(1) Meeting regulatory requirements or exceeding those expectations.

(2) Cleaning up pollution that already exists and properly disposing of the hazardous material.

(3) Disclosing to the investors, both potential and current, the amounts and nature of the preventative measures taken by management. (The requirement for disclosure is the estimated liability must be greater than 10% of the companies net worth.)

(4) Operating in a way that environmental damage does not occur.

(5) Promoting a company-wide "environmental attitude."

The International Chamber of Commerce defines the "environmental audit" as follows:

The systematic examination of the interactions between any business operation and its surroundings. This includes all emissions to air, land, and water; legal constraints; the effects on the neighboring community, landscape and ecology; and the public's perception of the operating company in the local area. Environmental audit does not stop at compliance with legislation. Nor is it a 'green-washing' public relations exercise. Rather it is a total strategic approach to the organization's activities.

There are several types of environmental audits. Some are as follows:

(1) Compliance audits are used to ensure that the company is meeting all regulations regarding specific environmental practices, or the implications of non-compliance.

(2) Systems audits focus on how systems are used internally to manage environmental risks.

(3) Audits of transactions of property transfers and due diligence for purchasing property are used to reduce or to understand the potential risks involved in these transactions regarding environmental risk. Lending institutions will often require an environmental audit of a piece of property before they approve a mortgage. The lending institution does not want to run the risk of the company defaulting on the loan. In that case, the lending institution would become the owner, and if contamination exists, the lending institution might have to pay for clean up.

(4) "Treatment, storage, and disposal facility" audits are used to follow different types of hazardous material throughout their life cycle, from origin to disposal. This helps ensure that they are properly disposed and stored.

(5) Audits which focus on preventative measures that can be taken to reduce the amount of risk a company has if these measures are functioning.

(6) Audits to determine accrual of the amount of liabilities and costs associated with environmental damages and to determine that proper disclosure of these costs have been made to the public.

(7) Audits to appraise the production process itself to ensure that products meet specific requirements. Once the environmental risks have been identified, the auditor must check for compliance with accounting standards. Several rules governing environmental disclosures have been developed in recent years.

Regulations for Remediation

Accounting Guidance for Environmental Issues

Environmental Accounting and Auditing Home Page

Oil, Gas and Energy Resources on the Web

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Questions, Comments: Please E-mail Dr. L.M. Smith.