Environmental Accounting and Caliber of Financial Reporting of Nigerian Quoted Firms

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Environmental Accounting and Caliber of Financial Reporting of Nigerian Quoted Firms


Oranefo, Patricia C.

Department of Accountancy

Nnamdi Azikiwe University, Awka

Mail: rollandchi@yahoo.com


This study therefore examined the environmental accounting and the caliber of financial reporting of Nigerian quoted firms. The study employed survey research design. The entire number of service companies listed on the Nigerian Stock Exchange (NSE) made up the population of this study.  Data were generated through questionnaires distributed to respondents. Pearson’s Chi-square method was employed to test the hypothesis. The result shows that capitalizing environmental resource expenses including those for hiring, choosing, training, education, welfare, contributing to a pension fund and subsistence allowance allows for better accounting of these costs. As a result, they must be capitalized and reported as assets. When this is done, listed service businesses in Nigeria can be more accurately valued, and their financial reports can more reliably convey important financial data for use by different report users. Based on the result, it was recommended that backup plans for dealing with unusual and unintentional discharges as well as programs for reducing waste should be required of businesses.

Keywords: Environmental accounting, Financial reporting and Service companies


Environmental accounting covers the identification, measurement, and allocation of environmental expenses, as well as their integration into corporate operations and dissemination to stakeholders. Since it incorporates transparency into its societal actions, it is a comprehensive strategy for ensuring excellent corporate governance. Because of some people’s rude attitudes and lack of respect for environmental accounting, performance falls short of expectations. This is because environmental accounting makes it possible for the company to keep track of all the money it spends on the environment. This helps the company figure out how to cut those costs (known as environmental expenses) and make more money for the business. Additionally, environmental accounting assists in demonstrating a company’s environmental stewardship to the outside world (Ahmad & Courtis, 2022).

In order for societies to transition from manufacturing-based to information-based and eventually to knowledge-based societies, certain processes and procedures—like those pertaining to management, accounting, and finance—must be unfrozen. In today’s knowledge society, all economic activity revolves around environmental accounting. The creation and application of knowledge are the primary drivers of wealth creation in a knowledge economy (United Kingdom Department of Trade & Industry, 2019). Therefore, knowledge workers rather than machines are the primary resource in knowledge-based economies. As a result, without stressing the significance of environmental accounting, it will be impossible to report the financial performance and position of knowledge-based enterprises (also known as service-based companies).

Due to the fact that the term “financial accounting” is frequently used in relation to monetary terms (Bartolomeo, et al., 2020), the distinction between regulatory and environmental accounting dates back to a time when regulatory agencies introduced external accounting.2020).It is clear that environmental accounting can be used not only at the organizational level, but also at the plant, company, regional, and national levels. In order to inform their stakeholders, businesses currently voluntarily account for physical and financial information (Bartolomeo et al.,2020).

The remarkable expansion and financial impact that the banking sector, the technology and communication industry, and other service-oriented businesses have had on the Nigerian economy over the past ten years demonstrates the significance of the service sector. Over the past ten years, activity at the Nigerian Stock Exchange (NSE) has been dominated by the service sector, particularly the banking sector (NSE Fact Book, 2020).During that time, investors expressed a significant amount of interest in the shares of the service sector and made substantial investments in that sector. Investors and other stakeholders in this scenario heavily rely on the service companies’ published financial reports when making investment decisions. They expect service providers to provide sufficient data to present a true and accurate picture of their business practices, which may be crucial to all parties involved.

When a listed service company publishes its financial performance and position for a particular time, it is anticipated that all significant and pertinent information will be included. If these businesses fail to disclose their key asset (environmental accounting), the adequacy and significance of their financial information disclosure is questioned. Therefore, the intangible assets that corporations do not record, primarily environmental resources, frequently play a significant role in the difference between their shares’ book value and market value (Abubakar, 2020; Lev, 2021).

When this company only mentions the value of its corporate buildings, furniture, and technological devices without mentioning the value of its environmental resources, should the financial statements be considered to be true and fair? The probability of a negative response is higher. A significant number of intangibles are also indicated by the size of the disparity between the company’s book value and market value. This study therefore examines the environmental accounting and the caliber of financial reporting of Nigerian quoted firms.

