ACCOUNTANTS’ RESPONSES TO THE ENVIRONMENTAL
AGENDA IN A DEVELOPING NATION: AN INITIAL STUDY ON FIJI
By:
Sumit K. Lodhia BA (USP, Fiji), PGDip AFM (USP, Fiji), MA
AFM (USP, Fiji), PhD Candidate (ANU, Australia), MACS PCP, MSPCS
Associate Lecturer
School
of Business and Information Management
Faculty
of Economics and Commerce
Australian National University
Canberra
ACT
0200
Australia.
Email:Sumit.Lodhia@anu.edu.au, sumitlodhia@hotmail.com, Lodhia_s@yahoo.com
Homepage: http://ecocomm.anu.edu.au/bim/staff/lodhia/lodhia.html
The
author would like to thank Ms. Babra Hauofa, Mr. Umesh Sharma, Dr. Ruven Nandan
and Associate Professor Michael White of the University of the South Pacific
for their comments on earlier drafts of this paper. Suggestions and encouragement by Emeritus Professor Mohan Lal of
Massey University, Mr. Roger Burritt of the Australian National University and
editors of this journal are also appreciated. The usual disclaimer applies; all
remaining errors are mine.
This paper initially highlights the
potential role(s) of accountants in ensuring environmental sensitivity in
businesses through the mechanism commonly referred to as environmental accounting.
It then proceeds to discuss their actual involvement in these issues through a
review of past literature on the role of accountants in environmental
management accounting and reporting in organizations and the presentation of a
local study on environmental accounting. This study seeks to gain insights into
the preparedness of accountants in Fiji to handle environmental accounting
within the conventional accounting framework. The findings of this research are
reflective of contemporary international studies, suggesting that Fiji
accountants are conspicuously absent from environmental management accounting
and reporting in organizations. This has been attributed to their lack of
competence in environmental matters and the voluntary nature of the present environmental
accounting practice. Even though the characteristics of a developing nation
which pose practical difficulties for the implementation of environmental
accounting in a country like Fiji need to be acknowledged, a more proactive
stance from the local accountancy profession, academics, the private and public
sector is warranted. It is envisaged
that this initial research will add to the limited literature on environmental
accounting in developing nations and provide a useful framework for further
studies, especially those in the South Pacific context.
Keywords: Environmental Accounting, Environmental Management Accounting, Environmental Reporting, Environmental Sensitivity, Fiji, Developing Countries, Fiji Institute of Accountants, Practicising Accountants, Corporate Accountants, Social.
I
INTRODUCTION
This paper is based on the premise that the accounting process has a role beyond merely that of a technocratic (number crunching and bookkeeping) and procedural activity. It has implications for the organization as well as the wider society (Burchell et al., 1980) and thereby, the paper perceives accounting as a social and political device in addition to its customary economic role.
In organizations, accounting performs a
vital role in business activities through an internal mechanism commonly
referred to as management accounting systems. Further, through its external
reporting process, accountability is extended to stakeholders on the company’s
financial performance (which has been subject to an auditing function),
enabling them to make economically useful decisions. Thus, accounting
establishes an organizational culture and has a profound impact on business
success and credibility. At a broader societal level, accounting is embedded
within the wider social and political factors. Accounting data are used to
represent or even recreate reality (see Hines, 1988). In light of this, the
paper focuses on the social significance of accounting and in particular, the
potential contributions of accountants towards increasing environmental
sensitivity in organizations through the phenomenon called environmental
accounting.
This study discusses the results of interviews conducted with accountants in the Republic of the Fiji Islands in terms of their responses to environmental issues. The views of accounting practitioners were obtained in respect to their role in the environmental management accounting practices of organizations and the reporting of environmental information in corporate annual reports or other communication media.
To date, most prior studies have
analyzed environmental accounting in developed nations. There is a considerable
lack of literature on environmental accounting in developing nations,
especially those that seek the views of accountants on this phenomenon. A study
of the local practice in a developing nation is desirable in order to ascertain
whether the vast differences in resources, expertise, wealth and size among the
various countries could lead to differences in the environmental accounting
practice. While the extent of industrialization in developing nations is meager
when compared to the developed world, insensitivity towards the environment, a
lack of environmental consciousness and the acceptance of foreign waste have
led to persistent local environmental problems. South Pacific Island nations
typify such a grave concern as illustrated by Nandan (1993, p.7):
“Cash
payments for accepting foreign wastes are generally large enough to tempt
developing nations to mortgage their public health and environmental integrity.”
The present study is an initial attempt towards ascertaining the extent to which accountants are involved in encouraging environmentally sensitive business activities in the South Pacific. As suggested earlier, environmental issues are crucial for all South Pacific Island communities and this research examines the possible role(s) accountants in Fiji could play in preserving the integrity of the environment and assisting in minimizing our environmental problems. This study is an attempt to develop a descriptive theory of the local environmental accounting practice, which could be compared with international studies and used as a benchmark for further studies on environmental accounting in the South Pacific.
Any environmental issue, though controversial, is important as it concerns the survival of species (human as well as non-human) on this planet. This study suggests a mechanism (environmental accounting) that could be used to promote sustainable business practices and is essential in encouraging environmental sensitivity in organizations.
II
WHAT IS ENVIRONMENTAL ACCOUNTING?
