Help keep the world green.

The ISO 14000 standards present a challenge for companies and a service opportunity for CPA firms.

As we approach the new millennium, concern about the environment is becoming a worldwide phenomenon. Environmental costs and obligations have grown substantially and will continue to grow as society becomes more conscious of its surroundings, environmental laws and regulations increase and corporations face increased pressure to be good environmental citizens. To address the emergence of an international "green movement," many countries have enacted legislation intended to hold organizations more accountable for their environmental obligations. Companies have responded by taking a proactive stance on voluntary initiatives.

The International Organization for Standardization (ISO) promulgated a series of standards called ISO 14000 that are intended to help businesses around the world voluntarily manage their environmental responsibilities and ensure that policies, procedures and practices conform with company environmental targets and objectives. The worldwide impact of these standards is expected to transcend those of the ISO 9000 quality standards. In fact, ISO 14000 may eventually become a requirement for obtaining ISO 9001 recertification.

Businesses of all sizes across all industries face the demanding high-stakes challenge of attaining ISO 14001 registration and certification. (ISO 14000 consists of several guideline standards and one compliance standard, labeled ISO 14001, which includes the rules companies register under to become certified.) Exhibit 1, page 59, describes the six ISO 14000 categories and the related standards. Like ISO 9000, ISO 14000 may someday become a prerequisite for competing in the global market while also helping to safeguard the earth's resources.

Exhibit 1: ISO Categories and Related Standards

Category             Standards

1. Environmental     ISO 14001, which provides core requirements
management systems   for establishing and maintaining an EMS that
(EMS)                an external third party can certify or
                     register

                     ISO 14002, which provides guidelines on ISO
                     14001 for small- and medium-sized enterprises

                     ISO 14004, which explains EMS and helps
                     companies tailor it to their operations

2. Environmental     ISO 14010 -- General methods on environmental
auditing             auditing

                     ISO 14011 -- Audit procedures--Auditing of
                     EMS

                     ISO 14012 -- Qualification criteria for
                     environmental auditors

                     ISO 14013 -- Management of environmental
                     audit programs

                     ISO 14014 -- Initial reviews

3. Environmental     ISO 14015- Environmental site assessments
labeling
                     ISO 14020 -- Environmental labels and
                     declarations

                     ISO 14021 -- Environmental labels and
                     declarations; self-declared environmental
                     claims--terms and definitions

                     ISO 14024 -- Environmental labels and
                     declarations--Environmental labeling Type I.

                     ISO 14025 -- Environmental labels and
                     declarations--Environmental labeling Type III

4. Performance       ISO 14031 -- General guidelines on
evaluation           environmental performance evaluation

                     ISO 14032 -- Case studies illustrating the
                     use of ISO 14031

5. Life-cycle        ISO 14040-- Life-cycle assessment--Principles
assessment           and framework

                     ISO 14041 -- Environmental management in
                     life-cycle assessment--Goal and scope
                     definition and inventory analysis

                     ISO 14042 -- Life-cycle assessment--impact
                     assessment

                     ISO 14043 -- Life-cycle
                     assessment--interpretation

                     ISO 14047 -- Examples for the application
                     of ISO 14042

                     ISO 14048 -- Life-cycle indicator format

                     ISO 14049 -- Examples for the application
                     of ISO 14041

6. Environmental     ISO 14064 -- Guide for the inclusion of
aspects in product   environmental aspects in product standards
standards

Practitioners experienced in ISO 9001 registration can add ISO 14000 certification and auditing to their consulting services. CPAs who took an active role certifying and auditing quality management systems (QMS) under ISO 9000 can develop a market niche certifying and auditing environmental management systems (EMS) under ISO 14000. This article includes information that will help both financial managers and CPAs in public practice meet the challenge of implementing ISO 14000.

ISO 14000 ENVIRONMENTAL STANDARDS

In 1996, the ISO issued its ISO 14000 standards, the first globally recognized guidelines, to help safeguard the environment by promoting adequate and effective control for environmental practices and by monitoring a company's compliance with both internal and external laws, regulations and policies. These include laws governing

* A company's ongoing environmental conduct (for example, under the Clean Air Act Amendment of 1990).

* Cleanup of contamination caused by a company's business activities for example, under the Superfund Act of 1980).

* Personal injury or property damage caused by exposure to chemicals and other pollutants.

To obtain an ISO 14000 certificate, a company must meet ISO 14001 standards, a series of EMS standards. Like the ISO 9000 standards that were designed to ensure high-quality products and services by certifying the quality of various processes and practices, ISO 14000 standards are likely to be adopted by businesses worldwide.