Literature Review  

Environmental Accounting

The early days of environmental accounting were marked by uncertainty. According to studies from that time period, the first studies in the field of environmental accounting began in 1970 and were more descriptive. Between 1970 and 1980, environmental accounting went through four stages (Vasile & Man, 2020).There have been conversations about the job of bookkeeping in revealing data about natural drives from 1981 to 1994.During this time, researchers have become more interested in this topic, and environmental accounting is starting to get more attention from managers and even accountants. Additionally, research on social accounting has suffered as a result of an increase in environmental accounting researchers (around 267) (Vasile & Man, 2020).

Between 1995 and 2001, environmental accounting entered its mature phase. An environmental audit is currently being carried out, and environmental information is now beginning to be taken into consideration. Theoretically and practically, environmental accounting was also discussed, particularly in developed nations. Environmental reports are still the primary subfield that researchers have focused on, but the number of studies from this time period is beginning to significantly increase. The adoption of environmental management standards, which have been dubbed the “cornerstone” of environmental accounting (Vasile & Man, 2020), has sparked interest in this subfield. Rules for environmental accounting and reporting environmental data have also been published since 2002.

Financial Reporting

According to Nzekwu (2019), the supply of key quantitative representations of individual corporations that support a wide range of contractual relationships and enhance the information environment as a whole is referred to as corporate financial reporting. He added that the nature of monetary revealing of an element influence on the company’s income as well as impacting the expense of capital on which the incomes are limited. It can also help investors and managers find and analyze investment opportunities. This definition focused on how an entity provides information and how that information affects the reporting entity’s cash flow.

From a different point of view, corporate financial reporting is thought to be an important and effective way to spread financial information. According to Salawu (2019), corporate financial reporting is the public reporting of a company’s operating and financial data through annual reports and accounts. It is a process that has many benefits for the people who use the reports, who use them more often to make decisions. However, Beuselinck and Manigart (2017) identified a number of major issues with corporate financial reporting, including the use of out dated technology, the use of out dated technology, a lack of timely information, increased printing costs, and limited copies available to a select market. Accounting records are the primary source of information for the preparation of annual financial statements and for the effective operation of an organization’s affairs, making up an organization’s financial reporting (Barth, Landsman, Lang, & Williams, 2016;Lee, 2016).As a result, it’s critical that they serve their intended functions accurately. According to Mainnes & Wahlen (2016), the accounting and information systems that are used to prepare financial reports need to provide a foundation for the generation of management information that is required for the organization’s effective and efficient day-to-day operation. This information needs to be consistent and compatible with the information that is included in the financial statements. Members’ responsibilities to the organization and its stakeholders are fundamentally supported by the records and reports they generate.

Empirical Review

Field (2021), who has written a lot about the economics of natural resources, looked at the benefit-cost analysis method by discounting environmental project and activity input and output values based on the future. The regulatory Evaluation Impact Assessment (EIA) study on the environment has largely served as the method for measuring benefit-cost analysis. Using T-test statistics, Pearson product-moment correlation, and regression analysis, Enahoro (2019) discovered that environmental accounting disclosure differs between Nigerian quoted companies. Bassey, Sunday and Okon (2016) then again utilized Pearson’s item second relationship examination of oil and gas organizations in the Niger Delta district of Nigeria. They observed a positive correlation between the company’s profitability and environmental costs. According to Epstein (2016), the costs of environmental degradation include emissions into the air, water, and land. It also includes quantities of solid water that must be disposed of, possibly through land spreading or incineration, as well as aspects of untreated domestic waste outflows into rivers and coastal oceans. Airborne S02 emissions from power plants caused by stack-gas scrubbing, which results in a highly concentrated sludge, and degradation, such as illegal dumping along the sides of roads or in remote areas at night, are examples of pollution.


Research Design

With a large sample size of 102 quoted service companies in Nigeria and approximately 9100 respondents, this study combined descriptive and survey research methods. Questionnaires are typically regarded as a more objective research strategy that can produce generalizable results when the sample size is large.

