The Study of Causes and Effects of Cost Categorization on Environmental Management Accounting (EMA) at Sierra Mineral Holdings Limited in Sierra Leone ()
1. Introduction
Environmental Management Accounting (EMA) has been described as a support tool for managers to make informed decisions about their environmental impacts beyond its boundaries. (Kamara et al., 2022) [1] It helps management to identify win-win solutions that improve economic and environmental performance (Burritt, Schaltegger, & Christ, 2021) [2].
Environmental Management Accounting (EMA) deals with the internal decision-making related to the environmental performance of the organization (Vinayagamoorthi et al., 2012) [3]. Hence, different types of management accounting and control tools have been designed and implemented to improve the measurement and management of corporate environmental performance and information (Qian et al., 2017) [4]. Research indicates that the fundamental role of accounting with a focus on management accounting is an invaluable tool in supporting environmental accounting (Ariffin, 2016 [5]; Contrafatto & Burns, 2013 [6]). Although the literature on the application of EMA has shown that it is likely to bring cost-saving opportunities; most organisations do have an environmental management accounting system in place. It is therefore advisable for organisations to use other environmental tools in compliance with the environmental legislation in consonance with their environmental aims and objectives (Gale, 2006) [7].
The establishment of conventional accounting systems such as management accounting can be used to establish sustainability accounting in organisations (Schaltegger et al., 2006) [8]. EMA is a prime example of recent innovation in management accounting that represents this development. Sustainable development has increasingly become part of the objectives of many organisations, leading to greater adoption and use of EMA systems (Figge et al., 2002) [9]. EMA constitutes an important part of sustainability accounting (Schaltegger et al., 2006) [8] and is an important instrument for organisations that aim to minimize the total costs or environmental costs and mitigate the environmental impact of their activities, products, and services (Hyrslova and Hajek, 2006: p. 455) [10]. However, the increasing importance of EMA is not only limited to environmental management decisions but to all types of routine management activities, such as product and process design, cost allocation and control, capital budgeting, purchasing, product pricing, and performance evaluation (Staniskis, 2006) [11].
Sustainability development is a topical issue that companies have to reckon with; hence companies that embraced sustainability development are likely to be in the good books of “green customers” and will also maintain a good reputation for their products (Tsui, 2014) [12]. Research has indicated that financial accounting does not fully support sustainable development as the specific accounting rules are highly regulated and applied accordingly. This to some extent has made it difficult to present environmental costs accurately; hence, to address the limitations of management accounting, environmental management accounting (EMA) was developed (Tsui, 2014) [12]. In addition, there are suggestions in the literature that the inherent limitation of conventional management accounting practice is the main challenge that restrains the adoption of EMA in following environmental strategies (Gunarathne & Lee, 2015 [13]; Lee, 2011 [14]; IF AC, 2005 [15]; Gray et al., 1993 [16]; Burritt, 2004 [17]; Burnett and Hansen, 2008 [18]).
The misuse of natural resources and the environment has become the biggest problem facing the world and such as truncated economic growth and sustainable development (Chichan et al., 2021) [19]. However, there is an increasing awareness among all the stakeholders about the importance of the Corporate Social Responsibility of the firms, especially in green concepts. The environment-related information informed decision-making both internally and externally decision-making of the organization. Hence, the collaborative role of government and companies is vital to enhance environmental sustainability; other key stakeholders such as employees and management attitudes with respect to environmental management and performance are paramount in achieving co-efficiency and economic growth (Mokhtar et al., 2016) [20].
This paper aims to provide a brief description of the development of environmental management accounting, provide basic background on the various costs to produce environmental reports, and also develop a compliance strategy for the assessment of the various risks associated with environmental issues.
In addition, this piece of work reviewed the annual cost paid to the government of a leading mining company to make an assessment of the company’s performance and to evaluate how its environmental costs to produce environmental are reported. Furthermore, as stated in the previous article or volume one of this article, the researchers noticed that the said company does not have an internal audit department that should have dictated the Internal Audit functions, a compliance strategy was developed by the researchers to provide possible solutions for each problem identified. The researchers also discussed how knowledge management systems can be used to aid performance in an organization.
2. Aims Objectives and Methodology
2.1. Aim
To establish the increasing role and importance of EMA and its effect on compliance strategy development to minimize risk and the use of knowledge management to improve performance in Environmental Management Accounting.
2.2. Objectives
・ To investigate and evaluate the various cost of environmental reports.
・ To assess the various risks that affect EMA practices by developing a compliance strategy.
・ To evaluate how Knowledge Management Systems can be used to improve an organization’s performance in areas relating to Environmental Management Accounting.
・ To identify the various environmental costs paid to produce an environmental report.
2.3. Methodology
To achieve the aims and objectives of the research, the study made use of probabilistic sampling and uses a research design that caters to both primary and secondary data. The researcher made use of descriptive design surveys, and in addition, conducted interviews to obtain the required data for the research.
3. Categories of Environmental Accounting
This section discusses the cost of producing environmental reports and the report on cost details paid to the government of Sierra Leone for the period 2013 to 2018. The first article published focused on conventional and contingent costs (Kamara et al., 2022) [1] but this piece of work will discuss the various cost of producing environmental reports.
