Environmental Accounting Practices And Financial Reporting In Oil And Gas Industry (Nigeria Oil And Gas Industry As A Case Study)

Description

ABSTRACT

This study was conducted to examine the nature of relationship existing between environmental accounting reporting and Oil companies’ performance in Nigeria. Eleven (11) quoted oil companies were randomly selected from the Nigerian Stock Exchange. The secondary data used were from the audited financial statements of the Oil companies. Environmental accounting reporting was measured by the costs of air pollution, water pollution, land degradation, staff welfare, community welfare, and litigations. The performance of the Oil companies was measured using return on capital employed (ROCE); net profit margin (NPM), divided per share (DPS) and earnings per share (EPS). The statistics used in testing the hypothesis is multiple linear regression. The results of the analysis showed insignificant relationships between environmental accounting reporting and performance variables, that is, return on capital employed (P = 0.175), net profit margin (P = 0.95),, earnings per share (P = 0.423), and dividend per share (P = 0.542). Based on the findings, it is therefore recommended that government should make environmental disclosure compulsory and also impose sanctions on the violation by any Oil company in Nigeria; compliance by the Oil companies should be taken seriously so that the environment will be safe for economic growth and development.

TABLE OF CONTENTS

Certification

Dedication

Acknowledgement

Table of Content

Abstract

CHAPTER ONE

INTRODUCTION

• Background of the study

1.1      Problem Statement

1.2      Objective of the study

1.3      Scope of the study

1.4      Significant of the study

1.5      limitation of the study

1.6      Research questions

1.7      Definition of terms

1.8      project organisation

CHAPTER TWO

REVIEW OF LITERATURE

• Introduction

2.1      The Accountancy profession

2.1.1 Public Accounting

2.1.2 Private or industrial accounting

2.1.3 Accounting in the Non- profit making sector

2.2      Formations of professional bodies

2.3      Role of Accountants

2.4      Challenge for the professional Accountants

2.5      The Nigeria Economy Scene and the Accountant

2.6      The professional Accountants and Anti-corruption crusade

2.7      Accountancy profession and Economic Restructing.

2.8      overview of oil and gas industry

2.9      Review of environmental accounting

2.10   Environmental reporting

2.11   Environmental accounting, reporting in oil and gas industry

2.12   Review of related studies

CHAPTER THREE

RESEARCH METHODOLOGY

• Introduction

3.1      Population

3.2      Source of Data Collected

3.3      Method of data analysis

3.4      Historical Background of the study.

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1      Presentation and analysis of data

CHAPTER FIVE

CONCLUSION AND RECOMMENDATION

5.1      Conclusion

5.2      Recommendations

5.3      References.

CHAPTER ONE

1.0                                                          INTRODUTION

• BACKGROUND OF THE STUDY

When the environment is affected, man’s livelihood is affected too. In that case, a rational being as man is always in deep thought of calculation on how to make maximum use of his environmental resources to better his life. This desire drives a man into various activities which include among others: production of goods and services, seeking for adequate accommodation, urban development, portable water supply and others. However, the ongoing environmental activities within the environment have impacted on the ecosystem, thereby leading to the environmental diminution, resource exhaustion, and environmental data misuse. This development brings about the idea of environmental accounting that is, keeping the records of environmental activities in order to know whether the data generated have a significant impact on the performances of oil companies carrying out these activities. Moreover, data generated from an environmental survey carried out by the companies and other agencies can be applied within the organisations, but can also be used by the public through disclosure in environmental reports [1]. One way of making use of the environmental data is by way of disclosure. By this, those users of the information would get an understanding of the company’s stance on  environmental conservation and how it specifically deals with environmental issues [2]. Again, the deepest thought in man’s mind is that one day the environmental resources might be exhausted without commensurate reward. Therefore, the enactment of environmental laws and regulations by government become another option so as to protect the environment from being totally ruined. Similarly, due to uncontrolled activities in the environment as a result of “leakages” in the regulatory framework and weaknesses in policy implementation, gas flaring, waste disposal, air, land and water pollutions have made the development of natural resources and environmental accounting reporting an area of significant interest in Nigeria.

Thus, this paper is set to examine the need for Oil companies in Nigeria (Niger Delta in particular) to account for their impact on their operation environment; it would show whether environmental costs such as, air pollution, water pollution, land degradation, community welfare, staff welfare, environmental security, exploration risk and litigation, have significant relationship with the performance of the oil companies in Nigeria which would be measured using profitability and investors’ indices, Return on Capital Employed (ROCE), Net Profit Margin (NPM), Dividend Per Share (DPS) and Earning Per Share (EPS). The research question is that what is the nature of relationship existing between environmental accounting reporting (ENVC) and financial performance (ROCE,  NPM, DPS, and EPS) of Oil companies in Nigeria?

The result of the study will facilitate the understanding of the impact of environmental accounting reporting on the Oil companies’ performance in the Niger Delta Region of the country; it will help to highlight the amount of disclosure of environmental matters by the Oil companies. Above all, it will add to the existing literature and contribute significantly to knowledge in the area of environmental accounting studies. The major limitation is that the researchers relied on secondary data published (financial statements) by the companies.

