Forest Sustainability And Accounting

Dr Stella Sofocleous

School of Accounting and Finance

Victoria University

PO Box 14428

Melbourne CMC

Vic 8001

Stella.Sofocleous@vu.edu.au

Australia 03 96622077

Australia 03 96633202

ABSTRACT

The aim of this investigation was to examine ways in which a manager of a timber firm, of a particular size, makes short-and long-term decisions affecting the environment of the forest. Should the size of the timber firm affect the decision-making processes of this manager, who usually applies various accounting policies, then this factor is considered able to further influence forest users to follow specific sustainable forest practices. Thus, it is apparent that when management decisions within a timber firm are being made, net profit is by no means the only factor taken into consideration. The findings of this research offer accounting policy makers the chance to consider the timber firm as part of an industry comprising firms of different size that react differently under the same set of accounting rules. Therefore, the future condition of the forest resource is ultimately dependent on those accounting policy makers, who should consider the above factor if they expect the timber firm to create a sustainable environment and maximise benefits successfully.

FOREST SUSTAINABILITY AND ACCOUNTING

1. INTRODUCTION

As each second ticks by, thousands of managers within the timber industry make decisions that ultimately impact upon the world’s forestry resource. Forestry can be considered as the science of regulating the forest resource for the benefit of mankind. Successful management of this forest resource is believed to ensure the renewable nature of the timber industry business. (Makris: 1989)

This paper is aimed at investigating ways in which a timber firm in Australia of a particular size (according to employee numbers) may operate, by means of policies and effective management, to secure the sustainability of the forest resource for current and future generations. (Rubenstein: 1994) However, ecological limits are outside the parameters of this research. Throughout this paper, sustainable forestry will be studied according to three specific inter-dependent and integral components. These are accounting practices, taxation/subsidies and regulation/control policies. Such elements were chosen as they were thought to most appropriately represent the factors similar to those most likely to be faced by primary industry decision-makers in the process of the industry activity. The main objective of any timber firm, as with all other profit-orientated firms, is to ensure, the maximisation of net profit after tax. (Rubenstein: 1994, Chant et al.: 1991) However, a timber firm may only maintain success if it can balance this requirement of monetary gain with an ability to practise sustainable forestry in the long term.

For the purpose of this paper, the researcher considered that both these goals, that is, increasing profit and achieving sustainable forestry could be accomplished through effective management of modified accounting practices, including amongst others, intra-generational valuations, valuations of other forestry products (such as recreational facilities when calculating costs), and the social cost of forestry (that is, the deprivation of clean air and extinction of fauna and flora species used for medicines). (Rubenstein: 1994)

The presence or absence of any of the above variable may inhibit or improve a firm’s ability to ensure sustainable forestry. Meanwhile, most economies and their governments have taken no drastic measures to rectify the way the forest product industries operate throughout the world. Nevertheless, at the same time, such industries must also be aware of their role in fostering an environment that bolsters the earth’s survival. (Kestigian: 1990, Brown: 1994)

2. RESEARCH OBJECTIVES

In western societies, natural resource distribution and exchange rely on market regulation and the forces of supply and demand. When making decisions, some of the critical factors affecting the operation of the market are the availability of information from financial reports, the penalties imposed by taxes, the availability of favourable subsidies and the imposition of regulations and controls.

Forests are a natural resource and as with any other profit-making business, forest management is expected to produce, with the same amount of investment, a higher outcome. This can be achieved with the proviso that the aforementioned factors are changed to ensure timber-harvesting will guarantee sustainable forestry and financial satisfaction of the owners of the timber firms. Current accounting systems do not take into account the size of the timber firm. Accounting bodies have one set of policies for both small/medium to large firms.

In summation, it is the assertion of this research that specific policies involving forest sustainability must be imposed in order to ensure the recognition of the clearly non-homogenous character of the timber industry by the accounting profession and also the community in general. Such policies must not only be of a theoretical nature but should also be practical in their application. This is of utmost importance in regards to the survival of the timber industry and, more importantly, the future preservation of Australian native forests.

3 ACCOUNTING POLICIES

In the past, accounting has been considered as a method for measuring the expenses and revenues of a particular firm in a set period of time. Concurrently, accountants studied the firm’s past accomplishments in order to forecast future business outcomes. However, as Accountants play a vital role as, according to Rubenstein (1994), they “provide a roadmap for those in the driver’s seat such as senior management and the board of directors”. Ahearn (1997) notes Clift’s (1992) book is about accounting with an emphasis on its role in the communication of information and the control of affairs in the business. Kestigian (1990) says that the basic role of the accounting profession is to change from theory and experimentation to more concrete foundations and to supply conceptual, measurement and reporting, as well as a comprehensive reporting system of both qualitative and quantitative methods applicable to the community.