This study’s population consisted of all service businesses listed on the Nigerian Stock Exchange (NSE).The review populace is classified into NSE areas and is believed to be limited. On the NSE, there are 35 different industries, 13 of which are housing service-oriented businesses. The information about the service-oriented industries as well as the number of businesses in each industry is presented in Table 1.

The questionnaire was used in this study to test a particular hypothesis by utilizing the Pearson’s Chi-square method and questions 7 through 15.

23 quoted service providers made up the sample, or 22.55 percent of the total population, according to the calculations. Every person in the population had the same chance of being selected for the sample when proportional and basic random sampling methods were combined.

Questionnaires Administered

Where the number of respondents is quite vast, Yemane (1967) sampling technique was thought to be better suitable (Eric, 2009). It was taken into account and used in this investigation for this reason. Due to the nature of the research, emphasis was placed during the administration of the questionnaire on the executive officers and other management personnel of the companies. Using practicality and value judgment, the number of questionnaires distributed to additional types of respondents was determined.

Data Analysis Methods

The study hypothesis, which was based on rankings of environmental expenditure, was put to the test with the help of the Kendall’s Coefficient of Concordance (KCC) as a tool. The respondent’s agreement with the significance placed on environmental expenditures for capitalization as assets was determined using this method.

Model Requirements for Validation of the Developed Model

EBO (1995) Model was utilized to determine the value significance of the “Salisu environmental accounting Model” on the caliber of financial reporting of listed service firms in Nigeria. Here, we want to test hypothesis 2 by demonstrating empirically the effects of the “Salisu environmental accounting Model” (2). Accordingly, the study developed the following equations to determine the outcomes of multiple regression utilizing the EBO (1995) Model.

AMPi is equal to I plus i1BVPS  +     i. ………………………………..i

AMPt = t+ t1BVPS + ———————————————————–ii

AMP stands for Average Annual Market Price.

Book Value Per Share is BVPS.

  Data Analysis

  Basic Descriptive Statistics

In this section, the descriptive statistics, tolerance and Variance Inflation Factor (VIF) are presented and discussed. The objective here is to provide explanations on the basic features of the data used. Table 4.9 below shows the mean, standard deviation, tolerance and VIF values of the variables considered.

Table 1:  Descriptive Statistics Results

Variables With HR Value:   BVPS   AMP
Mean Std. Deviation Tolerance VIF   12.0858 8.20164 0.305 3.278   24.9867 15.58926 N/A N/A
Without HR Value: Mean Std. Deviation Tolerance VIF   12.1275 8.20164 0.307 3.260   24.9867 15.58926 N/A N/A  

Source: SPSS Regression Results

When the HR value is excluded from their financial reports, the figures in Table 1 show that the average BVPS of the banks under examination is N12.13. However, when the HR value, which was calculated using the “Salisu HRV Model,” is taken into account, the BVPS is N12.09, which represents a 4k drop. Low standard deviation coefficients for each of the independent variables (BVPS) show their importance to the “Salisu HRV Model.”

The tolerance and VIF values are used to evaluate the multicolinearity of the variables taken into consideration.

Table 2: Regression Results Computed from the Data on Table 4.8

Statistical Variables Without HR Value With HR Value Difference
R 0.914 0.922 +0.008
R Square 0.836 0.850 +0.014
Adjusted R Square 0.775 0.794 +0.019
F Statistics 13.594 15.126 +1.532
t – values: BVPS 0.342 0.741 2.146 0.064**  
Significant 0.002* 0.001*  

Source: SPSS Regression Result

Because estimated R is greater than 0.875, the statistical findings in table 2 above indicate that there is a significant connection between AMP, the dependent variable, and BVPS in both scenarios. The EBO regression model was found to be broadly fit based on the two scenarios’ modified coefficients of determination (R2) values of 83.6 and 85.0 percent, respectively. This suggests that 83.6 percent of the changes in the market share prices of the Nigerian banks chosen for quotation are explained by BVPS, which does not take HR value into account. Similarly, if HR value is incorporated, BVPS account for 85.0 percent of the variances in the selected Nigerian banks’ market share prices. This demonstrated that the variable whose HR value is included in the selected banks’ financial reports has a greater impact on the share price.