Environmental
accounting, which could be defined as the accountants' contribution towards
environmental sensitivity in organizations, rose to prominence in the 1990s
(see for instance, Gray 1990a, 1990b). The emphasis on the social
responsibilities of the accountancy profession is not new, having been led to
prominence by the social accounting debate of the 1970s (see for instance, Gray
et al, 1996, Mathews, 1997, Gray, 2001). This school of thought highlighted the
social consciousness of the accountancy profession and advocated a radical
approach to accounting (see, for instance, Churchill, 1974, Ramanathan, 1976
for early work in this regard, or Parker, 1986 for a review of early
developments in social accounting). It focused on extending accountability to
numerous stakeholders by necessitating disclosure of social information in
corporate annual reports. The accountability function of accounting was
believed to be fulfilled by reporting (financial and social) information that
stakeholders would find useful in their decision making process. This led to
the appearance of environmental, employee and ethical information on a
voluntary basis in modern day corporate annual reports.
Unfortunately, social accounting failed to make its way into the mainstream accounting agenda, largely due to lack of mandatory standards to guide it and value judgments associated with determination of social responsibilities of an organization (see for instance, Bebbington and Gray, 1993, Gray, 1994,1995b, Owen et al, 1997, Mathews, 1997, 1998a, 1998b, Gray, 2001). In spite of this, there has been renewed interest in social accounting in the 1990s, triggered by the urgency associated with reducing environmental problems that exist today.
Research into environmental accounting has reached colossal heights in just over a decade, progressing from its initial days of cajolery in the early 1990s to a more realistic agenda for business change in the new millennium (see Gray, 2001 or Gray and Bebbington, 2001 for example). Developments in practice have operated in parallel to the tremendous growth in research, with various initiatives and proposals (to be discussed later in the paper) being put forward by accountancy bodies and related international organizations. In essence, environmental accounting now plays a vital role in daily commercial undertakings, attempting to ensure that development is not at odds with environmental protection.
The potential for
accountants to make a significant contribution towards environmental
consciousness in organizations has been envisioned through their managerial,
auditing and reporting skills. Increasingly, the emphasis has shifted from social
accounting in general to a more specific environmental accounting school of
thought with immense literature advocating the possible involvement of
accountants in environmental management accounting and reporting in
organizations. These days, social accounting has become synonymous with the
term social and environmental accounting (SEA), a linkage that places due
emphasis on the importance of environmental issues.
The fundamental premise behind environmental accounting is that organizations should internalize environmental costs. Currently, these costs are externalized, which is to say that the society bears the impact of an organization's adverse activities on the environment, largely due to the fact that is a “public good”. Internal environmental accounting mechanisms such as life cycle costing or even full cost accounting attempt to trace costs of the organization's activities on the environment. It is believed that once organizations are made accountable for these costs, they would be compelled to minimize the potentially harmful effects of such activities. Further, environmental accounting requires organizations to forecast the potential environmental impact of their activities and accordingly estimate contingent liabilities and create provisions for environmental risk.
It is also expected that investment appraisal decisions should be carefully considered to limit adverse impacts on the environment. In addition, environmental management systems are expected to be developed in conjunction with accounting information systems so that environmental issues are addressed by conventional accounting practices. Here, accountants and environmental experts could pool their skills to form a multi-disciplinary team to address environmental issues of significance to the organization and recommend appropriate remedial actions.
Accountants' role in environmental issues extends beyond management of the internal mechanisms (environmental management accounting) specified in the preceding paragraph. They could be responsible for the disclosure of environmental information, primarily in corporate annual reports, but also through some other communication media (see for instance, Zehgal and Ahmed, 1990, Tilt, 2001, Gray and Bebbington, 2001, Lodhia, forthcoming). Environmental reporting provides accountability to the wider society of the organization's commitment to environmental consciousness. Disclosure could constitute monetary information such as environmental costs, liabilities, provisions and contingencies, coupled with quantitative and descriptive information such as ecological data (for example, physical measurement of environmental impacts), environmental policies, targets and achievements.
Prior Studies There have been numerous studies that have concentrated on the views of accounting practitioners with regard to their role in environmental accounting. The findings of studies by authors such as Bebbington et al. (1994), Gray et al. (1995a), Deegan et al. (1995), Frost and Wilmhurst (1996), Collison (1996), Wycherley (1997), Wang et al. (1997), Shiraz (1998), Guilding and Kirman (1998) and McGowan et al (2000) have indicated that presently, accountants are not extensively involved in the environmental accounting practices of businesses. As Gray et al. (1995a) suggest, accountants are not involved in bringing about organizational change through the incorporation of environmental accounting strategies into the conventional accounting practices of businesses (see also Gray and Bebbington, 2001). It is believed that accountants are largely unaware of how their skills could be utilized in creating a heightened awareness of environmental sensitivity in organizations.
Similarly, Nandan (1992), on the basis of interviews with practising accountants and corporate managers, asserted that accountants in Fiji were reluctant to incorporate social issues into their traditional accounting practices. The present study extends the limited literature on SEA in the South Pacific. Based on its findings, comparisons are made with other studies cited in the preceding paragraph. An attempt is also made to ascertain whether the situation has improved since the Nandan study on SEA practices in Fiji. However, unlike the Nandan study, which looked at social accounting in Fiji, the focus is specifically on the environmental accounting practice.
The current study is an attempt to explore the vigilance of accountants in Fiji in handling the environmental agenda within their corporate role. Interviews were held with practising and corporate accountants. For the purposes of this paper, practising accountants are defined as those accountants who are employed by the chartered accounting firms in Fiji. On the other hand, corporate accountants are understood to be accountants who work in industries with operations having an impact on the environment. Separate interview schedules were prepared for both set of accountants.
The objectives of the research are twofold. Foremost, an attempt is made to obtain the views of practising accountants in order to assess their preparedness in providing environmentally related services to their clients. Moreover, this study seeks to identify the involvement of corporate accountants in the environmental management accounting and reporting strategies of their respective organizations. Based on these interviews, the factors that can be attributed to the involvement or non-involvement of accountants in environmental sensitivity are ascertained and comparisons with prior studies are undertaken.