In addition, Herbohn et al. (1998:64) suggests that the accounting profession should assist with the development of an increasingly important area of accountability and Gray (1990) stated that although accountants have the possibility of remaining inflexible to altering patterns of behaviour agrees with Kestigian (1990), their duty is to provide information that has political, social and environmental components. Kestigian (1991) also believes that accountants have accentuated their ability with numbers instead of their capacity to operate in other areas, such as design, examination and evaluation of information systems, and data collecting and appraisal. On the same issue Gray (1990) notes that today an accountant requires the expertise of professionals such as engineers to form opinions on the financial accounts and that the same should apply with any environmental issues in order to follow environmental accounting and reporting. Gray (1990) suggests that accountants must offer their qualifications in the design of new accounting and auditing procedures for environmental accounting and reporting. Rubenstein (1994) stated that an accountant’s objective is to provide enhanced and new information that will aid the process of informed decision making. Also, accountants could calculate the costs of adapting to sustainable development. Management, internal experts and scientists must resolve which industry practices will have to change in order to achieve sustainment.

Extensive research into the role of accounting in forestry started in 1993, when logging by Australian timber firms became a front-page newspaper item. There was an obvious need for a change in the way accounting valued renewable resources and, in particular, the timber in order to find the valuation method that represents the most sustainable practice.

There are alternative methods of valuation available for renewable resources, including the forests. These methods describe the time of valuation of the timber resource either as trees grow or at the time of harvesting. Herbohn et al. (1998) stated the main problem with the valuation of the forest resource was to achieve an overall agreement as to when is the correct time to value the timber in the forest. As trees take years to develop the individual investor is disadvantaged when it comes to return on investments. Currently, accounting, taxation and legislation do not agree on the method to follow with regard to time of valuation of timber.

When a firm is involved in the production of goods that incorporate the use of the environment throughout the goods’ life then this firm should include the environmental cost as part of its costing. Rubenstein (1994) defines full cost managerial accounting as privately allocating direct and indirect costs to a product or product line and believes it should include environmental costs throughout the life cycle of the product, from raw material extraction to product disposal, which may not be shown directly/indirectly on the bottom line.

Therefore, a firm’s environmental costing must include costs from the engineering stage to motivation, compensation and evaluation of the performance of employees. In implementing this proposed sustainable practice there are two methods available. These are the Life Cycle Costing (LCC) and Activity Based Costing (ABC). Life cycle costing (LCC) should provide identification of both the private and social costs of a product, process or activity throughout the product’s commercial life from raw material acquisition to disposal. In forestry, one must report the costs and the business benefits of taking a longer-term view of the forest.

In addition, investments that are related to the environment create problems. With no information to support making an informed decision, management must accept or reject investments that lead to sustainable development. Problems as serious as remaining in existence or making the wrong decisions because of lack of calculations (return of the investment and the payback to the investor) can be taxing to the forest manager. Rubenstein (1994) enters this area of discussion by indicating the problems with which a forest manager is faced. Further, according to Rubenstein (1994), sustainable forest development can benefit a firm, assisting it to remain true to the going concern principle. Hence, investment in environmentally protective plant and equipment increases the perceived goodwill of the firm and so helps ensure the firm’s continued presence.

Decision-making can also be based on several principles. Brown (1994) and Keegan (1992) endorse that there are specific environmental principles that affect industry and commerce. Brown (1994:609) opts for Corporate Environmentalism to claim that profit- making is not the only business goal and that managers must care for the environment because it is socially unacceptable to damage the environment in order to make profits. The current movement is for businesses to place environmental safety before profits.

Another interesting interrelationship is the one that relates logging/wood-chipping activities, profits and/or sustainability of forests and services other than timber that forests provide to the community.

“It is clear that logging practices which would maximise the probability of survival of Leadbeater’s Possum are different from those which would maximise the net value of timber value alone”. (Kennedy and Jakobsson: 1993:1)

Management must then enlarge and include a provision of environmental goods and services into the future. Wood has many substitutes and a constant amount of wood is an inefficient and unworkable solution. “On the other hand, sustained yield does have the important merit of reminding us of our responsibility to consider future generations (in perpetuity) as well as ourselves.” (Ferguson 1987:36)

The Accounting Standard 1037 (AASB 1037) on renewable and re-generating asset was issued (effective date for the standard is July 1, 2000). The fact that a standard was written on the valuation of renewable resources and its accounting treatment indicates a necessity that existed in the past. It is remarkably interesting to note, however, that AASB 1037 does not differentiate accounting treatment between small and medium/large timber firms. It may fill the gap of varying existing accounting treatments of the renewable resource but still regards the timber industry firm as a homogenous unit that is deemed to act the same in response to imposition of accounting, taxation/subsidies and regulation/control policies.