ISO 14000 environmental standards are a voluntary and market-driven approach to improving environmental performance and protection that provides an alternative to mandatory government regulations. Businesses may find implementing ISO 14000 a means of preventing further mandatory regulations and minimizing their exposure to surveillance and sanctions by governmental agencies. Indeed, these voluntary standards do not need congressional or Environmental Protection Agency (EPA) approval. Thus, environmental groups, government agencies and especially companies, their legal counsel and independent accountants should become familiar with ISO 14000 standards. Exhibit 2, page 60, provides a list of resources, for CPAs who want to learn more about environmental issues and ISO 14000.

Exhibit 2: ISO 14000 and Environmental Resources

Online

* ISO 14000 InfoCenter: www.iso14000.com.

* Articles and case studies on ISO 14000 and EMS: www.trst.com.

* Forum for environmental groups interested in ISO 14000:
www.ecologia.org.

* Subscription-based service maintained by the nonprofit Global
Environment and Technology Foundation: www.iso14000.net.

* American National Standards Institute (ANSI): www.ansi.org.

* Standards Council of Canada: www.scc.ca.

* ANSI and the Global Environmental and Technology Foundation:
www.iso14000.org.

* Registration Accreditation Board (RAB): www.rabnet.com.

* International Auditor and Training Certification Association
(IATCA): www.iatca.com.

* International Quality of Environmental Services, LLC (IQuES):
www.iques.com.

* ISO 9000 and ISO 14000 news: www.iso.ch.

* Legal questions regarding ISO 14000: www.Lawinfo.com.

* Environmental management systems and forest management auditing
services: www.pwcglobal.com.

Publications

* Rezaee, Z. and R. Elam, "Emerging ISO 14000 Environmental
Standards: A Step-by-Step Implementation Guide." Managerial
Auditing Journal, 2000, vol. 15, no. 1/2: pp. 60 to 67.

* Picard, R. R., "Environmental Management: What's Auditing Got
To Do With It?" Internet Auditor, June 1998: pp. 32 to 36.

* Stee, R., and G. Rabae, "ISO 14000: The Groundwork for
Environmental Management" (Perry Johnson, Inc., Southfield,
Michigan, 1995).

* Stenzel, P. L., "Can the ISO 14000 Series Environmental
Management Standards Provide a Viable Alternative to Government
Regulation?" American Business Law Journal (Winter 2000, Vol. 37,
i2): pp. 237 to 259.

* Murray, P.C., "Inching Toward Environmental Regulatory Reform
... ISO 14000: Much Ado About Nothing Over Reinvention
Tool?" American Business Law Journal (Fall 1999, Vol. 37, i1):
pp. 35 to 47.

* Rezaee, Z., and J. Szendi, "An Examination of the Relevance of
ISO 14000 Environmental Standards: A Survey of U.S. Corporations."
Advances in Environmental Accounting and Management (Vol. 1, 2000):
pp. 59 to 77.

Pronouncements

* COSO (1992). "Internal Control-Integrated Framework" Committee
of Sponsoring Organizations of the Treadway Commission.

* Auditing Standards Board (1996). "Environmental Issues Task
Force: Auditing Environmental Remediation Liabilities."

* AICPA (1995). Statement on Standards for Attestation Engagements
(SSAE) no. 3, Compliance Attestation.

* AICPA (1996). Statement of Position 96-X: Environmental
Remediation Liabilities.

It is important for CPAs to realize that ISO 14000 standards are the product of non-government organizations. Compliance is voluntary and there is no requirement for external verification. ISO 14000 services are divided into six categories:

1. Environmental management systems.

2. Environmental auditing.

3. Environmental labeling.

4. Environmental performance evaluation.

5. Life-cycle assessment.

6. Environmental aspects in product standards.

The ISO 14000 and ISO 9000 standards share much in common:

* Both are management driven, focusing on conformance to an organization's targets and objectives.

* They have similar registration processes.

* Both provide adequate flexibility to permit their integration into all aspects of an organization's operations.

It is likely that ISO 14000 standards eventually will become part of the overall ISO 9000 quality control standards. This will allow organizations to register for both at once, thereby reducing the cost of registration and third-party verification.

The role of CPAs in this emerging service area is twofold. The first is to aid employers and clients in precertification activities, including developing EMS, conducting environmental audits and evaluating environmental performance. The second role for public practitioners is to help clients obtain ISO 14001 registration by evaluating their products for compliance with ISO 14000 standards, including guidelines for life-cycle assessment, environmental labeling and environmental aspects in product standards.

