Concept of social Accounting

• Business is a socio-economic activity and it draws its inputs from the

society,
• its objective should be the welfare of the society, solving many of the social
problems.
• In the present age the accounting has not only to fulfill its stewardship
function for the owners, but also accomplish its social function.

• Changing environments and social parameters have compelled to account

and report information with regard to discharge of their social
responsibilities.

• The boundaries of the principles, practices and skills of conventional

accounting have been extended to such areas for social disclosure and
attestation with regard to the measures of social programs.
• It has gained importance as a result of industrialization as well as
many problems to the society.
• It has necessitated the corporate sector, to invest substantial
amounts in social activities so as to nullify the adverse effects of
industrialization.

In modern times,

“Accounting efforts have been extended to the assessment of the

state of society and of the social programmes not for the
satisfaction of any individual or group but for the application of
evaluative procedures in the allocation of resources towards
better social well being as a whole.”
The concept of
 socialistic pattern of society,
 civil rights movements,
 environmental protection
 ecological conservation groups
 increasing awareness of society towards corporate social
contribution, etc.
have contributed towards the growing importance of Social accounting.

Social Accounting, also known as-

 Social Responsibility Accounting,
 Socio-Economic Accounting,
 Social Reporting and Social Audit,
aims to measure and inform the general public about the social welfare
activities undertaken by the enterprise and their effects on the society.
 Time of evolution

Conventional accounting is the oldest concept of accounting.

It was evolved about 510 years ago in 1494 by Lucapacioli, a Greek
mathematician.
But social responsibility accounting is a new concept of accounting.

The macro sense of SA is national accounting which is used by

economists was first introduced by De Queng in France in 1758.

The micro sense of SA which is used by accountants was

developed in early 1970s in the USA.
• Gray (1987)-
 Social accounting is the process of communicating the social and
environmental effects of organisations’ economic actions to
particular interest groups within society and to society at large.

 As such, it involves extending the accountability of organisations

(particularly corporations) beyond the traditional role of providing a
financial account of capital, in particular, to shareholders.

Such an extension is predicated upon the assumption that companies do

have wider responsibilities beyond simply making money for their
shareholders
 Social accounting is a science to measure the national income and
resources. It gives idea about overall idea about economic activities and
helps to analyses the interrelationship among various sectors of
economy.

 Ramanathan (1976)—
it is the process of selecting firm-level social variables, measures, and
measurement procedures; systematically developing information useful for
evaluating the firm’s social performance; and communicating such
information to concerned social groups, both within and outside the firm.

Gauthier (1997) –
Social accounting is that aspect of accountancy which, while
indistinguishable from financial and management accounting, deals more
specifically with environmental concerns; that is, it is an aspect of the
information system that enables data collection and analysis, performance
follow-up, decision-making and accountability for the management of
environmental costs and risks.
 Features of Social Accounting:
Social accounting-
 An expression of a company’s social responsibilities.
 related to the use of social resources.
 emphasize on relationship between firm and society.
 determines desirability of the firm in society.
 emphasizes on social costs as well as social benefits.
 The benefits of Social Accounting are as follows
 It assists management in formulating appropriate policies and
programmes.
 It acts as an evidence of social commitment.
 It improves employee motivation.
 SA is necessary from the view point of public interest groups,
social organizations investors and government.
 It improves the image of the firm.
 Through SA, the management gets feedback on its policies aimed
at the welfare of the society.
 It counters the adverse publicity or criticism leveled by hostile
media and voluntary social organizations.
 The objectives of social accounting
• To identify and measure the net contribution of an individual firm
towards the society.

• To determine whether an individual firm’s strategies and practices are

consistent with widely shared social priorities.

• To make available relevant information about firm’s goals, policies,

programmes and performance towards use and contribution to scarce
resources and social resource allocation.

• To develop models of quantification and proper presentation of social

costs and benefits of an enterprise.

• To meet information needs of consumers and society.

 Scope of Social Responsibility Accounting:
R.L. Brummet has identified five areas for reporting of social performance.
Net Income Contribution:
 Growing emphasis on social objectives does not reduce importance of profit
motive.

 no firm can survive long without earning profits. A firm continuously

running into losses for longer periods may become sick and become a
burden on society.

