000 + $500,000)/(100?000 x $10 + 25,000 x $10)
= 120% of direct labor costs
Homework/ Exam Problem Solution 2
-------
'* . . -., , .
s ..','' SOLUTION
* , b. The Controller recently completed an executive education course describing the
"two-stage allocation procedure." Assume that the first stage allocates
costs to departments and the second stage allocates c6sts to products.
The Controller also believes that the costs will be "more accurate" if machine hours
are used to allocate Production Department costs and labor hours are used to
allocate Assembly Department costs.
What product costs will be reported for the two products if the two-stage allocation
process is used?
XL-D XL-C
Raw Material $12-00 $14.00
Direct Labor - Prod. $2.00 $2.00
Direct Labor - Assy. 8-OQ 10-00 _8Jffl 10.00
\ - . '
Overhead - Prod. @ $5/mh* $8.00 $8.00
Overhead - Assy. @ $10/dlh** 4tQO 12.00 __4,M 12-00
Total $34.00 $36.00
"Overhead Rate (Prod. Dept.) = Production Overhead/ Total Machine Hours
= $1,000,000 7(100,000 x 1.6 + 25,000 x 1.6)
, = $5/machine hour
**0verhead Rate (Assy. Dept.) = Assembly Overhead/ Total Direct Labor Hrs
; ; = $500,000 /(100?000 x 0.4 + 25,000 x 0.4)
;..... = $10/direct labor hour
c. Explain the results found in parts a and b. Use only the remainder of this page.
Since both products use machine time and direct labor time in the same
proportion (in fact, in equal amounts), it is irrelevant whether machine
hours or direct labor hours are used to allocate overhead costs to the
final products or whether-it is done by manufacturing department or
using a plantwide rate. .
Homework/Exam Problem Solution 3
-------
;,::.; , ' .;,:.... ' , " , ' , , . ,r: ,: ''SOLUTION
d The President argues that an Activity-Based Costing (ABC) system would provide even
better costs. The Company decides to compute product costs assuming an ABC system
is implemented only the in Production Department. Overhead in Assembly
will cqntinue to be allocated!" based on[direct labor cost. The cost drivers
selected for the experiment are:
'III " . ' , ' l| ';, ' |,,, '" 'i| ' , '' '''I1,,' i ,''", "" ' li!" " .'""I i' i' ' i in 'l'i V ' ' i
;;;: , Overhead "Item ' ' ", " ' ^'^^ Driver
Supervision Direct Labor Hours
. Material Handling Material Cost
': '. Testing'" l"" '"'":": '''' '' " Testing Hours . : " '.
Depreciation on Equipment Machine Hours
Shipping Weight
What product costs would be reported if this ABC system were implemented?
Assume that the production mix and costs would remain as reported above.
) XL-C
Raw Material $12.00 $14.00
Direct Labor - Prod. $2-00 $2.00
Direct Labor - Assy. 8.00 10.00 8.00 10.00
Overhead - Prod.*
S-upv. @ $8/direct labor hour $6.80 $0.80
Mat'l Hand @ 6% mat'l. cost O-72 °'84
Testing @ $0.40/ test hour 1.20 1.20
Waste Treat. @ $.25/gallon 2.50 0.00
Depreciation @ $2/mach. hr 3.20 3.20
Shipping @ $6I05)pound 0.05 0^0$
Total Production Overhead 8.47 6.12
Overhead - Assy. @ $10/dlh**
4.00
Total" ' ' ' ":'' '" "' ' "; '' ; ' " '"$34.'4'7 '$34.12
Homework/ Exam Problem Solution 4
-------
* * . '- ' . ' ' ' '
^-^ , *Production Overhead Calculations:
Activity Driver Driver Volume Rate
Supervision Dir. lab hrs 10G,OOOx.l + 25,000 x .1 = 12,500 hours $8.00
Materials Handling Mat. cost 100,000x $12 + 25,000 x $14 = $1,550,000 6%
Testing Test hours lOO.OOOx 3 + 25,000 x 3 = 375,000 hours $0.40
Wastewater Treatment Waste KHXOOOx 10 + 25,000 x 0 = 1,000,000 gal $0.25
Depreciation Machhrs lOO.OOOx 1.6 + 25,000 x 1.6 = 200,000 hrs $2.00
Shipping Weight 100,000x 1.0 + 25,000 x 1.6 = 140,000 Ibs $0.05
**6verhead Rate (Assy. Dept.) = Assembly Overhead/ Total Direct Labor Hrs
= $500,000 7(100,000 x 0.4 + 25,000 x 0.4)
= $10/direct labor hour
Homework/ Exam Problem Solution 5
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