A TOOL FOR IMPROVEMENT

An EMS is a system for improving an organization's environmental performance. Its main objectives are to protect the environment and prevent pollution of all kinds. An EMS also helps companies define environmental goals, policies and procedures and demonstrate to third parties the company's commitment to environmental excellence. Companies can achieve these objectives by

* Defining environmental goals and missions.

* Developing adequate and effective environmental policies and procedures.

* Properly documenting these policies and procedures and communicating them to affected personnel.

* Ensuring compliance with the entity's established environmental policies and procedures.

Adopting an EMS should provide management with information on how the organization performs with respect to both externally mandated environmental requirements and internally established objectives and policies. Exhibit 3, page 63, presents the principles of an EMS and describes outside auditors' involvement in helping clients achieve these goals.

Exhibit 3: EMS Principles and Auditor's Involvement

Principle        Description

Environmental    * To establish environmental policy to
policy             ensure the EMS's mission and goals are
                   achieved.

                 * Monitor this policy continually
                   for the success of the EMS.

Planning         * To develop an implementation plan for
                   the environmental policy.

                 * To establish procedures for
                   identifying effects of an entity's
                   activities on the environment.

                 * To formulate documented environmental
                   objectives and goals.

                 * To develop environmental performance
                   measurements to assess the success of
                   the EMS.

Implementation   * To develop the appropriate resources,
and operation      both human and physical, to implement
                   the environmental policy.

                 * To integrate the EMS into the existing
                   managerial structure.

                 * To develop environmental awareness in
                   the entity by providing employees with
                   appropriate training to achieve the
                   environmental objectives.

                 * To establish an emerging response plan
                   to deal with environmental accidents.

Checking and     * To measure the entity's ongoing
corrective         environmental performance against the
action             goals and objectives of the EMS.

                 * To implement appropriate corrective
                   and preventive action.

                 * To monitor the EMS to determine the
                   effectiveness of the action.

                 * To conduct periodic auditing of the
                   EMS by an objective, competent
                   auditor.

Management       * To develop a managerial process to
review             continuously review the EMS to ensure
                   overall improvement of environmental
                   performance.

                 * To review environmental goals and
                   objectives on a regular basis,

                 * To make the necessary changes or
                   adjustments to achieve the
                   effectiveness of the EMS.

Principle        Outside Auditor's Involvement

Environmental    * Review the adequacy of the established
policy             EMS in achieving an organization's
                   environmental goals.

                 * Evaluate whether EMS is meeting
                   environmental performance objectives.

Planning         * Assess proper documentation and
                   communication of environmental
                   policies and procedures to all
                   affected personnel.

                 * Examine the client's environmental
                   activities to ensure that the EMS
                   plan's provisions are being
                   effectively followed.

Implementation   * Perform a systematic evaluation of
and operation      EMS to ensure it is functioning
                   properly

                 * Assess whether EMS has been
                   effectively implemented.

Checking and     * Determine areas where EMS does not
corrective         meet the requirements of relevant
action             environmental laws and regulations,
                   including ISO 14000 standards.

                 * Recommend follow-up actions to clear
                   up any deficiencies.

                 * Suggest corrective actions to
                   eliminate noncompliance with
                   applicable environmental laws and
                   regulations.

Management       * Periodic review of the EMS to ensure
review             that the system responds as planned.

                 * Ensure that the EMS is properly
                   maintained and that continuous
                   improvement is being sought.

Businesses wishing to obtain ISO 14001 certification should comply with all applicable standards and go through the independent evaluation and approval process, which consists of

* Establishing and implementing an appropriate EMS.

* Filing an application for ISO 14001 certification.

* Showing documentation regarding environmental policies, procedures, employee training and auditing.

* Being assessed by registrars regarding compliance with ISO 14000 standards.

* Being approved and registered to ISO 14001 standards.

The ISO itself does not issue certificates or conformity with ISO 14000. The certification is conducted independently by bodies worldwide. Accredited registrars are available worldwide. However, organizations can chose not to certify or to self-declare their conformance with the ISO 14001 requirements. The database of registrars is available at www.iso14000.net.

Upon approval, a company will receive a certification to ISO 14001 and be listed in a register or directory. The company also will receive all the benefits of registration, including enhanced compliance with environmental laws and regulations; a demonstrated commitment to environmental performance, accountability and responsibility and an overall improvement in efficiency in providing products and services.

