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1.1 Background to the Study
Disclosure of environmental accounting information in the financial reports of manufacturing firms plays an important role in meeting the decision making requirements of stakeholders. This is so because environmental impacts are of increasing significance and the contents for financial reports on environmental matters are more than just a matter of compliance with the laws. Environmental accounting information disclosure has a significant impact on the quality of financial reports. Stakeholders are growing apprehensive of the environmental performance of manufacturing organizations in Nigeria. Adequate provision of environmental accounting disclosure in this light would create room for transparency, accountability and by extension sustainable environmental practices.
Accountability in relation to environmental stewardship compels firms to be conscious of the need to protect the environment and natural resources as well as provide report on their interactions with the environment. It will also ensure that adequate measures are put in place to ensure a rejuvenation of our environmental resources. Manufacturing firms in Nigeria have to make known the cost implications of their economic activities that will have a positive or negative impact on the environment. The problem of waste mismanagement, ineffective restoration of the environment, climate change and industrial pollution among other environmental issues, are now matters of strategic concern for many businesses. Some manufacturing firms do not dispose their waste properly, thereby discharging harmful substances to their host communities.
Consciousness of environmental degradation by companies has recently mounted pressure on the need for Nigerian manufacturing firms to be environmentally friendly and responsible. These pressures require corporations to respond to public issues such as the need for effective waste management, effective restoration, the need to avoid earth, water and air pollution, and the general need for a safe and clean environment. In the words of Daferighe and Aje (2005), creating an environmental accounting information system within an organization could enhance the awareness amongst firms, of the importance of having quantified information for decision making processes regarding environment and material flow management.
Environmental accounting information disclosure was first reported in the year 1989 (Tilt, 2000). Exxon Valdez incident took place in that year and also the year of the publication of the first environmental accounting information report by Norsk Hydro. The number of firms that made environmental disclosures have continue to increased (Tilt, 2000), but not always has this increase been accompanied by an equal increase in the quality of the financial and non financial information published. Although a firm may have increased the quantity of environmental accounting information disclosed in the financial report, they may not be useful to the reader. In order to be useful, it must satisfy the growing needs of the stakeholders, it is not enough to include little and summarize environmental accounting information in the financial reports; the data must be understandable, identifiable, important and inserted in the most appropriate context of the financial report (Borghini and Salomone, 1998).
Environment accounting information disclosure provides correct evaluation of costs -benefits preservation measures of the environment of manufacturing firms. It assists to provide structure for companies to discover and account for the past, present and future environmental accounting information to aid decision-making and control of management (KPMG and UNEP, 2006). The strictness of environmental impacts has its adverse effect on the quality of our life. Actions are being taken both at the international and national stage to reduce, prevent and diminish its impact on social, economic and political spheres.
The pattern of environmental accounting information disclosure in Nigeria is voluntary in nature. The inference is that Nigerian firms, especially manufacturing sectors may likely misuse the weaknesses inherent in voluntary environmental accounting reporting, which may not report the components of environmental accounting information disclosure that would enable stakeholders make up to date decisions. Past evidence shows that the quality of some financial reporting of listed Nigerian firms has not done enough over time (Adeyemi, 2006; Anyanwu, 2015; Ofoegbu, 2016). Commercial environmental reporting in Nigeria is also at its developing stage (Adeyemi and Owolabi, 2008 and Ngwakwe, 2008).
1.2 Statement of the Problem
Financial reports of some manufacturing firms in Nigeria have been found to be underprovided over time. These reports lack vital components of environmental accounting information disclosure that would enable stakeholders make informed decisions. The importance of the environment performance, resource usage and environmental remediation has been relegated to the background. The financial reports usually convey information on depreciation of fixed assets without considering the degradation effect of organizations interactions with the environment.
Environmental stewardship is yet to be taken seriously in Nigeria. It is no surprise that water, land and air pollution are increasing in Nigeria. Commercial cost accounting systems are not fully showing the financial impacts and environmental costs in the costs of products and transactions. Most firms do not know the degree of their environmental accounting information and so likely to miscalculate them. These mean that if they are not assessing such information they are not monitoring and reporting them. Some Manufacturing firms are therefore not doing enough in capturing the accurate cost of the impact of their activities on the environment and either do they consider the reliability of information contents and accuracy of information.