The researcher chose the above as the most essential current issues on accounting and forest sustainability. The main points can be summarised as follows:

· Accounting is a discipline and a profession with political, social, economic and environmental components. The accountancy profession could play a role in assisting define the balance between business and industry’s profit and the need to ensure that no unnecessary damage comes to the environment. Accounting information systems can supply information that may be used to make environmental decisions. This information must follow technology advances. Further, accountants play a crucial role providing the route to administration and should accentuate their ability to operate in other areas, such as design, examination and evaluation of information systems, and data collecting and appraisal. Accountants also need the knowledge of professionals such as engineers to form opinions as to the state of financial accounts and any environmental issues. The accountants’ objective is to provide information, which is enhanced with environmental information that will aid the process of informed decision making. Moreover, accountants could calculate the costs of adapting to sustainable development and indicate the difficulties encountered in the valuation of forests. For example, in the private sector, because of the valuation of the forests for financial reporting purposes there are reliability problems. The particular calculations are also complex. Currently, the individual firms apply net present valuation methods, which can be used as a primary valuation method and can facilitate management’s goals to maximise profits.

· In so far, accounting, taxation and legislation do not agree on the method to follow with regard to time of valuation of timber. The main problem with the valuation of the forest resource is to achieve an overall agreement as to when is the correct time to value the timber in the forest. As trees take years to develop the individual investor is disadvantaged when it comes to return on investments. Banks bear in mind particular environmental risks when providing long-term development loans. Further, the following costs are involved in the production of goods that require the use of the environment: permits, compliance, technology modification, changing source materials, environmental auditing, developing and maintaining an environmentally appropriate system.

· Investments that are related to the environment are faced with additional problems. With no information to support the making of an informed decision, management must accept or reject investments that lead to sustainable development. Problems as serious as remaining in existence or making the wrong decisions because of lack of calculations (return of the investment and the payback to the investor) can be difficult to understand by the forest manager. The business structure of the firm can also affect decision-making, as some business structures may have specific policies they must follow or are under certain financial limitations. Profit- making, however, is not the only business goal and managers must care for the environment because it is socially unacceptable to damage the environment in order to make profits. In a survey of 500 timber firms in Australia it was found that the current movement is for businesses to place environmental safety before profits. Timber firms must disregard some suitable habitat parts of the forest and endorse the alteration of logging practices to attain returns from timber as well as the continuation of the existence of species dependent on the forest environment. It is important to estimate the value of survival of the species in comparison to the value of timber output. This will enable the technical and economic viability of alternatives to clear felling to be evaluated. The principle of sustainable development states that actions today should not be to the detriment of future generations.

· Finally, environmental disclosure is often regarded as corporate environmental disclosure. As a consequence, this distinguishes between corporate and non-corporate timber firms and indicates dissimilarity in the business structure of the timber firms. Further, there is a distinction that refers to the private sector entities and their type of disclosure. The various types of disclosure in the private sector firms refer to statements of environmental spending, qualitative descriptions of the environment and general environmental objectives. A minority of writers refer to the private sector entities that have made positive changes in their reporting practices. Annual reports should contain specific non-financial and supplementary disclosures, including quality/quantity of the resource, any restriction on forestry asset’s operations and descriptive information about substitute measures for current market value. Further, the public sector has two conflicting trends with regard to the disclosure of non-financial information. Some annual reports have separate sections devoted to environmental disclosure and descriptions of environmental activities, whereas some reports offer minimal environmental disclosure or none at all. The following are important items that can be included in the final accounts: valuation of forest assets, recognition and measurement of value changes, balance sheet classification of forestry assets and disclosure of non-financial information.

4. RESEARCH QUESTIONS

4.1 OVERALL PURPOSE

This research investigated the effects of the size of the timber firm on forestry practices and in particular, accounting practices, which assist the sustainability of forests and their preservation.

The following was the suggested research question, which was addressed.

Can the size of a firm operating in the primary sector of the timber industry affect the firm’s sustainable forestry practices and in particular the accounting practices?

As the main purpose of this research was expected to provide the effects of the size of the timber firm on sustainable forestry practices, a secondary investigation could assist to explore circumstances in which the preferences in sustainable forestry practices differrd because of the variation in size of the individual timber firm.