 On the other hand any firm cannot think about accomplishment of other
social goals without having adequate surplus funds, rather inadequacy of
funds create hurdles in achieving other social goals.
Human Resource Contribution:
• Reflects impact of enterprises policies on HR.
• awareness among employees and employers has increased
importance of HR.
• Increased emphasis has led to the recognition of HR as HA and the
need of accounting for HR.
•

Public Contribution:
 Reflects enterprise’s policies’ impact on individuals which are
outsiders for the organisation.

social clubs, schools, charitable organisation, health centres,

libraries, maintenance of chowks, lawns, employment opportunities
for minorities and handicapped. Creation of Jobs and employment
opportunities are also contribution of an enterprise.
Environmental Contribution:

• directed towards reducing deterioration of water, air and soil.

Installation of air purifiers, disposal of wastes, reduction in noise
pollution are also included in this contribution.
•

Product or Service Contribution:

• This area includes product safety, Product quality, packaging,

product promotion, advertisements, service facilities, product
durability, customer satisfaction, completeness and clarity of
labelling.
 Social costs and the environment
Business activity has an impact on the natural environment:
 Resources such as timber, oil and metals are used to manufacture
goods.
 Manufacturing can have unintended spillover effects on others in
the form of noise and pollution.
 Land is lost to future generations when new houses or roads are
built on greenfield sites.
• The unintended negative effects of business activity on people and
places are called social costs and include:
Noise, pollution, visual blight, congestion
Social benefits
 business activities that have a beneficial or favorable impact on
people or places.

A proposed project often generates both costs and benefits.

 Building a new factory on a greenfield site creates social benefits

in the form of new jobs. However, the loss of open land is a social
cost. Building is justified only if the benefits exceed the costs.
Short- and long-term environmental effects
Some business activity can cause short-term environmental costs which can
be put right in the longer term.

• Some trees, such as pine, grow quickly and can be considered a renewable
resource. Other resources, such as mahogany, take hundreds of years to grow
and so are non-renewable in our lifetime. Resources like oil that can only be
used once are non-renewable.

• Business activity - such as intensive fishing - can compromise the ability of

future generations to meet their own needs and is unsustainable. Sustainable
growth means meeting the needs of the present without compromising the
ability of future generations to meet their own needs.
 Considerations of Social Accounting in Developing Economies:

 The flow aspect of social accounting defined as systematic records

of economic transactions, covers three systems, mainly—
“the national income account, product accounts and ‘the input-output
accounts’.
 it is not especially suited and oriented to meet the requirements of
developing countries.
In this connection, H.T. Oshima’ has pointed out some basic
differences in the major analytical requirements of national income
accounts prepared in Asia, developed and other developing countries.
The major problem-
• In Western developed country is the cyclical (or secular) tendency of
saving to run in excess of investment.
• In underdeveloped or developing countries is to mobilise potential
savings by locating in the economy, various sources of saving, so that the
pace of development could get a fillip. The attempt is to divert these
savings into investment channels.
• The main institutional difference between the developed and under-
developed countries is that, practically, all production is done on factory
basis in the former and on the household basis in the latter.
• Households in poor economies constitute the main decision-making
body in the private sector. The household behavior patterns with regard
to labor force participation, consumption, saving etc. are different in the
rural and urban areas.
• Due to the multiplicity of behavior patterns, a single consolidated
household account fails to provide sufficient and right type of information
for many policy decisions.
• A good portion of saving is indistinguishable from the physical
investment in rural areas. Capital formation in these areas is low and
capital consumption is very high.
• People in rural areas are unaware of the various alternative ways of
using their funds, like investment in bonds and shares, in fact, purchase of
land, jewellery etc. are the most popular forms of investment.
• Similarly, there is dualism in financial transactions and the functioning
of capital markets, their loan patterns; rate and structure of interest also
differ significantly in the organized and un-organized capital markets.
• The public sector has come to play an important role in these
economies and has far-reaching influence on the economic and social
activities that are performed.
• The need of the hour is, therefore, to develop an alternative
system of social accounting for developing countries and to evolve
such social accounting framework for such countries which will suit
their institutional structure and accomplish their special
requirements of growth.
• A notable attempt has been made in this direction by United
Nations. Three sets of supplementary accounts have been designed
to attain this objective.
• These supplementary accounts relate to special areas—rural and
urban, they relate to key kinds of economic activities and also
include the transactions of the public sector.