In addition, much research has not been conducted using predetermined quality of financial reports and the components of environmental accounting information disclosure. These studies have neither ascertained the quality of financial report of manufacturing firms using qualitative characteristics model (QCM) nor examined the relative effects of the components of environmental accounting information that are responsible for the quality of financial reports.
1.3 Objectives of the Study
The main objective of this study is to examine the components of environmental accounting information disclosure and its influence on the quality of financial reports in Nigerian manufacturing firms. The specific objectives are to:
i. evaluate the status of the quality of financial reports of manufacturing firms in Nigeria using qualitative characteristics model (QCM);
ii. ascertain the level of differences of environmental accounting information disclosure among manufacturing firms in Nigeria
iii. examine the significant effect of the components of disclosed environmental accounting information on the quality of financial reports among manufacturing firms in Nigeria;
1.4 Research Questions
The following research questions were developed to guide the study:
i. What is the status of the quality of financial reports of manufacturing firms in Nigeria using qualitative characteristics model (QCM)?
ii. What are the differences in the level of environmental accounting information disclosure among manufacturing firms in Nigeria?
iii. How does the components of the environmental accounting information disclosure have significant effect on the quality of financial reports among manufacturing firms in Nigeria?
1.5 Hypotheses of the Study
In pursuit of the above stated research objectives, the following hypotheses were
H01: There is no significant difference in the quality of financial reports of manufacturing firms in Nigeria using qualitative characteristics model (QCM)
H02: There are no significant differences in the level of environmental accounting information disclosure among manufacturing firms in Nigeria.
H03: The components of environmental accounting information disclosure have no significant influence on the quality of financial reports among the manufacturing firms in Nigeria.
1.6 Significance of the Study
This research would be of assistance to the various stakeholders in the following ways;
At presents, no law requires firms in Nigeria to prepare and publish environmental reports. This study will assist in increasing the perceptive of the extent of knowledge of regulatory authorities in putting in place a set of law that will encourage environmental accounting information disclosure in the financial reports. Currently, there are no local standard for firm’s to prepare and publish environmental accounting information reports. This study will resuscitate the need for the financial reporting council of Nigeria to put machineries in place for environmental accounting information reporting standards .It will assist firms that do not adopt environmental accounting reporting to understand the important of this reporting system and its impact on the financial reports. As accounting development contemporary issue, It will improved the professional accountancy bodies in their mandatory continuing programmers in Nigeria. For the academics, it will add to the improvement of the literature on the components of environmental accounting information disclosure, and will throw more light to scholars and students, on the environmental accounting information disclosure and financial reports quality and will also offer as a body of reserved knowledge to be referred to by researchers.
1.7 Scope and Limitations of the Study
In this study, environmental accounting information disclosure and quality of financial reports of Nigeria manufacturing firm’s were examined. Manufacturing firm’s is chosen based on the fact that some of them do not dispose their waste properly, thereby discharging harmful substances to their communities. The study investigates the manufacturing firms listed on the Nigeria Stock Exchange in the consumer goods, Conglomerates, industrial goods and healthcare sectors. Environmental accounting information components considered in the study include environmental fine and penalties, environmental donations and sponsorships, environmental restorations, environmental waste management and environmental compensation.
The data were limited to the period between 2007 to 2016. This period is considered long enough to enable the drawing of necessary inferences and arriving at useful conclusions. However, the sample size of 10 was used to identify and select manufacturing firms with high disclosure of environmental related information. While acknowledging the limitations of the research, they do not in any way detract from the strength of this result and the importance of its findings and conclusions.
1.8 Operational Definitions of the Key Concepts
The following terms have been defined contextually in order to give readers a clear perceptive of the word’s used in the study. These terms are:
Environmental Accounting Information: Is information that disclosure resource use, measures and communicates cost of the impact cause by the firm on the environment.
Environmental Liabilities: Environmental liabilities are obligations concerning environmental information that are incurred by an organization and that meet the criteria for identification as a liability.
Financial Report: Financial reports is a procedure of producing statements that disclosed a firm’s financial standing to management, investors and the government.
Obligation: An obligation is what you have to do to others that necessitate settlement, by future transfer or use of assets, provision of services or other yielding economic profit at a specified or determinable date, on the occurrence of a precise event.
Quality: Quality is meeting or more than the expectation provided by the company and complying with the standards and other regulations of an organization.
Reports: Reports is a proper account of the happening or transactions of a company’s financial information.
Stewardship: Stewardship is vigilant management of resources entrusted to one’s care.
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