The following was the secondary research question to dealt with:

Do small timber firms have different preferred sustainable forestry practices to medium/large timber firms?

The research undertaken in this paper was conducted in three distinct stages. The first stage included an intensive literature review of several sustainable policies in accounting, taxation/subsidies and regulation/control policies, which were originally listed in various references and other research media. The literature review was imperative to establishing the research questions and identifying the policies that were accepted by the majority of authors as necessary for the enhancement of forest sustainability through the management of timber firm practices. Ultimately, it was stated, such occurrences would lead to further preservation of the native forests. Common implementation problems surrounding such policies as identified in the literature were discussed. Throughout this discussion, the blanket application of policies became a predominant concern to the researcher. Most accounting policies were imposed uniformly and yet inconsistently, with no regard being taken for the existence of considerable variations in the size and business structure of timber firms under which the forest primary producer is operating. Thus, the homogenous nature of such policies was thoroughly investigated in this first stage of research. However, the literature on the impact of size of timber firms on sustainable forestry practices was limited.

While a review of the literature was indeed imperative to the establishment of the research questions, interviews of entities involved in the use of the forest resource were also necessary. This second stage dealt with interviews of the key personnel involved in the operation of timber firms. This niche was selected due to the concentrated experience demonstrated by this micro cosmos of the global timber industry. The interviews provided a means for further understanding the complex issues connected to the various policies involved with the sustainability of forests and their implementation among forest organisations not only within their country, but also on a more international scale. The reason for their success is that because they have such a small area to work with, they had to learn sustain ‘best practice’ over the long run. Thus, these interviews proved invaluable in the construction of a questionnaire, as they could also be thought of as highly relevant to Australian forestry. More specifically, this part of the research enabled the observation of the operations of some forest firms and the witnessing of how particular sustainable forest practices affect decision-making. Furthermore, such interviews facilitated the recognition and understanding of the predominant values maintained and supported within those timber firms. The interviews were conducted over a period of 4 weeks and comprised of 47 semi-structured interviews. The main objective of the second phase was to determine those policies in accounting, taxation/subsidies and regulation/control that affected the sustainability of the timber firm. A study of those interviews revealed that different business organisations considered sustainable policies for different reasons and that overall, most sustainable business strategies were dependent on the size and business structure of the timber firm as well as varying preferences in regards to sustainable forest practices.

The third stage of this research involved the distribution of a postal questionnaire throughout Australia. The questionnaire provided the means to confirm specific findings from the interviews, and to investigate various sustainable policies in the areas of accounting, taxation/subsidies and regulation/control policies and the impact that the size and business structure of timber firms have on them. The questionnaires, together with accompanying letters of explanation and pre-paid return envelopes, were posted to 500 timber firms. Cross tabulation of the given variables and a statistical analysis of the 36.4% responses confirmed the contention that the size and business structure of the timber firm does indeed affect the application of particular policies, which promote the sustainability of the forest resource for use by current and future generations. A further summary was necessary in order to group such findings and eliminate unnecessary details that misleadingly re-directed attention from the main findings. The size of timber firms and their impact on sustainable forestry practices were statistically analysed and evaluated. The evaluations were further condensed to provide evidence for the rejection or acceptance of the main and secondary hypotheses.

5. SUMMARIES OF STATISTICAL ANALYSIS - ACCOUNTING POLICIES

As there was a plethora of information collected a decision was made by the researcher to suppress the variables and summarise only the ones dependent on the size of the firm. The plethora of these sustainable policies that are dependent on the size of the firm indicate that indeed the size of the timber firm is a determining factor in decision making as far as sustainable practices is concerned. From these summaries the most preferred policies of small timber firms that are found to be dependent on the size of the timber firm are marked with an asterisk in the first column. The second column asterisks are the specific activities that are dependent on the size of the firm and preferred by the medium/large timber firms. The third column asterisks indicate the policies that are dependent on the size of the firm and are preferred by both small and medium/large firms as sustainable practices. In Table 1, for example, timber firms that employ more than 20 employees believe that there is a need to use different data collecting systems for gathering of environmental information that will be used to make environmental decisions affecting the forest resource and its sustainability.

