Meaning, Definitions, Characteristics, Functions and Importance of Social Responsibility Accounting

Social accounting (also known as social accounting and auditing, social accountability, social and environmental accounting, corporate social reporting, corporate social responsibility reporting, non-financial reporting or accounting) is the process of communicating the social and environmental effects of organizations’ economic actions to particular interest groups within society and to society at large. Social Accounting is different from public interest accounting as well as from critical accounting.

Social accounting is commonly used in the context of business, or corporate social responsibility (CSR), although any organisation, including NGOs, charities, and government agencies may engage in social accounting. Social Accounting can also be used in conjunction with community-based monitoring (CBM).

Social accounting emphasises the notion of corporate accountability. D. Crowther defines social accounting in this sense as “an approach to reporting a firm’s activities which stresses the need for the identification of socially relevant behaviour, the determination of those to whom the company is accountable for its social performance and the development of appropriate measures and reporting techniques.” It is an important step in helping companies independently develop CSR programs which are shown to be much more effective than government mandated CSR.

Social accounting is a broad field that can be divided into narrower fields. Environmental accounting may account for an organisation’s impact on the natural environment. Sustainability accounting is the quantitative analysis of social and economic sustainability. National accounting uses economics as a method of analysis. The International Standards Organization (ISO) provides a standard, ISO 26000, that is a resource for social accounting. It addresses the seven core areas to be assessed for social responsibility accounting.

Purpose

Social accounting challenges conventional accounting, in particular financial accounting, for giving a narrow image of the interaction between society and organizations, and thus artificially constraining the subject of accounting.

Social accounting, a largely normative concept, seeks to broaden the scope of accounting in the sense that it should:

• concern itself with more than only economic events.
• not be exclusively expressed in financial terms.
• be accountable to a broader group of stakeholders.
• broaden its purpose beyond reporting financial success.

Features of Social Accounting:

(i) Social accounting is an expression of a company’s social responsibilities.

(ii) Social accounting is related to the use of social resources.

(iii) Social accounting emphasize on relationship between firm and society.

(iv) Social accounting determines desirability of the firm in society.

(v) Social accounting is application of accounting on social sciences.

(vi) Social accounting emphasizes on social costs as well as social benefits.

Management control

Social accounting for the purpose of management control is designed to support and facilitate the achievement of an organization’s own objectives.

Because social accounting is concerned with substantial self-reporting on a systemic level, individual reports are often referred to as social audits. The first complete internal model for social accounting and audit, 1981, was designed for social enterprises to help plan and measure their social, environmental and financial progress towards achieving their planned objectives.

Organizations are seen to benefit from implementing social accounting practices in a number of ways, e.g.:

• Increased information for decision-making.
• Enhanced image management and Public Relations.
• Identification of social responsibilities.
• Identification of market development opportunities.
• Maintaining legitimacy.

Scope

Formal accountability

In social accounting the focus tends to be on larger organisations such as multinational corporations (MNCs), and their visible, external accounts rather than informally produced accounts or accounts for internal use. The need for formality in making MNCs accountability is given by the spatial, financial and cultural distance of these organisations to those who are affecting and affected by it.

Social accounting also questions the reduction of all meaningful information to financial form. Financial data is seen as only one element of the accounting language.

Self-reporting and third party audits

In most countries, existing legislation only regulates a fraction of accounting for socially relevant corporate activity. In consequence, most available social, environmental and sustainability reports are produced voluntarily by organisations and in that sense often resemble financial statements. While companies’ efforts in this regard are usually commended, there seems to be a tension between voluntary reporting and accountability, for companies are likely to produce reports favouring their interests.

The re-arrangement of social and environmental data that companies already produce as part of their normal reporting practice into an independent social audit is called a silent or shadow account.

An alternative phenomenon is the creation of external social audits by groups or individuals independent of the accountable organisation and typically without its encouragement. External social audits thus also attempt to blur the boundaries between organisations and society and to establish social accounting as a fluid two-way communication process. Companies are sought to be held accountable regardless of their approval. It is in this sense that external audits part with attempts to establish social accounting as an intrinsic feature of organisational behaviour.

Audience

Social accounting supersedes the traditional audit audience, which is mainly composed of a company’s shareholders and the financial community, by providing information to all of the organisation’s stakeholders. A stakeholder of an organisation is anyone who can influence or is influenced by the organisation. This often includes, but is not limited to, suppliers of inputs, employees and trade unions, consumers, members of local communities, society at large and governments. Different stakeholders have different rights of information. These rights can be stipulated by law, but also by non-legal codes, corporate values, mission statements and moral rights. The rights of information are thus determined by “society, the organisation and its stakeholders”.

Reporting areas

Unlike in financial accounting, the matter of interest is by definition less clear-cut in social accounting; this is due to an aspired all-encompassing approach to corporate activity. It is generally agreed that social accounting will cover an organisation’s relationship with the natural environment, its employees, and ethical issues concentrating upon consumers and products, as well as local and international communities. Other issues include corporate action on questions of ethnicity and gender.

Advantages

The main function of Social responsibility accounting is to measure and disclose the ‘costs’ and ‘benefits’ to society created by the production-related activities of a business enterprise. They include product and quality improvement, fair business practices, human resources, environment, and community involvement. It can offer an organization a method of organizing and examining both performance and its effects on people, communities and the environment. Customers can be involved with the social accounting process and thereby feed their perspectives into the organization’s planning and measurement process. It helps in attracting new investors because of the boost in the company’s image. It serves the purpose of providing an ongoing record of how an enterprise or company has developed and its subsequent changes over time. It also helps the organization to get feedback on how things are going from the range of people involved in the organization. It helps the organization or company to make a clear picture or identify the areas where things are working well and not so well. It helps in attracting more capital inflow from various resources. It helps in the generation of clean and renewable energy from the environment. It helps the company with positive publicity. Social responsibility accounting is a commitment to improvement, managing the business process to produce an overall positive impact on society.

(1) A firm fulfills its social obligations and informs its members, the government and the general public to enables everybody to form correct opinion.

(2) It counters the adverse publicity or criticism leveled by hostile media and voluntary social organisations.

(3) It assists management in formulating appropriate policies and programmes.

(4) Through social accounting the firm proves that it is not socially unethical in view of moral cultures and environmental degradation.

(5) It acts as an evidence of social commitment.

(6) It improves employee motivation.

(7) Social accounting is necessary from the view point of public interest groups, social organisations investors and government.

(8) It improves the image of the firm.

(9) Through social accounting, the management gets feedback on its policies aimed at the welfare of the society.

(10) It helps in marketing through greater customer support.