What is Social Accounting: Explained With Examples and More

Business is known to be a socio-economic activity hence Social accounting is one of the important parts of running a business smoothly. The change and growth in the economic structure have compelled enterprises to adopt the culture of involvement in the creation of social accounting. Hence if you are a business owner you must be completely aware of it and understand its importance. 

Did you know? Tata group was the first in India which started Social Accounting with the aim to examine and report to what extent the company has been able to fulfil its objectives regarding its social and local community. This practice is later followed by Companies such as Aptech, Infosys, Mahindra & Mahindra and Reliance Industries Limited.

What is Social Accounting?

Social Accounting, also known as Social Responsibility Accounting, is a part of an evolving corporate reporting system that assesses and takes responsibility for the company’s effects on the environment and its impact on social welfare. It is a concept that has been introduced to better articulate the measures that contribute to long-term value and the role organisations play in society. It is also a subset of the Triple Bottom Line accounting framework which emphasises three dimensions of performance: Social, environmental and financial. It goes beyond the profit motive of businesses and focuses on sustainable development.

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Popular Social Accounting Definitions

Kohler defined Social Accounting as ”the application of double-entry book-keeping to socio-economic analysis”.

Ralph Estes defined it as the “measurement reporting, internal or external, of information concerning the impact of an entity and its activities on society”.

Sybil Mobley defined it as“it refers to the ordering, measuring and analyses of the social and economic consequences of governmental and entrepreneurial behaviour”.

The  Institute of Chartered Accountants of India or the ICAI defined it as “Social accounting is a way of measuring, understanding, reporting and ultimately improving an organization's social and ethical performance”. 

Richard Dobbins and David Fanning defined it as “the measurement and reporting of information concerning the impact of an entity and its activities on society”. 

According to Ramanathan “Social Accounting is the process of selecting firm-level social performance variables, measures and measurement procedures systematically developing information useful for evaluating performance and communicating such information to concerned social groups both within and outside the organisation”.

Why Social Accounting?

Business is a socio-economic activity that continuously draws its required resources from society. Its value is shaped by factors additional to the financial performance that as how efficiently it is using social resources. Socially responsible companies do not limit themselves to using resources to engage in activities that increase only their profits. They integrate economic, environmental and social objectives with the company’s operations and growth. Social Accounting determines whether the organisation’s goals, policies, programmes and strategies are consistent with society. Therefore, businesses are not only accountable to shareholders but also to other stakeholders including

• Environment.
• Customers.
• Employees.
• Suppliers.
• Business partners.
• Local communities.
• Regulators.

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Types of Social Accounting

Now that you under the basics and why social accounting is relevant, let’s briefly look into the different types of Social Accounting along with some examples:

Environmental Accounting

It provides information about how the business activities of the organisation are impacting nature. While some companies claim to be eco-friendly, their ecological footprint may tell an entirely different story. Some examples include

• Use of scarce resources such as oil, petroleum, and water.
• Cutting trees for using its various parts and plantation of trees to compensate for it.
• Jeopardization of land due to its activities.
• Installation of water treatment plants to treat and reuse the treated water.
• Emphasis on 3Rs i.e Reduce, Reuse and Recycle the waste produced.
• Air, soil, water and noise pollution caused.

Sustainability Accounting

It provides social and economic sustainability information. It directly impacts society and the economic performance of an organisation. Some example includes

• Effects on the health of local communities due to emissions or hazardous waste.
• Fair compensation to farmers and artisans in return for their products & services.
• Installation of solar power plants to save electricity consumption.
• Ethical initiatives are taken by the company for the welfare of society.
• Measures were taken for employee safety and sustainability.
• Opening schools & other educational facilities in remote industrial areas for children of employees and locals.
• Paying taxes to local authorities and government fairly and on time.

National Accounting

It analyses the economic activities of a country. It analyses the total expenditure incurred by a country to conduct its business.

• Does the overall capital cost of the project exceed the approved capital cost?
• Has the planned rate of return been achieved?
• Is there any poor or inefficient project planning?
• Are the systems of project formulation and execution sound?
• Are the cost control measures adequate?
• Are efficient operating procedures used?
• Are Public sector programmes, entities and activities efficiently managed, regulated, organised and executed?

Also Read: Cost Accounting vs Management Accounting

Approaches in Social Accounting

There are different approaches to social accounting. Let’s look into them to understand the different approaches to social accounting and its uses.

Classical Approach

This is the approach of accounting in which businesses show how they have maximised their profits within the constraints of legal and ethical framework, acting in the best interest of society at large.

Descriptive Approach

This is the traditional method of reporting social information. In this social activities are disclosed in narrative form along with financial statements.

Integral Welfare Theoretical Approach:

This approach accounts for both social benefits and social costs in the financial statements themselves. This is a type of accounting format that highlights the creation of social reports that involves the social benefits and social costs. 

Programme Management Approach:

In this approach, the organisation has to disclose its Social Objectives, how it is going to achieve them and how the feedback and control have been exercised.

Pictorial Approach:

In this approach, photographs of various welfare activities conducted by the organization are presented in annual reports.

Footnote Disclosures:

In this approach, the social activities of an organisation are quantified and disclosed as an additional footnote in the financial statements.

Also Read: Differences between Financial Accounting and Management Accounting

Features of Social Accounting

• Social Accounting establishes a relationship between business and society
• Social Accounting comprises both Social costs, as well as Social benefits 
• Social Accounting, is related to the use of Social resources
• Social Accounting accounts for the company's Social responsibilities.

Benefits of Social Accounting

• It goes beyond quantitative measures and also takes into account qualitative measures.
• It builds a sense of trust in society through its transparency.
• It helps in enhancing the goodwill of the company in eyes of society.
• It helps companies to build relationships with society.
• It assists companies to identify their social responsibilities and also aids in future decision-making.

Limitations of Social Accounting

• It is a time-consuming process.
• Lack of standardisation may make financial statements incomparable.
• The cost of maintaining such a system may outweigh its benefits.
• It may not be very useful for investors who invest purely on the basis of financial factors

Also Read: Matching Concept in Accounting: Benefits and Challenges

Financial Accounting vs Social Accounting

Conclusion

In the last few decades, the concept of value in business is gradually shifting from financial factors to holistic factors. Since the dynamics of the global economy are changing, today’s organisations require to assess the value created over time by actively managing the wider range of resources. However, these factors are not accounted for in the current financial reporting framework. Social accounting can help organisations have a holistic view of financial and non-financial factors. It will aid in accurate and sustainable decision-making.

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