Table 1: Accounting policies dependent on the size of the firm

Size of Timber Firm	S	ML	B
Need different data collecting systems when collecting environmental info		*
Difficulties associated with reporting environmental requirements for both government reports and tax purposes	*
Sustainability of forestry practices depends on: - Annual environmental budgets; - Environment impact studies; - Environment capital expenditure impact costs		* * *
Environmental disclosure policy to be shown in financial reporting		*
Environmental information to be included in quality assurance reviews		*
Public’s right to access data on environmental impact of timber firms	*
Accountants to provide key environmental financial data		*
Environmental financial data is expected by management, required to make informed environmental decisions		*
Small firms pay a high price for disclosing environmental information	*
Only the government should be concerned with the environment			*
Relationship between accounting and environmental issues	*
There must be a level of regulation in reporting	*
Particular accountancy info to be provided to management for disclosure		*
Accounting procedures required, within the timber industry, to produce a quantitative evaluation of corporate use of forests	*
Due to depletion of resources, firms inherit contingent liabilities	*
Disagree with support of environmental policy		*
Support for cleaner production activities		*
Accountants to provide data that will assist future generations		*
Need to provide incentives to promote forest sustainability			*
Must improve traditional financial accounting data for forest reporting		*
Accountants to include costs/benefits of converting traditional accounting processes and procedures		*
Need for a complete shift from current practice to sustainable operations	*
Non-financial information must relate to the environment			*
Evaluate in monetary terms the other forest services to the community		*
Practitioners' belief: net present value is unrealistic (assumes variables remain unchanged from the year estimates are made till timber is exhausted)	*
Practitioners' belief: net present value relies on variables such as price, production, interest rates, operating costs and returns on capital		*

Key: S: Small Firm, ML: Medium/Large Firm, B: Both (Small and Medium/Large Firms)

5.1 OVERALL CONCLUSIONS/INFORMATION RELEVANT TO THE SECONDARY HYPOTHESES

This paper has examined and evaluated, the theory of the imposition of accounting policies, taxation/subsidies and regulation/control policies across the board as all timber firms belong to a homogenous group. The size of the timber firms was evaluated against the set of accounting variables, which were found in the literature review and preliminary interviews to represent sustainable practices in the timber industry. This meant that when timber firms followed those practices forests would be sustained and preserved. To test this proposition, the analysis involved testing the dependency of those practices on the size of the firm engaged in the production of timber in the primary sector of the timber industry. The null hypothesis stated that the size of the timber firm has no effect on its forestry practices. However, the statistical analysis performed provided strong evidence that the size of the firm affects some forestry practices and not others.

The following are summaries of accounting policies dependent on the size of the firm and preferred by small and medium/large firms.

5.2 ACCOUNTING POLICIES PREFERRED BY TIMBER FIRMS

The following is a further grouping of the data into preferred sustainable forestry policies by small and medium/large organisations. This re-enforces the fact that those sustainable forestry practices are dependent on the size of the firm as there are several policies that the small firms agree with and which are not always the same as what the medium/large firm prefers. If this is achieved then the rejection of the secondary hypotheses will be possible. In addition, respondents indicate their preference or recognition of certain policies as sustainable. This adds to the fact that policies found by the literature review and the preliminary interviews are indeed considered to be sustainable or not by the respondents representing the primary sector of the timber industry.

The Tables below are summaries of data gathered and statistically analysed to be dependent on the size of the timber firm. The information beneath each sub-heading relates to data contained in the accounting tables. An indicator marks the size of the timber firms. An indicator beginning with the letter S represents the preferences of small timber firms. Similarly, an indicator beginning with the letters ML represents the preferences of medium/large timber firms. When the indicator begins with S/ML, this refers to a situation in which both small and medium/large timber firms have a common preference as far as an accounting policy is concerned. Furthermore, each indicator (S, ML, S/ML) corresponds with an element within a diagram contained in this research, for example Figure 4. Such a system was created to allow easy and clear referencing between tables and diagrams.

Table 2 below summarises the accounting policies dependent on the size of the firm and preferred/recognised by the small timber firm. Table 3 also summarises the accounting policies that are dependent on the size of the firm but preferred by the medium/large timber firm.

Table 2: Accounting policies preferred by the small timber firms

Accounting Policies Preferred by the Small Timber Firms:

Small timber firms are of the opinion that disclosing environmental requirements for both government and tax purposes is difficult [S1]

Public’s right to access information on environmental impact of forestry organisations [S2]

Small timber firms pay a high price for disclosing environmental information [S3]

Relationship exists between accounting and environmental issues [S4]

High level of regulation in reporting [S5]

Inability of accounting procedures within timber industry to produce a quantitative evaluation of corporate use of forests [S6]

Need for a complete shift from current practice to sustainable operations [S8]

Practitioners believe that net present value is unrealistic as assumes variables remain unchanged from the year of estimates until the timber is exhausted [S9]

Key: S: Small Firm, ML: Medium/Large Firm, B: Both (Small and Medium/Large Firms)