CPAs can help clients and employers establish an EMS. To establish the system, both internal and external auditors can use Internal Control-Integrated Framework, a report issued in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission--especially the five components of internal controls. An adequate and effective system requires a company to establish environmental management "policies & procedures" across the entire business, including accounting and auditing services. Exhibit 4, page 64, provides examples of such policies and the related controls over EMS associated with each of the five control components specified in the COSO framework.

Exhibit 4: COSO Report Provisions in an EMS

                                Environmental
COSO Report Provisions          Management System

Control environment:            * Establishing an active and
Integrity, ethical values and     effective board of directors
competence of personnel as        oversight function over
well as management's              environmental activities.
philosophy and operating
style.                          * Establishing an adequate and
                                  effective EMS that defines
                                  environmental goals and
                                  strategies.

                                * Reviewing management's
                                  planned decisions regarding
                                  the appropriateness and
                                  effectiveness of the
                                  established EMS.

Risk assessment:                * Establishing mechanisms for
Identification, analysis and      the identification and
management of risk.               assessment of environmental
                                  risks relevant to the
                                  entity's unique environmental
                                  circumstances.

                                * Identifying environmental
                                  risk, estimating its
                                  significance, assessing the
                                  probability of its occurrence
                                  and managing environmental
                                  risk.

Control activities: Policies    * Establishing control
and procedures to ensure          activities for identifying,
effective implementation          measuring, assessing and
of EMS.                           managing environmental risk.

                                * Implementing proper control
                                  activities to ensure and
                                  maintain the integrity of the
                                  established EMS.

                                * Facilitating management
                                  control of environmental
                                  practices.

Information and                 * Creating the type and quality
communication.                    of information needed for
                                  effective EMS.

                                * Ensuring that control
                                  activities and responsibilities
                                  relating to EMS are understood
                                  across the entity.

                                * Creating adequate systems for
                                  gathering and processing
                                  environmental information,
                                  including sound accounting
                                  systems for measuring,
                                  recognizing, and disclosing
                                  environmental costs and
                                  obligations.

Monitoring.                     * Monitoring control systems
                                  relating to environmental
                                  activities to ensure the
                                  integrity of EMS.

                                * Assessing compliance with EMS
                                  goals and policies, including
                                  meeting regulatory requirements.

                                * Designing environmental audit
                                  procedures to examine compliance
                                  with applicable environmental
                                  legislation, regulations and
                                  standards.

CPAs can help clients or employers establish an EMS in three ways:

* Identify environmental problems. The first step in managing environmental requirements is to know the problems. Managers at all levels should pay sufficient attention to the environmental impact of their actions and must make compliance with ISO 14000 standards as well as other laws and regulations on the environment a high business priority.

* Create a proactive approach to managing environmental problems and risks. The EMS and management's approach to environmental concerns and compliance with ISO 14000 standards should be proactive, rather than passive or reactive. The success of the EMS depends on the "tone at the top"--management's commitment to making sure environmental concerns and controls are everyone's business. The EMS should come from the top down in the form of policy statements and actions. The system's policies, procedures and guidelines must be carefully designed, properly communicated to all affected personnel and complied with. The EMS should not only respond to environmental problems and risks but also prevent them by making employers aware of applicable laws, regulations and standards.

* Integrate the EMS into the internal control structure. Companies should integrate the EMS with other critical internal control functions, as the COSO report suggests. Under ISO 14000, environmental considerations should be part of virtually every major corporate decision.

THE SCOPE OF ENVIRONMENTAL AUDITING

Environmental auditing is a term that encompasses a wide range of environment-related management activities, including compliance audits, liability audits, waste management audits, risk assessments, reviews and management systems audits. Companies use environmental auditing as a means of responding to the increasing number of laws and regulations, pressure from external constituents and the need to properly manage environmental risks and concerns.

With ISO 14000, environmental auditing extends to continuous monitoring of an organization's environmental performance by

* Reviewing the adequacy of the established EMS in achieving an organization's environmental goals.

* Assessing proper documentation and communication of environmental policies and procedures to all affected personnel.

* Investigating effective compliance with these policies and procedures in achieving environmental goals.

* Conducting periodic reviews of the EMS to ensure it responds as planned.

* Taking corrective actions to eliminate noncompliance and nonconformance with ISO 14010, 14011, and 14012 standards (see exhibit 1). ISO 14000 standards provide guidelines for

* The audit process, including sufficient resources and cooperation from the auditor.

* Proper conduct of audit procedures from preliminary document review to preparing the final audit report.

* Selecting internal and external auditors, ensuring adequate training and proficiency, experience and education.

