April 16, 2018


This page details the principles which underpin the practice of Environmental Accounting. Many of these have equivalents in the financial accounting field and have been adapted accordingly.

Physical Facility Assumption
All activities being accounted for are contained within a definable physical (spatial) boundary.

Responsible Entity Assumption
All activities comprising the Physical Facility are controlled by an identifiable person or corporate entity.

Accounting Period Assumption
The life of a business can be divided into equal time periods. These time periods are known as accounting periods. Accounting periods are adopted where possible to match an entity’s financial accounting periods.

Viable Entity Assumption
The viable entity assumption states that the responsible entity will continue long enough into the future to ‘make good’ or rehabilitate environmental impacts and future obligations.
Entities which do not account for and plan for future environmental obligations are not viable entities in relation to environmental management.

Unit of Measure Assumption
Quantities are recorded in units of measure from a recognised system of measurement. For example: Système Internationale Metric units, Avoirdupois, British Imperial units, etc.
Quantities are reported in a single recognised system of measurement.

Unit Conversion Assumption
Derived quantities are determined using recognised unit conversion methods.
These methods use recognised ratios between quantities of different units of measure and different systems of measurement.
For example: 1 foot (British Imperial) = 0.3048 metre (SI)

Indefeasibility Assumption (or Raw Data Principle)
Original raw datasets of environmental observations are kept in their primary state.
A copy of the raw dataset is made for the purposes of editing out anomalies and correcting faulty periods of record. This is then the validated dataset.
An audit trail is kept to trace the provenance of the validated dataset back to the raw dataset.

Process Balance Principle
The total of all material inputs (e.g. energy, mass, volume) to a defined process must equal the total of all outputs from that process.
An imbalance between the inputs and outputs is recorded in the accounts as an unaccounted loss or gain.
The relative size of the unaccounted quantity is an indicator of the quality of the accounts. However, an exact balance should be treated with suspicion. Exact balances can only be the result of pure chance or deliberate misstatement of quantities.

Valid Data Principle
This states that a copy of the raw dataset is made for the purposes of editing out anomalies and correcting faulty periods of record .
An audit trail is kept to trace the provenance of the validated dataset back to the raw dataset.

Full Disclosure Principle
Stakeholders should be able to see all the environmental risks and obligations before they choose to take any related actions.

Probability of Use Principle
The cost of collecting, storing, validating and providing environmental data should be commensurate with the probability that the data will be used in environmental accounts.
Data with a low probability of use should be accompanied by the minimum cost of collection and validation. Data with a high probability of use should attract a commensurately higher cost. Zero probability of use data should have zero cost.

Materiality Principle
All important environment related information that would influence the opinion of a reasonable stakeholder should be included in the environmental accounting statements.

Industry Practices Constraint
The nature of certain industries and their practices can require the departure of traditional accounting theory. In other words, some industries have practices unlike any other that require specialized accounting or reporting. The industry practices constraint allows these industries to go outside of traditional accounting principles as long as it is infrequent and justifiable.

Conservatism Principle
If faced with the choice between two derivation methods, then choose the method that produces the most conservative result in relation to environmental impact.

Uncertainty Principle
No environmental accounting quantity is exact. All environmental quantities carry a tolerance or level of uncertainty.
The uncertainty principle states that you should understand the level of uncertainty in every quantity, in particular, quantities that have been derived and/or aggregated. Within reason, methods should be adopted that serve to minimise uncertainty in the final account quantities.
Uncertainty should always be stated in the final accounts.

Objectivity Principle
Accounting information and reporting should be independent and supported with unbiased evidence. This means that accounting information must be based on research and facts, not merely an opinion.

Consistency Principle
Environmental performance over the long term should be related primarily to environmentally related activities and not related to the methods used in deriving quantities or preparing the environmental accounts.
Where changes in methods are unavoidable there should be a clear audit trail tracing the consequential effects in the accounts back to the documented cause of the change. A reasonable stakeholder should be able to discover the audit trail with relative ease.

Accounting Relevance
Environmental information that is not related to a stakeholder’s decisions is not useful to the stakeholder.

Predictive Value
Stakeholders can use past financial statements to chart performance trends and make predictions about future performance and sustainability.

Feedback Value
Stakeholders can examine environmental information and confirm or adjust their predictions made on previous performance and sustainability trends. Based on this feedback, stakeholders can make future decisions.

Environmental reporting must be timely and current in order to be used by stakeholders assessing performance and sustainability.

Accounting Reliability
Stakeholder’s must be able to verify and validate environmental information and thereby trust the information presented.

Environmental data must be verifiable using independent measures as part of a ‘double aspect validation’ approach.

Representational Faithfulness
Environmental data must represent reality or what actually happened during the year.

Environmental accounting statements must be neutral and objective. They should not neglect to report unfavourable environmental impacts.

Accounting Comparability
Environmental accounting statements must be prepared using methods that are generally accepted by the industry in which the facility operates. This applies in particular to derived quantities.
That way statements relating to a particular facility can be reliably compared with statements for a similar facility.

Accounting Consistency
Environmental accounting quantities should be treated in the same way over successive accounting periods. This applies in particular to derived quantities.