Research Methods The research methods for this study predominantly fall into the naturalistic category (Tomkins and Groves, 1983). Semi-structured interviews were used to probe the potential contributions of accountants towards the environmental agenda in business. As mentioned earlier, this study aims to ascertain the views of accountants on environmental accounting, assess their preparedness in handling environmental issues within the traditional accounting practice and suggest reasons for their involvement or non-involvement in environmental management accounting and reporting in organizations. A naturalistic orientation is well suited to a study with such intent because it allows probing of different views rather than suggesting them outright to accountants (as in surveys). Beyond this, the research is not carried out in an objective environment; there is interaction between the researcher and his research subjects in order to facilitate dialogue and detailed explanation. Behavioral issues are expanded upon through qualitative techniques and therefore, naturalistic methods are the most appropriate for this research.
Interviewees were briefed on the research and interview schedules were provided to them a week in advance of the interviews. The same questions in the interview schedule were used for each practitioner. A summary of some of the key issues sought in the interviews is given in Figures I and II. Interviews were tape-recorded (subject to consent of each interviewee) and ranged from fourty-five minutes to an hour and half. A full transcription of each completed interview was subsequently relayed to each interviewee for verification.
Take in Figure I
Take in Figure II
Data
was recorded using the approach suggested by Creswell (1994) whereby two
sections on each page were kept for record keeping. One section had an account
of descriptive notes from the interviews while the other contained notes that
were reflective of the researcher’s observations and thoughts.
The data from transcripts were analyzed through classification into similar or different responses from practitioners for the issues raised in interviews (see Miles and Huberman, 1994). Each issue was then categorized into sub-headings in the formal write-up, which listed a general overview of similar responses and quoted any crucial or fundamentally distinct issue raised by interviewees on the contrary.
Data
Collection Interviews were conducted at the major
accounting firms in Fiji, namely Price WaterhouseCoopers (PWC), KPMG Peat
Marwick (KPMG), G. Lal and Arthur Anderson, BDO Zarin Ali, Vishnu Prasad, Ernst
and Young, and HLB Crosbie and Underhill. It was felt that views of the
interviewees would be indicative of the opinions of a majority of chartered accountants
because these organizations form the core of prominent accounting firms in
Fiji.
The
partners of accounting firms were asked to nominate senior personnel for the
interviews in order to ascertain the position of each firm on environmental
accounting. Initially, many accounting practitioners were reluctant to be
interviewed. Some of them were quite forthright and stated that they could not
contribute to the research due to their limited knowledge in the field of
environmental accounting. Certain practitioners also kept on delaying
interviews, claiming that they were quite busy while others were skeptical and
seemed bemused by the idea of accountants being involved in environmental
issues. However, after a number of requests, some partners of firms did make
time available for interviews or delegated the task to senior employees to
speak on their behalf.
Even though attempts were made to interview a number of senior staff members in each accounting firm, in most instances this proved futile. Most interviewees maintained that their views were indicative of the firm's position on environmental accounting and that additional interviews in the firm would produce the same responses2. Interviewees consisted of partners, managers (audit, finance) and senior accountants. The number of interviewees at each of the firms and their positions are presented in Table I.
Take in Table I
Corporate Accountants of both public and private companies were also targeted and the position of their organization on environmental accounting was established. The public companies with operations having an impact on the environment include Fiji Sugar Corporation (FSC), Carlton Brewery Fiji Ltd (CBF) and its subsidiary South Pacific Distilleries, Flour Mills of Fiji (FMF) and its subsidiary Rice Company of Fiji, and Fijian Holdings Ltd, which has shares in FSC and Basic Industries Ltd (BIL) (Lodhia, 2000). These companies' operations vary from being the sole manufacturer of sugar in Fiji to an alcohol manufacturer, major producers of flour and rice in Fiji and a cement producing company (BIL). Interviews were held with the accountants of FSC, CBF, FMF and BIL. The interviewees at CBF and FMF spoke on behalf of their company and its subsidiaries. In addition, a number of private companies with activities affecting the environment were also targeted. These included the Fiji Electricity Authority (FEA) and Shell Fiji Ltd. FEA is a government owned statutory body (as in the case of FSC) with the sole responsibility of electricity generation in Fiji while Shell Fiji is a major overseas based petroleum company. Interview requests were turned down by some of the other private companies having an impact on the environment3 .
Interviewees did manage to take time off their hectic workloads after a number of requests for interviews. In some instances, a number of questions in the interview schedule were referred to the environmental management personnel within the organization. The number of interviewees at each of the companies and their respective positions are shown in Table II.
Take in Table II
THE VIEWS OF PRACTISING ACCOUNTANTS
The study attempts to gain insights into preparedness of practising accountants in Fiji to handle environmental issues. An assessment of their understanding of environmental accounting concepts, and their skill level and experience to undertake environmental accounting is made. The research seeks to analyze the willingness of accountants to extend their supposedly objective traditional roles of record keeping and reporting to cover a subjective phenomenon such as environmental accounting.
An attempt is made to obtain the opinion of practitioners on environmental management accounting mechanisms and their desirability. The study establishes the views of practising accountants on the disclosure of environmental information in annual reports and the need for a regulated practice to guide such disclosure (as applied in financial reporting through accounting standards, corporate law and stock exchange listing requirements that guide accounting practices).
The
practitioners’ assessment of the status of the current environmental accounting
practice in Fiji and their suggestions on improving this practice are obtained.
Their views on the accounting implications of environmental legislation are
identified. Lastly, the extent to which the local accountancy body, the Fiji
Institute of Accountants (FIA) is promoting environmental accounting is
evaluated through accountants' comments on its role in encouraging environmental
sensitivity in organizations.
