2nd ICAI 2022

International Conference on Automotive Industry 2022

Mladá Boleslav, Czech Republic

4. External failure costs – costs incurred after discharging waste into the environment. The main aim of the entity is based on the reduction of waste and pollution of the environment. The main idea of responsible reporting of environmental costs in the company is the possibility of reduction of the level of global warming caused by production process, hence, the detoxification of a production process and products, and finally to achieve a reduction of environmental impacts associated with resource extraction and processing. (Ekins, Zenghelis, 2021) The above-mentioned environmental costs cannot be allocated directly to the produced inhomogeneous production, and the company must find a way of their appropriate allocation. For this reason, they are called overhead costs. (Constantin, Teodorescu, Nicolau, 2008) Some of these costs should be tax-deductible (such as costs ensuring environmental protection). On the other hand, tax-deductible when the company reports environmental costs like penalties paid for the illegal environmental pollution such as water or land poisoning, forbidden air pollution, etc. Therefore, the fundamental problem lies in the fact that companies cannot comprehensively report completely all environmental costs as environmental costs belonging to mentioned groups of the environmental costs. Therefore, some of the environmental costs incurred during the accounting period are not assessed as environmental costs, and unfortunately, they are incorrectly allocated on all produced products. Firstly, this situation leads to an increase of products’ costs whose production was not responsible for wrongly allocated indirect environmental costs. Secondly, it leads to a decrease in the products’ costs responsible for the environmental pollution. Therefore, the company must identify all environmental costs bases on the classification of environmental costs as it was mentioned. 2.1 Methods of allocation of environmental costs and their comparison The other serious problem is that the companies use outdated methods of allocation of environmental costs that do not split indirect costs into different groups. The consequence of this solution is like the findings written above. Figure 1 represents the situation that the company produces two products - “Product A” and the “Product B”. “Product A” is the product that is produced without any environmental impact. On the other hand, the production of “Product B” is environmentally harmful, because the company produces harmful toxic waste during its production at the same time. The problem is that the accounting entity knows all its environmental costs that were incurred during a specified period, but these costs were allocated in one group classified as overhead costs. Therefore, the accounting entity allocates all these indirect costs on produced products and does not care if “Product A” or “Product B” is harmful or not.

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