Table 3: Accounting policies preferred by the medium/large timber firms

Accounting Policies Preferred by the Medium/Large Timber Firms:

Sustainability of forestry practices depend on:

- Annual environmental budgets [ML11]

- Environment impact studies [ML12]

- Environment capital expenditure impact costs [ML13]

Environmental disclosure policy in financial reporting [ML14]

Environmental information in quality assurance reviews [ML15]

Instructing accountants to provide key environmental financial data [ML16]

Expecting management to make informed environmental decisions [ML17]

Accountants to provide information to management for disclosure [ML18]

Disagree with support of environmental policy [ML19]

Support by the utilisation of cleaner production activities [ML20]

Requirement for accounting to provide information that will assist future generations [ML21]

Improvement of traditional financial accounting information for forest reporting [ML22]

Need for accounting to include costs/benefits of converting traditional accounting processes and procedures [ML23]

Monetary valuation of forest services to community [ML24]

Practitioners' belief: net present value approach relies on variables such as price, production, interest rates, operating costs and returns on capital [ML25]

Key: S: Small Firm, ML: Medium/Large Firm, B: Both (Small and Medium/Large Firms)

Table 5 summarises the accounting policies that are commonly preferred by both the small and medium/large timber firm.

Table 5: Accounting policies preferred by small and medium/large timber firms

Accounting Policies Preferred by Both Small and Medium/Large Timber Firms:

Both size of firms believe that only the government should be concerned for environmental issues [S/ML26]

Need to provide incentives in order to promote forest sustainability [S/ML27]

Non-financial information should relate to the environment [S/ML28]

Key: S: Small Firm, ML: Medium/Large Firm, B: Both (Small and Medium/Large Firms)

From the above listing of accounting policies that are accepted as sustainable by small, medium/large and both, one can assume that these policies are accepted as sustainable by the majority of the timber industry firms. However, these accounting policies are dependent on the different size of the firm and as it was stated by the first hypothesis it is a fallacy to believe that all sustainable accounting policies will work across the board. Only three statements came under this category:

a) The statement in Table 3:

Environmental issues are not the firm’s problems, but the government’s.

b) The statements in Table 4:

i) There should be incentives other than regulation to promote sustainability.

ii) Non-financial information can relate environmental policies and programs to expenditures and performance.

Figure 4 summarises the above in a flow chart. This Figure illustrates the accounting policies, including some regulation in reporting that the management of small and medium/large timber firms prefer when addressing their obligations regarding the environmental effects of day-to-day activities and functions. The flow chart has the timber firm as the centre of all activities that relate to sustainable practices. The survey respondents’ answers are categorised as inputs or outputs in the accounting area. These categories deal with information and sustainability policies such as annual environmental budgets, impact studies budgets and environmental capital expenditure. Other categories cover regulation and reporting as well as the relationship of accounting and the environment and the expenses to comply with any reporting requirements. Figure 4 shows that there is an obvious trend for respondents of small and medium/large timber firms to agree with the notion that accountants and their records are sources of information that management requires for informed environmental decisions.

The manner in which accounting records and, consequently, financial reports are produced has made it difficult for managers of small timber firms to highlight environmental requirements that are not clearly defined by the relevant authorities. Proportionately, more small timber firms than medium/large timber firms experienced this situation. Small timber firms can pay a proportionately higher price for obtaining such environmental information and, ultimately, disclosing it.

It is the belief of the managers of medium/large timber firms that they require accounting data for disclosure. In particular, the recording systems in accounting must be modified to provide financial reports that contain the environmental information that is necessary to comply with the reporting requirements of the relevant interested bodies. Such bodies include the government (federal/state), the Commissioner of Taxation and timber firm managers who make informed environmental decisions.

According to the respondents, accountants should also provide management of medium/large timber firms with key environmental information. Specifically, such information must be conveyed in financial reports and quality assurance reviews. In addition, another goal aspired to by these medium/large timber firms is the achievement of sustainability policies. Assistance in meeting this objective can be given through the existence of annual environmental budgets, impact studies and costing.

Furthermore, more managers of small timber firms believe that there is indeed a relationship between accounting and the environment. Another of their ideas states that accounting procedures can produce a quantitative evaluation of the corporate usage of forests.