General Attitude The attitude of most practitioners who agreed to be interviewed showed that they had a genuine interest in bridging the divergence between academia and practice. They took time off from their busy schedules to be interviewed and were straightforward with their responses. However, the response of certain practitioners who declined to be interviewed was worth noting.
A partner of a major multinational accounting firm stated:
Every year and year, we get the
same thing from you people. Frankly speaking, I am very tired of it. We are
very busy people.
(To the researcher's knowledge, there has been no other major research exercise on SEA in Fiji apart from the Nandan Study of 1992.) When asked if he could spend a few minutes of his precious time for a brief interview, the partner replied:
No, I will not let myself or any of my staff members to be interviewed. This issue (environmental accounting) is something that has cropped up overseas and so, you should interview people there, and base the results locally.
Further, the audit manager of another accounting firm (an interview request was also turned down by him) remarked:
Hey, to be pretty frank, I have no
idea what environmental accounting is (chuckle). This is the first time I am
hearing this term.
Another potential interviewee stated that he could not spare enough time for an interview but did outline his views on environmental accounting by commenting:
Environmental accounting is something that accountants do nothing
about. They have conservative knowledge and their knowledge of society is poor,
hence they are not able to respond to environmental issues. Let's put it this
way - The Balance Sheets produced in Fiji - has any Balance Sheet given a cost
to the environment?
He illustrated his views with a few examples:
Let me give you a few examples. The Rewa Dairy discharges its effluents to creeks, yet this is not reflected in
its final accounts. What is the cost of repair to the environment? How do we
measure it? FSC is another example with its discharge of chemicals. Also, Fiji
Forest Industries with its uprooting
of trees. What is the extent of damage? Further, occupational health and safety
procedures are never followed. For example, the distance between an employee
and the photocopier is 12 feet. Is this ever followed? People using radium in hospitals - is this
safe?
It
seems that interview requests were turned down by a number of practitioners
because the concept of environmental accounting was something totally new to
them and they were not prepared to handle these matters at the theoretical
level, leaving aside tackling these within mainstream accounting. Therefore, the non-preparedness of
accountants in handling environmental issues and their reluctance to
incorporate the environmental agenda into conventional practices was signified
at the outset of this research.
However, this matter was explored further through interviews with those
practitioners who spared time for this research exercise.
Environmental Accounting and the role of accountants Interviewees seemed to have a reasonable understanding of environmental accounting. Their conception of environmental accounting ranged from companies being a good corporate citizen to the reporting of environmental issues in annual reports and monitoring compliance with existing regulation and legislation. Limited emphasis was provided on the use of internal environmental accounting mechanisms such as environmental audits and accounting for environmental costs. As one of the interviewees revealed:
It
(environmental issues) is a concern for everybody, not just accountants. It is
an issue facing the accounting profession and there is a definite role for
accountants.
Practitioners agreed that environmental accounting would extend the traditional roles of accountants through the adoption of environmental accounting mechanisms. It was suggested that traditional skills of accountants were ideal for assisting in environmental accounting mechanisms. However, one of the interviewees warned that accountants also need to consider other non-traditional activities such as human resource accounting, social obligations within the wider context and current cost accounting. These issues are as critical as environmental accounting. Similarly, another interviewee expressed concern about the need for accountants to change their present way of doing things:
We
will basically have to think differently. Presently, only dollar values are
believed to be important. Social impacts as they are, cannot be measured and
are not accounted by us. But we need to place values on these things and think
broader. We will need to get out of our little box of debits and credits.
The degree of subjectivity associated with environmental accounting was clearly highlighted by practitioners' responses to internalization of environmental costs and estimation of contingent liabilities. While support was provided for both internalizing environmental costs and recording contingent environmental liabilities, a majority raised the issue of the difficulty associated with quantification of these subjective estimates. Some of these issues are expressed in the following comments:
These
environmental costs cannot be easily quantified
This is a subjective issue and thus, we would need outside help. The problem is in quantifying these costs
How
can we possibly account for Environmental Costs?
We
presently do not have a common mode of measurement so these things are not
taken into account
However, the views of one of the interviewees gave support to the incorporation of subjective issues into the accounting process:
Why not, if we have a provision for
doubtful debts, which is subjective, why not have contingent liabilities for
the environment?
All practitioners stated that their firms were currently not offering environmental audit services because there seemed a limited demand for these locally. However, partners of firms such as KPMG and PWC did indicate that their overseas counterparts were providing some form of environmental audits. Further, one of the interviewees said that even though their audits were not specifically geared towards detecting environmental violations, the risk assessment models of their audit process would be able to detect any environmental mismanagement should it have a material effect on the final accounts.
Interviewees agreed that environmental management systems were essential for allowing environmental accounting to be undertaken. A heightened knowledge of environmental issues, and an in-depth understanding of the clients' business operations and the resulting impact on the environment were considered vital areas of expertise for such systems. These systems were believed to be similar to management control systems in organizations, and would need to address the company's impact on the environment and suggest mechanisms for undertaking sustainable business practices. But these did not necessarily mean that organizations were fully committed to solving the environmental problem. They were merely a mechanism for providing evidence of "environmentally sound" business practices.
As evident from the following comments, most interviewees agreed that present disclosure of environmental information in corporate annual reports is not satisfactory:
Not
that effective. These disclosures in annual reports are hardly read by that
many people
It
is not effective in a simple sense
Disclosures
of environmental information are not common in local annual
reports. Companies will not
disclose information in public interest
Not
effective at all. People will not react unless it is compulsory. We have to
force these things to people
An
interviewee even went on to state that such disclosures were public relations
exercises, which would be quite useful for high risk manufacturing companies.
