Academic journal article Journal of Financial Management & Analysis

Need for Broad-Based Environment Accounting Standards

Academic journal article Journal of Financial Management & Analysis

Need for Broad-Based Environment Accounting Standards

Article excerpt

The Exxon Valdez struck a reef in Alaska's Prince William Sound and began leading 11 million gallons of crude oil into the pristine waters and bays. The out-of-pocket costs to Exxon for this environmental disaster were estimated to be US$ 1.25 billion, one third of which was covered by insurance. This does not take into account lost wildlife and livelihoods in the surrounding communities. Since Exxon had no regular accruals for such liabilities, even though every shipment carried a risk depending on the adequacy of Exxon's safely practices, Exxon accountants wrote off US$ 850 million in clean-up costs, reducing Exxon's first quarter net income to US$ 160 million compared to US$ 1.2 billion earned in the previous year in the same quarter. Writing off such a large expense violated the standard accounting principle of matching costs with the revenues they earned. It was concern over this very type of situation which led the Intergovernmental Working Group of the United Nations to initiate a technical study reviewing traditional accounting practices dealing with environmental protection measures. …

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