					OUTPUT
SUSTAINABILITY POLICIES

Annual environmental budgets [ML11]

Management requires accounting data for disclosure [ML18]

Require different data collecting systems [ML10]

Level of regulation in reporting [S5]

Environmental impact studies [ML12]

Disagree with non-compliance with environmental policy [ML19]

Existence of a relationship between accounting and the environment [S4]

Accounting procedures can produce a quantitative evaluation of the corporate use of forests [S6]
		WHO PAYS FOR REPORTING

Small firms pay a high price for disclosing environmental information [S3]

Key: S: Small Firm, ML: Medium/Large Firm, B: Both (Small and Medium/Large Firms)

Source Tables: 4.4-8

Figure 4: Sustainable accounting policies preferred by timber firms

Figure 5 groups further accounting policies that are dependent on the size of the timber firm. It is interesting to note that the medium/large timber firms prefer those accounting policies that are related to the next generation’s forest usage, such as accounting data that has been changed to include the environmental consequences of forest depletion for future generations.

The managers of the medium/large timber firms require clean production and the financial and management information to be enhanced by environmental costs. In the process of converting traditional accounting into accounting that has been enhanced with environmental information, an analysis of cost/benefits is required and the cost to the environment in order to make that profit. Consequently, managers consider that the accounting data includes the environmental consequences of forest depletion for future generations. According to these managers, these data are mandatory for the managers of timber firms to make informed environmental decisions that would aim to protect future generations.

Key: S: Small Firm, ML: Medium/Large Firm, B: Both (Small and Medium/Large Firms)

Source Tables: 4.4-8

Figure 5: Information required by managers of medium/large timber firms to make informed environmental decisions which impact on the next generation’s forest usage

Figure 5 illustrates the information required by managers of medium/large timber firms to make informed decisions that will have a significant impact upon future ecological occurrences and ultimately, future generations. It can therefore be concluded that managers who are in possession of the technical, financial and management accounting information in Figure 5 would be able to make decisions in a manner that would secure the protection of the environment. If the appropriate information were provided then management would make sustainable decisions. Managers of medium/large timber firms expressed frustration because of inconsistencies between the goals of their firms and the information actually available to them. Therefore, the individual manager is left in confusion requiring clear policy formation by various authorities. This supports the comment made by Fisher (1993) and more recently by O’Brien (1999) in a study of farming in Australia. The respondents were concerned with the costs and benefits of the conversion of traditional accounting systems into more contemporary systems, which include the environment as a significant factor. At present, if society desires the benefit brought about by such a conversion, then a firm is the only entity involved in bearing the costs of this process. One suggestion from interviewees was that the government could cover the cost using funds derived from research and development, outright deductions for the purposes of taxation, subsidised stumpage costs on trees worth keeping, increased royalty rates and other such mechanisms.

However, it was found in this research that the government should not employ universal simple policies in an effort to regulate the distribution of costs between entities in the timber industry. This supports the findings made by O’Brien (1999). This was because of the variation in the size of timber firms. Although, in theory, certain policies might be considered an agreeable remedy to this problem, they are, in reality, not feasible due to the difficulties of imposing legislation.

Figure 6 below illustrates that the firms are expected to be transparent because they are seen by the community to be volunteering and disclosing information in published statements for the public to access freely, read and, hence, be informed on the firm’s environmental decisions.

decisions

Key: S: Small Firm, ML: Medium/Large Firm, B: Both (Small and Medium/Large Firms)

Source Tables: 4.4-8

Figure 6: Relationship between the requirements for informed decisions by both small and/or medium/large timber firms and the source of information

As pointed out in the table above, the type of forest from which products should originate were firstly plantations and secondly native forests allowing time for the native forests to grow back to a sustainable level. Small firm respondents indicated that their timber came from an Australian source, with most using plantations rather than native forests. Plantations cannot satisfy all demands: a native forest species may be required. Unfortunately Australian fauna and flora do not flourish within plantations. Interestingly, respondents would prefer to use Australian national plantations and/or national native forest resources rather than another country’s timber resources under lease from the government. However, when there is a need to use timber from other countries, it should come from plantations and not from native forests.

A point worthy of note is that both land-holding options (private ownership of forested land or leasing Government land) were popular. Big corporations preferred private ownership of land. On the other hand, small organisations preferred leasing land.

Table 6: Preferences of small timber firms relating to future benefit of the forest

Preferences of Small Timber Firms Concerning Future Benefit of the Forest

Future benefits of a forest to be disclosed [S48]

Wood volume harvested to be disclosed [S49]

Management needs to collect information on then long-term needs of forest users [S50]

Management requires information on the environmental effect of economic value [S51]

Firm discloses environmental information as it has a social responsibility [S52]

Key: S: Small Firm, ML: Medium/Large Firm, B: Both (Small and Medium/Large Firms)

As illustrated by the above table, small timber firms make decisions keeping in mind their impact on the future benefit of the forest. An indication of this was their preparedness to disclose environmental data out of a sense of responsibility and not because they were forced to do so by law.