Another commented on environmental disclosures being selective in that
companies would only disclose what they believe is good for their survival:
How
often is the annual report read page by page? If the company has done something
specific, it will disclose. If it hasn’t, it will not disclose
Yet another pointed out that the reporting style was not consistent across firms because there are no guidelines to assist disclosure of environmental information.
There was strong support from interviewees for accounting standards to be issued to guide environmental accounting with comments such as those listed below being common:
There
is a need for both an accounting standard as well as an auditing standard to
guide environmental accounting
There needs to be an accounting standard on environmental accounting
There
is definitely a need for accounting standards
A number of interviewees felt that, as with the issuing of other accounting standards in Fiji, the local practice has to rely on its international counterparts. We would need to follow the progress of the leaders such as the UK, the US, Australia and New Zealand before adopting a similar standard within the local context. Conversely, an interviewee argued that differential reporting should be introduced for disclosure of environmental information in corporate annual reports. More specifically, a standard should be mandatory for the larger public companies and those private companies whose operations had an adverse impact on the environment.
Practitioners
agreed that a standard on environmental accounting would need to cover the
basic concepts of environmental accounting such as the estimation of
environmental costs and contingent liabilities, and disclosure of environmental
information. The need for guidelines for the accounting profession as to how
environmental issues would be incorporated into the conventional accounting
practice were also seen as an essential component of the standard. Such a standard should also assist in
reducing the subjectivity associated with accounting for the environment.
Environmental Accounting in Fiji The views of practitioners suggested that there has been limited progress made on environmental accounting in Fiji. None of them reported having clients involved in environmental accounting. In spite of this, it was felt that some of the companies in environmentally sensitive industries are now addressing environmental issues through investments in appropriate technology that minimize environmental degradation. The majority of interviewees believed that environmental accounting is essential for companies in Fiji, especially those involved in manufacturing. However, at least one of the interviewees believed that individual attitudes would have to change before further action could be taken. He felt that disciplining companies was not enough; individual consciousness on the importance of the environment had to improve. The interviewee maintained that there were more important things that the local profession had to worry about and that environmental issues are not the primary concern for accountants. He stipulated:
Hey, we can’t even retain our
accountants, so forget environmental accounting. It will be a long time coming.
Suggestions for improving the present environmental accounting practice entailed the need for the issue of accounting standards and stricter legislation, and the creation of greater awareness amongst everyone. However, caution was exercised on the issuing of accounting standards by the local accountancy body, whereby interviewees perceived the role of the FIA as that of adapting similar standards to the local context rather than developing them outright. An interviewee suggested that environmental accounting mechanisms should be established foremost. Secondly, he suggested that such mechanisms should be put into practice. Lastly, such mechanisms should be evaluated and the necessary adjustments (if required) should be made to them. Similarly, another suggested that a course on environmental accounting should be offered to potential graduates and practising accountants.
Environmental Legislation Interviewees did not
seem to be aware of details of the proposed environmental legislation for Fiji
called the Sustainable Development Bill4 . However, a majority of practitioners felt that there could be
accounting implications should obligations and liabilities arise as a
consequence of the bill. Some interviewees also believed that the accounting implications
of the bill would mean that there would be compliance costs and fines that
could reduce business profits. The practising accountants mentioned that
environmental issues were quite important for their organization but claimed
that a lack of guidance by the FIA restricted their involvement in these
matters.
The role of the FIA Interviewees indicated that the FIA
was not involved in promoting environmental accounting in Fiji. A majority
believed that the local institute should encourage awareness of environmental
accounting through seminars and workshops. They also suggested that the FIA
should play a crucial role in the successful implementation of environmental
accounting in Fiji through issuing of accounting standards. However, one of the
interviewees felt that the government had to be the leader in environmental
issues, rather than leaving it to companies or accountants. Further, another
interviewee pointed out that the institute could not really be blamed for the
limited progress in environmental accounting in Fiji. He highlighted that the
local body only had a full-time executive director (who incidentally is a
non-accountant) while other executives were members of local chartered
accounting firms who worked on a voluntary basis. This was unlike professional
accounting bodies in other countries such as Australia, which have full-time
and fully paid staff members. He felt that the FIA could not possibly be
expected to be the leader in the environmental accounting revolution. It has to
rely on its contemporaries in Australia and New Zealand.
THE VIEWS OF CORPORATE ACCOUNTANTS
An attempt was made to ascertain the extent to which corporate accountants are involved in promoting sustainable business practices within their organizations. The role of interviewees in environmental management accounting and environmental reporting was identified. Views of corporate accountants were obtained in terms of the need for regulation of environmental accounting and the accounting implications of environmental legislation. Lastly, opinions of these accountants were sought on the extent to which the FIA was encouraging environmental accounting mechanisms in organizations and the possible roles it could play in promoting environmental consciousness amongst the practitioners. These interviews shed light into the present involvement of accountants in the environmental management accounting and environmental reporting strategies of those organizations in Fiji that have operations with an environmental impact.
Environmental Accounting and the role of accountants All interviewees indicated that environmental issues are essential for their organization. However, they were ignorant of the impact of environmental issues on their accounting practice. None of the companies was practising environmental accounting. Even though these companies have some sort of environmental management structures in place that varies extensively among them, the involvement of accountants in environmental sensitivity is limited, as evident from some of the following comments:
They [accountants] presently do not have a role but we are considering environmental accounting in the future
We
[accountants] have a minimal role. I guess our role is that of being a good
corporate citizen
Very
little [involvement of accountants]. We have a public relations department that
sorts out the compensation with the landowners
Environmental management personnel in these organizations are also largely unaware of the potential contributions of accountants in environmental management accounting and reporting.
