Accounting models and approaches
Global warming is the consistent and substantial increase in the temperature of the earth’s surface (both land and water) as well as its atmosphere. In other words, the term ‘global warming’ refers to the phenomenon of the increase in the temperatures of the air near the surface of the earth over the past one or two centuries (Francis & Vavrus, 2012). Over the last 100 years, average temperatures around the world have risen by 0.75?C. Also, about 66.66% of this increase has occurred since 1975. This global warming is being caused by ‘the greenhouse effect (GEF, 2016). Hence, global warming is a major issue that has been faced by different countries and requirement of a strong proposal is the need of the hour. Due to the increment in the global market and the immense desire of the multinational companies there is a sharp surge in global reporting language. The reporting is incomplete without the presence of the accounting theory. The regulators have proposed various accounting rules that help in providing accounting information.
Now, this brings us to the question, “what exactly is the greenhouse effect”? ‘The greenhouse effect’ is a process that is natural has been known to mankind for hundreds of years. Now, however, this greenhouse effect has started to hurt mankind. It has reached a point from where it is only getting worse. And it is happening due to man’s irresponsible use of his natural resources and lack of care for the environment. Hence, in order to understand the happening it is vital to assess the suitability of current accounting practices. Improved accounting practices is the need of the hour where current happening are not suitable for the changed scenario of the business. The best applicable accounting theory to this matter is the positive accounting theory. The greenhouse effect causes the temperature of the earth to increase by trapping heat in our atmosphere. This keeps the Earth’s temperature higher than what it would be if the only source of warming was the direct rays of the sun reaching the earth (GEF, 2016). When the direct sunlight reaches the earth’s surface, some of it is absorbed and the rest of it is reflected back into the atmosphere. The rays absorbed keep the earth warm. Now, due to excessive pollution, the greenhouse gases, viz., CFCs (Chloro Fluoro Carbons) and HCFCs (Hydrochlorofluorocarbons) form a layer around the earth’s atmosphere that redirects some of this reflected heat back into the earth’s atmosphere.
Scientific research and studies have shown, with 9/10 certainty, that it is the greenhouse gases produced by humans that is causing this increase in overall temperatures. The root of global warming is the increasing quantity of greenhouse gases being produced by human beings in their day-to-day activities, like burning of fossil fuels or deforestation (Jasch, 2006).
The earth’s climate, as well as its physical environment, is being harmed by global warming. Global warming is harming us in the following ways:
- Increased hurricanes and cyclones
- The rapid rise in sea levels
- Desertification
- Increased melting of snow and ice caps
In this scenario, the best applicable theory is the positive theory that helps in providing a strong definition to a specific happening. Going by the assumption it can be commented that this theory stress on the fact that individuals are self interested and influenced by the concept of wealth maximization. Global warming causes the climate to change. In tune to this, it needs to be noted that people are driven by self gains. The gain appears to be in the form of wealth maximization and hence, they are well defined by the positive theory. However, global warming and ‘climate change’ are two distinct and different concepts. Global warming, as we know, is the term used to describe the increase in the earth’s current average temperature. ‘Climate change’, however, refers not only to changes in temperatures of the earth, but also includes changes in other natural factors like wind, rainfall, seasons (including their length and frequency) and extreme weather condition like droughts, floods, famines, cyclones, blizzards, typhoons, etc (Watson et. al, 2015). Another difference between the two is that global warming is a macro concept, that is it can be seen and studied at global, regional and even at local scales. Increased flooding, longer droughts, more frequent cold waves and heat waves and stronger and more frequent storms and earthquakes are just some of the effects of climate change (Screen, 2013).
Positive accounting theory
Businesses affect every aspect of a man’s life either directly or indirectly. Businesses have an important role to play when it comes to global warming. They can either improve or impair the environment and its condition. When the issue is analysed from a closer angle it appears that every act is a collective action. The consumption of private energy, demand for goods of climate-friendly, and mode of travel and tourist destination are apt examples of climate response measure. This class of climate response is alike to the decision evaluated by the positive theory. It is due to the fact that various climate responses are decisions of the individuals.
The ways in which businesses affect the environment are large in number. One of air pollution’s major cause is the industry (Greenstone & Jack, 2013). The operation of factories results in the emission of various greenhouse gases and other pollutants like sulfur dioxide (SO), nitrogen oxides (NO), etc., that increase global warming. These pollutants can harm the health of the public and cause damage to the environment by contributing to changes in climate.
Other specific examples of how the working world is damaging the environment might be shocking:
- Greenhouse gases are emitted from the heating and air-conditioning systems installed at offices. Also, these systems use large amounts of electricity. Energy efficient systems or technologies are needed at offices to reduce the amount of heat and air conditioning they use.