Statement on Standards for Attestation Engagements no. 3, Compliance Attestation, governs the auditing of an entity's compliance with ISO 14000. SSAE no. 3 provides guidance for engagements related to management's assertions regarding compliance with environmental laws and regulations, especially ISO 14000 standards. Public practice CPAs may perform agreed-upon procedures to help users evaluate entities' environmental activities and performance. It is management's responsibility to ensure that the entity's environmental practices are consistent with the goals it has set and comply with applicable laws, regulations and standards; it is the auditor's responsibility to assess the entity's compliance with ISO 14000 standards and other applicable laws and regulations.

Since ISO 14000 standards do not require external verification, there is currently no mandatory requirement for organizations to have an environmental audit. The EPA and the U.S. Department of Justice have, however, publicly encouraged companies to conduct such audits. Market-driven forces may also encourage--or even compel--the use of these audits if entities worldwide are required to objectively verify their environmental performance and the EMS to compete effectively.

TRAINING RESOURCES

To respond to the growing demand for environmental auditing, the Institute of Internal Auditors and the Environmental Auditing Roundtable established the Board of Environmental Auditor Certification in 1997. The BEAC is an independent, not-for-profit organization that certifies environmental auditors based on ISO 14000 standards and other key criteria.

The International Auditor and Training Certification Association (IATCA) is another voluntary worldwide organization established to sponsor and operate programs for uniform international training and certification. IATCA has provided certifications and auditor training course approvals in the QMS ISO 9000 series. A specific working group has begun preparing certifications and auditor training courses for environmental auditors. (For more information on IATCA EMS programs, check the Registrar Accreditation Board (RAB) Web site at rabnet.com). RAB provides several choices of auditor certification programs and multiple certification grades to match candidates' experience level and need.

FACING THE CHALLENGE

Environmental issues have been a major challenge for corporations since the 1960s. They will continue to become increasingly important in the years following the issuance of ISO 14000 standards. These standards help businesses worldwide manage their environmental requirements by establishing EMS. An adequate and effective system can improve compliance with relevant laws, regulations and standards; reduce environmental liability exposure; prevent pollution and waste and create a positive public image.

Businesses of all sizes and across all industries are likely to take steps to obtain ISO 14001 certification. Financial managers should be prepared for this challenge by beginning to assess the environmental safeguards their companies already have in place. CPA firms should become aware of this emerging market for their services by obtaining registration status and providing ISO 14000 registration services as third-party registrars. This opportunity for CPAs can be non-seasonal, time-independent, universally applicable to any industry and financially rewarding.

What is ISO?

The International Organization for Standardization (ISO) is a private global federation created in 1946 to promote the development and implementation of uniform standards facilitating the international exchange of goods and services. The most well-known standards published by the organization are the ISO 9000 quality assurance and quality management standards. These were developed between 1979 and 1986, published in 1987 and revised in 1994. More than 343,600 companies worldwide have been certified to one of the ISO 9000 quality control standards. Additional information about the organization is available at www.iso.ch.

EXECUTIVE SUMMARY

* IN 1996, THE INTERNATIONAL ORGANIZATION for Standardization developed ISO 14000 as the first globally recognized guidelines for voluntary environmental management. The ISO 14000 standards can help businesses around the world manage their environmental responsibilities. The standards also can provide CPAs with a new practice niche of certifying and auditing environmental management systems (EMS).

* TO GET AN ISO 14000 CERTIFICATE, A BUSINESS must comply with applicable standards and go through a systematic evaluation and approval process. ISO 14000 may be a way for businesses to prevent mandatory regulations and minimize government sanctions. The standards are divided into six categories: environmental management systems, environmental auditing, environmental labeling, environmental performance evaluation, life-cycle assessment and environmental aspects in product standards.

* CPAs WHO DO ISO 9000 AUDITS MAY FIND IT EASY to perform ISO 14000 audits since the two have much in common, including a similar registration process. ISO 14000 someday may become part of the ISO 9000 standards, allowing organizations to register for both at once, reducing registration and audit costs.

* A KEY ELEMENT IN ISO 14000 IS A COMPANY'S EMS. The objective is to protect the environment, help the company establish goals, policies and procedures related to the environment and allow the company to demonstrate to third parties its commitment to environmental excellence and compliance.

* CPAs CAN HELP A CLIENT OR EMPLOYER ESTABLISH an EMS by identifying environmental problems, creating a proactive approach to managing those problems and the accompanying risks and integrating the system into the company's internal control structure.

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ZABIHOLLAH REZAEE, CPA, Phd, CMA, is professor of accounting at Middle Tennessee State University in Murfreesboro. His e-mail address is [e-mail].