Republic of the Philippines

UNIVERSITY OF RIZAL SYSTEM

Binangonan, Rizal

GRADUATE SCHOOL
REPORT DOCUMENTATION
SY 2022
BA 200: Social Responsibility and Executive
Management

Prepared by: Riclyn D. Moscosa, CPA

Professorial Lecturer: Prof. Joanne Concepcion, DBA
Topic: Social Accounting, Auditing and Reporting

CHAPTER V

Social Accounting, Auditing and Reporting

Learning Objectives:
• To enumerate the benefits and limitations of Social Auditing
• To enumerate the different dimension of social or sustainability reporting
• To understand the concepts of auditing the social or sustainability reporting
• To enumerate specific international standards as basis in the social or sustainability
reporting process

Introduction

Auditing is generally defined as an objective examination and evaluation of the financial

statements of an organization to make sure that its financial records, are fairly and accurately
prepared in all material respect. Whatever the type of audit conducted i.e., external or internal,
its main objective is to provide reasonable assurance about whether the financial statements
as a whole are free from material misstatements, whether due to fraud or error. On the other
hand, social auditing provides an assessment of the impact of an organization’s non-financial
objective through social, economic and environmental undertakings as well as its impact to the
society or to its stakeholders. It is a way of measuring, understanding, reporting and ultimately
improving an organization’s social and ethical performance.

In general, auditing refers to financial audit, however, there are other types of audits such as
compliance, tax, operations, among others. While social audit is not given more attention and
no specific standard process to follow during the conduct of such, it is still a significant part of
the organization’s measurement of overall performance whether they are doing well both in its
financial and non-financial aspect.

Social Audit Advantages

Companies should prioritize not only making profit but also its social and environmental
aspects, or its overall relationship to its stakeholders and society as a whole. As part of its social
responsibility is to check/review how they treat stakeholders. For the workforce, whether they
were involved in training, development, promotion, work diversity, occupational health and
safety, among others. For its consumers, whether they set a reasonable price for its products,
product warranties and customer privacy protection. For the society as a whole, the company
may provide donations/empowerment programs to the community, efficient use of energy and
other natural resources, as well as environmental preservations. All of these aspects, can be
socially audited to assess its performance as well as to provide opportunities for improvement
in the organization.

The rewards an organization can have when social accounts were being audited is that, it
provides credibility. Social audit should be conducted by a person or panel of people external
to the organization, (same with external audit), thus, the result of such can provide credibility or
trustworthiness to the business. Another benefit if socially audited is that, it intends to provide
measurement and evaluation of the company’s performance and hence, provides basis on what
area needs to be improved. It gives the business a clear direction for future improvements in
managing its social responsibilities, which, if done well, can enhance its image. Moreover,
publishing the audited social accounts allow all stakeholders, who benefit from it, who do the
work, who pay for it, and who work in partnership with it to understand the true nature of the
added value it achieves. Through social audit, stakeholders can have a basis in deciding for
themselves whether to use, work for or invest in the organizations. And lastly, increasing
corporate accountability and transparency, by publishing the social audit report, will ultimately
leads to good governance i.e., fulfilling its social responsibility to its stakeholders.

On the contrary, while social audit provides lots of benefits to the organization when
implemented, it has also limitations/difficulties such as auditing consumes resources i.e., time
and cost, such that, companies have to spend a lot of time and money to produce a
comprehensive social audit. Further, not all stakeholders appreciate the value of social audit;
with that, its purpose to assess overall performance of the organization towards the society
cannot be achieve. Reaching the views and opinions of non-stakeholders who may be potential
stakeholders is also a challenged during social audit. The danger of becoming a paper exercise.
Audit results can be biased if the audit is not examined independently because often,
companies are more likely to report positive results just to increase positive publicity without
actually intending to adopt a socially responsible approach. Also, the problem on the possibility
of manipulating stakeholders’ views and complicating the process through scientificating and
professionalizing. And lastly, there is no current standard for the social audit process, hence,
no qualification standards specified for social auditors. Since social audit optional, companies
can choose whether to release the results publicly or only use them internally. Positive results
may be disclosed and negative results might be kept internal and used to identify potential
improvements that can make the results of the next audit more favorable. The flexibility
surrounding social audits allow organizations the ability to expand the scope based on their
goals, while others might wish to expand the range of audit to include an entire state, country
or globally.

Corporate Social Reporting

Social reporting is part of a process that helps corporations operate in a way that reflects
society’s expectations. (V. Balanchandran). This is similar with the sustainability report
published by companies with the goal of sharing their corporate social responsibility actions
and results of such actions/activities.