To conclude, the preferences of sustainable practices are not the same for small and medium/large firms. This strengthens the theory that the size of the timber firm affects sustainable forest practices and therefore it must be taken into account by the regulators and policy makers.

6. IMPLICATIONS AND RECOMMENDATIONS

6.1 OVERALL SUMMARY OF FINDINGS

The analysis of data collected from the preliminary interviews and the postal questionnaire established that the opinions and ideas of timber firms’ managers are dependent on the size of such firms, a consideration previously neglected by most legislators. Thus, the results obtained led to the rejection of the main null hypotheses, which stated that, the size and business structure of the timber firm has no effect on sustainable forestry practices by forest users. In addition, with regards to the secondary hypotheses, it was confirmed that size of timber firms did indeed affect the preferences of such firms in their sustainable forest practices. Thus, the results obtained led to the rejection of the secondary null hypotheses.

As stated before, there is a clear link between the two predominant groups of variables contained within the hypotheses, that is, between the size and business structure of timber firms and sustainable forest practices, in particular accounting, taxation/subsidies, regulation/control policies. These linkages originated due to the existence of inter-related relationships between all factors within the above-mentioned groups of variables. Such a link arises when the manager of a timber firm, of a particular size and business structure, makes short- and long- term decisions affecting the environment of the forest. Should the size of the timber firm affect the decision-making processes of this manager, who usually applies various accounting policies, taxation/subsidies and regulation/control policies, then these factors (size and business structure of the timber firm) are considered able to further influence forest users to follow specific sustainable forest practices. Thus, it is apparent that when management decisions within a timber firm are being made, net profit is by no means the only factor taken into consideration. Rather, management considers a variety of factors in such a decision-making process. These other impacting factors, referred to previously throughout the research as the unified criteria, are the accounting regulatory bodies that set the accounting standards to be followed, the federal government that makes the changes in the taxation law and the Commissioner of Taxation who interprets and applies taxation law, and the federal and state governments that change the laws and regulations on forestry activities.

Consequently, interrelationships present between the above detailed variables have been evaluated in order to aid the reaching of specific conclusions. These variables were also further summarised to allow the provision of some recommendations.

After conducting the relevant statistical tests and comparing and evaluating the above research results, there is now enough evidence to reject, formally and unequivocally, the first main null hypothesis. In analysing the size of a firm in the primary sector of the timber industry, the null and alternate hypotheses were stated as follows:

H_o: The size of a firm operating in the primary sector of the timber industry has no effect on the firm’s forestry practices.

H_a: The size of a firm operating in the primary sector of the timber industry

affects the firm’s forestry practices.

From the analysis performed in this paper, there was strong evidence to suggest that the size of a firm operating in the primary sector of the timber industry does indeed affect particular sustainable forestry practices.

This research has developed the theory that the size of the timber firm has an effect on:

· specific sustainable accounting, taxation/subsidies and regulation/control policies; and

· preferred sustainable forest practices undertaken by timber firms.

In summation, it was found by the literature review and the preliminary interviews that the size of the timber firm is not a factor taken into consideration when formulating policies and that current, native forests are not kept in a sustainable way. The postal questionnaire was used to confirm this assertion. It is the ultimate and final contention of the researcher that should, in the future, the size of timber firms be taken into account when implementing sustainable forest policies.

6.2 IMPROVEMENTS

The interpretation of the results found that when factors such as size of the timber firm exist, then in the minds of the respondents, sustainable forestry is the inevitable outcome. That is, when legislators eliminate the homogenous application of policy and accept the impact that size of timber firms have on their preferences to sustainable forest practices, the ultimate effect is the betterment of native forests. With the inclusion of such factors in accounting, taxation/subsidies, regulation/control policies, the fundamental consequence will undoubtedly be the improvement of the forest resource for future generations.

6.3 CHANGES

This research also found that there are possibilities of having policies that are not dependent on the size of the timber firm. A future investigation into these policies will be invaluable. Both small and medium/large timber firms believe that some services have not been dealt with as yet. For example, the forest and its services to the community have not been evaluated in the past and something must surely be done to change this. Timber firms of this size also agreed on the monetary evaluation of services of the forest resource and the forest services to the community. It is interesting to note that both sizes of firms believe the forest has a market value. This response is consistent with their support for methods of valuation of the forest.

6.4 RECOMMENDATIONS

Consequently, the above analysis provides some scope for recommendation that any reform package aimed at assisting timber firms in the achievement of sustainable forestry must address the size of the firms. Then actual forest resource would be protected and preserved for use and enjoyment by future generations.

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