The process of communicating the social and environmental consequences of organizations’ economic actions to specific interest groups within society and to society at large is known as social accounting. It is a process that allows organizations to assess the true impact of their activities on their stakeholders by measuring their social and environmental performance against their goals and objectives. Social accounting is distinct from both public interest accounting and critical accounting.
Although social accounting is most commonly used in the context of business, or corporate social responsibility (CSR), it can be used by any organization, including NGOs, charities, and government agencies. Social accounting can also be used in conjunction with community-based monitoring (CBM). The goals of social accounting are to respect a stakeholder’s right to information, balance power and responsibility, increase organizational transparency, and identify the social and environmental costs of traditional (economic) success.
The concept of corporate accountability is emphasized in social accounting. In this sense, D. Crowther defines social accounting as “a method of reporting a firm’s activities that emphasizes the need for the identification of socially relevant behavior, 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 toward assisting companies in developing CSR programs on their own, which have been shown to be far more effective than government-mandated CSR.
Social accounting is a broad field that can be subdivided further. Environmental accounting can take into account a company’s impact on the natural environment. The quantitative analysis of social and economic sustainability is known as sustainability accounting. Economic analysis is used in national accounting. ISO 26000 is a standard developed by the International Standards Organization (ISO) that can be used for social accounting. It focuses on the seven key areas that must be evaluated for social responsibility accounting.
Purpose
Social accounting criticizes traditional accounting, particularly financial accounting, for providing a limited picture of the interaction between society and organizations, thereby artificially restricting the subject of accounting.
A largely normative concept, social accounting 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 emphasizes the fact that companies influence their external environment through their actions (sometimes positively, sometimes negatively) and should, as a result, account for these effects as part of their standard accounting practices. In this sense, social accounting is closely related to the economic concept of externality.
Social accounting provides an alternative method of accounting for significant economic entities. It has the “potential to highlight the tension between pursuing economic profit and pursuing social and environmental goals.” The goal of social accounting can be approached from two different perspectives: management control and accountability.
Benefits of social accounting
As you might expect, social accounting is especially beneficial to nonprofit organizations working toward a community-driven mission. For starters, it allows the public to see excellent work directly from the source. It provides management with insights and forces a company to reconsider its decisions and make better ones as a result of potential scrutiny. It can boost an organization’s image, aid in marketing efforts, and instill trust in its customers.
Social accounting can assist nonprofits in putting a monetary value on things that they already value. When we use a term like accounting to describe issues that are more in line with social science, we create value, which is critical for nonprofit organizations.