Cost of Producing Environmental Reports
The cost of producing environmental reports is referred to as the cost of reporting environmental performance. From the records inspected we noticed that Sierra Mineral Holdings Ltd is producing various reports to various stakeholders. In other to produce such reports, there are some monetary obligations that must be met. Firstly, Stage seven (7) of the checklist for the issuance of Environmental impact assessment licenses gives guidance on the terms and conditions for such licenses should be issued (Environmental Protection Agency Act 2010) [21].
Based on the information garnered during the research, the researchers developed a table that gives details about the cost paid to the government and other stakeholders of Sierra Mineral Holdings Limited from 2013-2018 (Table 1).
Organizations that are practicing EMA principles are extremely aware of the significance of the environmental impact of an entity’s operations when making an assessment of risk. On the contrary, conventional/traditional costing methods fail to disclose these environmental-related costs. The main reason underlying these incomplete disclosures is the fact that these costs are hidden as Overheads, Operational costs, and administrative costs. This will prevent managers and other stakeholders from making informed decisions in terms of budgeting and forecasting. With the introduction of EMA practices, managers can use such information easily and accurately to make accurate decisions relating to environmental costs.
![]()
Table 1. Report on cost paid to the government of Sierra Leone.
Source: developed by the Researchers.
4. Compliance Strategies
This section will discuss a business model that will be used to develop a compliance strategy on EMA and gives assurance on the internal control processes. The researcher will use the Ishikawa diagram to build a compliance strategy.
Using Ishikawa Diagram to Aid Compliance within Sierra Mineral Holdings Limited
The Ishikawa Diagram can be called Fishbone Diagram or the Causes and Effect Diagram [22]. A compliance strategy was developed by the researchers to assist Sierra Mineral Holdings Limited to look at the root causes and effects of each category of the fishbone analysis and to come up with a possible solution. The causes and effects section is made up of six categories namely Equipment, Process, People, Material, Environment, and Management.
Although we have highlighted the problems (Causes) with environmental management accounting using a fishbone analysis in the fishbone diagram as in Figure 1, it will be prudent we discuss the effects and suggest possible solutions for each problem.
Table 2 provides the various categorizations, problems identified, and the effects of these problems; hence, we were able to proffer suggested solutions to the environmental management accounting risks identified
5. Knowledge Management Systems (KMS) in EMA
Knowledge Management Systems will aid management to record challenges on environmental-related and environmental-driven costs. It is believed by many
![]()
(Source: developed by Researchers June 2021).
Figure 1. Fishbone diagram for vimetco SL limited.
![]()
![]()
Table 2. Solution to the environmental management accounting risk.
(Source: developed by Researcher July 2021).
professionals and academics that knowledge is the key source for a company that wants to gain a competitive advantage in this modern world (Zouari and Dakhli, 2018) [23]. Even though there are various definitions, in a nutshell, a knowledge Management System generally refers to how organizations create, retain, and share knowledge. (Zouari and Dakhli, 2018) [23].
This article focused on the use of a Knowledge Management System in Environmental Management Accounting and how KMS can help aid performance in Environmental Management Accounting within an organization. Firstly, on its use, it can be a springboard to channel all previous incidents for future use. It will help to reduce reputational costs as it will always provide a repository that can be easily referenced to avoid previous occurrences or mistakes. This will aid performance in reducing customers’ complaints or even losing intellectual capital. If customers are satisfied, revenue will definitely increase.
Another important area will be environmental failure cost as these are costs that are incurred after discharging waste into the environment. Knowledge Management systems can be useful to guide management on how to prevent such and also provide guidelines on how to discharge waste into the environment. This will reduce regulatory fines from the government and reduce the risk of losing contracts from greener organizations and that will also lead to boycotts and also loss of important suppliers.
In essence, even if significant employees leave an organization, the risk of losing information will be completely avoided as there will always be a repository to be referenced. This will also guide employees to follow best practices as each process is documented and the system can also propose various alternatives.
6. Conclusions
The various cost of producing environmental reports were analyzed to ensure eligibility for an Environmental impact assessment license. This environmental impact assessment license can only be issued by the Environmental Protection Agency in Sierra Leone if an entity had paid or made satisfactory arrangements with all the listed stakeholders
To aid compliance, a fishbone analysis was developed by the researcher that focused on the cause, and effect, and possible solutions were suggested. The piece of work also discussed how knowledge management systems will be used to improve performance in environmental management accounting practices
These policies will lead to a successful reporting structure in environmental management accounting within Sierra Mineral Holdings Limited in Sierra Leone.
The limitation of this work is that it was focused on Sierra Mineral Holdings Limited in Sierra Leone a mining company, it should have been prudent if a comparative study was done on different mining companies from various African countries to gain an understating of the effectiveness of environmental management accounting.
This research did not investigate the collaborative role of government and companies in enhancing environmental sustainability and the role of other key stakeholders such as employees and management attitudes with respect to environmental management and performance which are paramount in achieving co-efficiency and economic growth. We recommend future research on the role of key stakeholders in enhancing environmental sustainability in the context of Sierra Leone. A comparative study on the effectiveness of Environmental Management Accounting (EMA) on different mining companies from various African countries to gain an understating of the effectiveness of environmental management accounting is also recommended for future research.
All the tools used in this study were randomly selected to answer the research objectives and aim. However, a similar tool can be used to answer different research questions in another research on environmental management accounting.