The skills of accountants are not utilized in the environmental management strategies of companies in Fiji. These accountants make minimal contributions towards environmental issues within their organization and are reluctant to be the leaders in encouraging environmental sensitivity in the company. They perceive their role as that of a number cruncher and a bookkeeper who should operate within a confined economic focus. Consideration of wider social and political factors does not seem to be compatible with their traditional skills and qualifications. The interviewees raised some of the following concerns:
The question that arises is whether
accountants have the necessary expertise to analyze environmental information
No
economist or accountant ever takes into account the environmental impact when
carrying out a feasibility study of a project
How
are we going to assess the monetary value of environmental impact? We have to
be very objective when preparing financial accounts and so environmental information
should be disclosed separately rather than appearing in Balance Sheets or other
financial accounts
Accountants at these companies presently do not incorporate environmental costs into the conventional practice nor do they take into account environmental risks and contingencies. Some consideration is given to environmental factors when appraising investment projects while environmental management systems are not part of management accounting systems. In spite of this, companies such as Shell Fiji and BIL have separate environmental units but these are independent of the accounting practice.
The FSC is the only public company that discloses environmental information in its corporate annual report. However, such disclosures are minimal and seem to be motivated by a desire to improve the company’s corporate image (see Lodhia, 1999a). Companies such as Shell Fiji and BIL use other communication media to disclose their environmental performance. The Royal Dutch Shell Group of companies produces an international Health, Safety and Environmental Report but this does not provide details on the environmental performance of Shell Fiji. Similarly, BIL produces environmental reports for presentation to its board of directors every quarter. These reports are confidential and are not disclosed to outside parties. BIL also uses newsletters to employees as a medium for disseminating information about the environmental performance of the company. The disclosure of environmental information in alternative communication media by the other companies is non-existent.
The environmental management accounting practices of local companies are not transformed into consistent and useful environmental disclosures. This places doubts on the credence of their environmental management accounting structures and suggests that these may not always seek to improve the quality of life for everyone. Accountability of local companies is presently restricted to giving an account of financial performance; social and environmental issues are not disseminated to stakeholders extensively. This has been largely attributed to the lack of enforcement mechanisms for protection of the environment.
Enforcement mechanisms Corporate accountants are of the view that in the absence of environmental legislation and mandatory accounting standards, they do not have a role in environmental management accounting or environmental reporting. They are largely unaware of the accounting implications of the Sustainable Development Bill that may arise if it is enforced as legislation. However, most of the interviewees did reiterate the views of practising accountants on the need for mandatory accounting standards to be the starting point for a revolution in environmental accounting in Fiji. They remarked:
Yes,
standards allow for a more objective analysis of performance. Comparisons can
also be much more meaningful when the standards are used
I
suppose that by having accounting standards in place, every organization will
be compelled to protect the environment. Currently, only responsible companies
are reporting
Interviewees
believed that the FIA could play a key role in the establishment of mandatory
accounting standards.
The role of the FIA There is a lack of involvement by the
FIA in encouragement of environmental accounting in Fiji as evident from the
views of interviewees. They believe that their institute has not promulgated
any standards on environmental accounting and neither has it provided any
guidance to its members on environmental matters. Corporate accountants
perceive their role as simply that defined by the profession, leading to
limited consideration for the environment.
IV DISCUSSION
The findings of this study suggest that social awareness among accountants has improved since Nandan's study of 1992. This represents recognition of environmental issues by the corporate sector in the 1990s, similar to global trends identified earlier in this paper. Accountants do accept that they have a role in environmental issues. However, akin to results of international studies, accountants do not see themselves as leaders in environmental accounting strategies of organizations. Concerns have been raised in regard to their competence in environmental matters. These practitioners also that the present status quo will remain as long as the practice is voluntary. The Fiji Institute of Accountants itself has remained silent on these issues and this has been detrimental to the profession’s response to the environmental agenda.
The current study suggests that accountants in Fiji are reluctant to incorporate environmental issues into the mainstream accounting agenda. Their role is perceived to be that of a technocrat who would disregard the wider social and political factors that impinge upon the accounting practice. A need for regulation and an improvement in qualifications has been suggested as the obvious solution to these problems. Therefore, the present study is consistent with international studies highlighting the absence of accountants in voluntary environmental accounting within organizations.
The views of practising accountants highlight the fact that at present they are not prepared to extend their conventional roles to cover a non-traditional phenomenon such as environmental accounting. Even though some of their overseas counterparts do provide environmentally related services to their clients, these local chartered accountants believe that in Fiji, the lack of adequate environmental legislation and mandatory accounting standards has restricted their involvement in environmental sensitivity. This provides little impetus for accountants to encourage their clients to be environmentally conscious and to recognize the impact of environmental issues on the accounting practice.
Corporate accountants are highly ignorant of their involvement in the environmental management accounting and reporting strategies of their respective organizations. Their managerial, auditing and reporting skills are not utilized in encouraging sustainable business practices by their organization. They believe that environmental management personnel are more “qualified” in handling these issues. Environmental management personnel in these organizations in turn, are unaware of the contribution of accountants in promoting environmental sensitivity within the organization. The corporate annual report of most local companies is also not broadened to incorporate environmental disclosure.
The status of Fiji as a developing nation on the basis of a lack of resources and expertise, together with its reliance on other countries to be leaders in contemporary approaches contributes to the limited progress of environmental accounting. Fiji’s accountancy profession has a tendency to adapt practices of developed nations and use their expertise to frame the local practice. This is reflective of a large number of local accounting standards that bear close resemblance to the standards of other countries. As Nandan (1992) highlights:
The accounting profession in Fiji mostly relies on their overseas counterparts (e.g. the use of international standards) where issues are widely publicized and debated
This is largely due to the lack of resources and expertise in developing nations such as Fiji coupled with a need to compete globally to attract multinational investment in the country. Therefore, the necessity for harmonizing international accounting standards arises, leading to an adoption of similar standards within the local context.
