What is social accounting?

Social accounting is the process of communicating the social and environmental effects due to the business’ economic actions to the society and to people who find a huge interest in the business. It is mostly used in the aspect of business or corporate social responsibility. Any organization, including NGOs, charities or a government entity may use it and this method may also be used with Community-Based Monitoring.

The emphasis is put on corporate accountability but the term is also used as an “umbrella term” to describe a huge field of research and practice.

The purpose of social accounting.

This method of accounting challenges the conventional accounting methods. Especially in financial accounting by giving a small image of interaction between the organization and society. In this sense it is artificially constraining the subject of accounting.

Social accounting is a concept that is largely understood and implemented that seems to increase the understanding of accounting as a whole. It accomplishes this by:

  1. Providing more information for decision-making.
  2. It is not exclusively used in financial terms.
  3. Containing information especially useful for shareholders.
  4. Its purpose is not limited to the financial success of a business.

Another interesting purpose is that social accounting points to the fact that the business has an influence externally and it is closely related to the economic term of externality.

Companies using social accounting.

Companies all over the world use social accounting in order to comply with sustainability guidelines of the Global Report Initiative (GRI).

A few of the most well-know major corporations use this method, namely Royal Dutch Shell and Atlantic Oil.

Potential benefits of social accounting.

  • It can offer the entity a method for obtaining a holistic and regular process of examining both its performance and its effects on people, communities and the environment.
  • Clients can be involved with the social accounting process and give their perspectives to the organization’s planning and measurement process. These individuals and groups can also request or read social accounts if they want to learn more about the organization.
  • Social accounting can feed into the strategic planning because it offers an organization the ability to systematically review its strengths and weaknesses in order to improve itself.
  • Organizations have a great deal of flexibility in the framework when it comes to reporting indicators because it allows them to go through the process in different ways and tailor it specifically to their needs. This allows the organization to include quality systems or indicators of impact that are required by purchasers, funders or lenders and helps the entity to use prove and improving tools within the framework.
  • There is flexibility in the time scale for completing the whole process and building up to a very detailed set of accounts. The full process can be done in stages over two or more years, if the organization focuses on different aspects of its activities or objectives in each year. This is recommended if the whole picture will only be completed within a reasonable time frame.
  • The external validation process can be an important review on the information the organization has gathered.
  • If the organization has a verified and comprehensive statement of the impact and performance, it can help in reporting to funders or investors, reporting to stakeholders and compiling annual reports.

Limitations of Social Accounting.

The process can be quite labor intensive, especially the first time if the organization has not done basic strategic planning and the process may be difficult rather than rapid and easy.

Even though social accounting can be seen as a commitment to improvement, it is not explicitly recognized by funders and lenders.

The process is not particularly useful for benchmarking, as each question and method for finding the answers are left to each organization to decide. There are some organizations are investigate reporting to a common framework.

Who can use Social Accounting and Audit?

Organizations of all types and sizes can use the framework and there are a few manuals on the web that can be viewed free of charge.

What resources are needed?

Leadership.

One person or perhaps a group will lead on the Social Accounting work because the involvement and commitment of the organization’s management is essential in order to succeed.

Skills and proficiencies.

If someone on staff has experience with social research, you have a an advantage. If the organization does not have it, you could always bring in outside assistance.

Staff time.

Staff time is required throughout the whole process of Social Accounting. Normally, you would require more time to set up the process at the beginning and to complete, analyze and compile the information at the end.

Course, support and information.

Just about every organization find introductory sessions very helpful. Many of them require ongoing support throughout the process, depending on their skills and experience as well as the time they are able to dedicate to the process but especially when the first accounts are created. Consultants may also help with consulting stakeholders, provide someone impartial to help collect difficult sensitive information or to help compile and analyze information.