According to the Global Reporting Initiative, a CSR report can be defined as a report published
by a company or organization about the economic, environmental and social impacts caused
by its everyday activities. It also presents the organization’s values and governance model and
demonstrate the link between its strategy and its commitment to a sustainable global economy.
The report makes public the information organizations decide to communicate regarding their
commitments and actions in the areas of social and environment. In doing so, businesses let
stakeholders aware of how they are integrating the principles of sustainable development into
their everyday operations.

Therefore, the main purpose of social reporting is to align business activities with the society’s
expectations. This means that in addition to fulfilling the shareholders or owner’s expectations
towards the business, i.e., to make profit or to make the business grow, it is expected that the
business should conduct its operations responsibly, i.e., to consider its impact to the community
and to the environment.

Steps in Social Reporting

Based on the GRI Sustainability Reporting process, it can be presented in five (5) steps such
as Prepare, Connect, Define, Monitor and Report.

In the context of V. Balachandran, he summarizes such into four (4) steps such as the following:
1. Present a balanced and reasonable account of economic, environment and social
performances
2. Facilitate comparisons over time
3. Promote comparisons across organizations
4. Credibly address issues of concern to stakeholders

Dimensions of Sustainability Reporting

Sustainability in its broadest sense refers to the ability to maintain or support a process
continuously over time. In the point of view of business, refers to doing business without negatively
impacting the environment, community or society as whole. It seeks to prevent the depletion of
natural or physical resources, so that they will remain available for the long term. Accordingly,
sustainable policies emphasize the future effect of any given policy or business practice on
humans, ecosystems, and the wider economy. The concept often corresponds to the belief that
without major changes to the way the planet is run, it will suffer irreparable damage. (Investopedia)

Aligned with the three (3) main pillars of sustainability, i.e., economic, environmental and social,
and often referred to as people, planet and profits, the dimensions of sustainability reporting were
also similarly presented.

1. Social Dimension Reporting

A sustainable business should have the support and approval of its employees, stakeholders and
the community where it operates. Thus, this dimension of reporting concerns with the business
impact on the social systems as a whole.

In the current business world, some corporations have shifted their primary goals from profit
maximization to creating value for its stakeholders as well as its shareholders. As CSR suggests
that entities, regardless of type and size, have a responsibility to protect the society that they
operate. In this social dimension of reporting, these measures its social performance of how well
a business has translated its social goals into practice. These were measured through the
principles, actions and corrective measures implemented. Thus, this is about making an
organization’s social mission a reality, aligned with the expectation or interest of the society by
accepted social values as well as fulfillment of the business social responsibility.

2. Environmental Dimension Reporting

This dimension of reporting is somewhat the most popular in companies. This dimension of
reporting concerns with the business impact on the living and non-living natural systems such as
ecosystems, land, air and water. Most companies are focused on reducing their carbon footprints,
packaging waste, water usage or other damage to the environment. Besides helping the planet,
reducing the use of packaging materials means lower spending, and improved fuel efficiency also
helps the company’s expense minimization.

3. Economic Dimension Reporting

This dimension of reporting concerns with the business impact on economic circumstances of its
stakeholders and the economic system in all levels. To be economically sustainable is that
businesses feel they are on firm ground. On the business point of view, to be called sustainable,
it must be profitable. This reporting is focus on the good corporate governance of a business,
such that, board of directors and management align with the shareholders interest as well as that
of the company’s community, value chains and end-user customers. Investors may want to know
that a company uses accurate and transparent accounting methods, and that stockholders are
given an opportunity to vote on important issues. They may also want assurances that companies
avoid conflicts of interest in their choice of board members, don’t use political contributions to
obtain unduly favorable treatment and, of course, don’t engage in illegal practices.

Auditing the Social or Sustainability Reporting Process

Transparency and integrity are vital to the social reporting process. Verification of social reporting
activities by an independent external body is essential to the process. This is similar to that of
Sustainability Report Assurance, wherein it is the process of ensuring that a company’s
sustainability report meets certain standards. The responsibility of reporting should be initiated
from Governance.

As defined, sustainability report is an assessment of a company’s environmental, social and

economic impacts on its stakeholders. It looks at how the company operates, its strategy for future
sustainability and its achievement in this area.

Sustainability reports are regulated by international organizations and must follow prescribed
guidelines to be considered credible. However, because there can be lack of trust in the
information provided in a sustainability report, it is useful for companies to use independent
Assurance services to give their reports credibility.

Independent sustainability assurance report assurance services ensure that a company’s report
follows certain standards and can provide assurance about its credibility. This builds more
confidence between stakeholders and companies using the information within the report.

