Social accounting (also known as social and environmental accounting, corporate social reporting, corporate social responsibility reporting, non-financial reporting or non-financial 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.R.H. Gray, D.L. Owen & K.T. Maunders, Corporate Social Reporting: Accounting and accountability (Hemel Hempstead: Prentice Hall, 1987) p. IX. Social Accounting differs from public interest accounting and critical accounting. This 21st-century definition contrasts with the 20th-century meaning of social accounting as accounting for the national income, gross product, and wealth of a nation or region.M. Yanovsky, Anatomy of Social Accounting Systems. Chicago: Aldine Publishing Company, 1965.
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 alongside community-based monitoring (CBM).
Social accounting emphasises 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".D. Crowther, Social and Environmental Accounting (London: Financial Times Prentice Hall, 2000), p. 20. 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 quantitatively analyses social and economic sustainability. National accounting uses economics as an analytical method. The International Standards Organization (ISO) provides a standard, ISO 26000, which is a resource for social accounting. It addresses the seven core areas that must be assessed for social responsibility accounting.ISO 26000 Social Responsibility Guidance. (2010). (I. T. T. M. Board Ed. 1 ed.).
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.
It points to the fact that companies influence their external environment ( some times positively and many times negatively) through their actions and should, therefore, account for these effects as part of their standard accounting practices. Social accounting is in this sense closely related to the economic concept of externality. Social accounting offers an alternative account of significant economic entities. It has the "potential to expose the tension between pursuing economic profit and the pursuit of social and environmental objectives".
The purpose of social accounting can be approached from two different angles, namely for management control purposes or accountability purposes.
Accountability vs authority
Social accounting for accountability purposes is designed to support and facilitate the pursuit of society's objectives. These objectives can be manifold but can typically be described in terms of social and environmental desirability and sustainability. In order to make informed choices on these objectives, the flow of information in society in general, and in accounting in particular, needs to cater to democratic decision-making. In democratic systems, Gray argues, there must then be flows of information in which those controlling the resources provide accounts to society of their use of those resources: a system of corporate accountability.Gray et al. (1996), esp Ch 3.
Society is seen to profit from implementing a social and environmental approach to accounting in a number of ways, e.g.:
Honoring stakeholders' rights of information; Balancing corporate power with corporate responsibility; Increasing transparency of corporate activity; Identifying social and environmental costs of economic success.
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.:See R.H. Gray, 'Current Developments and Trends in Social and Environmental Auditing, Reporting & Attestation', International Journal of Auditing 4(3) (2000): pp247-268Crowther, Social and Environmental Accounting, esp Ch 2.
Increased information for decision-making; Enhanced image management and public relations; Identification of social responsibilities; Identification of market development opportunities; Maintaining legitimacy.
The management control view focuses on the individual organization. Critics of this approach point out that the benign nature of companies is assumed. Here, responsibility, and accountability, is largely left in the hands of the organization concerned.Gray, 'Current Developments', p. 17.
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.See M.R. Mathews,'Towards a Mega-Theory of Accounting' in: Gray and Guthrie, Social Accounting, Mega Accounting and Beyond: A Festschrift in Honour of MR Mathews (CSEAR Publishing, 2007).
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. The reports of Social Audit Ltd in the 1970s on e.g. Tube Investments, Avon Rubber and Coalite and Chemical, laid the foundations for much of the later work on social audits.
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.Gray et al., Accountability, Ch 1.
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.Crowther, Social and Environmental Accounting, p. 19. 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".
Methods
Methods used in promoting social accountability and awareness include the following:
social audit public hearing citizen score card (CSC) public expenditure tracking survey (PETS) citizen charter complaint system
Environmental accounting
Environmental accounting, which is a subset of social accounting, focuses on the cost structure and environmental performance of a company. It principally describes the preparation, presentation, and communication of information related to an organisation's interaction with the natural environment. Although environmental accounting is most commonly undertaken as voluntary self-reporting by companies, third-party reports by government agencies, NGOs and other bodies posit to pressure for environmental accountability.
Accounting for impacts on the environment may occur within a company's financial statements, relating to liabilities, commitments and contingencies for the remediation of contaminated lands or other financial concerns arising from pollution. Such reporting essentially expresses financial issues arising from environmental legislation. More typically, environmental accounting describes the reporting of quantitative and detailed environmental data within the non-financial sections of the annual report or in separate (including online) environmental reports. Such reports may account for pollution emissions, resources used, or wildlife habitat damaged or re-established.
In their reports, large companies commonly place primary emphasis on eco-efficiency, referring to the reduction of resource and energy use and waste production per unit of product or service. A complete picture which accounts for all inputs, outputs and wastes of the organisation, must not necessarily emerge. Whilst companies can often demonstrate great success in eco-efficiency, their ecological footprint, that is an estimate of total environmental impact, may move independently following changes in output.