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Impact of environmental regulation on financial reporting of pollution activity: A comparative study of U.S. and Canadian firms

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  • Ashcroft, Paul
  • Murphy Smith, L.

Abstract

Business firms are under scrutiny to provide accurate environmental reporting, including capital costs and operating expenses concerning pollution. Environmental reporting is incorporated into annual financial reports as well as specialized environmental reports. The extent or value of such information is an appropriate subject for accounting research. This study investigates environmental reporting in audited financial statements of U.S. and Canadian firms prior to SOP 96-1, to determine whether environmental regulation starting with SOP 96-1 was needed. One would expect that environmental information would be useful to shareholders and others in assessing the environmental risk exposure of a firm. The key question addressed by this study is whether a firm’s reported environmental information (environmental capital costs and environmental operating costs) actually reflects the firm’s pollution. The findings suggest that many firms were failing either to record or to fund necessary environmental expenditures, and therefore, may have significant amounts of unrecorded future environmental obligations. As a result, the accounting guidance provided by FASB, starting with SOP 96-1, was appropriate for enhancing financial reporting regarding environmental matters.

Suggested Citation

  • Ashcroft, Paul & Murphy Smith, L., 2008. "Impact of environmental regulation on financial reporting of pollution activity: A comparative study of U.S. and Canadian firms," Research in Accounting Regulation, Elsevier, vol. 20(C), pages 127-153.
    • Handle: RePEc:eee:reacre:v:20:y:2008:i:c:p:127-153
    DOI: 10.1016/S1052-0457(07)00207-X
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    References listed on IDEAS

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    1. Alciatore, Mimi & Dee, Carol Callaway & Easton, Peter, 2004. "Changes in environmental regulation and reporting: The case of the petroleum industry from 1989 to 1998," Journal of Accounting and Public Policy, Elsevier, vol. 23(4), pages 295-304.
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    1. Dugan, Michael T. & Turner, Elizabeth H. & Thompson, Mark A. & Murray, Susan M., 2017. "Measuring the financial impact of environmental regulations on the trucking industry," Research in Accounting Regulation, Elsevier, vol. 29(2), pages 152-158.
    2. Bianca Raluca BADITOIU & Alexandru BUGLEA & Diana Corina GLIGOR-CIMPOIERU & Valentin Partenie MUNTEANU, 2020. "Csr Disclosure Of Financial European Companies Within Integrated Reports," Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 14(1), pages 924-938, November.
    3. Konstantinos Evangelinos & Ioannis Nikolaou & Walter Leal Filho, 2015. "The Effects of Climate Change Policy on the Business Community: A Corporate Environmental Accounting Perspective," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 22(5), pages 257-270, September.

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