Question

some theorist contend that companies that create pollition should report cost of that pollution in income statements. they argue that such companies are indirectly subsidized as the cost of pollition is borne by society while only production cost are shown in the income statement. thus, the product sells for less that would be necessary if all costs were included. my mission is to explain how the concepts of relevance and faithful representation relte to this issue. its for a discussion board, it requires me about a 500 words answer.

Answer 1

The production cost of an product of a firm does not equate with the total cost of an organisation's product that the society pays for it which is termed as external cost the pollution to the society is an external cost.

The pollutionto the society isan external cost to the organisatio, which is not included in the production or service cost. The society today is facing challenges of pollution and climate changes which goes unaccounted for the organisations. The change to improve reporting framework has become essential for companies to increase their responsibility regarding all aspects of environment and to introduce such practices that causes less harm to the environment.

Introducing this awakening responsibility within the corporate sector will be a key element in Strategies for achieving goals of Sustainable development.
An expert report can prove to be an essential element of the social control of a company's internal behaviour.

The elements of external report may be :

1. The company's environmental policy.
2. The directors responsibility of overall environmental issues.
3. The organisation should have environmental objectives, which should be measured so that performance can be accounted.
4. Information on actions taken including details of the nature and amount of expenditure incurred.
5. The impact of key decisions of business on Environment.
6. The extent of compliance of regulations and key industry guidelines.
7. Report on environmental audits done on regular basis be by external auditors.

Their is a need to make changes in an internal systems in both organisational and Technical environment. The change will be made from top to bottom of Management culture by education and training provided to managers and employees.

Steps to be taken to do such changes :

1. Management has to establish clear line of responsibility on environmental matters.
2. The organisation has to set out its environmental policy.
3. The structure and system adopted should be integrated within company's mainstream.
4. Their should be an internal audit to ensure proper implementation of environmental policies.

Changes to be made in technical costing :

• Conventional accounting may inhibit environmental oriented actions costs.
• The accounting system should also evaluate the potential benefits for environmental decisions.
• And positive steps which are helping societies in pollution control must be noted and appreciated.