Thesis on "Green Building Construction From an Accounting Perspective"

Thesis 6 pages (1605 words) Sources: 3 Style: APA

[EXCERPT] . . . .

Green Building Construction

From An Accounting Perspective

The objective of this study is to examine the accounting and financial management in the process of 'green building construction'.

The work of Miller (2008) entitled: "Green Building Regulations Proliferating" states that the number of counties in the United States "administering green building regulations or laws rose from just eight to 39 - an increase of 387.5%...between 2003 and 2008..." As reported in "Local Leaders in Sustainability: Green Counties" a joint study of the American Institute of Architects (AIA) and the National Association of Counties (NACo) According to Miller 200 counties were surveyed by the AIA in an investigation of the "green or sustainable building initiative sin place. At least 25.6% of the surveyed population lives in counties with green building programs." (Miller, 2008)

SIGNIFICANCE of STUDY

The significance of this study is the information that will be added to the already existing based of knowledge in this area of study.

METHODOLOGY

The methodology of this study is qualitative in nature and is in the form of an extensive review of literature in this area of study. As such, this review of literature is interpretive in the nature of qualitative research.

LITERATURE REVIEW

The work of Andrew Meyerson (2005) entitled: "The Dollars and Cents of Green Construction" states that green construction and design can not only save energy but also can result in monetary savings in the areas of: (1) Tax breaks and rebates; (2) Lower construction costs; (3) Reduction or elimination of the need for heating and air-conditioning equipment and the associated costs of purchase, maintenance and electricity; (4) Reduction in energy and water bills by as much as fifty-percent; (5) Increase in labor productivity, retail customer sales and apartment rental prices; and (6) Protection of operating budgets from increases in energy prices. (Meyerson, 2005, p. 2) Meyerson relates that practically all states offer incentives in the form of reduction of taxes for construction that is friendly to the environment. (2005, p. 4) Additionally in green construction projects where a pre-existing structure is on the construction site, cost savings may be realized through reuse of as much of the existing structure as possible. Additionally, is it necessary to be aware of the attitudes that serve as drivers of the choice of clients to use the firm and added to this is the fact "that commercial 'green buildings' outperform their conventional counterparts across a wide variety of metrics, including energy savings, occupancy rates, sale price and rental rates, another very practical and often times overlooked data for improving the cash flow of the client is the "energy efficient commercial building tax deductions." (Meyerson, 2005, p. 5)

Taxes by State

Source: Meyerson (2005)

Meyerson also relates that LEED (Leadership in Energy and Environmental Design) is an incentive program through the U.S. Green Building Council, which allows owners of buildings that use green construction to receive incentives and reductions in taxes. Energy efficient devices such as modern HVAC devices reduces operating costs and may potentially 'entitled owners and subcontractors to rebates offered by local energy companies." (Meyerson, 2005, p. 3) Finally, Meyerson relates that natural energy sources can be used in facility design that enable production of energy through natural ventilation systems and daylight is utilized in reduces energy requirements and operating costs.

The work of Phelan (2003) entitled: "Nail a Construction Niche" published in the March 2003 Journal of Accountancy states that the Internal Revenue Code "governs which accounting method(s) the taxpayer must use for its construction business" and id dependent upon:

1) the type of contracts the business works with;

2) a contract's completion status at the end of the business's tax year; and 3) the contractor's average annual gross receipts. (Phelan, 2003, p.1)

Phelan states that the majority of construction businesses use two different methods for tax accounting:

1) One for long-term contracts; and 2) One overall method for everything else. (2003, p.1)

The contractor is required to choose a method of accounting for all of its contracts, which are long-term. Other specialized accrual methods that are available are:

1) Percentage of completion;

2) 'Old' percentage of completion; and 3) Completed contract. (Phelan, 2003, p.1)

CPA's (Certified Public Accountants) in the construction segment are required to understand "how best to provide value based on a project's location, financing and applicable accounting and tax laws." (Phelan, 2003, p.1) Phelan also relates: "Basics include a thorough grounding in the provisions of IRC section 460 in order to master construction accounting and the unique tax rules (for example, the "small construction contract exception") that apply to contractors and an in-depth knowledge of SOP 81-1." (2003, p.1) Accounting and Financial Management in the construction field can be found in the following publications:

1) AICPA Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts;

2) IRC section 460, concerning construction-specific methods of accounting for tax purposes. CPAs in this field must know this cold, practitioners say;

3) AICPA Audit and Accounting Guide, Construction Contractors. Practitioners call this "the bible; and 4) Checklist Supplement and Illustrative Financial Statements for Construction Contractors. (Phelan, 2003)

It is very important in the accountancy of the Green Construction project that the cost accounting be precise and accurately record each project with the associated items so that the cost savings in the Green Construction project can not only be realized but also disseminated and related to stakeholders in the company. Moreover, the accounting and financial management of the green construction company must be 'in-the-know' about grant funding initiatives, tax break incentives and other special funding and financing information that will enhance the profitability of green construction projects. In 2005, the H.R. 6, Energy Policy Act (Public Law 109-58) was signed into law and is a legislation, which contains a new tax incentive for construction of commercial buildings that are energy efficient. The tax deduction for expenses connected to the design and installation of commercial building systems that are energy efficient is set out in Section 1331, the Commercial Building Tax Deduction..." (CPA News, 2008) the CPA News report of August 1, 2008 entitled: "CPA Green Marketing: Growing Your Practice" relates that McGraw-Hill Construction reported recently that "broadly defined 'green' building is expected to be worth $12 billion to $20 billion this year, or 6% to 10% of the market." (CPA News, 2008) This figure is forecast to double over the next five years. Stated is the 'key' strategic issue is "enabling future growth." (CPA News, 2008) it is related that as CPA firms search for new methods of growing their practices as well as for ensuring ongoing success "green marketing can become a significant revenue generator and be a huge competitive differentiator in the marketplace." (CPA News, 2008) Accounting and financial management of 'green construction' in the form of CPA firms understand that a unique difference exist between marketing and sales and as well a unique relationship exists between the two. Marketing is the process or processes of market research as well as product development, product lifecycle management, pricing channel management and promotion." (CPA News, 2008)

Marketing is inclusive of the following:

Performs market research;

Explores and develops key target markets;

Develops ways to receive, gather, and analyze company, client, and competitive research including focus groups, questionnaires, and surveys;

Continuously analyzes data;

Develops and tests pricing strategies;

Champions the company vision, mission, brand, product/services and provides a cohesive and integrated marketing communication's platform;

Develops and analyzes strategic marketing campaigns;

Refines and adjusts marketing strategies based on data, feedback, objectives/goals/strategies;

Works closely with and answers to top partners or senior management;

Works in a lateral position to sales leadership." (CPA News, 2008)

Sales are stated to include the following:

Have successful track records of selling, committed to ongoing professional selling skill development - they are career salespeople;

Exude confidence, know… READ MORE

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