When we think about big companies, we usually think about bottom-line obsessed, money-hungry capitalists. Indeed the negative impacts of business activities on the social environment are documented. But nowadays, organizations like the World Bank are noticing the social and environmental side effects of economic activity.
Therefore, a lesser-known concept of social accounting emerged in the 1970s. This article will discuss the meaning of social accounting and the need and scope for it in companies.
What Is Social Accounting?
A process closely related to corporate social responsibility, social accounting is a subcategory of accounting. It quantifies the performance of a company and includes social and environmental factors while doing so.
However, do keep in mind that social accounting is more complicated than nonprofit accounting. Social accounting has a more holistic approach to the performance of a firm. Therefore, it puts all company resources on the map.
Social accountancy considers the factors that make a company desirable and successful. It tries to evaluate the influence of the operations of a company on the community. But, it is difficult to factor in transient factors. How can you translate environmental and social factors into an accounting scheme? What if companies try to ‘game’ the system to appear socially responsible without bringing real change? These questions can get answered by someone holding a master of accountancy.
Purpose Of Social Accounting:
This field challenges the traditional notion of accounting by giving a normative concept. Therefore, it forces companies to think beyond mere economic events. By doing so, it has brought one of the age-old issues to the forefront. Should companies focus solely on their pursuit of merely business profit, or should they have social and environmental objectives?
Goals of social accounting:
Granted, it is a more difficult concept, but the payout of social accounting is also massive. This category of accounting prioritizes the rights of the stakeholders above others. These rights include the right to information, corporate responsibility, and transparency.
Scope of social accounting:
- Accountability: The external accounts of Multinational Corporations are the focus of this subsection of accounting. Most country regulations on social accounting exist to the extent of a small percentage of corporate activity. Therefore, companies voluntarily publish sustainability reports. Self-published reports are taken with a pinch of salt since companies might skew them in their favor. It is only through external accounts that the need for formal accountability of MNCs is satisfied.
- Area of interest: The reporting area is wide and varied compared to financial accounting. Social accounting covers a firm’s relationship with the environment and ethical issues about products. Other problems, such as diversity and inclusivity, are also included in the area of interest.
- The Audience: Information gets provided to a broader population. Compared to traditional audits, social accountancy focuses on the stakeholders. It may refer to anyone who is affected by the decisions of a company. Therefore, trade unions, consumers, and even the general public is the audience for such a report.
Benefits Of Social Accounting:
Community driven nonprofit organizations gain valuable insights through social accounting. The published accounts can illustrate their work to the public. Social workers graduating with a bachelor of social work online degree programs can use insights to improve diversity and inclusion. It can also help in marketing. Furthermore, it can increase the authority of an organization. Investors will automatically trust the organization when they see their money made real change. Social accountancy can also improve employee satisfaction and retain employees.
Starbucks is using social accountancy to invest in human capital. Their College Achievement Program has attracted more employees and improved marketing outcomes.
Similarly, Intel has transformed its approach to capital. They have utilized social accounting to produce data on how they develop human and intellectual capital.
Social accounting may take the form of annual product reports with sections on corporate responsibility. Public hearing of companies may also increase awareness of social accountability.
Need for social accounting:
In the current atmosphere, consumers are more interested in buying from responsible companies. The BLM movement reignited interest in the ethical and social effects of large companies on the general public. Therefore, it is the best time to take social accounting seriously.
Government legislations and Future implications
There is no doubt that the social accounting matrix is vital to develop policy and protect fundamental human rights. Sadly, the government has been slow to take advantage of this measure. Until now, social accounting practices didn’t get codified except in most countries. Only recently, changes were made to the British Companies Act 2006 to codify legislation on the matter. South Africa has also mandated integrated reporting. Environmental accounting is a subset of social accounting that focuses on how a company interacts with the environment. Some countries have mandatory provisions for environmental reporting. Therefore, countries such as Korea and Denmark are engaging firms in some form of social accounting.
There are many benefits of social accounting. Social accountancy helps the community, but it also aids businesses in developing a sound strategy. But, this type of accountancy has not gained traction till now. However, there is hope yet as market leaders start to make lasting changes to the way they conduct business. Furthermore, formal programs and Accounting Standards Boards are creating standards based on the theory of social accounting. Social accounting is mostly limited to larger companies as they have the resources to conduct such inquiries.