Benefits of Assurance Services in Sustainability Report

1. It helps build trust in sustainability reports. Stakeholders will be able to rely on the information
given in a report and that they can easily access the reports. Stakeholders will be able to rely on
the information given in the report and they can assess reports more easily.

2. It confirms that the company is reporting in line with international standards, which may be
required by law or internal policies. This allows companies to avoid costly resources to create
their own guidelines for reporting.

3. It can help reduce legal risk associated with sustainability reporting by demonstrating that a
company’s report is in accordance with the set guidelines. This will help satisfy stakeholders and
protect the company from litigation.

External Assurance in Sustainability Reporting

A company may choose to publish its sustainability data independently, with the help of a third-
party service provider or under the governance of trade associations or multi-stakeholder
initiative.

Thus, there are three options to do, such as the following:

1. A company can publish its report independently using its own data and analysis. Such option
is the most expensive since it still required a lot of resources to manage best practice reporting
across all functions of the business to produce a credible report. Its advantage is that, it allows
companies to control what information is provided in their report, how it is presented and what are
the findings.

2. The company can use third party providers to help create or manage their report for them. Such
require less effort since the date used must be available publicly; also, there may also be
limitations on what information can be included depending on how the provider’s service works.

3. A company can submit its report to a third-party organization that assess the content and
produces its own assessment against a standard set of guidelines. By doing this, a company does
not have to do any work directly but will still rely on the standard being relevant, credible and
effective in building trust with stakeholders. Such option is the least expensive since the
organization might provide this service for free or at a very low cost.

Types of Assurance Services

1. Third-party or peer review to assess a report against certain standards; this can be carried out
by either an individual or a team.
2. Confirmation of data sources to help validate information in a report; this is carried out by an
individual who assess whether the company has used credible and up to date for their report.
3. Certification of specific claims in a report; this can be carried out either by an individual group
or group who check certain figures such as greenhouse gas emissions data against standards
set by international bodies.

International Standards which can be use as criteria in Sustainability Reporting

1. AA1000 Accountability Principles

It is an assurance standard used by sustainability professionals for sustainability related

assurance engagements to assess the nature and extent to which an organization adheres to the
AccountAbility Principles of inclusivity, materiality, responsiveness and impact.

2. ISO 14016:2020 - Environmental management — Guidelines on the assurance of

environmental reports

This document provides principles and guidelines for assuring the environmental information an
organization includes in environmental reports. It also provides guidance on the output of the
assurance engagement, i.e., the assurance statement and/or the assurance report; how the
assurance engagement should address materiality, in terms of both; determining if material issues
have been included in the environmental report; and identifying any material misstatements
and/or omissions.

3. ISO 26000 – Social Responsibility

It provides guidance to those who recognize that respect for society and environment is a critical
success factor. As well as being the “right thing” to do, application of ISO 26000 is increasingly
viewed as a way of assessing an organization’s commitment to sustainability and its overall
performance.

It helps clarify what social responsibility is, helps businesses and organizations translate
principles into effective actions and shares best practices relating to social responsibility, globally.
It is aimed at all types of organizations regardless of their activity, size or location.
4. ISO 14001:2015 – Environmental management systems — Requirements with guidance for
use)

It specifies the requirements for an environmental management system that an organization

can use to enhance its environmental performance. ISO 14001:2015 is intended for use by an
organization seeking to manage its environmental responsibilities in a systematic manner that
contributes to the environmental pillar of sustainability.
It helps an organization achieve the intended outcomes of its environmental management
system, which provide value for the environment, the organization itself and interested parties.
Consistent with the organization's environmental policy, the intended outcomes of an
environmental management system include enhancement of environmental performance;
fulfillment of compliance obligations and achievement of environmental objectives.

5. Global Reporting Standards (GRI) for Sustainability Reporting

It enable any organization – large or small, private or public – to understand and report on their
impacts on the economy, environment and people in a comparable and credible way, thereby
increasing transparency on their contribution to sustainable development.

CONCLUSIONS

1. A corporate social/sustainability report is an assessment of a company’s environmental,

social and economic impact on its stakeholders. It presents how the business operates, its
strategies for future sustainability and its achievement in this area.

2. Corporate Social Reporting matter because they help stakeholders know how a company
thinks about their responsibility to society as well as to the future generations. Businesses
present its impact on the natural environment as well as if there are any conflicts between its
business goals (make profit) and social goals (help the society).

3. Social or sustainability audit/assurance is important in every organization because review of

independent assurance service can help build trust with stakeholders as well as investors.
Having a third-party verification of a company’s report whether that is financial (Financial
Reports) or non-financial (Sustainability or Quality) can be seen as a positive sign of the
credibility and transparency of their reporting.
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