Although it employs mathematical modeling techniques, this study is more of a survey. The questionnaire itself was used as the data source for the study. The responses to the questionnaire were analyzed using chi-square, tables, percentages, problems, Kendall’s coefficient of Concordance, respondents’ knowledge of existing models for the use of environmental resources and their shortcomings, and potential approaches for including environmental resource value in a service company’s financial statements. All aspects of environmental accounting, both controversial and noncontroversial, were covered in detail in the surveys, which also required respondents to rank certain well-known expenditures on environmental resources.

In addition to the developed model, this study’s findings demonstrated that quoted service providers in Nigeria receive higher valuations for their environmental resources when all relevant expenditures are capitalized. As a result, accounting for environmental resource expenses, such as hiring, choosing, training, education, welfare, and subsistence allowance, can be improved by capitalizing these costs. They must therefore be reported as assets and capitalized. When this is done, Nigeria’s listed service businesses can be valued more accurately, and their financial reports can reliably provide various report users with important financial data.

The concept of environmental accounting was thoroughly examined in the research paper. To put it another way, the findings of the study demonstrated how crucial it is for service organizations to value the environment as an asset in their financial reporting and to account for it. Based on the majority of the existing literature, the study came to the conclusion that the cited service providers can gain in a way that is sufficiently justifiable from using the created model to evaluate and report environmental data. The justifications are supported by scientific evidence in the study.


  1. Backup plans for dealing with unusual and unintentional discharges as well as programs for reducing waste should be required of businesses.
  2. The government ought to mandate environmental reporting in annual reports because the majority of businesses rarely document their environmental activities.


Abubakar, S. (2020). Environmental Accounting: An Assessment of the Valuation Models and Methods. Nigerian Journal of Accounting Research, Vol. 4, No. 2, June, pp. 80-102.

Ahmad, K., & Courtis, J. K. (2022). Association between Corporate Characteristics and Disclosure Levels in Annual Reports: A Meta-Analysis. British Accounting Review, 31, 35–61.

Barth, M., Landsman, W., Lang, M. & Williams, C. (2016). Accounting Quality: International Accounting Standards and US GAAP. Working paper series.

Bassey, E.B; Sunday, O. E & Okon, E. E. (2019). The Impact of Environmental Accounting and Reporting on Organizational Performance of selected Oil and Gas Companies in Nigeria Delta Region of Nigeria. Research Journal of Financial and Accounting, 4(3).

Beuselinck, C. & Manigart, S. (2017). Financial Reporting Quality in Private Equity Backed Companies: The Impact of Ownership Concentration. Small Business Economics, 19, 201-214.

Enahoro. J.A (2019). Design and Bases of Environmental Accounting in Oil and Gas and            Manufacturing Sectors in Nigeria. Ph.D Thesis, Covenant University Ota, Nigeria. p.92.

Epstein, M. J. (2016). Making sustainability work: Best practices in managing and measuring corporate Social, environmental, and economic impacts, UK: Greenleaf Publishing  Limited

Field, B.C (2021). Natural Resource Economics, An Introduction, Boston, McGraw-Hill

Lee, T. A. (2016). Financial Reporting and Corporate Governance. Chichester, England: John Wiley & Sons.

Lev, B. (2021). Intangibles: Management, Measurement, and Reporting. Washington, D.C.: Brookings Institution Press.

Maines, L. & Wahlen, J. (2016). The Nature of Accounting Information Reliability: Inferences from Archival and Experimental Research. Accounting Horizons, 20(4), 399-425.

Salawu, R. O. (2019). Financial Reporting on the Internet by Quoted Companies in Nigeria. A Paper Presented at a Conference on “Repositioning African Business and Development for the 21st Century”, Ife, Osun State.

United Kingdom Department of Trade and Industry (2019). Corporate Reporting under a Knowledge Economy. London: Jossey-Bass.

Vasile, R. L. & Man, R. C. (2020). Discussion: R.G. Barry Environmental resource Accounting, In The Behavioural Aspects of Accounting Data for Performance Evaluation, Edited by Burns, T.J. Columbus: Ohio State University.

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