Fiji accountants prefer to follow, rather than to lead. Experimental attempts in accounting, despite their potential, are not adopted. The creativity of the local accountancy profession is limited to a "waiting game", whereby similar practices are adapted should these have proved successful elsewhere. Views of interviewees in this research confirmed that environmental accounting in Fiji would only eventuate should there be international progress in environmental accounting. Fiji accountants seem to believe that the role of the FIA is restricted to that of followers, rather than developers of best international accounting practices.
It is likely that a revolution in environmental accounting will need to occur in other countries before it is adopted locally. Hence, local practitioners are expected to oppose mandatory standards on environmental accounting if there are no international standards on environmental accounting but their views are likely to change should a standard on environmental accounting be issued internationally. The astounding progress in environmental accounting over the last decade does indicate that a standard could soon be issued by the international accounting standards committee. Thus, it is hoped that international developments in environmental accounting will give Fiji’s accountancy profession an imperative to consider environmental accounting as part of the accounting process.
Already, there are signs of mandatory environmental accounting in European nations such as Denmark (Rikhardsson, 1999), Holland, Norway, Sweden (see for instance, KPMG, 1999, ACCA, 2001) and Spain (Larrinaga-Gonzalez et al, 2001). In the US, companies are compelled to report on the release of toxic chemicals to the environment under the Toxic Release Inventory (TRI) requirements (see for instance, KPMG, 1999, ACCA, 2001). Australia has followed a similar approach through the National Pollutant Inventory requirement (KPMG, 1999). In addition, under section 299(1) f of the corporations law, companies are required to disclose their environmental performance in the corporate annual report (Frost, 2001). Environmental reporting is also mandatory in Korea (Gray, 2001) and New Zealand (ACCA, 2001). Regulatory authorities in Canada and the European Union require certain environmental information to be lodged with them (KPMG, 1999). Similarly, the European Commission’s (EC) recent recommendation on environmental accounting (see for instance, EC, 2001) and the Global reporting initiative of the Coalition for Environmentally Responsible Economies (CERES) and the United Nations Environmental Program (UNEP) (see for instance, GRI, 2000) do indicate potential developments in guidelines for environmental reporting.
What the international developments in environmental accounting mean for members of the FIA is that following considerable evidence from academic research, the global accounting profession has now recognised the importance of environmental accounting. Such developments are likely to trigger environmental management accounting and environmental reporting in organizations, providing an impetus for accountants to be involved in these processes. Thus, even though the non-involvement of accountants in environmental issues is similar in Fiji and internationally, the efforts of accountancy institutes and increasing legislative requirements in other countries should lead to an improvement in the present status quo of environmental accounting. For instance, both the Institute of Chartered Accountants (ICAA) and the Certified Practising Accountants (CPA) Australia are actively researching environmental accounting and the future role the profession should take in Australia (see Medley, 1997 or Deegan and Rankin, 1999, for example). Even developing nations such as Korea have mandatory environmental reporting while Philippines has environmental accounting education requirements for professional accountants (Reyes, 2001).
In Fiji, similar responses are needed through an increase in awareness of environmental accounting. Waiting for an international accounting standard on environmental accounting to eventuate would be fatal; this would leave accountants ill-prepared to handle a totally new phenomenon. The FIA has a vital role to perform in this regard.
Members
of the FIA find themselves in a difficult position. They may end up in the
future dealing with a specific standard addressing environmental issues without
being knowledgeable in environmental matters. To engage members in the process,
the FIA should encourage useful research in this area, something that would be
difficult given the fact that the only two active researchers on social and
environmental accounting in Fiji have left the country. Hence, academia through
the University of the South Pacific will need to play a vital role in
environmental accounting education and research.
Accounting
practitioners need to be encouraged to develop an integrated (for internal and
external use) set of environmental management accounting and reporting
information about the accounting entity. A professional requirement for the
study of environmental accounting as done in the Philippines (see Reyes, 2001)
could also be imposed by the FIA. Expertise from other accountancy institutes,
especially those in Australia and New Zealand could be used to frame a local
environmental accounting practice.
Limitations of Paper Every research strategy has potential limitations and the naturalistic method is no exception. Critics argue that this approach suffers from the personal bias and prejudice of the researcher (Burns, 2000). There may also be difficulties and errors encountered in interpreting the views and responses of the interviewees (Silverman, 1993). These limitations have been somewhat reduced in this research by transcribing all interviews and providing them to the interviewees for confirmation. The ethical and confidentiality issues in naturalistic research constitute another limitation (Scapens, 1990). To minimize such problems, regular reminders on the confidentiality of the interviewees and the information disseminated by them have been provided throughout the research process.
It has also been suggested that naturalistic research is time consuming (Burns, 2000) and requires a variety of skills to be developed. One has to be a skilful question-asker and interpreter of information, a confidence builder and a scholar in many different disciplines in order to undertake such research (Hagg and Hedlund, 1979). However, a formal educational process on research methods has assisted the author in reducing such problems for the present research. Lastly, a common criticism regarding naturalistic research is that theories (especially in case studies) that emerge from such research cannot be generalized (Hagg and Hedlund, 1979, Scapens, 1990). Despite this, there is no need to generalize such research; they essentially serve the purpose of confirming or refuting theories (Hagg and Hedlund, 1979). Similarly, Scapens (1990) reveals that it is the theoretical generalizations rather than the statistical generalizations that are important. Therefore, the present research exercise is an attempt to develop a descriptive theory of the local environmental accounting practice.