- Electricity is heavily used (and often wasted) in many offices. Offices need electricity to power lighting, air conditioning, etc.
- Also, most offices aren’t made out of recyclable building materials.
- Offices have a large appetite for paper. Even if they recycle the paper, a large amount of paper still goes waste and ends up in landfills or inside incinerators (Harris, 2006).
- Many businesses do not have proper waste disposal processes and hazardous waste handling knowledge is missing. They generate a large amount of electronic waste like computer parts, machine spare parts and broken equipment that end up in landfills where they don’t break down and to make matters worse, serve as carriers and release harmful chemicals into the groundwater and subsoil (Harris, 2006).
It is due to these reasons that every business, new or old, big or small has to comply with certain environment protection laws. These environmental laws deal with myriad pollution problems. Positive accounting theory is based on the premise that individuals are influenced by self-interest that is linked to wealth maximization. Further, it challenges the view that accountants will be objective.
The Positive accounting theory is based on the fact that it explains the accounting the accounting practice. It is based on the fact that it explains, as well as predict which firm will use and which will not use a particular method. However, it states nothing as to which method a firm will use (Freedman & Jaggi, 2011). Even in the case of climate change and global warming it is noted that all individuals have their own interest and act in an opportunistic manner to enhance their wealth. For example, it explains how managers will have a choice of action when they will be faced with a rival accounting scenario or method. Some will prefer to have a different accounting method over other depending on the scenario. It even happens in the case of global warming where a particular standard in terms of accounting treatment is absent. Undoubtedly, the global accounting standard will help users of the financial statement along with the employees to evaluate the carbon credit or global warming matter so as to derive at a gross position (Freedman & Jaggi, 2011). Hence, in this particular matter institutional theory will be applied because it leads to better application. In this scenario, the new application of new accounting standard will benefit the financial report. On the other hand, as per the Australian Environment Business Network, the application of a new system will enhance the monitoring cost, maintenance, controlling and resources allocation. .
The rules and regulations certainly increase the compliance load of a business along with limiting the scope of earning higher profits and revenues at the cost of the environment. For example, the Clean Air Act (CAA) poses restrictions on the quality of air being released from a factory along with the due steps being followed in the release of such emissions. The Clean Water Act (CWA) places limitations on the quality of water effluents being released into water bodies and also safeguards marshy and swampy areas. The Resource Conservation and Recovery Act (RCRA) places focus on the proper disposal and recycling of waste (including hazardous waste). And the Endangered Species Act (ESA) places rules on the businesses involved in dealing with endangered animals. Due to these laws, the business is restricted into earning much less than what they would have if they had been allowed to use the natural resources rampantly and carelessly (Green & Vasilakos, 2011).
Application to global warming and climate change
That being said, a business’ main objective is to always earn sustainable profits, that is, profits that are enough for the business to sustain its operations over a period of time. This happens when a business has neither the willingness nor the need to shut down in the near foreseeable future. Now, if the business operates without taking into account its carbon footprint and the impact of its operation on the environment, the business might earn profits but, however, it will not survive in the long run (Blanco, 2009). In other words, in such a scenario, the business will earn profits but those profits will not be sustainable. This will happen because if the business does not keep the environmental picture in mind in its day-to-day operations, the entire world will fall including the business. Hence, the business will have to shut down.
Thus, rules and regulations are needed in order to ensure that businesses survive and earn and benefit the society, but without harming the environment. These rules and regulations involve obtaining certificates and permits and meeting compliance requirements, all of which are necessary to ensure that the business operates in an eco-friendly way (Kubik et. al, 2013).
To sum it up, we believe that the various theories provided above provide hope that the regulation that has already been introduced and the ones that are going to be introduced in future will ultimately benefit future generations but that will require corporations to change how they do business. This is both necessary as well as desirable as these laws help us to firstly create a benchmark on the permitted levels and schemes and techniques of procurement, usage, and disposal of natural resources and secondly ensures those businesses and complying with these rules and meeting the required benchmarks. Sustainable economic development is the need of the world today. Moreover, the organization needs time to train employees and enhance the skills and familiarize them with the new accounting regulations and theory. This will enhance the prospect of the financial report. Given the presence of merits and demerits and the deficiency of accounting treatment, it is wondered what can be the best determinants of the accounting treatment in various firms (Freedman & Jaggi, 2011).
We need to ensure that we grow but at the same time, we need to make sure that we leave enough of natural resources for our future generations to grow and develop. It is this sustainable economic development that will be brought about if we follow these rules and laws. Hence, it is imperative that the carbon emission price mechanism should be introduced and other measures that will enable mitigation of the global warming threat. Moreover, it will help in putting a transparent and accurate climate change reporting.
References
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