• PROBLEM STATEMENT

Environmental accounting involves the process of communicating the social and environmental effects of organizations’ economic actions to particular interest group within society and to society at large. As such it involves extending the accountability of organizations (particularly companies) beyond the traditional role of providing a financial account to the owners of capital, in particular, shareholders. Such an extension is predicated upon the assumption that companies do have wider responsibilities than simply to make money for the shareholders. In this case it is a comprehensive approach to ensure good corporate governance that includes transparency in its social activities.

The problem is that conventional approaches of cost accounting have become inadequate since conventional accounting practices have ignored important environmental costs and activities impacting consequences on the environment. Corporate neglect and avoidance of environmental costing leave gap in financial information reporting. There is no completeness and correctness of fair view to users of financial information, such as shareholders, environmental regulatory agencies, environmentalists and potential financial investors. For example, degradation or other negative impact on the environment could affect corporate financial statement such as create actual or contingent liabilities and may have adverse impact on asset values of the company. Consequential effect on corporate organizations may result in incurring future capital expenditure and cash flows which may impinge on going concern as balance sheet secured loans may not be secure after all if land values for instance are affected by environmental factors. Also, the limited awareness of environmental costing principles and methodology has become an important issue to be addressed. If vital environmental issues and activities are not disclosed, financial statement cannot be said to reveal state of a ‘true and fair view of affairs’ and such has impact on a firm. It is important too, to note that ethical investors will only invest in ethical companies and therefore, will watch out for these ethically responsible companies. Due to this problems which has impact on corporate organization, this study will therefore, evaluate the effect of environmental accounting and reporting on corporate performance.

1.3                                               OBJECTIVE OF THE STUDY

The objective of this study is to ascertain the effect of environmental accounting and reporting on corporate performance. Other specific objectives are as follows:

1. To ascertain the kind of effect environmental cost have on cooperates firm profit making.
2. To ascertain the extent environmental cost affects profit making of a firm.
3. To determine the level the performance of a corporates firm can be affected by environmental cost.
4. To identify the role of environmental cost disclosures on corporate performance.
5. To investigate the level which environmental accounting and reporting enables cooperates firm to manage their resources.

1.4                                             SIGNIFICANCE OF THE STUDY

This will be of benefit to corporate firms in helping them to engage and adequately provide environmental protection agenda in their internal policies on investments and projects which impact on environment. This approach will facilitate protection of the eco-efficiency and competitiveness among corporations in all productive sectors of the economy. The study will facilitate environmental cost reporting responsiveness and disclosure to investors and environmental regulatory bodies. It will assist in efficient cost valuation of environmental remediation and compensation to affected communities particularly the Oil & Gas areas of the Niger Delta in Nigeria by corporate bodies impacting on the environment. A design and conceptual bases for environmental cost accounting and disclosure in corporate financial statement will facilitate efficient valuation of degradation in affected communities. Besides, it will also be beneficial to corporate organizations as ethical investors and the environmentally conscious general public will watch out for ethical responsible companies. This study will assure commitment of the corporate organizations in Nigeria to international agreements on environmental regulations which will in turn assure sustainable development of environment and the eco-system in Nigeria. It will further enable corporate firms to effectively manage their resources and indicate area in which they can improve in their level of performance.

1.5                                                         SCOPE OF THE STUDY

The scope of the study covers the effect of environmental accounting and reporting on corporate performance. It also covers financial environmental accounting effect of three quoted oil and Gas Company and the effect on the performance of these corporate firms.

1.6                                                  DEFINITION OF TERMS

The following operational terminologies used in the study are defined in order to enable a clear understanding of various accounting terms used in the study.

ENVIRONMENTAL ACCOUNTING IN THE CONTEXT OF NATIONAL INCOME: This type of accounting, as used in this study refers to natural resource accounting. These entail statistics about a nation’s or regions consumption of natural resources. It also takes into account the extent, quality and valuation of natural resources which are either renewable or non-renewable.

ENVIRONMENTAL ACCOUNTING IN THE CONTEXT OF FINANCIAL ACCOUNTING: This refers to the preparation of financial reports to external users using international financial reporting standard (IFRS).This is financial reporting to external users conveying the impact on environment and activities impacting on eco-efficiency.

ACCURACY: Exactness of an accountant

ACCOUNTANCY: Profession of an accountant

ACCOUNTING: A statement of money paid or received for goods and services.

ACCOUNTABILITY: Expectation or responsibility of giving an explanation

ANAN: Association of National Accountants of Nigeria.

DEVELOPMENT: A state of being advancing to a higher economic state of a country.

ECONOMY: System for the management and used of resources.

ICAN: Institute of Chartered Accountants of Nigeria.

INTEGRITY: The quality of being honesty and upright in character.

PROFESSIONAL: Practice of person that have acquired advanced education and special training.

1.8                                                       RESEARCH QUESTIONS

To enable the researcher obtain relevant information from the respondent, the following research questions were designed and posed:-

1. What kind of effects does environmental cost have on profit making of a cooperate firm?
2. To what extent does environmental cost affect profit making of a firm?
3. To what level can the performance of a corporates firm be affected by environmental cost?
4. What is the role of environmental cost disclosure on corporate performance?
5. To what level can environmental accounting and reporting enables corporate firms to manage their resources?

1.9                                                         PROJECT ORGANISATION

The work is organized as follows: chapter one discuses the introductory part of the work,   chapter two presents the literature review of the study,  chapter three describes the methods applied,  chapter four discusses the results of the work, chapter five summarizes the research outcomes and the recommendations.