The reluctance of a number of local accountants to be interviewed restricted the views of practitioners to one or two representatives from an accounting firm or company. Accounting firms and public companies maintained that views of the chosen interviewee(s) were indicative of the organization’s position on environmental accounting. There were also a number of interview requests that were turned down by a large number of private companies having operations impacting the environment.
Future Research Bearing the above factors in mind, this study, however, does provide an initial documentation of the present status of environmental accounting in Fiji and establishes the framework for further studies in this area. Future research on the local environmental accounting practice could attempt to expand the present study and compare the results with this research and Nandan’s (1992) study. Studies on environmental accounting in other South Pacific nations would be highly desirable as well.
The political situation in Fiji has been tense for some time now (see Lodhia, 2001a for example), leading to issues such as political control having a greater priority over environmental issues. This has caused a rapid outflow of accountants from the country and delayed the implementation of the Sustainable Development Bill. A study that could look at the linkage between these factors and the adoption of environmental accounting would be desirable, given the fact that this research was carried out when the political situation in Fiji was quite stable.
V CONCLUSION
The status quo of the present environmental accounting practice in Fiji is unsatisfactory, largely due to its voluntary nature and inability to provide sufficient guidance to accountants. Despite this, the future could be better if strict measures are put in place. An introduction of enforcement mechanisms such as environmental legislation and possibly accounting standards coupled with an educational process on environmental accounting for current and potential accountants, could provide an impetus to Fiji accountants to be involved in environmental management accounting and reporting in organizations. The responsibility of environmental accounting should not be left to a single party; a multi-disciplinary approach is envisaged whereby there is pooling of skills of environmental experts and accountants.
Whether
the local accountancy institute is prepared to undergo the revolutionary phase
in environmental accounting arising from the improvement in enforcement and
educational mechanisms remains to be seen.
Its disregard for contemporary global developments in environmental
accounting and lack of action in promoting engagement of accountants in
environmental issues is analogous to the traditional Indian tale of
kupamanduka, which describes a well frog that lives a solitude life within a
well and does not trust anything outside it. The environment is no less important than profitability and the FIA
needs to encourage members to engage in mechanisms that would assist in
protecting the fragility of the biodiversity that we in the South Pacific live
in. While acknowledging that Fiji is a developing nation and political
instability is usually an impediment to progress, a more proactive role from the FIA, corporate sector, academics and the
government is envisaged. Both the government and the corporate sector
need to support the FIA and recognize that environmental accounting could
possibly be a tool to achieve a sustainable future for the nation. Assistance
from academia (including former Fiji
academics) is also expected for such a proposal to be anything more than an
utopian fantasy.
By
comprehending the nature of the contemporary environmental accounting practice
in a developing nation like Fiji, practitioners and researchers are in a better
position to understand the specific context in which such a mechanism operates
and comprehend the impediments to its progress. The paper challenges Fiji
accountants to be responsive towards environmental issues through engagement in
environmental accounting and benefits researchers by adding a new dimension to
the limited literature on environmental accounting in developing countries. It also
has policy implications, suggesting an urgent need for improved environmental
legislation and regulatory intervention in developing nations such as Fiji.
provisions for environmental matters that have existed in about 50 to 60 other
pieces of legislation that are believed to be outdated. Refer to Lodhia (2001b) for further details on the accounting implications of the Sustainable Development Bill.
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|
Accounting Firm |
No. of
Interviewees |
Position of Interviewee(s) |
|
Price WaterhouseCoopers |
2 |
Partner |
|
KPMG Peat Marwick |
2 |
Partner, Manager |
|
BDO Zarin Ali |
2 |
Partner, Manager |
|
G. Lal and Arthur Anderson |
1 |
Partner |
|
Vishnu Prasad |
1 |
Senior Accountant |
|
Ernst and Young |
1 |
Senior Accountant |
|
HLB Crosbie and Underhill |
1 |
Manager |
|
Organization |
No of
interviewees |
Position of
interviewees |
|
FSC |
2 |
Accountant, Production Supervisor |
|
Shell Fiji |
2 |
Accountant, Terminal manager |
|
Basic Industries Ltd. |
2 |
Accountant, Environmental Officer |
|
Carlton Brewery Fiji Ltd. |
1 |
Accountant |
|
Flour Mills of Fiji Ltd. |
1 |
Accountant |
|
Fiji Electricity Authority |
1 |
Accountant |
- What do you reckon is the role of accountants in preserving the integrity of the environment?
- How would your traditional roles change to incorporate environmental accounting?
- What is the accountant's role in environmental management accounting in terms of:
- Internalization of environmental costs
- Accounting for contingent liabilities
- Development of environmental management systems
- Investment appraisal
- Does the firm provide environmental audit services? Why or why not?
- What are your views on environmental reporting?
- Should environmental accounting be made mandatory through accounting standards and appropriate legislation (including environmental legislation) ?
- Could you provide details on progress of environmental accounting in Fiji and states if improvements to this status quo are necessary?
- Will the proposed Sustainable Development Bill for Fiji have accounting
implications?
- Is the FIA attempting to promote environmental accounting in the country?
- How are the operations of the company impacting the environment?
- Does the company incorporate environmental issues into the accounting practice and what is the role of accountants in this regard?
- Does the accounting practice of the company involve:
- Internalization of environmental costs
- Accounting for contingent liabilities
- Development of environmental management systems
- Investment appraisal of environmentally sensitive projects?
- Environmental reporting through annual reports or some other medium
- Should environmental accounting be made mandatory through accounting standards and appropriate legislation (including environmental legislation)?
- Will the proposed Sustainable Development Bill for Fiji have accounting implications?
- Is the FIA attempting to promote environmental accounting in the country?