Increasing the Accuracy of Sustainability Accounting

¶ … Petcharat & Mula (2010) discuss a conceptual model that is designed to assist the identification of environmental and social impact costs, and to improve the measurement of these costs. A key value of the Sustainability Management Accounting System (SMAS) approach is the amelioration of the practice of activity-based costing (ABC), in that, ABC does not identify environmental and social costs nor does it allocate these costs to a single production activity (Petcharat & Mula, 2010).

Moreover, the SMAS enables more accurate cost accounting information, an outcome that can greatly enhance management decisions and the disclosure of impact costs -- particularly costs associated with environmental impact and social impact -- when reporting out to boards, stakeholders, and investors (Petcharat & Mula, 2010). When traditional management accounting is used, environmental costs may actually be hidden within the complexities of production and services processes and activities (Petcharat & Mula, 2010). Specialty approaches to accounting exist for environmental management accounting (EMA) and social management accounting (SMA).

There are substantive economies to be had through the integration of EMA and SMA in the sustainable management accounting system (SMAS). The SMAS uses the essential definition of sustainability: a measure or indicator of the integrated performance of ecological or environmental, economic, and social systems (Petcharat & Mula, 2010). By expanding an activity-based (ABC) approach, the SMAS is tooled to use cost drivers or cost centers to assign environmental and social impact costs to a single production activity (Petcharat & Mula, 2010).

Environmental accounting is a recognized practice in most developed countries, but this does not mean that environmental accounting has been widely adopted in developed countries, and decidedly is not often present in developing or underdeveloped countries. For instance Petcharat & Mula (2010) argue that the practice of simply reporting environmental performance is not common among Australian firms, regardless of the cultural trend toward disclosure of corporate social responsibility, and the robust social sentiments and social indicators that reflect heightened attention to environmental and social concerns. Okafor, et al.

(2013) assert that the use of environmental accounting by manufacturing firms in Nigeria is in an embryonic stage. Indeed, for a majority of Nigerian manufacturing businesses, all indirect costs are subsumed under overhead costs, with the most common allocation to overhead costs being material use. That is to say that the methods used for absorption "may not have any relation with the indirect costs to apportion these costs into the product costs" (Okafor, et al., 2013, p. 1).

The management accounting framework proposed by Petcharat & Mula (2010) is intended to capture the environmental costs of internal and external organizations (vendors, supply chain partners, purchased business services). It is also intended to identify, measure, and collect social expenditures as social costs. The importance of a SMAS goes beyond boosting a.