CU-Boulder Professor Naomi Soderstrom is teaching an innovative approach to accounting that has threefold benefits: it saves companies money, reduces environmental degradation and makes students more effective accountants.
As one of the first educators to teach environmental accounting in the United States, Soderstrom looks at how environmental issues affect a company as a whole, across the boundaries of its finances, management and other business practices. The techniques she teaches can increase a company's earnings, lower its taxes and raise its stock prices. While these techniques prompt companies to save money by using environmentally friendly practices, they also train students to look at accounting systems with a critical eye.
Soderstrom, an associate professor of accounting at the College of Business, led the movement to teach this approach in business schools. "A colleague and I taught the first environmental accounting course in the country in the early 1990s," Soderstrom said. Many business schools now include elements of environmental accounting in their standard curricula.
While colleges have traditionally taught business students to fit accounting problems into specific categories, such as managerial accounting or taxes, an increase in the last two decades in environmental regulation and lawsuits for noncompliance has made that approach less effective. These changes affect all areas of a company's accounting and other business practices.
Environmental accounting techniques can help companies use a preventive rather than curative approach to environmental problems that can hurt their success. For example, suppose a company manufactures parts using a process that requires a lot of solvents. Traditional costing systems would fail to include the costs associated with disposal of the solvents, training employees to handle the chemicals and other environmental costs.
By ignoring these costs, the company would end up underestimating the cost to manufacture the part and may therefore make poor decisions, she said. Environmental accounting practices would prompt the company to include these "hidden" costs.
"As a result of recognizing environmental costs, companies are more likely to implement more environmentally friendly technologies that have fewer of these hidden costs," Soderstrom said. "This helps both their bottom line and the environment and helps management make better decisions."
According to Soderstrom, "A key difference between successful and unsuccessful firms of the future will be how quickly and effectively they develop and improve their own environmental accounting strategies and systems. Sensitizing our students to environmental issues in the accounting curriculum makes them valuable to companies that are trying to meet that challenge."
Perhaps most importantly, environmental accounting provides students with an opportunity to examine how accounting practices respond to new legal, economic, regulatory and even ethical pressures, Soderstrom said. The goal is to challenge students to apply existing accounting systems to new settings and to critically analyze existing and proposed accounting systems.
"Accounting in the business world is not always straightforward," she said. "The analytical skills that students develop in my class will help them understand and handle the issues that they will face in the course of their careers."