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. Social Accounting is different from public interest accounting as well as from critical accounting. This 21st century definition contrasts with the 20th century meaning of social accounting in the sense of accounting for the national income, gross product and wealth of a nation or region. 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, which 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. 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. 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.:
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.
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.
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