Frank Badua, PH.d. American accounting association annual meeting August 7, 2013

1. GREENING THE ACCOUTING CURRICULUM: HOW RESEARCH INTO THE NEXUS BETWEEN ACCOUNTING AND THE ENVIRONMENT CAN INFORM OUR PEDAGOGICAL EFFORTS Frank Badua, PH.d.American accounting association annual meetingAugust 7, 2013

2. Introduction • Business press and the academic literature have called for increased participation by the accounting profession in the stewardship of the environment. • Accordingly, there is a need for the accounting curriculum to promote environmental matters as part of the accountant’s expertise. • While accountants are aware of this need, academics need to develop a comprehensive approach to raise student appreciation for green matters.

3. Purpose • To identify, consolidate, and contextualize disparate research efforts focused on accounting and the environment, but originating in different areas.

4. Purpose

5. Research Methodology • Research focused on articles published in peered reviewed academic journals that study the relationship between accounting and the environment. • Rutgerts Academic Research Database: Records the topical and methodogical characteristics of accounting research papers. • Other web searches. • Many papers analyzed the effect of management’s environmental disclosures, environmental regulation, or incidents related to the environment (e.g. oil spills) on various measures of financial performance such as stock price returns and bond or credit rating.

6. Research Methodology

7. Research Methodology

8. Research Methodology How can these research papers inform the curriculum of the different accounting areas?

9. A Greener AIS Curriculum • AIS, whether digital or manual, is intended to capture all decision critical and firm relevant information. • AIS is relevant to the development of a greener accounting curriculum because much of the information by which a firm’s environmental friendliness is determined is measured in non-monetary and non-quantitative terms. • This is especially true of Enterprise Resource Planning Systems (ERPS) which are esentially databases of all firm relevant information.

10. A Greener AIS Curriculum • Relationship of ratings of firm financial performance with environmental performance. • Environmental performance rating systems that use non-monetary measures to evaluate a firm’s greenness such as: • Franklin Research and Development Corporation • Council of Economic Priorities • Investor Responsibility Research Center • Wiseman Scale • Specific non-monetary measures of environmental performance: • Number of polluting incidents • Number of staff involved in environmental compliance audits • Other non-quantitative criteria: • Whether a firm has a written policy committing to environmental amelioration. • Whether there was any member of the Board of Directors charged with environmental oversight.

11. A Greener Auditing Curriculum • The traditional role of auditing has been to provide assurance as to the veracity of financial statements and their conformity with GAAP. • But there has been a call to apply the auditor’s expertise and skills to non-financial matters and, more ,to conduct environmental performance audits. • There has been a call to develop environmental audit standards to govern the following types of audits: • Financial Audits: Reporting entity has properly recognized, valued and recorded environmental costs, liabilities and assets. • Compliance Audits: Entity has conducted the environmentally relevant activity in compliance with all applicable regulations. • Performance Audits: Assess the validity of performance indicators used by the entity in disclosures of environmental activities and whether these activities have been condcted in an effective, efficient and economical matter.

12. A Greener Auditing Curriculum • Other research areas in auditing: • How environmental issues can affect the audit function? • Initiatives taken in the European Union with regards to environmental audits and the emergence of specific guidelines such as the Environmental Management Audit Standards. • Standards intended to instruct government supreme audit institutions (SAIs) on how to conduct environmental audits. • When should the auditor rely on an environmental expert to support his conclusions? • Definition of the term ‘‘environmental asset’’: Benefit is not economic but pertains to aesthetic or health values and habitat, flood, and climate control. ISSAI (2004).

13. A Greener Business Law Curriculum • Business law (BLAW) has continuosly evolved as an academic subject. • Initially, BLAW courses focused on the Constitution, commercial law, partnership law, corporate law, and contract law. • Today business schools offer a broad range of specialized and interdisciplinary courses including environmental law. • Academic research has identified numerous federal statutes relevant to accounting and auditing including: • Clean Air Act • Clean Water Act • Resource Conservation and Recovery Act • Toxic Substances Control Act • Comprehensive Environmental Response Compensation and Liability Act • Superfund Amendment and Reauthorization Act

14. A Greener Business Law Curriculum • Academic research has assessed compiance with environmental laws based on the number of citations, fines and penalties imposed by pertinent government agencies. • Also, some research has aggregated penalties imposed for violation of environmental laws as a measure of environmental capital expenditures. • Today, academic research tends to focus on the disclosures for violations of environmental laws in the financial statements to ensure compliance with the Securities Act of 1933, the Securities Act of 1934, and the Sarbanes Oxley Act. • SEC Regulation S-K: Environmental disclosures required in reports filed with the SEC.

15. A Greener Tax Curriculum • Most accounting students enroll in two tax courses: • A course in individual income taxation • A course in entity taxation • The overall goal of these courses is to teach students to understand fundamental tax principles, apply basic tax planning concepts, and to be aware of the role of taxation in decision making and financial reporting. • Tax provisions often have a limited duration so the timing of transactions is critical for businesses and individuals. • Effective use of environmental tax provisions requires planning and coordination within the organization. • Individuals and businesses have recognized that going green yields significant tax savings; therefore, tax courses represent a fertile ground for greening the accounting curriculum.

16. A Greener Tax Curriculum

17. A Greener Cost Accounting Curriculum • Cost accounting data is gathered periodically and often compared against ideal or expected standards. • Research has been conducted on the use of cost accounting data with respect to privatized state agencies involved in managing water supply, sewage disposal, and lacustrine and river maintenance. • Research has also used data on emmissions of certain polluters by a business and its market value of equity. • Pollution data such as the amount of waste produced by a business has been used as an environmental performance variable to explain envoronmental disclosure and performance. • Cost accounting courses can easily relate these research initiatives to basic concepts such as standards and variances, non-financial performance measures, and responsibility centers.

18. A Greener Financial Accounting Curriculum • Main purpose of financial accounting is to provide information about the firm to external users who provide capital to the firm. • However, information other than that found in the basic financial statements can affect the interests of investors and creditors. • This information is often found in the notes to the financial statements. • Research concludes that information pertaining to environmental performance is relevant to the value of the firm. • There has been a significant growth in socially responsible and environmentally friendly investment and mutual funds .

19. A Greener Financial Accounting Curriculum • Financial accounting concepts may be easily explained by reference to environmental concerns. Some of these concepts include: • Management Discussion & Analysis • Contingent Liabilities • Footnote disclosures • Value Relevance • The nature and scope of annual reports

20. Conclusion: Not Missing the Forest for the Trees • Without proper effort, individual efforts at environmental discussion by instructors in separate courses is analogous to lonely trees unable to cross-pollinate. • To guide efforts at an integrated accounting curriculum intended to foster awareness of environmental matters, prior literature from management information systems (MIS) was consulted. • MIS is an academic major that integrates subjects from different areas. • In addition to MIS, learning models from the education field were consulted.

21. Conclusion: Not Missing the Forest for the Trees Each of these models can be adapted to achieve the task of greening the accounting curriculum.

22. Questions… Contact Information: Frank Badua, Ph.D. Associate Professor of Accounting Lamar University Email: frank.badua@lamar.edu Phone: (409) 880-8649